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Biological Products

Section 351 of the Public Health Service (PHS) Act defines a biological product as a “virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, or analogous product, applicable to the prevention, treatment, or cure of a disease or condition of human beings.” Some examples of biologics include vaccine immunoglobulin products (antibodies), products containing cells or microorganisms, most protein products, gene/cell/tissue therapy products (including viruses), in vivo diagnostic allergenic products, and tests to screen potential blood donors for infectious agents (eg, HIV). Some specific, well-known illustrations are Herceptin for breast cancer, Enbrel for rheumatoid arthritis, and Botox for both dermatologic and neurologic use.

The pharmaceutical and biotechnology sectors undertake many of the same research and development (R&D) processes.1 However, the 2 sectors differ markedly in their scientific foundation (chemistry vs biology), historical origins (19th vs 20th centuries), financing (internal vs external), and profitability (Figure 22-1). The biotech sector originated with the founding of Genentech in 1976 by university scientists working with a venture capitalist. Scientists genetically engineered colonies of Escherichia coli bacteria, making them express a foreign gene that let them resist an antibiotic. To achieve this, the researchers used a process called recombination. They used proteins (“restriction enzymes”) to cut bacterial DNA; the enzymes left uneven cuts on the molecule ends called “sticky ends” where foreign DNA could be inserted; the bacteria could then start expressing the new DNA as if it were its own. This new technology revolutionized the production of biological molecules: Instead of inefficient traditional methods such as deriving them from animals, they could be mass produced more inexpensively in fermentation vats of microbes.

Figure 22-1

Pharmaceuticals Versus Biotechnology. PE, Private Equity; R&D, Research and Development; VC, Venture Capital.

This discovery paved the way for the field of genetic engineering. Five years after its founding, there were an additional 155 biotech start-ups, founded by entrepreneurs with venture capital (VC) financing of their university research programs. In contrast to Big Pharma, which has witnessed no significant new industry entrants over time, biotech is characterized by high entry and exit rates. Figure 22-2 depicts the increase in the number of biotech companies.2 Today, there are over 2,500 firms.

Figure 22-2

Historical Formation of Biotechnology Companies. (Source: Figure 3.3, in Lawton R. Burns [Ed.], The Business of Healthcare Innovation, 3rd ed. Cambridge, United Kingdom: Cambridge University Press; 2020.)

There is another important contrast between pharmaceutical and biotechnology companies. A pharmaceutical company is a drug development company that makes money; a biotechnology company is a drug development company that loses money initially and maybe for a long time. Substantial financing ...

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