The State of Biologics: An Interview with Larry Guiheen
November 10, 2003

By James Klein, Larta VOX Editor

Larry Guiheen, President of BioPharmaceuticals at Baxter BioSciences, discusses R&D, IP, the FDA, the benefits of technology transfer, and plays health czar for a day. Mr. Guiheen is a keynote speaker at the Project T2 technology transfer conference November 13th.

How is an event like Project T2 beneficial to your industry?

A little of my talk will be about, what do we look for today when we're looking to launch or even decide on venturing out, either with a collaboration with the university or buying a piece of technology that enables one of our processes?

The stakes being where they are today have raised the overall awareness pretty dramatically on reimbursement and some of the things we think about before we even launch into an upgrade of a new product or into a new venture.

I think the other thing I'll talk about is really who's going to pay for healthcare? You're seeing all around the world, a concern for healthcare spending, and it's particularly a problem here in the states, because of all the states' budget issues and the impact on Medicaid.

How does Baxter Biosciences differ from traditional pharmaceutical companies?

We are in the biologics business. In biologics, we use animal cell lines to produce human proteins, so it's quite a bit different than a pharmaceutical, or we fractionate the proteins out of human plasma. A lot of our focus is on protein replacement, where a patient may have a disorder where they're missing a certain plasma protein, or the protein does not function.

Has Baxter done some deals with universities?

Yes, we do have a number of relationships with academic settings, as well as companies. Our focus is to make our products better, safer, more efficient to make, extending half-lives, making it more convenient to use. We need technology and a lot of that comes from university settings or other companies that were birthed out of university settings.

Is some of that trying to limit your own R&D costs?

We are trying to manage our R&D costs more efficiently. The pure science, let's call it discovery, in the R&D pipeline…those are technologies that are probably in an eight-to-ten year timeframe, a little higher risk, so yes we would prefer to have some of those perfected or certainly refined in the university setting. As we get close to thinking, well, this could have an application in our process or in one of our product developments, and then we would go into some kind of an arrangement. In biologics, a lot of the barriers are technology or access to technology.

Does nanotechnology play a role in what you do?

We are looking at using nanotechnology in the formulation area, using microspheres.

Do you think FDA drug-approval policies are too stringent?

I think they could be a little more streamlined. Especially when you're dealing with a biologic, where you're actually making a human protein, it is a little more streamlined than it is for a drug compound. That being said, having to have randomized double-blind trials for every new indication, even though it's the same protein with multiple indications, it does limit the access. Again, a lot of the things that we are focused on are "orphan drugs" where the patient population is less than a hundred thousand, so to be able to get the right studies in even smaller sub-groups of that, becomes prohibitive.

How do you think your industry as a whole is going to react to the market pressures from generic drugs?

In biologics, it's a little less of a risk because of the huge cost. It's a much more delicate process when you're making biologics. You're getting cell lines, you're expanding them, you have to feed them during that expansion, you've got to purify them, debulk them, and then finish it, so it's more of an elaborate project that takes a much higher degree of technical expertise as well as capital investment.

Now, that being said, I think we all run the risk, in foreign countries as they become more sophisticated, especially in the developing third world, they pretty much disregard the patents and patent positions of some of the U.S. and European companies. That could be a risk. And they're also willing to accept lower levels of quality, which as an American company, we are not willing to compromise.

After speaking with some in-house attorneys, it seems they're spending a lot of time protecting against patent infringement. Do you see this as a trend, and how do you experience this in your business?

We certainly have seen it in Baxter. We've seen it in a number of different product lines where companies have taken a complete disregard for an IP position or a patent position. In fact, a couple years ago we won a case against a company that had done that, just completely disregarded a patent both we had as well as Johns Hopkins. So I think that as the race to get newer and better products out there, some people are taking much higher risks in the IP area.

Despite the high development and marketing costs, we're seeing some increases in VC investment in start-up biotechnology companies. For the first time in seven years, biotechnology companies raised more money than any other sector in the third quarter, even more than software. To what do you attribute this renewed interest?

Biotechnology companies in general over the last few years have lost value. I think also that the markets are maturing such that some of these [companies] are now becoming less risky. The concept has been proven at least in a phase one environment, and therefore your risks have been mitigated. Where prior to phase one, it's less than ten percent that actually make it to market. If you're going further down that development process, your chances of success are much higher. So I put the two things together: one, the industry has been beaten down; number two, the technology is becoming more acceptable and they're further along in their discovery process, or they've had a couple successes.

Do you think the industry, as some people charge, spends too much on marketing and too little on R&D?

I think on average it's okay. We could all come up with a couple cases where some companies have been chastised for spending a high percentage of their revenue on advertising and marketing. I would think that's more of the exception than the rule. As a company, you're having less time where you may have a differentiated feature and/or an exclusive position. A number of people are looking at marketing much as they look at R&D. There has to be a balance prior to launch, between R&D and market development. Unless it's something that's completely dramatic, but let's face it, there are not many of those out there. So the only way to speed your way to market penetration and grab a position is to spend heavily on marketing, or to treat marketing as a pre-approval expense as well as a post-approval expense. I think it's all about speed, to optimize your market position.

What is your opinion of people buying their pharmaceutical products through Canada?

In our particular case, we don't see it. Our pricing, between us and Canada, is really about the same. I think the risk is counterfeiting. As you're shipping across state lines, who are you buying from? I'm sure people going to Canada think they're getting pharmaceuticals that are coming out of the same plants as if they'd bought them in the United States.

What we are seeing, even in biologics, is the tampering and the risk when you have a drug or biologic, there are certain storage conditions…if these people are not inspected by a regulatory body, then you do run the risk of making some sick people a lot sicker.

At the end of the day, we all look at and talk about globalization of pricing. I think we can certainly get closer. I think all the pharmas and we are too, when we launch, particularly in Europe, we're trying to keep the bandwidth, between the high price and the low price, within a narrower band. But when you get countries like Spain and Greece, where you don't negotiate price - they just dictate what the price is - you make a decision as a company to accept a lower margin there, and maybe use variable costing or use some other technique. You may be forced into a decision, well, if my low-water price in the world is going to drive all my pricing, I may not want to market in that country.

I've had a number of conversations about the third world. Our pricing in the third world is a lot different, and the U.S. and the Europeans may end up paying for it. But on the other hand, there's a responsibility. These countries would just basically go without the product if they didn't get it at somewhat of a discount.

If you were health czar for a day, what are some of the reforms you would enact, in California and nationwide, that would benefit your industry and the public in general?

Overall, I think the system works fairly well the way it is today; I think it needs some tweaking. Certainly, the Medicare population not having any outpatient drugs, in a group that needs them the most. That being said, most of these patients have supplemental insurance and get it paid for.

There's a little bit of hysteria out there for people who really don't understand the details. In this country, we're a free market, and some of our cost is that there are a few middlemen involved, which makes the prices go up a little bit. But with that come pretty high services.

There does need to be some reform within, certainly, the Medicare and the public pay [systems], as well as things like lifetime caps, and also some of the patent positions and when generics are allowed and when they're not.

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