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Executive Summary

The larger pharmaceuticals firms involved in biotechnology should consider teaming-up to develop "pre-competitive" biotech tools, such as a map for the human genome, Smith Kline & French Labs R&D President George Poste, PhD, suggested at an Oct. 7 biopharmaceuticals conference in San Diego co-sponsored by Paine-Webber and Bio/Technology magazine. "Just as the aerospace industry in Europe has had to move to consortia in order to construct the 'Airbus,'" Poste said, "I think that the logical expression of the problem of technological self-sufficiency as all of these new technologies begin to apply themselves to the pharmaceutical environment is the emergence of consortia." Poste added: "I am primarily talking about large companies working with large companies in pre-competitive areas of research." Poste has been a frequent speaker at industry and investment seminars during the last two years. He has been called on a number of times to explain biotechnology advances for lay audiences. His recent appointment to the top R&D management job at SK&F may make him a less visible figure for the industry in upcoming months. Poste argued that if U.S. companies continue to operate primarily on their own, the pharmaceutical industry in this country will not be able to achieve the "technological self-sufficiency" to compete effectively internationally. Poste acknowledged, however, that impediments to the formation of consortia will come from anti-trust concerns. "You can be sure we will be scrutinized for anti-trust statutes at every level by which we move toward this, while our colleagues in Europe and Japan will not be subject to such constraints," he said. Poste is chairman-elect of PMA's R&D Steering Committee. Upjohn VP-Discovery Research, Ralph Cristofferson, PhD, who appeared on the same panel, agreed with SmithKline's Poste on the formation of consortia. The idea was also echoed by Genentech VP-Medicinal and Biomolecular Chemistry Michael Ross, PhD. "If we are to be effective in attacking these fundamental scientific roadblocks we must be willing to consider other kinds of [corporate research] cultures, as well as other kinds of financial mechanisms and strategies," Cristofferson stated. "It is well known that in Japan there are consortia formed among academia, business and a variety of constituencies." Problems "that are big enough, such as genome mapping . . . will require, if we are successful in attacking them, different kinds of thinking," he pointed out, "so new kinds of linkages, I believe, will be essential." Concurring, Genentech's Ross stated: "I think the whole issue of how we, as corporate citizens in this country, get our research act together is really going to be a major issue . . . The Japanese are profoundly good at this." Ross cited the example of a MITI conference in Japan on protein engineering he attended three years ago. A year later, he noted, the Japanese "founded one off their technological centers to spend time doing research on how modifying proteins changes the structure of proteins, and eventually, of course, they want to change the structure of those proteins. We are still thinking about how we might do that in this country." SmithKline's Poste also addressed the issue of strategic alliances. "At the product level," he said, "I think there will be relatively few alliances" at SmithKline, although "the one area where certainly there will be a few is central nervous system" research. He explained that "the reason why we're forging those alliances is because we really have no significant internal discovery in that area, and we will not be able to develop it." SmithKline recently announced a $ 49 mil. equity, R&D joint venture with Nova focusing on CNS agents ("The Pink Sheet" May 23, T&G-1). At "the level of concept," Poste predicted further alliances in "macromolecular engineering, macromolecular recognition, laser technology -- it might be a surprise to some when I say -- the design of specific software support systems [and] transgenic animals. Integrated Genetics became the first pharmaceutical/biotech company to announce an R&D agreement to develop transgenic livestock for bioprocessing human proteins. SmithKline, Poste reported, is also developing a plan of spinning off its own subsidiaries "based upon technologies or new product opportunities that either fall outside or you just cannot accommodate at that particular time into your own product profiles and concepts." At the same time, Post explained, "you nucleate those companies with, not only key researchers who are prepared to take the risk out of your own organization to run independently, you also create equity positions in those companies." In order to "allow your other scientists to remain within the mainstream of the larger companies," he continued, "you populate the scientific boards of those companies with your own scientists and give them equity positions in those new companies to insure their success." When asked when the next big product can be expected from SmithKline, Poste answered: "What we need to look at in an analysis of SmithKline, just as some but not all of the investment community has done, is to clearly see that the problem lies in the U.S. sales organization." SmithKline is "not a company devoid of new products: it has had five NDAs approved since 1983. The fact that sales of those products have not performed in the U.S., where they've performed internationally, tends to be somewhat overlooked." Commenting on Lilly's approach to strategic alliances in a separate presentation, Lilly Research Labs Exec Director Paul Burnett said: "We see a very important role for those continuing at Lilly from a variety of standpoints." Burnett also predicted that "there will continue to be from time to time, I think, specific product opportunities that will come to major companies from the biotech industry." He added: "The interesting thing about these, I think, is that today they are coming to us in a much more advanced stage of development overall . . . We're seeing products coming forward that are much more close to being what one could characterize as a reality as opposed to a concept." Panel moderator John Wilkerson, president of The Wilkerson Group, opened the session with industry market estimates. The overall pharmaceutical industry, Wilkerson forecasts, will reach $ 42 bil. in sales by 1995. Of that $ 42 bil., Wilkerson said, $ 13 bil. is expected to come from new drugs, $ 3 bil. of which, or less than 10%, will be biotech products. Traditional drug discovery programs will produce $ 10 bil. in sales and as much as $ 12 bil. will come from price increases, he said. The remaining $ 17 bil. will be derived from multi-source and generic products and certain categories of OTC drugs, according to Wilkerson. The Wilkerson Group expects that a major contribution from the biotechnology industry will begin after 1995, he said.

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