Chapter 1: The New Bio Marketspace
The dominant science of the twenty-first century will be biology.
New York, April 2020
At 8 A.M. on a sunny spring day, the Fuller household is in full morning rush mode. John is about to head off for his law office, his wife Cynthia for her pre-workday jog, and eight-year-old Marion for school. At the breakfast table of their Westchester home, Marion has just received her latest inoculation. Shots are a thing of the past; she just ate a banana. Using his wristwatch transmitter, John does his monthly checkup by sending his internist the data collected in his t-shirt's biosensors and in a capsule he swallowed. His health is fine, thanks to diet and exercise, but also to new drugs customized to his genotype. Always on the go, he tended to forget his pills, but he now has a microchip implant that works as a slow-release micropharmacy. In the bathroom, Cynthia is admiring her new makeup, which has just cleared a case of rosacea. She is back on her regular morning jog schedule, since the knee she injured skiing last winter has been partly reengineered. Meanwhile, John completes a bank transfer and decides to sell a stock that, in his view, has just peaked; thanks to iris scans and other biometric screens, online security is no longer an issue.
Outside, the air is crisp, and the Hudson River looks amazingly clean -- biofuels and waste-eating bacteria have worked wonders on the challenging New York ecology in the past decades. Overhead, planes bound for Canada and the West Coast are carrying their passengers with an added degree of safety -- their wings and fuselage are now made of biomaterials sensing and self-repairing any stresses or impending cracks, and their avionics include neural networks that can rapidly react to critical events such as hydraulic failures. Two things, however, have not improved; legroom is scarce and airports are still clogged to the gills.
Utopia? Biotech's detractors think so and paint a grim counterpart of Frankenfoods, mutant crops run amok, and the specter of eugenics creating a gene-enhanced "super class." This doomsday vision is unlikely to occur due to regulation, and resisting biotechnology progress amounts to battling the inevitable. Every innovation in our 2020 scenario is already in development or at the pilot market stage:
- Research on edible vaccines has yielded plants that produce hepatitis B surface antigen for oral immunization. A single banana chip would inoculate a child for one-fifteenth of the price of an injection and would not require the "cold chain" that is problematic in many developing economies.
- The distinction between food, cosmetics, and medicine is fading; Unilever is marketing medical foods such as a cholesterol-reducing margarine. Cosmetics such as Johnson & Johnson's Retinol have medical claims. Shiseido funds biopharma research and was first to develop a non-allergenic variety of rice. A strain of "golden rice" yielding provitamin A has been engineered and can open pathways for the production of other vitamins and plants.
- Vivometrics received clearance by the Food and Drug Administration (FDA) for its Life Shirt System that monitors more than 30 vital signs. Its initial focus is on three markets: clinical trials for drugs and devices, home sleep diagnostics, and cardiopulmonary medical research.
- Applied Digital Solutions developed a tracking device using mobile telephone chips in a wristwatch-sized locator and plans a medical version to relay data ranging from pulse rate to blood chemistry. Siemens and Agilent also created prototype medical monitors, and Medtronic's Chronicle links its pacemakers to physicians via the Internet.
- Samsung's vision of a home diagnostic tool is its "Family Doctor," a swallowed capsule that examines internal organs and relays data to a physician.
- MicroCHIPS, an MIT-affiliated startup, plans to launch within five years a chip implant with 400 wells holding drug dosages and a microprocessor releasing them at different intervals. By 2010, a second generation may interact with embedded sensors, allowing the body's own signals to trigger drug release.
- Regenerative medicine ranges from Organogenesis' Apligraf (first engineered skin, FDA-approved for leg ulcers) to the clinical testing of a bioartificial liver. Another tissue engineering company, Gentis, combines scaffolds, molecules, and dermal cells to build new cartilage (a global market of $1 to $3 billion).
- A "carbohydrate economy" is emerging with biofuels, plant-based polymers, and high-efficiency enzymes. Ethanol production is led by Archer Daniels Midland, and Cargill Dow received approval for polylactic acid, a biopolymer that is the first new fiber class since the 1950s.
- Environmental biotech accounts for more than $1 billion in a $17 billion U.S. market. This includes companies such as Regenesis, which markets products to help degrade groundwater contaminants.
