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When Bio-Technology Spells “IR” – Impossible Research.

Posted by inspir3d on February 10, 2007

“It may work fine in practice,” goes a joke researchers make at their own expense.
“The trouble is, it just doesn’t work in theory.”

In the last 30 years, the global bio-technology (BT) industry has attracted more than $300 billion in capital. Much of this investment is predicated on the belief this new science heralds the next best thing since sliced bread. After all, the world is heading inexorably towards a demographic apocalypse – people are living longer and are getting sick more often. Against this backdrop of human fragility anything to do with handrails, adult diapers, wheelchairs, drug therapy and stem cell research just looks like a sure fire bet.

But, how profitable is the BT business model actually? Can the dream be practically realized? Are there any pitfalls? And, more importantly, how does a country like Singapore which doesn’t have either the hard or soft attributes leverage on this opportunity successfully?

As it is today, the BT industry still looks like an emerging sector, and even then, that is only if you are forgiving enough to believe that past performance is a good indication of future performance. To understand why BT has managed to crave up its fair share of adherents from both the private and public sector, one needs to appreciate its historical contours.

During the late 80’s, BT first seized the imagination of private enterprises when companies like Amgen and Genentech spearheaded the notion of “advancing” basic science as a core activity. I have deliberately included inverted comas only because there is still considerable debate about whether this basic scientific research can be effectively profiled into a viable business model (which is what bio-technology is all about – going back to basics in the biggest possible way). This is essentially the crux of the debate.

The historical track record of pursuing basic science as a business for the last 200 years has been dismal. Galileo Galilee nearly bankrupted himself with the publication of “Dialogo sopra i due massimi sistemi del mondo.” Christopher Columbus, who discovered “terra incognita,’ died in obscurity. Even Darwin barely managed to break even with “The Origin of Species.”

I am not for one moment saying firms like Pfizer, Roche or Eli Lily have not perceived the wisdom of strategically pursuing pure scientific research. Of course they have, only what they (firms) do isn’t nearly enough to even support the BT industry at a macroeconomic level. To gain a deeper appreciation of the BT industry, understanding the linkages between firms and pure research initiatives is key.

Traditionally, pure research into anything, including bio-technology, along with the rest of the plethora of the sciences ranging from quantum physics to the origins of the universe (the big picture stuff) has traditionally been the province of only universities and non-profit foundations.

And there is a compelling reason why firms aren’t interested in pursuing this sort of blue sky research – there’s no money there! Not directly at least. For one, the research costs are prohibitively expensive. Consider the international space station (ISS) and the first thing that comes to mind is the proverbial albatross or bleeding cow. Another limitation remains the long gestation period associated with pure scientific research; it’s akin to burying coal in the ground and waiting for it to turn into oil. Finally, one of the main reasons why firms typically shy away from pure scientific research remains the elusive nature of bottling its intrinsic value, let alone weaving such an abstraction into the financial spreadsheet. Abstractions such as the “origins of the universe” may cure insomnia, but they hardly add up to anything in the real business world. So what if the big bang occurred at X trillion years, give or take a few billion years? Or how many atoms fit on a pin head? It’s hardly stuff that firms can commoditize into products and services to turn the great capitalist wheel of fortune, that’s the reason why traditionally pure research in the sciences has always remained the preserve of non profit and teaching institutions.

However, this doesn’t mean that the knowledge generated by juggernaut no business sense biffons amounts to nothing. On the contrary, it’s precisely because pure research is exclusively funded by universities and research institutions which allows firms an economic and expedient avenue to leverage on “new cutting edge discoveries.” For example, empirically determining the approximate age of the big bang allows NASA and their greedy defense contractors such as General Dynamics and Rockwell to design the optimal skin thickness of spacecrafts to effectively protect astronauts against the effects of cosmic radiation. Knowing the distance between two points in space, also allows computations as to fuel, resources and the mechanics to get to the moon and back again. Similarly, seemingly useless information such as how two atoms collide in a multi billion dollar particle accelerator which no firm would ever consider funding unless they want to magically transform themselves into a charitable foundation overnight, allows firms to profile innovative products and services. Teflon, for example, was invented to lubricate dynamic components in zero gravity without using liquid based lubricants. Today the same compound is found in the ubiquitous frying pan, which goes to illustrate the nexus between pure research and business. There is a symbiosis that defines the relationship, but one that is best described in terms where institutions pursue the “big picture” while allowing producers such as firms to effectively focus on the “small stuff.”

Central to the relationship between research institutions and firms is the traditional role of the latter in commercializing and crystallizing these “big picture stuff” into everyday goods and services, and more importantly profiling intrinsic value.

This naturally leads to the question whether it is possible to support BT firms without the traditional dichotomy which once polarized yet complimented them. Because that’s the whole notion of BT as an enterprise, it proposes to either fuse these two dichotomies into one supra entity in order to replicate its dual capabilities and attributions.

