Newsletter from June 2003
by Raymond S. Fersko
To My Friends and Colleagues:
We live in strange and uncertain times. That uncertainty is a direct result of the terrorist activity since September 11 and it is affecting all aspects of our lives. The economic fall-out is the falling out of the economies of the world. China seemed insulated but then came SARS. Australia still has a solid 5% growth.
In my own view, until there is serious economic development in the Middle East, the uncertain political situation is unlikely to improve in the near term, and the resulting economic problems will not improve significantly so long as these destabilizing forces continue to grow.
My friend Stef Wertheimer, founder and chairman of ISCAR in the Galilee of Northern Israel, has had 20 years experience of employing and creating economic opportunities for Israeli Jews, Christians, Druids, and Arabs, living together in the northern region of Israel. The people work together in a campus-like situation where there are the most modern manufacturing plants but also museums, cultural centers, and an incubator for companies working in high-tech, and other fields where goods are created for export. “Give the people hooks” says Stef, “Don’t give them the fish.” He gives them the opportunity and helps them to develop a skill set. Learning to export is crucial. The countries with oil are filled with people who do not have the ability to export anything, and the oil revenue never benefits the masses.
Ultimately, the creation of economic incentives has to create the desire for change. Much is being written today about the Islamic Fundamentalists and the roots of terrorism.
The radical Islam of today affects governments throughout the Middle East and beyond. These governments of the Arabic countries in varying degrees are supporting Islamic terrorists in order to keep themselves in power, or are truly in favor of the ideas, or a little of both. What is occurring in the Middle East is the outgrowth of the same movements that dominated the 20th century and shaped the political movements that brought us into this schizophrenic world of advanced development juxtaposed against politically destabilizing forces throughout the world.
These Islamic terrorist groups are not different than the fascists in Italy or the Nazis in Germany or the 70-year experiment with Communism. The common thread running through all of these political, social and religious movements on how to reorganize society is that a better world lies ahead -- a 1,000-year Holy Roman Empire -- get rid of everybody that is different than the group setting the rules and making the promises, and then there is some thug or band of thugs at the top that can only stay in power as long as the people are kept isolated and in fear.
The Arabic world, colonized by the Europeans, historically at war with the Christians, and for a long time prior to the declaration of Israel’s statehood, was one in which Jews generally, but unevenly, fared well under the various regimes and lived side-by-side with the other Semites in the region. The continued emerging Islamic fundamentalist movements, largely ignored and not understood by Western governments prior to September 11, can only be contained when economic development is brought to the level of the people.
Democracy, in one form or another, could follow, but it is foolhardy to think that in-roads in terms of fostering economic development can come before the people adopt democratic institutions. It is unlikely that they will ever adopt democratic institutions as we know them. Once people have a financial stake in their society, they begin to care more about the nature of that society and individual freedoms. This is not to say that incremental improvements are not possible; however, the cloud, which hangs over the world economies, is going to remain there for a long time until the issues of terrorism and security come under more control than today. This is a tall order and I am not saying this to be critical of our leaders. However, until the situation is better controlled all world economies will be held back and all industries, particularly the biotech industry that needs capital to fuel new innovation and only provides returns to those with a long-term view, is going to be held back.
With the foregoing view of the overarching geopolitical problem, I will make a few comments pertinent to the bio/pharmaceutical industry based upon my own empirical observations.
The stock market is looking a bit better, but it is still extremely difficult to raise private equity in Europe for biotech, and it remains hard here in the States as companies continue to burn money. There is a slight rumble of some itchy pockets loosening up for companies that need saving – but not for a high percentage of them. Companies are taking as many necessary steps as possible to reduce their burn rates and cut collaborations that are capital intensive. This is a direct result of the present uncertain times. Investors are focused on those companies that are focused. Where they have channeled their efforts directly – they have the best chance for survival and investors will not back undisciplined companies with too many projects, too many chiefs and too many employees. Think lean!
This weekend the annual BIO meeting got underway in Washington, D.C. The size and scope of the meeting continues to grow. The President addressed us today at lunch, and such prominent superstars as Bob Gallo and Tony Fauci will address the group. However, the mood among delegations – worldwide – is subdued and reserved. No one is promising or anticipating too much – at least on the short term.
The President is rallying the troops for passage of Project Bioschield legislation -- accelerating discoveries to defeat bioterrorism and hopefully generate auxiliary benefits that advances medicine scientifically and socially.
There was something in his forceful, well-delivered and well-received speech for everyone -- respect for human life; challenging the industry to end famine; challenging Europe to wake-up and develop a sensible policy regarding GMOs, pointing out that Africa needs to have better crops and the ability to export Europe.
Finally, he recognized the strides made regarding alternative drug delivery, monoclonal antibodies for therapeutic uses, and the promise of elimination of diseases as we learn more about genetic markers.
From the regulatory standpoint, things are moving faster at the FDA under the new leadership of Mark B. McClellan. In the main the post genomic industry continues to suffer from the usual rule of twos -- research and development takes twice as long and costs twice as much.
Now that we have the map of the human genome, we are scratching the surface of its potential through functional genomics, proteonomics and the development of valuable data as a product in and of itself, which leads to drug target identification and development. The issue of reach-through royalties remains an issue from both a legal and business point of view and a right to data protection -- presently only a European right is under discussion in the U.S.