For biotechnology to fulfill its potential, companies need to focus on three bases of competition: innovation, branding, and global reach. Innovation is shifting from pharmacos to biotechs, while branding largely remains the forte of Big Pharma. An emerging scenario links a few megamarketers such as Pfizer to a web of biotech satellites. These networks include equity investments as well as virtual links. In addition to their marketing muscle, pharmacos also contribute global reach, which biotechs need to recover their research costs. This chapter covers biotechnology's cross-industry scope, timeline, and global reach; and Chapter 2 discusses transforming trends in the industry. The following chapters focus on bionetworking and biobranding.
Economic Impact of Biotechnology
Broadly defined, the biosector is already estimated to account for more than a third of world gross domestic product (GDP). In the United States alone, the size of affected industries ranges from $400 billion for chemicals to $800 billion for the food sector and more than $1 trillion for biomaterials. Powerful macro forces will drive further expansion -- chief among them the need to feed, clothe, and shelter some 9 billion people worldwide by 2050.
Biotechnology will extend well beyond healthcare, which is already the largest industry sector in the world, reaching 12 percent of GDP in Germany and 14 percent in the United States or almost twice the spending on information technology. Population aging will entail the spread of chronic diseases and the need for gene therapies; by 2030, the number of Americans over 65 will more than double from today's 33 million to 75 million. In a decade, the United States could well spend 17 percent of GDP on healthcare.
Biotech innovation has clear results. In its thirty years of existence, the industry has produced more than 100 drugs and has nearly 400 products in clinical trials. Its value to society is also well established.
While innovation is the lifeblood of biotech firms, they face a set of unique challenges because of their medical focus. These range from ethical concerns to regulation and patenting issues. The evolution of bioscience cannot be extrapolated from that of its twentieth-century digital counterpart. Unlike information technology, bioscience is in a time paradox: Postgenomic research accelerates innovation across industries, but legal and ethical concerns have acted throughout biotech's history as "social brakes" -- a trend that is intensifying as we confront issues such as stem cell therapy and human cloning. Innovation Timeline
A central issue concerns the biotech timeline. It may be as little as 5 to 10 years before some of the components of our 2020 scenario are realized, while others may never come to pass. Biotech progress since DNA was first identified in 1944 as the "transforming factor" in bacteria (or, further back, since Gregor Mendel discovered plant genetics in 1863) shows that, like information technology, it evolved in discrete innovation clusters spurred by specific inflection points. In 1972, Eldridge and Gould proposed the theory of Punctuated Equilibrium
, suggesting that rapid evolutionary change takes place in relatively short bursts. Biopharma's first inflection point occurred in the nineteenth century, when scientists synthesized compounds from plants and dyes, leading to innovations such as aspirin, introduced in 1897. The second point -- and the beginning of bioscience -- came in the 1950s with Watson and Crick's discovery of the structure of DNA. The third inflection point was marked by the drafting of the human genome in 2000, which is leading to the emergence of molecular medicine, with therapies targeting specific patient genotypes.
Biotechnology, from the start, coevolved with other sciences; Watson and Crick's 1953 discovery of the double-helix structure of the DNA could not have happened without Franklin and Wilkins' development of x-ray crystallography. Later, bioscience merged with computing when Michael Hunkapiller developed in 1986 the first automated gene sequencer at Applied Biosystems, used by Craig Venter at NIH; a second impetus came in 1998 with the ABI sequencer that allowed Venter, then at Celera, to beat the genome sequencing schedule.
Computing and bioscience continue to merge, creating new fields such as bioinformatics. IBM is leading this area with initiatives such as its Blue Gene supercomputer, whose functions will include the study of protein dynamics.
Because it integrates several fields and deals with complex living systems, bioscience faces R&D costs and time frames much larger than those of information technology. Of 5 to 10,000 compounds screened, only one typically makes it to market, pushing the development cost of a new drug to more than $800 million. Timelines are equally daunting: It took 29 years after the discovery of DNA structure to market the first recombinant DNA therapy (Genentech and Lilly's insulin). Similarly, monoclonal antibodies (Mabs) were first developed in 1975, but companies such as Hybritech tried in vain to commercialize them in the 1980s. The first therapeutic Mab would not reach market until 1998, when IDEC's Rituxan was approved for non-Hodgkin's lymphoma. The main obstacle for the early Mabs was their origin in a mouse hybridoma (fusion of an antibody-producing cell with a myeloma B cell, leading to an immortal cell line generating the same antibody). These triggered immune system rejections, and success came only with a second generation of partly or fully humanized Mabs.