This is especially so in the case of BT enterprises in Singapore because the lack of local universities militates against any attempts to leverage on the economies of scale associated with having hundreds of universities pursuing independent lines of scientific enquiry as in the case of BT firms in either the EU or US. In Singapore the business model for any BT enterprises is predicated on successfully transplanting the “core competencies” as opposed to building linkages – it adds another layer of complexity to an already mind boggling strategy.

Central to the debate is whether the competing roles and goals which once separated firms and academia into two mutually exclusive camps can be successfully replicated under one Singaporean roof. A large part of it would depend on whether the complimentary attributes which once allowed universities to form knowledge feeder lines to firms can either be effectively transplanted or replicated.

This takes us directly into the hornet’s nest of the debate. Firstly, deep divisions currently divide academia and firms. Universities for example aren’t commercially driven. They are idea driven – so driven in by altruistic goals in fact, most leading universities conducting pure research subscribe to a humanity charter which specifically limits what they should and should not patent – the rationale being, if an idea is commoditized, it will ultimately lose its capacity to evolve and eventually fail to feed the capitalist tool which usually leverages on its usefulness, thus negating the beneficial effects to mankind. Running through this vein of logic is a broad and long humanistic ethos, one which doesn’t accord well with the business view; it also one that throws a moral plank into the BT debate.

Under the one roof design proposed in Singapore with albeit tender links to foreign research institutions, much of the promised benefits hinge on being able to successfully distill ideas and commoditize them to capture their intrinsic value in the form of patents and licenses. Apart from being a role reversal of institutions and firms, it’s also a philosophical ‘U’ turn which blurs the traditional role of academics and researchers. Previously, most academics and researchers simply aspired to join the immortal ranks of Nobel laureates by dedicating themselves to seminal discoveries, but these days by licensing their research to firms many of them have in effect dabbled in business by either being equity partners or salaried members of a committee – again this raises not only moral questions but also questions about the wisdom and efficacy of such an approach: Are scientists the best people to propose directional and policy related road maps? There is no doubt they may be subject matter experts in their respective fields, but this doesn’t go very far to answer the question: Do they have the professional training and more importantly, experiential knowledge to appreciate the complexity of profiling a holistic business initiative?

Even at its historical inception in the early 80’s, when these two irreconcilable concepts sought to tenderly find their place in the marriage bed, it soon became clear to both academics and businessmen that they had very different designs and architectures as to what actually constituted organizational effectiveness and success. This dichotomy has led to a multitude of disagreements concerning the directional approach of where bio technology should ideally focus on if it is to remain relevant.

Another controversy which throws a spanner into the efficacy of whether it is possible to sustain a business engaged in advancing basic science as a core activity in the form of bio technology – is premised on the same reason why firms were initially attracted to the whole idea of investing in BT. The first wave of BT firms such as Amgen, Biogen Idec, Cetrus Chiron, Genentech, and Genzyme – focused on a specific area of research known as “protein attributes” – scientists and investment bankers involved in the sector argued that they would have a much lower rate of failure, than chemical drugs – protein based research apart from being at the lower end of the technological scale meant lower risk and less demented jack in the boxes and class actions which usually typified the higher risks associated with chemical based research – the initial success of a few genetically engineered hormones – such as insulin, human growth hormone and clotting factors to treat hemophilia seemed to validate the view this was the way to go.

Along side this the genome project had coincided with much of the protein based research material – it seemed to all at least, the hit and miss days of inefficient, trial and error craft days were numbered – here was a sure fire winner.

In the years that followed initial excitement quickly waned as only a handful of biotech firms managed to generate positive cash flows while the rest languished in the red – to add salt to injury much of the initial benefits of biotech firms rapidly unraveled one by one – firstly, the assumption that protein based research was simpler and hazard free didn’t pan out and by the late early 2000, it dawned on most bio-tech adherents their initial projections were pock marked by blue sky assumptions which failed woefully to take into account the complexities associated with protein manipulation. The second assumption, that because bio-tech firms were smaller than their behemoth pharmaceutical cousins they were thus more agile, proved facile. Finally, the argument that because they were organized into smaller research teams, their cost structures would be significantly lower than pharmaceutical giants, fell into debate when it was later revealed by the mid 2000 how the R&D cost of most bio-tech firms did not in any way offer any competitive advantage to suggest otherwise.

The coup de grace was delivered sometime in early 2006, when most fund managers began to factor in the dismal returns on firms such as Amgen, Biogen Idec and Cetrus Chiron who were beginning to chalk up debts as their business plans resembled an Iraqi pull out plan rather than a coherent business strategy. By mid 2006, the bio-tech sector was to revaluate their positions, languishing in the realm of the high risk investments which still promises surprises along with sleepless nights for would be investors.

A perennial problem with BT remains its ephemeral nature which makes it difficult to grasp to the lay investor, one which doesn’t lend itself to the sales effort. Another remains its patchy “hit and miss” track record, one which proves again how difficult it is to thrive in this competitive environment. While washing machine designers may grapple with engineering problems and computer engineers with the systems instability, they can be virtually certain that given time and resources, even if they manage to roll out a lemon it spits and splutters long enough to work, enough to justify another attempt.

