Biotech: The American El Dorado

Pfizer in the first 6 months of 2021 obtained US $1,330 million in profits (+62% compared to the first half of 2020). This was mainly due to the sale of more than 1 billion COVID-19 vaccines. But the discovery of the vaccine came from BioNTech, a German company of 2 Turkish researchers. In the same period, BioNtech got 2,800 million euros in profit, while in the first 6 months of 2020 it had losses of 141.7 million euros; it was the first time they have had a profit. With the current contracts and the expected recommendation of a third booster dose, BioNtech will probably end 2021 as one of the world’s leading pharmaceutical companies, similar to Biogen, Teva or Novo-Nordisk, a company of more 100 years. Not bad at all!! 

It may seem like this is just because of the pandemic, but that’s what the biotech industry is like. In 1976 Genentech first produced a human protein (somatostatin) and the revolution began. It was not financially viable, but they developed insulin as their first product and licensed it to Lilly. The second product was Interferon and Roche bought the worldwide rights. Genentech was very successful in discovering new products, but lacked the ability to cope with the complex and expensive regulatory process and necessary clinical studies; furthermore, the prices were very high and the insurers were not willing to pay them. Genentech needed Big Pharma’s muscle. Roche bought 60% for $2.1 billion in 1990 and the other 40% in 2009 for $46.8 billion. On the other hand, Roche is today the world’s top-selling pharmaceutical company, largely due to its portfolio of high-value, high-priced cancer products, it was number 11 in 1991. A win-win.

In general, the healthcare industry deals with recessions well, and the highly innovative biotech industry does even more. In addition, Big Pharma has some US $170,000 million of excess reserves available for the purchase or investment in biotechnology. So far in 2021, the venture capital invested in biotech has been 60% higher than in 2020, the number of deals has been 66% higher and there have been 19% more IPOs, with an average value of US $150 million. There is a lot of money for biotech in the US!!

The size of the global biotechnology industry (about 10,379 companies) is about US $753 billion, with the US accounting for 40% of the market, and it is expected to grow approximately at 15.5% annually. But it is not easy. Let’s go to the financial fundamentals: the higher the profitability, the higher the risk, the lower the profitability, the lower the risk. Some studies show that only 1 in 10 biotech companies are profitable. Only 1 in 6 companies on the Nasdaq Biotech Index made a profit in 2020. Vertex made a loss from 1989 to 2017. Moderna has made a profit in the first 6 months of 2021, its first time since it was created in 2010.

Many biotech companies outside of the US are excellent researchers. But do they have profits? Are they viable?

What are their strengths and weaknesses? They may be great researchers, they have great talent, they are innovative, agile and “low cost”. On the other hand, they are usually highly fragmented (except for Big Pharma and 2-4 medium-sized subsidiaries), depend on institutional support and their CEOs tend to be excessively focused on technical issues, lacking clear strategic approaches. They tend to face the US market in a limited, even simplistic way, focusing on product characteristics and much less on obtaining critical mass or strategic alliances, and they have unrealistic low-cost budgets expecting a quick entry. Many have regional and national awards upon their launch in the US, but few are successful and many withdraw from it when they see the complexity and the real cost of it. Many international biotech CEOs are also the founders of the company, principal researchers and main shareholders, and they make almost all decisions directly. It is not a successful mix, despite their technical competence.

In executive development we use two concepts that are very applicable to biotech companies. One is “executive derailment” (excellent executives who have the elements to become CEOs, but who “derail”, who do not make it happen). And one of the main causes, especially in technological companies, is the “limited functional orientation”; they are excellent in one area (technical in this case) and when they are bosses or bosses-of-bosses, they keep focusing everything on their technical area; and they “derail.” We also use a very applicable principle: “the keys to your present success are the seeds of your future failures.” What has made you succeed at one level may lead to failure in the future, in your new job as an executive, in your new phase as a company, when you have to make the big leap to the United States.

Many international biotechnology companies fail in this great competitive market, so big, so complex, with so many possibilities, with so many opportunities to succeed … and to fail. We recommend executives from these companies to do a “reality check” (reality check) in their access strategies to the US, that they be “humble” (they do not know as much as they think, especially regarding access to the US market, even though they may have studied in the US, even if they go to conferences and presentations every year). We also recommend that in their budgets they double the time and expenses necessary, divide the benefits by half and double the time necessary to get them. 

There are many opportunities (40% of the market) and a lot of money in the US for international biotech companies. In the first 7 months of 2021 alone, venture capital companies have invested more than US$20 billion in pharmaceutical and biotech companies; almost as much as in all of 2020 (US$27 billion). But they have to make a “mental reset” to evaluate the possibilities, difficulties and keys to successfully access this great market. Often, CEOs of small international tech companies go to seek investors s in San Francisco, Boston or NYC asking for 1-2 million and they don’t get anything, because asking for such amounts, for these purposes and industries, is a clear indicator of ignorance of the market… when they could have obtained 5-20 million, if they had presented and sold it well. You have to do the work; “Excel can handle it all” but are the data (expenses, income, times) credible for the US market? If they are not, it does not matter what you ask for, they will not give it to you.

On March 3, 1513, Ponce de León discovered what was thought to be the Benimy Islands and was later named Florida (USA), searching, in part, for El Dorado and the fountain of youth. Being Governor of Puerto Rico and confronted by Diego de Colon, he had obtained from King Fernando to grant him the rights for the new lands to be conquered, provided that he assumed all the expenses. He was the first entrepreneur in North America. He returned to Puerto Rico and in 1515 organized a new trip to Florida, but that failed before arriving. Finally, in 1521 he organized his third voyage, this time with 200 men, including priests, farmers, artisans, 50 horses, domestic animals and farming utensils, and explored and colonized Southwest Florida. But five months later, an arrow from a native pierced him and he died shortly after in Havana due to this wound. It took him 3 trips, 8 years and all his fortune. He did not find El Dorado, but he did discover and began the colonization of what was later the United States, although few today recognize it.

At Markentry USA we are here to help you “land” in the USA. Help you have realistic expectations, optimize your strengths and minimize weaknesses, obtain the necessary capital, seek strategic alliances and local partners, decide where, when and how to access the market, optimizing the entry process with logistical, legal, fiscal, accounting support and, above all, the most difficult, a strategy. We do not promise you El Dorado, only that with us you will reduce the “learning curve”, so that the first landing is successful.