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by Cynthia Robbins-Roth, Ph.D.
Four Points Of Concern As Biotechnology Grows
By Cynthia Robbins-Roth
BioWorld Today Columnist
As thousands of biotech execs, industry fans and economic development hopefuls throng this year's BIO love fest, they will find something for everyone.
Talks are on tap from Magic Johnson, Bernie Mac, Bill Clinton and former CIA director James Woolsey - an interesting combo! Breakout sessions are scheduled on biodefense, bioethics, global business strategies and global health, nanotech, public policy, all aspects of product development and emerging company issues. My personal favorite - bootcamp for chief scientific officers. I want to know who the sergeant is.
As you head into this deluge of industry info, here are action items I would love to see emerge:
Point 1: In 2004, median family income was slightly more than $43,000. In that same year, the average family's annual insurance premiums got very close to $10,000 - 23 percent of family earnings. Predictions have average family insurance costs reaching $14,500 this year.
As Joseph Paduda, author of the Managed Care Matters blog, pointed out, conflicts over the cost and access to health care are driving strikes and labor strife across the country. You may have to cross angry picket lines to enter your favorite hotel or grocery store; get trapped without public transport in Denver, Sacramento and Philadelphia; or find your stock in GM, Ford or Boeing has dropped, thanks to these battles.
We can argue about the contribution of drug cost to that nasty equation and whine about how it's not all our fault. In the end, this industry needs to step up and take responsibility for what it can control - its own behavior.
I'd like to see biotech CEOs pledge to work proactively with the government and other key players to design real changes to bring drug costs down. Let's see an admission that the price of innovation cannot be uncapped pricing.
Point 2: Biotech's steady stream of innovation is increasingly endangered by the lack of funding for early stage research and development. Our biotech start-up teams are tormented by stories such as The Wall Street Journal's Silicon Valley Start-ups See Cash Everywhere, which tells of pre-emptive investing by VCs in high-tech start-ups. Those firms are reporting unsolicited offers from investors apparently desperate to put to work that $25 billion they raised just in 2005!
Sadly, our biotech start-up teams face a very different climate. Rather than getting "pre-emptive" calls, they are placing calls to VCs that are not being returned. If a firm scores a meeting, it's made clear that the huge risk and long time frames of preclinical biomedical programs are deal-breakers. The venture community has moved on, and the federal government's support via NIH and SBIR/STTR grants is dropping significantly.
Biotech's big winners - Amgen ($3.7 billion net 2005 earnings), Genentech ($1.3 billion), Biogen Idec ($542 million), Gilead ($814 million) and Genzyme ($441.4 million) - and anyone on the verge of turning net positive should follow the high-tech world's example and fund basic research programs with academic and independent researchers. And I don't mean more sponsored research programs.
The need is growing for innovative basic research that might be channeled toward commercial opportunities. Biotech must replace the disappearing funding, while adding access to its own product development expertise and resources. The key - investors cannot demand IP ownership. Early research depends on serendipity, peer review and intellectual freedom to prosper.
I realize that goes against conventional wisdom, but if Intel, Yahoo and Sun Microsystems can make it work, surely we can.
Point 3: Full disclosure has become a growing trend in the health care world. Even White House Domestic Policy Adviser Allan Hubbard is calling for hospitals to disclose their pricing information, allowing consumers to make better decisions.
Shareholder advocates have been plugging away at corporate America, urging disclosure of donations made to politicians and political parties. Amgen's shareholders will vote on an oversight and disclosure plan in May. Eli Lilly, Schering-Plough and Bristol-Myers Squibb already have agreed to such a plan.
But let's not stop there! Biopharma firms should provide full disclosure of just how much money they spend on sales and marketing, including those gifts, wine-laden dinners, seminar trips that never seem to go to Cleveland, free samples and consulting contracts. Several states have pharmaceutical sales and marketing expenditure disclosure laws, several others are contemplating adding such laws.
BIO members should support this disclosure.
Point 4: Biotech CEO compensation has joined the pay frenzy found in other sectors, and shareholders aren't happy. They also don't like the disconnect between company performance and executive compensation. As the industry ages, we soon will be grappling with concern over hefty pension plans - something big pharma is battling.
The SEC, labor unions and public pension funds are pushing for full disclosure on executive compensation - not just salary, but all those juicy additions to the package. They also are asking companies to avoid compensation conflict of interest by splitting up the chairman and CEO posts.
According to BioWorld's Executive Compensation Report (fiscal year 2004 data), six biotech CEOs received total direct compensation greater than $10 million; another 47 broke the $1 million mark.
My BioVenture database contains 159 biotech firms, public and private, where one person shares those two jobs.
BIO members should take a public stand to publish full information on all executive compensation, to split the chairman and CEO jobs, and to avoid conflict of interest on their boards (public and private). And finally, U.S.-based BIO members should pledge that their firms and their executives will pay their U.S. income tax. The profits they reap often come from tax-payer supported research, while the companies benefit from tax incentives, a great local work force and access to the world's largest market.
The biotech industry has been one of the most remarkable things to emerge from the entrepreneurial spirit and scientific innovation residing in the U.S. It has spread in 30 years to encompass the globe and head into space. It never backed down from the intense challenges of the early years - let's not back down from the challenges of today.
-- April 10, 2006
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by Cynthia Robbins-Roth, Ph.D.
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