This, unfortunately, is hardly the case with drug R&D. Despite extraordinary progress in genetics, there remain real limits to our capacity to make sense of how theory should pass into the realm of reality. The genome project may eventually improve the odds, but I am not so sure it will tell the whole story of man. I say this only because I am one of those who finds myself marveling no end about insects and flowers only to eventually realize how short mankind is when he is compared along side mother nature – we may, I fear, as the Indian sage once said, have committed the most unpardonable sin of all,

“To presume all that the Gods themselves only know for themselves.”

(By Trajan, Harphoon, Astroboy and Steamboy / Science / Econs / EP Ver II: 9932002/ Interspacing Guild Archives 2007)

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8 Responses to “When Bio-Technology Spells “IR” – Impossible Research.”

  1. M&M's said

    Greetings,

    I see all of you gutted out Pisano’s Harvard article along with Levitt’s MIT latest take on the meditech? Besides rubbishing it and substituting it in typical bro fashion??? your own home spun theories again to localize it. I think it was a fair attempt at a very complicated subject. Not many people understand this topic, one reason is bc A*star is still very much a black box. Today, I read the ST write up and I still dont understand what the issue is all about. This article goes a long way to fill up the gaps. I guess some of you were trying too hard to simplify some of the concepts dividing science and business. Any way after reading it, I more or less understand the whole issue 70% at least.

    I am an economist myself currently lecturing on a part time basis. I detect some of what was written in this article contains some economic assumptions specific to the bio industry. Could you pls provide us with a read or attribution list. Once again many thanks for sharing, it was definitely a read that provokes and sets one thinking.

  2. lee said

    Breaking down a very tough subject into tiny bits. I am an independent journalist and I would like to request for a read / attribution list. Generally good write up with fair representation of Pisano HBR and Stanley’s recent write up on medicine and business, did I miss out anyone? Thx

  3. lee said

    I really hope the b’hood press will process this request promptly. I dont wish to come across as difficult or rude, but on previous occasions ALL request concerning source material has been met with the same stone walling.

    I would also detected a fair amount of quantitative analysis, can we have a look at the attribution there as well?

  4. astroboy said

    Article: 9932, By Trajan, Harphoon, Astroboy and Steamboy / Science / Econs / EP Ver II: 9932002/ Interspacing Guild Archives 2007 / Blio Ref Drw @9932-2007 last update.
    *Nature International Journal of Science (5 May 2005) / Making it in the biotech business by V. Gewin.*Forbes.com / Biotech and drug stocks mix it up/ Peter Kang 2006.*Espicom Business Intelligence ltd / Biosimilars: a viable market? Sept 2006.*Biogenerics 2005: An emerging global market? *CHA Advances Reports / Proteins: Strategies for optimizing drug discovery / Dec 2004.*Harvard Business Review / Lessons from Bio-tech – Pisano / Oct 2006 issue / *Ernst & Young’s Beyond Borders: Global Biotech Review 2006.*The Econometrics Journal Vol 9 No.3 2006 / T. Proietti / Dynamic regression methods revisited.*American Economic Review / Vol 77 December / Dixit, A.*Mimeo, Harvard University, Public patents, private secrets, persistent monopolists and radical innovators / By Etro et al (2002)*American Economic Review / Equilibrium in R&D and Patent ratio game theory / Vol 83 May, Kortum et al 1993 –END.

  5. Harphoon said

    (I am sorry I posted on the wrong thread earlier)

    Harphoon Says:
    February 11th, 2007 at 7:57 pm
    Look here, I have always tended to go along with Trajans analysis (he is after all the military brains!), there never was such a thing as an army of the 12 monkeys in cyberspace.

    So now the whole of blogland knows they dont exist. At least we did them all a favor. I think we are wasting precious time fighting shadows, can I pls see the draft of our next post AB? Have you even started???????????????

    I want to focus on this bio-tech thing, we have work to do, so I expect to see a bit of discipline and less horsing around.

    We are after all a diplomatic mission and if you look at the stat counter many of our and inspirid readers are logging in, so I do not want to waste time on this monkey army nonsense or pointless chatter anymore.

  6. guppy said

    I cant believe you boys actually took it all in one bite! Came in logged on and read for 10 minutes and now still reeling! I am so shocked, I need to sometime to put myself together bfr I reply. Its all happening too fast.

  7. noah said

    LOL dats what I call a whale of a story!!!!!!!!!!!!!!!Happiness is when you reach that itch you never seem to be able to scratch, thanks XXXXXX

  8. ping said

    took on a very tough subject and did very well. Thoroughly enjoyed the read and yes the fog is finally clearing.

    Could you guys also doing one on the current GST hikes? I noticed hardly anything publications have been directed in that area. I wonder why?

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