The European governments are continuing to shoot themselves in the foot by over legislating in connection with genetically-modified organisms. The result being that a lot of brilliant work that could be significant for development in the third world by providing more hearty and sustainable crops, let alone the potential for future drug delivery systems, is being put aside. On the other hand, the regulating approval process for drugs seems to be clearer and more responsive in England and elsewhere on the continent.
In the U.S., a lot of money is going into bio-terrorism. Personally I see this like the local politicians who repave the sidewalks in election years. It makes the people feel good. The government money available for this remains a source of funding for some of the biotechs, even if it does not relate to the principal technologies of the companies.
Crain’s New York Business’ June 9 edition noted that only 340 people in New York City volunteered to be vaccinated against smallpox -- significantly below the 5,000 to 10,000 people the city authorities were expecting.
The not-for-profit sector remains a bright spot fostering development opportunities that would not otherwise get funded in connection with HIV and TB prophylactics and therapeutics, malaria, Alzheimer’s and certain rare disorders that are generally endemic to lesser-developed countries and, under normal circumstances, would not represent attractive markets for the pharmaceutical industry.
There are a lot of experienced high quality personnel out there and this is a time when companies who are looking for good people should be able to get them as biotech executives find themselves promoting their technology developments on the one hand, while sitting with a deep hole in their stomach awaiting the results of the latest clinical trial on the other hand. In the meantime, these same executives are in sotto voce, discussions of potential new assignments. Headhunters are finding this to be an off-season but they are stirring the bushes.
Outsourcing of every aspect of the business in general continues to grow as companies continue to reduce risk, and husband their capital and human resources.
The major trend seems to be a reduction in projects across the board by the biggest pharma to the smallest biotech as they take their best shot trying to get good news and the attendant bump in their share prices. The U.S. biomedical research budget is in excess of 30 billion dollars and growing. There are a lot of reductions in Europe and at the same time European universities and local and state governments are beginning to take steps to catch up at least conceptually with technology transfer schemes in an effort to see some return on the science and to promote the return of indigenous scientists to Europe.
In the Far East, Japanese and Korean companies are continuing to look for in-licensing opportunities and taking advantage of platform technologies that are helpful in identifying drug targets.
Clearly there is a lot of good scientific work going on in Australia, New Zealand, Singapore and Taiwan in connection with potential new developments. In Singapore the government is pouring a lot of money into the area of biopharmaceutical development and has become known as a place where dependable clinical trials are possible.
Another interesting development is the wealth of opportunity in certain areas around the world where family records of consanguinity have been kept for hundreds of years and there are projects underway that are observing physiology traits and identifying genes that are indicators of disease. The records of ancestry have been well kept, and the more recent generations are gaining substantial benefits as some of the first to receive personalized medicine.
In one particular project, the people who are the subject of the studies are benefiting as a result of the ultimate results and by the training that they are receiving as lab workers on site. There is an opportunity in many locales for government project funding for the research and development, particularly with the good politics that is the result of providing jobs for study participants.
Finally, I am pleased to attach my introduction, which was recently published in the Journal of Biolaw and Business, Bio-Education Supplement 2003. I am proud that Ferskos LLC has been an educational supporter of this issue. There will be copies of the Journal and information respecting the Journal available at the BIO meeting. My good friends at the National Association for Biomedical Research will be distributing copies at their booth. This edition of the Journal contains the writings of law students who participated in my Fall 2002 seminar at the American University Washington College of Law on Biotechnology Business and Law.
There is enough happening in the world of biotechnology transactions and litigations today that demonstrates the need for biotechnology to be taught in law schools as a separate discipline in and of itself.
Patent law and intellectual property law are, of course, important. But a complete biotech lawyer must know much more than just the Intellectual Property. The international regulatory requirements and effects of harmonization, finance, securities, contracts law, licensing, corporate law, applicable rules for building plants for production of products and such esoteric projects as building sanctuaries for chimpanzees who have been used in biomedical research. Biotech is always confronting new problems -- but as my partner Lester Tanner always says: “A good lawyer creates opportunities for his clients when there are situations that initially look like problems.”
Law students have high ideals and the luxury to explore their ideals of using the law as a vehicle for altruistic benefits, particularly in providing drugs to those at the lowest income levels who generally constitute the endemic populations suffering the AIDS pandemic.
By training law students in a course such as Biotechnology, Business and Law, they start to have some of the tools necessary to resolve some of these overarching issues that straddle the biopharmaceutical industry, as well as our own development of foreign policy, science policy, and patent and trade policy. These issues will multiply and mutate in the future and the more we are training young lawyers to be equipped to think about these issues and deal with these issues, the better is the chance that we can reach balanced solutions providing favorable conditions for the important growth and development of the biopharmaceutical industry without leaving behind those poor people without access to the innovation developed.
This is the challenge of the future and society does well to face it head on. We in the industry must be proactive.
I urge professionals in the industry to give something back by teaching and lecturing to the thought leaders of tomorrow and bringing these issues from academic centers into the business and political institutions where these issues can coalesce into proactive policies as opposed to reacting to crisis situations that require engaging in the inevitable damage control of dealing with yesterday’s business.
Cordially,
Raymond S. Fersko