By Kevin E. Noonan —

Steve Burrill, President and CEO of Burrill &
Co. took the stage at BIO 2010 in Chicago last week, and once again provided in
90 minutes his impressions and opinions on the state of the biotechnology
industry.  Although decidedly more
upbeat than last year, Mr. Burrill's talk, entitled "Adapting for Success,"
included a large measure of caution to go along with his trademark futuristic
optimism.  That optimism was best
encapsulated by his overarching message, that those in the industry were
fortunate to be alive at this time, when all current world problems — climate
change, sustainability, energy security, food production and security,
healthcare and healthcare "reform" — could be tackled if not solved
by biotechnology.  (The only world
problem not amenable to the biotechnology approach, according to Mr. Burrill,
was terrorism, and even there some would argue that detecting biohazards through
biotechnological means was another example of the power of the technology.)

Mr. Burrill's talk began, almost unavoidably, with
the economy.  He contrasted
the situation a year ago, with the Dow around 8500, the capital markets "essentially
closed," the threat of an influenza pandemic, and the prospects for a new
administration in Washington (including healthcare reform and leadership
vacuums at FDA and CMS) with today.  The most remarkable fact about the past year, according to Mr. Burrill (at left),
was that U.S. biotechnology companies raised (through capital markets and
partnering with traditional pharmaceutical companies and others) a record
forty-eight billion dollars, and saw an increase in market capitalization of
31%.  These successes were
not limited to traditional therapeutic drug development:  industrial biotechnology (such as
industrial enzyme sales) constitute a $2.9 million global market, and "biogreentech
is hot."  Not everything
was rosy in the industry last year, however; biotech sales and revenue lost
almost $8 billion, and investment in research and development was down by more
than $18 billion.  The number of
biotech companies fell almost 14% (from 357 in 2008 to 310 in 2009).

With regard to the capital markets, Mr. Burrill
said that venture capitalists and other funding sources had little interest in "microcap"
companies — those having less than $1 billion in market capitalization.  However, biotech companies were in much
better shape in some ways than traditional "top-tier" pharmaceutical
firms, which had lost 48% ($530 billion) in market capitalization over the past
ten years.  In addition, total
financial returns for several major pharmaceutical companies — including Eli
Lilly, Pfizer, Merck, and Schering-Plough — were negative over that period, and
a comparison of market capitalization between biotech companies and pharmaceutical
companies showed (surprisingly) that several of the biotech companies (such as
Amgen) had higher market caps than pharma firms.  While the number of initial public offerings (IPOs) had
plummeted during the financial crisis, they are beginning to come back, with
seven companies having IPOs in 2010 (including AVEO Pharmaceuticals, CorMedix, and Alimera Sciences).  The amounts
raised, however, were predictably much less than what similar IPOs had
commanded prior to 2008, and the share price for more than half of these
companies had dropped from 1-22% from the offering price.  In addition, another six biotech
companies are set for IPOs in 2010.  He also detailed the patterns of acquisitions and partnering between
biotechnology and pharma, as a way to "acquire technology" for
traditional pharmaceutical companies facing the "patent cliff" of
lost exclusivity on blockbuster drugs and generic competition.

Turning to healthcare, he contended that we had not
had healthcare reform but rather insurance reform, and noted that it was "Economics
101" that increasing the number Americans with healthcare insurance by 32
million without providing more doctors, hospitals, or drugs would result in
increased costs (from $2.3 trillion in 2010 to $4 trillion in 2015).  Other negatives include the
effects on major businesses, many of whom have already take large charges
against earnings to offset expected revenue losses due to health care
costs.  Positive developments
include passage of a follow-on biologics bill with a 12-year data exclusivity
term, and the Therapeutic Discovery Tax Credit, which will funnel more than $1
billion in grants and tax credits to biotechnology companies (although he
predicts it will take several years for the money to be disbursed).  He also mentioned the increased
emphasis on drug safety and comparative effectiveness as tending to retard new
drug approvals, and the recent gene-patenting ruling in the Myriad case.

Mr. Burrill set these changes in the context of the
changes in healthcare, and Americans' perception of  "health," over the past 50 years, reminding his
audience of improvements in treating illnesses that had resulted in greatly
increased life expectancy.  Concomitantly there had been steady increase in the cost of healthcare,
both in real dollars and percent of GNP, not only in the U.S. but in all
industrially-developed countries.  He also returned to a recurrent theme, that the healthcare industry in
the U.S. was fundamentally dysfunctional, focused on "late-stage detection"
of disease and intervention rather than early detection and prophylaxis.  Much of the ill-health in the country —
and its costs — are related to behavioral problems including obesity, alcohol
abuse, smoking, and non-adherence to drug regimens, all of which were relatively
intractable to intervention.  He
cited statistics that 0.5% of patients "consumed" 25% of the healthcare budget, and that
75% of healthcare costs are for patients suffering from chronic disease.  Solutions provided — potentially
or otherwise — by biotechnology include personalized medicine, especially
genomic diagnostics to predict susceptibility to genetic diseases.  (Of interest to the gene
patenting debate, Mr. Burrill cited costs for other genetic tests, some of
which are "even more" expensive than Myriad's BRCA1/2 test cost of
$3,000.)  He did note the
shrinking cost of "whole genome" sequencing — approaching $1,000 — and the implications, and difficulties, of integrating this genetic
information into appropriate diagnostics.  Some of the implications involved Mr. Burrill's typical "into the
future" speculations, such as diagnostics built into cell phones (where
you'll spit on a spot on a cell phone and have the genetic or other diagnostic
information transmitted to your physician, for example).  Mr. Burrill also returned to his
earlier (2008) prediction that healthcare delivery would change, this year
focusing on digital delivery of medical information via the web and social
networking.

Mr. Burrill then turned to the "emerging"
markets outside the U.S., not only in their conventional role as possible areas
for commercial expansion but as competitors for innovation.  He noted that countries like China,
India, and Brazil showed a much greater rate of increase in patent filings and
R&D activity than in the U.S., and how their some of these markets outpaced the U.S. over
the past year (albeit with their overall market capitalization remaining small
compared to the U.S.).  But China
has "dominated" the IPO markets over the past two years (raising
almost $20 billion in 2008 and more than $50 billion in 2009), and showed
robust (>10%) economic growth in 2010.  He also noted that clinical trials, while still predominantly conducted
in the U.S., were increasing globally and particularly in China and Brazil.

Finally, his talk turned to "biogreentech"
and applications of biotechnology for food and fuel production.  Calling these "long term issues,"
he said the value of biotech in these areas was to increase yields with lower
water requirements (drought resistance) and increased pest and disease
resistance that would involve "gene stacking" technologies for
developing complex trait combinations.  He predicted that 37% of biofuel production would be from "3rd
generation algae" and 33% from "1st generation ethanol"
by 2020, with annual revenues in biofuels to top $100 billion by 2018.

The complete
Burrill Report can be purchased from Burrill & Co.; sales at BIO 2010
include access to the company website for Mr. Burrill's presentation slides.

For additional information regarding this and other related topics, please see:

• "Partnerships
Between Startup Firms and Big Pharma Fueled 85% Increase in Biotech Funding in
2009," January 13, 2010

• "Docs at
BIO: Steve Burrill's State of the Biotechnology Industry Report 2009," May
19, 2009

•
"Bio-irony: Biotech Turns a Profit in 2008," February 26, 2009

• "Docs at BIO: Steve Burrill's State
of the Biotechnology Industry Report 2008," June 19, 2008