Reflections on BIO 2014: From FIPCOs to VIDDCOs

I attended the big annual BIO Convention this past week in San Diego. BIO is THE trade association for the biotech industry and the annual BIO Conventions are HUGE events. This year's keynote speakers included Hillary Clinton and Richard Branson, to give some idea of how high-profile the BIO meeting is. One of the primary functions of the BIO meeting is to provide a variety of vendors and service providers a marketing opportunity. Wandering about the vast floor of the main exhibit hall provided an interesting perspective on the overall biotechnology industry, the vast majority of which is focused on developing products for human healthcare.  download PDF

There were approximately 4,000 exhibitors with booths in the main hall. One aspect of today's biotechnology industry that was apparent is that there is a provider willing to deliver, on a contract basis, virtually any tool or service needed in the drug development process, no matter how small. Need an assay developed to measure the pharmacokinetics of your drug or biologic in a preclinical study? There are companies that are happy to develop one for you. Need assistance in estimating the market for your orphan drug? There are consultants with significant expertise who are happy to do that as well. Of course there are contract research organizations that will handle all the regulatory filings, clinical trial site administration, and every other aspect of actually taking a drug or biologic from the first clinical phase through filing for marketing approval. But the range of other service providers, from animal model developers at the front end to reimbursement experts at the back end, could totally transform the pharmaceutical world over the next 20 years. If each of the components necessary to develop a drug are available for hire, giant global pharmaceutical companies that have all those capacities in-house may no longer be needed. And, if the era of one-size-fits-all drugs for major diseases will soon be replaced by a future of personalized medicine, in which small patient populations will each be served by a different, unique drug, then those global pharmaceutical companies will not only be unnecessary, they may become hopelessly inefficient.

When I began studying the biotechnology industry almost than 30 years ago, the goal of most biotechnology startups was to become a "FIPCO"-- a "Fully Integrated Pharmaceutical Company." That meant that the goal of then-fledgling companies, such as Genentech, Amgen, and Idec (now part of BiogenIdec), was to become a pharmaceutical company that functioned like the Pfizers and Mercks of the world. This would require developing the full range of capabilities that pharmaceutical companies possessed--developing new drugs that were discovered through their own research efforts, manufacturing those drugs, and marketing them to physicians. A few of those companies succeeded in attaining that goal. Amgen remains an independent company with almost $19 billion in annual sales. BiogenIdec also continues to discover, manufacture, and market its own drugs with just under $8 billion in annual revenue. Gilead, founded in 1987 near the end of that first era in biotechnology, had over $11 billion in annual sales even before its newest blockbuster drug Sovaldi had been on the market for a full year.

Nevertheless, the time when biotechnology startups aspired to be "FIPCOs" has long since passed. Business models for biotech startups have changed numerous times, but any startup today plans to find large pharmaceutical company partners to help fund their development and to market their drugs. However, the large pharmaceutical companies that biotech companies count on for collaboration are themselves increasingly endangered. To be sure, the end of the big pharmaceutical companies will not happen in the next ten years, or perhaps the decade after that. But the foundation of the pharmaceutical industry rests on discovering and marketing drugs to very large patient populations. In the long run, as personalized medicine creates much smaller markets, and the number of patient populations with serious unmet medical needs shrinks, developing big market drugs will likely become too difficult a challenge to sustain anywhere near the current number of global pharmaceutical companies.

In 2013, there were 23 drugs that had U.S. sales over $2 billion each. The disease categories that dominate the list are drugs for severe inflammatory disease (Humira, Remicade, Enbrel); depression and schizophrenia (Abilify and Cymbalta); diabetes (Lantus Solostar, Januvia, Lantus); cancer (Neulasta, Rituxan, Avastin); and, pain (Oxycontin, Lyrica, Celebrex). It is still possible to envision breakthrough drugs in some of these categories. There may yet be a breakthrough in the treatment of autoimmune diseases beyond the TNF-blockers on the list. It is also possible that a fundamental breakthrough will be made in the treatment of pain through the discovery of non-opioid pathways for treating severe pain. And, of course, it may yet be the case that Alzheimer's or Parkinson's disease will be relatively homogenous diseases that will be treated by a small number of classes of drugs serving huge markets. But in the era of personalized medicine, most large patient populations will be replaced by many biologically or pharmacologically distinct small patient populations, each requiring its own therapeutic approach. When personalized medicine becomes the dominant approach to healthcare, it is hard to imagine that the most efficient structure for developing and marketing drugs will resemble today's giant global pharmaceutical companies. Instead, a highly fragmented market for drugs is likely to require nimble, decentralized structures designed to take advantage of an array of outside service providers to assist in drug discovery and development. BIO 2014 showed that the necessary array of outside service providers already exists. So we may be saying goodbye to FIPCOs and hello to VIDDCOs--Virtually Integrated Drug Development Companies. In 20 years, that may well emerge to be the dominant model for the pharmaceutical industry.