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BioPharm Executive Top 10: 2008 in Review

12/17/2008 5:56:22 PM

Top 10: 2008 in Review

A lot of us will be glad to see the back of 2008, a year that may have left many families hemming and hawing for something positive to say around the Thanksgiving table, at least as far as the world at large is concerned.

It was a tough year for biotech and pharma, too--and not just in the stock market. Here's a glance back at the year at was, with my entirely subjective and unscientific choice of the Top 10 stories and trends that shaped industry in 2008. (Drum roll, please...)

#10 Japan rises up. Perhaps the most notable example of Japanese pharma's emergence onto the world stage was Daiichi's bid to acquire Indian generics firm Ranbaxy for $8.5 billion. But they were following--or perhaps responding to--some other bold moves, such as Takeda's acquisition of Millennium Pharmaceuticals and Eisai's acquisition of MGI Pharma--both multi-billion dollar deals. Japanese companies leveraged large warchests and a weak dollar into a more international presence.

#9 Activist Investors. This is a trend carried over from 2007, which was a banner year for activists. In 2008, Biogen Idec handed activist extraordinaire Carl Icahn a defeat during a proxy battle, marking Icahn's second failed attempt to sell off the company. But Icahn helped engineer the sale of ImClone to Eli Lilly and split up Enzon. More recent stakes in Amylin and even Exelixis point to his continued role in the industry. On the other hand, we've heard less from Dan Loeb of activist fund Third Point, although he still holds major stakes in several companies.

#8 Wyeth v. Levine. The case, involving a musician who lost part of her arm as a result of improper administration of the anti-nausea drug Phenergan, won't be decided until next year but will have far-reaching implications for the industry. At stake is whether a determination of safety and efficacy by FDA preempts lawsuits questioning these very issues in state court. Industry has always assumed it had..and if they turn out to be wrong, it will mean potential new liabilities an order of magnitude greater than what they've seen before.

#7 The Window is closed. Indeed, the IPO window isn't just closed; it's painted shut. Zero venture-backed IPOs in the second quarter represented the first complete freeze-up in 30 years. The third quarter wasn't much better, with just one deal. The fourth quarter is running a goose egg thus far. So for the year to date, there have been only 6 venture-backed IPOs--and we're talking about all industries, not just the life sciences. Remarkably, VCs have managed to raise a number of new funds and make some investments, but if the existential challenge of having no exit continues, VC investment is sure to drop more sharply than it has.

#6 Tainted heparin. It began in January when Baxter issued an urgent recall of heparin in response to a sudden uptick in adverse events...and, eventually, deaths. Months later the contamination was traced to source material from China. The fallout wasn't only a further drop in the perceived quality of Chinese goods; it also accelerated a debate about our oversight of imported food and drugs--or lack thereof. FDA has since announced it will establish three branch offices in China, and the heparin scandal became a club wielded by legislators favoring increased budgets for the agency.

#5 Vytorin. This isn't just my pick; Fineman Public Relations ranked it #6 on its list of 2008's biggest PR blunders. Merck and Schering-Plough won themselves a place alongside AIG and Detroit auto execs! Now that took some doing. It was some seriously bad publicity for an industry that could use a little more goodwill right now.

#4 Obama elected. Oh, we could easily have made this number one. But the drug industry was in for a shakeup whoever was elected, which takes away some of the impact. Nevertheless, Barrack Obama presidency will indeed represent some of the change he so heavily advertised. To sum it up briefly, the Administration is likely to be a boon to R&D and, depending on the shape and timing of reform legislation, a challenge to profits.

#3 Unproductive R&D? As I write this, only 21 new molecular entities (NMEs) were approved in 2008. That's a bit better than 2007, but since that was the most unproductive year in over 25 years, that's not saying much. Moreover, three of these are imaging products, which don't score high in commercial innovation. Not all of this can be laid at FDA's doorstep. Industry still hasn't successfully addressed its productivity problem.

#2 FDA under pressure. Citing budget pressures and understaffing, FDA formally announced that it was going to start regularly missing PDUFA dates. And so it has. It also retired the "approvable" letter in favor of the "complete response" letter, perhaps because the latter sounds more like crossing something off the list. Commissioner Andrew von Eschanbach tried to avoid admitting to Congress that he thought the Bush Administration's proposed 2009 budget was woefully inadequate, but finally couldn't do it with a straight face.

#1 Market meltdown. Admittedly, it's a bit broad, but this story is in one way or another the number one issue facing all industries and probably most individuals this year. For biotech it has meant an unprecedented number of bankruptcies and distressed M&A events (or solicitations for M&A). On the one hand, we can say biotech has fared far better than most industries, if we use the performance of, say, the AMEX Biotech Index against the S&P 500 as our yardstick. But that masks the difference between the haves and the have-nots in a year when cash is not only king but also judge, jury, and executioner. The ultimate fallout is hard to assess. In any other time when so many talented people lost work, some at least would become entrepreneurs and begin a new generation of companies. That's not so likely this time around. We can only hope that the consolidation makes the overall industry stronger. And that next year is kinder to us all.

--Karl Thiel

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