Back on 9/23/10, I commented on the recommendations of two researchers to aid the growing biotech and pharma industry sector of the developing world and made a few of my own recommendations. Recently I noted that the government of India is supporting “pre-venture activity” (Forbes article), a good idea that was not mentioned, and want to add that idea to those of my original post:
Recently, Rahim Rezaie and Peter Singer of the McLaughlin-Rotman Centre for Global Health in Toronto (MRC) offered a diagnosis of the biotech industry in the developing world based on the considerable, and valuable, research the MRC has done over the past four years into global health-related commercialization (MRC). In a commentary in Nature Biotechnology, “Global health or global wealth?” (Rezaie and Singer and Fiercebiotech article), they argue these companies, while healthy now, need therapy and recommend a number of cures. I agree with the diagnosis but not the treatments. They make these generalizations:
- there is an emerging cadre of ROW (rest-of-world, i.e., not US- or EU-based) biotech/pharma companies that are profiting by developing and selling affordable diagnostics, drugs, and vaccines for the infectious and chronic diseases in the developing (low-income) and emerging (mid-income) markets;
- to date these companies have succeeded by inventing manufacturing improvements to make their products, which, in general, are similar to existing products, cheaper and affordable;
- the companies are now developing novel products which is more costly and will lead them to focus on higher margin products for high-income markets; and
- the US/EU multinational pharma companies (MNCs) are positioning themselves for a more substantial role in the developing/emerging markets and therefore are competing with the domestic companies, at least for the higher-priced products, but also providing partnering and buy-out opportunities.
Drs. Rezaie and Singer conclude that the ROW companies need a range of support to keep their global health orientation and independence from the MNCs. Stating that “a purely entrepreneurial model, left on its own, is unlikely to address disease areas with relatively low monetary market potential,” and being academics, they propose a number of programmatic treatments administered primarily by governments and non-for-profit organizations. But from an entrepreneurial viewpoint, I have a different view.
First, the authors do not note that governments are have more basic responsibilities in creating a healthy and innovative biotech sector, that many, including our own, are not meeting, e.g., providing fair and effective IP protection, a system for product approval (as safe and effective), monetary polices that lower the cost of capital, and support of basic education and post-graduate research. I think governments should build the foundation for a enterprise-based economy rather than create programs with big budgets and difficult to measure performance standards. For an example of an effective government program that is building a foundation for the global health business, see my posting of April 8, 2010, on the growth of the international, public sector vaccine market due in part to the WHO’s program for working with governments to pre-qualify ROW manufacturers.
Second, Drs. Rezaie and Singer do not acknowledge the key feature of entrepreneurs: they succeed because they are good at finding a market need, developing a product to meet that need, and selling it at a profitable price. Hence, the best stimulus of entrepreneurial companies is for governments to create purchasing power for those that need the products, e.g., directly, by making public-sector purchases or by establishing insurance plans or indirectly by encouraging an insurance industry or for-profit health care providers or general economic growth. I agree that some companies will succeed and be “wealthy” by focusing on high-margin products, but many will be entrepreneurial and find profits in low-margin, high-volume products. One should also keep in mind that ROW companies operate in a different environment than those in the US/EU. (e.g., lower cost of operations, reliance on revenues vs. investment capital) so our developed world ideas of what is needed to make a successful business may not apply.
As for the medicines prescribed in the article, I think they vary widely in likely efficacy. Here’s my quick take:
- the public-private-partnerships (or alternatively, product-development-partnerships [PDPs]): yes, but I think the PDPs are too academically- and MNC-oriented and need to work more with companies with higher-risk approaches and/or a knowledge of the markets for which the PDPs are developing their products;
- advance market commitments: these are a powerful tools that need to be extended beyond childhood vaccines and malaria drugs to products and markets are accessible to the ROW companies not just the MNCs;
- priority review vouchers: these are pretty useless to early-stage ROW companies since they require the innovator company to have the resources to develop a product first and then need a lucrative drug market for the voucher to have value;
- patent pools: access to licensing MNC technology is a good idea so long as there is know-how and technology transfer associated with the license;
- orphan drug–like legislation in emerging economies: this would be pretty useless since the carrot is extended market exclusivity which is not relevant in emerging economies where the primary customer may be the public sector;
- the Global Health Accelerator (Singer et al.’s plan to provide pro bono business consulting): this maybe helpful if the program connects entrepreneurs to entrepreneurs to accelerate new business growth rather than connecting them to consulting professionals who don’t understand the in-country business environment or entrepreneurship (and the proposed awarding of prizes for ROW product development is meaningless);
- global health funds: if these “funds” are in the form of grants from not-for-profit entities, they probably will not be helpful since peer review is not competitive enough to weed out weak businesses, and, if from private sources like investment funds, they would much more useful, since investors add expertise and capital and are motivated by potential profit; and.
- government loan programs aimed at small-to-medium enterprises (SMEs): I am unfamiliar with these, but through my mentoring of a startup aimed at the SME lending market in east Africa, I think there is a good business opportunity there already and no need for government intervention.