WisBusiness: Expert warns biotech firms to prepare for changing health care system

Finding financial backing may be difficult now for many biotech companies working in the health care field, but those that innovate and pay attention to changing global markets should do well in coming years – even if austerity becomes the norm.

That was the message Wednesday morning from venture capital guru Steven Burrill at the 2012 Bioscience Vision Summit. Burrill, a UW-Madison graduate, spoke to a crowd of several hundred in the main ballroom of the Monona Terrace Convention Center.

Brian Renk, executive director of BioForward, said the gathering drew more than 500, up slightly from last year. Participants came not only to hear deep-pocket financiers like Burrill, but also network with suppliers, lawyers, accountants and angel investors who can provide smaller lumps of seed money.

The other major theme of the conference was communicating biotech news to the public at a time when major cable networks like CNN have cut their entire science reporting staffs.

“This is a key time for our industry and we need to be telling our story,” Renk said.

Burrill, who now lives in California when he is not jetting around the world doing major deals, serves on the boards of many major bioscience companies. He is also the author of several books on the industry.

He said medical advances now mean that people can practically live forever, though it’s “not economical for us to do that.

“So now countries around the world are trying to figure out what is the right amount to spend,” noting that annual health care spending in the U.S. now is $2.5 trillion.

And that figure will more than double in the next five years, he predicted. Most of that is due to an aging population.

“It has nothing to do with ObamaCare,” he said. “My advice is don’t pay a lot of attention to health care reform. The marketplace is way ahead of the politicians.”

He said the biotech industry needs to remember that “20 percent of our GDP is being spent on health care and those people are not going to vote themselves off the island,” he said. “So we are dealing with a major financial challenge, not just here but all over the world.”

In China, where Burrill said he spends a good amount of time, there are 1.2 billion people. By 2020, the country will have 450 million residents over 65 who smoke and are generally in poor health.

China has plans for universal health care by 2017, he said, and “it, too, will bankrupt the country.”

He called the economics of health care a “massive issue, that we are right in the middle of in this country.”

As a result of financial pressures, he said this country’s “dysfunctional” health care delivery system will change to emphasize keeping people well rather than treating the symptoms of sickness.

“Over the next 10 years, you will see a more a massive change in health care than you’ve seen from the beginning of time until now,” he forecast. “So you need to have a vision of expectation of what that is because the companies and products we are building today are going to exist in a very different world.”

He said everyone wants better access, lower costs and improved health care.

But he predicted the recession in the United States and Europe and the economic slowdown in Asia will “make things messier” before they improve.

And even though things are tight, Burrill said he is not ready to write the obituary for the biotech industry.

“We actually have better equity markets for biotech than we have had over the past several years,” he said. “So contra-logical though it may be, companies are going public again and stocks are performing relatively well.”

“But we can’t wish away austerity,” he said, noting that the federal government is cutting research support. “And we’re not the only ones who are trying to tighten the belt.”

In conclusion, Burrill said the pharmaceutical industry will become more of a distribution enterprise, with less emphasis on the R&D business.

“They will look like Wal-Mart,” he said. “And it will no longer be a doctor-centric medical world, either.”

Burrill said companies that are successful will have to prove not only that their new products work and are safe, but that they are better.

“Innovation coming into the marketplace can’t just be ‘me, too,’” he said. “You’ll have to identify the patient population and show they can be treated at lower cost than things already in the marketplace.

“Massive technological disruption is coming,” he added. “This is an enormously exciting time to be in this industry as an investor and entrepreneur. The opportunity for value creation has never been bigger.

“You want to live in a world of chaos to create new solutions in a world of change.”

— By Brian E. Clark

For WisBusiness.com