BIO and SBIR

The Biotechnology Industry Organization (BIO) is calling for reform of the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) Programs. The House Science and Technology Committee's Technology and Innovation Subcommittee has been meeting to discuss the SBIR and STTR programs with an eye toward reauthorizing the programs in 2009. The SBIR and STTR programs are set asides specifically earmarked for small business to enable them to do the type of innovative research that small businesses are known for.

The Small Business Administration (SBA) administers the SBIR/STTR programs. They were the ones that came up with the definition of what a "small" business is. Their definition for the purposes of the SBIR/STTR programs was that a small business must be majority independently owned. A 2003 determination by the SBA ruled that companies that are majority owned by venture capital firms are not "independent" and therefore ineligible to participate in the programs. This had the effect of making ineligible more than half of all small biotech firms in the U.S.

Although research costs in most industries are concentrated on salaries, biotech research has the added burden of high lab costs and the extended time required to develop a drug. Because of these higher costs venture capitalists often end up owning the majority of the companies they invest in at an early stage. A large number of the most innovative companies developing diagnostic and therapeutic technologies are ineligible to receive SBIR/STTR funding as a result.

But the SBIR/STTR budget is nevertheless distributed. As the pool of eligible biotech companies shrinks funding is flowing into a limited number of companies; "grant hogs" as BIO calls them, are scooping up hundreds of grants with little or no competition.

Stay tuned for: How to Become a Grant Hog.

The Three (or Four) P's of Entrepreneurship

The Colorado BioScience Association (CBSA) convened an all-star cast of Colorado biotech entrepreneurs yesterday morning for a Q&A session. On the panel were Richard Duke, President of Apoplogic, Larry Gold, CEO of SomaLogic, Steve Orndorff, President of Accera, Tim Rodell, President of GlobeImmune, and Jack Wheeler, CMO of MicroPhage.

All five were serial entrepreneurs; they had endured the highs and lows of entrepreneurship multiple times and had lived to tell about it. What does it take to be an entrepreneur? Jack presented his "three P's of entrepreneurship": patience, persistence and perseverance. To this Steve added a fourth P: passion. Since persistence and perseverance seem to be synonyms perhaps we should substitute passion for perseverance.

Patience is good, you've got to wait for the right opportunity, not act simply because of the lack of time (which is synonymous for money for the most part). You must persist in your endeavor despite obstacles that will indeed arise. If you tend to avoid difficulties and rejections, entrepreneurship is not the path for you. And what carries you through the difficult times is a true belief in what you're doing; a passionate belief in the product or technology.

When it came to what the biggest stumbling blocks to success were, most stated the technical hurdles they had to overcome. Larry's company had overcome those hurdles and was now facing an even more daunting challenge: the U.S. healthcare system. How to get payers to pay for new diagnostic tests? Although the life sciences industry can be very entrepreneurial and open to new ideas and technologies, the healthcare industry is much different and imposes many obstacles for new products.

Genentech's Pricing Rationale

In the WSJ's continuing quest to determine how and why drugs are priced as they are, Marilyn Chase interviewed Genentech's CEO Dr. Arthur Levinson. Levinson defended the rapidly escalating price of cancer drugs by comparing total domestic spending on cancer drugs, $15 billion, against the GDP, $13.6 trillion, which by my calculations is a drop in the bucket. But 42% of Americans will get cancer and half will die of it. So where are our priorities? Shouldn't we be spending even more money? Well, in fact we are. In 2007 the National Cancer Institute's budget was $4.8 billion and there are billions more coming in from private foundations. Nevertheless, it's still small compared with the GDP.

What about the other controversial pricing issue at Genentech, doctors using $50 worth of Avastin to treat age-related macular degeneration instead of $2,000 worth of Genentech's Lucentis, the drug approved by the FDA to treat AMD. Despite the fact that both Avastin and Lucentis are VEGF inhibitors the FDA wasn't about to approve Lucentis without Phase III clinical trials costing $40,000 to $45,000 per patient. Hence the added price.

Although Genentech's margins are healthy, pre-tax margin of 34% for 2006, Levinson points out that these are lower than both Microsoft, 37%, and Oracle. Oracle's fiscal 2006 pre-tax margin was actually 33%, but close enough. This does bring up a point however; would Genentech generate more profits if they could? Keeping profits below other industries by capping prices, free drug programs, large research budgets could be a strategy for sustainable and healthy growth without incurring the scrutiny of politicians.