This week I'm attending the 2006 Mid-Atlantic Bio Conference, a meeting that has proven to be an interesting mix of bioentrepreneurs, investors, university researchers, government health agencies and states focused on attracting biotech business to the region. David Holveck, President of Johnson & Johnson Development Corporation (the VC arm of J&J) took the stage to deliver the keynote address of the conference. His speech focused on the changing environment the healthcare industry is facing and how the industry must adapt in order to thrive. The industry, he said, has never been subject to so many outside forces, such as cost and quality regulation, changing technology and a growing demand for healthcare. The challenge is to find a way to create growth in the face of such unprecedented hurdles. Baby boomers will put the system to the test as they demand better care than at any time in the past. At the same time the government is appropriating less money to discovery and it's fallen to corporations to pick up the slack. If that wasn't enough, there’s been an overall shift in healthcare away from treating a disease toward preventing them. All these factors are converging to radically change the healthcare sector.
But the industry isn't just the victim of these changes--some of the battles it faces are of its own making. Drug development has always followed what Holveck referred to as the blockbuster model: putting all the eggs in one basket, investing in a single big drug with the promise of substantial payoffs when it hits the market. While this model might not be completely useless, the industry can no longer rely on their own blockbuster drugs to make it through. Rather, small biotechs are taking the lead in drug development. As we've heard before, these emerging biotech companies have become the development arm of big pharma, accounting for half of the big drug discoveries in 2005.
One could interpret this trend as a sign that pharmas are a dying breed, or at least facing a serious development slump. But Holveck says that the pharmaceutical industry is simply undergoing a transition that offers the opportunity for innovation. Even though small biotech firms are good at getting into the business and developing potential drug candidates, they inevitably run into the realities of the competition, regulation and other demands of drug development. As a panelist in one session I attended observed, the biotech business is like a Roach Motel: you can get in, but you can’t get out. Partnering with big pharma is often the best exit strategy for small biotechs and an increasingly popular way for pharmas to boost their pipeline.
However, simply using biotechs to secure the pharma pipeline isn’t going to solve the long-term issues facing the industry. So what changes are necessary on the part of big pharma in order to avoid the challenges the business of healthcare faces while at the same time drive innovation? Holveck touts J&J's business model, which is highly decentralized and focuses on acquiring small drug developers while still allowing them independence to develop new treatments. This gives bioentrepreneurs the resources they need to operate while allowing them to retain the spirit that makes small companies hotbeds for drug development. Why J&J's model may or may not be the key to effectively overhauling the industry is up for debate. But Holveck made a point in this speech that I think most of us can agree with: The changes in the healthcare industry are not cyclical: they’re here to stay. Therefore, it's time for pharmas to rethink their approach to drug development and find new ways to cooperate with bioentrepreneurs. - Maureen