Given these historical delays, forecasts of biotech innovation vary widely and are likely to be revised often in the coming years. Impact of Investment Community
Timeline issues were exacerbated by an investor mindset that often expected short-term returns from a science whose progress should be measured in decades, not quarters. While the industry has attracted more than $200 billion in investment to date, it has also suffered from extreme stock volatility. Major slumps occurred in 1984, 1988, 1994, 1997, and 2001 following boom periods. After the 1982 approval of Genentech/Lilly's Humulin, the boom years of 1982 to 1983 saw nine initial public offerings (IPOs), including those of Amgen, Biogen, and Chiron. Another wave of seven IPOs occurred in 1986 alone, including OSI, Xoma, and Genzyme, but these dropped to zero after the 1987 stock crash. Similarly, the 1991 to 1992 boom collapsed by 1993 with the failure of the sepsis drugs and the Clinton plan for healthcare reform. In March 2000, at the peak of the tech bubble and shortly before the announcement of the draft of the human genome, a presidential declaration implying that genetic information should not be patented sent biotech shares into free fall. Gyrations continued in late 2001, as terrorism was followed by the birth of the biodefense sector. Social Barriers
Throughout its history, bioscience has also been affected by "social brakes" such as ethical fears and patent controversies. Early on, the development of recombinant DNA in the 1970s prompted a self-imposed moratorium by molecular biologists on gene-splicing research. Since then, most significant discoveries have triggered assorted warnings and limitations. The United States first led the world in stem cell research, when embryonic stem cells were first isolated at the University of Wisconsin in 1998. After a 2001 presidential decision limited U.S. federal funding to cell lines already in existence, the National Institutes of Health (NIH) announced that 48 of the 64 eligible cell lines were in non-U.S. labs. A shift of talent and funding may occur as a result, because Britain, Scandinavia, and the Netherlands have more liberal regulation; most importantly, the U.S. restriction, which affects a huge NIH yearly biomedical budget of almost $20 billion, may further delay the development of stem cell therapy for Parkinson's disease, stroke, or diabetes -- already estimated to be at least a decade away. Similarly, the November 2001 announcement by Advanced Cell Technologies (ACT) that it had cloned the first human embryo met with harsh criticism from the public and some legislators. Xenotransplantation was another thorny issue; European parliamentarians called for a moratorium on it because of concerns about animal-to-human viral transmission.
Another potent brake on bioscience research is the controversy surrounding patenting issues. Following the landmark 1980 Diamond v. Chakrabarty
case, the U.S. Supreme Court approved the principle of patenting genetically engineered life forms (awarded to Exxon for oil-eating microorganisms). The U.S. Patent & Trademark Office (PTO) awarded more than 10,000 patents in the past decade to companies including Incyte, Genentech, and Novartis, but also to academia and the government. New guidelines require medical utility, that is, a "specific, substantial and credible use" for a DNA sequence. A dispute between ACT, Infigen, and Geron (who bought Roslin Bio-Med in 1999) led to a PTO investigation of their patents on cloning technologies. Resolution of this dispute may take up to two years; in the meantime, this episode may drive some investment away from companies in the cloning field.
Ethical and legal barriers are compounded by privacy issues -- specifically, consumer concerns about insurance and employment discrimination based on genetic testing.
Biotech firms can draw several lessons from their innovation history:
Présentation de l'éditeur
- Macrotrends are conflictual -- positive demographics are countered by pricing and access issues; companies need to stress bioscience's economic value to society.
- Bioinnovation cannot be extrapolated from the digital sector. The biosector is increasingly profitable and productive, but this is partly offset by persistent "social brakes."
- The indus...
With revolutionary biotechnological breakthroughs occurring in every sector, from medicine and defence to food and cosmetics, the twenty-first century is rapidly taking shape as the Biotech Century. Along with the enormous global opportunities presented by this revolution, however, businesses are faced with an array of unprecedented challenges in creating and sustaining brands in this extraordinarily fast-moving market.
In MARKETING BIOTECHNOLOGY, two of marketing's prominent experts direct their attention to finding the solutions that specifically address the new, burgeoning biotech market. In creating this first-of-its-kind book, Françoise Simon and Philip Kotler have drawn on five years of consulting and research to show managers how bioscience and information technology can be combined to build powerful new business models. These models will help companies innovate with biotech networks, win customers with global bio brands, and create sustainable advantage worldwide.
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