In fact, financing topped $21.3 billion for US biotechs last year, the $5.5 billion contributed by venture capital firms beat the record set of $39.4 million in 2000, according to Ernst & Young's annual financial report card on the industry.
Whether this pace will continue is less certain, Scott Morrison, E&Y's US life sciences director, tells The San Francisco Chronicle, because new product approvals will slow as regulators scrutinize applications. And drug prices may face more pressure in a political environment focused on health care reform and the federal budget deficit.
Beyond that, constriction in the larger capital markets has finally started to affect biotech companies this year. "Biotech has not been immune from the ills of the subprime mortgage meltdown," he tells the paper. "Total fundraising year to date in 2008 is down by 60 percent."
However, the financing squeeze may not hit biotech as hard as it does some other industries. Companies in the sector will be buoyed by the reserves of cash they have already accumulated, Morrison adds. Of the 386 publicly traded US biotechs, 49 percent have more than two years of cash on hand, E&Y reported. Of those, 27 percent have more than five years of cash.
"It's an indication that the industry as a whole is well positioned to weather a downturn in the fundraising environment," Morrison tells the paper, adding that venture capital firms are also well financed, and are still eager to invest in innovative biotechs.
The enthusiasm of VC firms is driven by the healthy rewards flowing to young biomedical companies that often attract rich development deals or acquisition bids from pharma. The total potential value of mergers, acquisitions and drug development alliances was nearly $60 billion in the United States in 2007, surpassing levels in all prior years, E&Y reported.
The Bay Area biotech cluster continues to outdistance competing regions by several measures, according to E&Y. The market capitalization of the Bay Area's 77 public companies in 2007 was $148.6 billion, which comprised 40 percent of the market value of US biotechs.
The region closest behind was the New England cluster centered in Boston, where 62 public companies were worth $65.1 billion or 17.6 percent of the US biotech market capitalization.
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Is It Worth It?
Recently, you may have heard or read in mass media sources about the issue of pharmacy benefit managers who have clients that are prescribed biologic medications and then are required to pay a great deal of money for such meds due to the placement of these meds on their PBMs. This is due to their status on the PBM, which is known as Tier 4 status, which requires patients to pay higher co-pays for these meds. Tier 4, which also includes lifestyle meds, is determined by the PBM based on variables such as rebates and discounts from the manufacturer, which are intended to be passed on to the PBM clients. However, in some cases, the PBMs fail to do this, and have been penalized for their self-interest above patient interest as required when this activity is discovered. Regardless, because of the tier 4 status of biologics, very sick patients have to pay a great deal of money for these meds. PBMs, by the way, are pharmacy benefit managers, which were created for the pharmaceutical needs of employees normally and is a benefit along with their insurance through their employer. First of all, biologic meds are specialty meds created differently than other typical meds, and therefore are have a unique molecular complexity that are designed for serious illnesses such as anemia or multiple sclerosis. Because of their uniqueness and exclusivity, they are very expensive- costing thousands a month for the payers. In addition, generics are not authorized to be produced as of yet for these types of meds. Their cost of these biological meds is contributed more for the complex process of their creation, as the material costs are typically less expensive than traditional molecular medications.
Biologics began to be used primarily in the 1980s and now presently make over 60 billion a year, with about 20 percent growth in this market annually. With anemia patients, oncology and dialysis clinics are targets for such meds in this category, as anemia is associated with their treatment and conditions for such diseases.
Yet, some claim that biologic meds benefit patients to only a certain degree, as they extend life of such patients, such as those on chemotherapy or dialysis, by only a few months, so the high cost of the meds is questionable and has been analyzed by others, yet no substitutes exist for biologics, so that’s why the producers of these drugs can charge so much for these products. Efficacy of these biologic meds have also been questioned as well in other treatment aspects aside from life extension.
Then there is the issue of fraud with kickbacks and overuse of some of the biologic meds used to treat anemia in dialysis clinics in particular. On a few occasions, doctors and clinics have been penalized for overusing the meds and for kickbacks in the form of discounts of the manufacturers. Ironically, the dialysis process was never patented, yet the many centers that exist have proven to be very profitable, more for some than others. An example is the situations where dialysis doctors, called nephrologists, have been accused of over-dosing patients with biologic meds to increase their income through their discount arrangement through the manufacturer of such meds, such as those biologics for anemia, and this arrangement is being investigated by regulators and encouraged by the representatives of such meds.
Presently, there are many that approach the FDA to aggressively insist that generic biologics be allowed into the market for the benefit of these critically ill patients, and this would be of great benefit for such patients, and this can be done, as far as the generic creation of these meds. And this situation illustrates one of many flaws in the U.S. Health Care System- when the sickest have to complicate their illnesses by possible financial stress, such as the case with biologic meds. Relief is needed, and should be demanded by the public. After all, why be so sick, and then be financially burdened?
“A little learning is a dangerous thing.” ---- Alexander Pope
Dan Abshear