Biological Products, Except Diagnostic Substances

SIC 2836

Companies in this industry

Industry report:

This category covers establishments primarily engaged in the production of bacterial and virus vaccines, toxoids, and analogous products (such as allergenic extracts), serums, plasmas, and other blood derivatives for human or veterinary use, other than in vitro and in vivo diagnostic substances. Included in this industry are establishments primarily engaged in the production of microbiological products for other uses. Establishments primarily engaged in manufacturing in vitro and in vivo diagnostic substances are classified in SIC 2835: In Vitro and In Vivo Diagnostic Substances.

Industry Snapshot

Products in this industry include blood and blood derivatives for human use; vaccines, toxoids, and antigens for human use; biologics for human use; and biological products for veterinary, industrial, and other uses. The industry experienced considerable growth throughout the mid-2000s due to an increased government and public focus on developing vaccines. Revenue grew from $8.35 billion in 2002 to $11.77 billion in 2005.

By the late 2000s, the industry reported an estimated 1,047 companies engaged in the production of biological products, except diagnostic substances. Shipments were valued at $27.14 billion with industry-wide employment of 26,725 medical professionals. States with the highest concentration were California, Texas, Maryland, and New York. Two of the largest segments were plasmas and vaccines.

Background and Development

Biological products are created with biotechnology, the scientific and engineering procedures involved in manipulating organisms or biological components at the cellular, subcellular, or molecular level. These manipulations are carried out to make or modify plants and animals or other biological substances with desired traits. Although examples of primitive biotech processes began in ancient times, such as the use of fermentation in brewing and leavening agents in baking, their use in medical and pharmaceutical applications was an innovation of the later decades of the twentieth century. Some analysts compare the biotech industry's impact on global medical care with the computer industry's impact on communication.

Biotech researchers produce products in essentially three ways: by developing ways to achieve commercial production of naturally occurring substances; by genetically altering naturally occurring substances; and by creating entirely new substances. Some of the tools used by biotech researchers include recombinant DNA and monoclonal antibodies. Recombinant DNA involves the ability to take the deoxyribonucleic acid (DNA) from one organism and combine it with the DNA from another organism, thereby creating new products and processes. By using recombinant DNA techniques, researchers are able to select specific genes and introduce them into other cells or living organisms to create products with specific attributes. Monoclonal antibodies are developed from cultures of single cells using cloning techniques. They are designed for use in attacking toxins, viruses, and cancer cells.

The U.S. Food and Drug Administration (FDA) requires extensive scrutiny of products developed by biotech researchers before they can be offered for sale. Because the biological products presented for approval often involve new technologies or innovative therapies for diseases that have not previously been treated successfully, the approval process frequently is long and costly. Many companies struggled financially through the 1980s waiting for an FDA determination.

One of the earliest biological products introduced to the U.S. marketplace was a blood protein first sold in 1966. The blood protein, called Factor VIII, was used by patients with hemophilia A to control bleeding episodes. Factor VIII, the blood factor responsible for normal clotting action, was manufactured from human blood received from donors. It was followed by the development of Factor IX for patients with hemophilia B.

During the early 1980s, problems arose because of AIDS contamination in the blood supply used to produce blood-clotting factors. In 1984, manufacturers began using a heat treatment process to guard against future contamination, but, according to a report in the Wall Street Journal, approximately half of the nation's 20,000 hemophiliacs contracted AIDS, primarily with Factors VIII and IX.

The earliest FDA approval for a biotech product designed for human therapeutic use was given to human insulin in 1982. Human insulin was used to treat patients with diabetes. Other product approvals followed in subsequent years. In 1984, the FDA approved an agricultural vaccine against colibacillosis (a disease commonly called scours, which causes diarrhea or dysentery in newborn animals). Approval was given in 1985 to a human growth hormone (HGH) for the treatment of dwarfism.

The first genetically engineered vaccine approved for use in the United States was a vaccine against hepatitis B. It received approval in 1986. The vaccine was created by inserting part of a hepatitis B virus into yeast cells. Although the portion of the hepatitis B virus used was not infectious, it caused an immune reaction against infection from the entire hepatitis B virus.

Other firsts occurring in 1986 included the approval of therapeutic monoclonal antibodies (MABs) and alpha interferon. MABs were approved for use along with immunosuppressive drugs to help prevent kidney rejection in transplant patients. Alpha interferon's first approved use was in the treatment of hairy cell leukemia. Other approved uses for alpha interferon followed, including those for Kaposi's sarcoma in 1988, venereal warts in 1988, non-A/non-B hepatitis in 1991, and hepatitis B in 1992. A product to dissolve blood clots in patients with acute myocardial infarction (heart attack) was approved in 1987. An agricultural vaccine to protect against pseudorabies won FDA approval the same year.

Erythropoietin (EPO), which became the largest single biotech product, received its first FDA approval in 1989. EPO, a protein that stimulates production of red blood cells, won initial approval for use with anemia associated with kidney disease. In the same year, the Health Care Financing Administration agreed to pay for EPO given to dialysis patients covered by Medicare. Within a few years, EPO was being used by approximately 82,000 dialysis patients in the United States. In 1991, the FDA gave additional approval for its use in treating AIDS-related anemia.

Advances continued during the 1990s. As the industry matured, cooperation between product developers and government regulators improved. The steps in the approval process became more predictable, and a shift in technology was noted as well. The primary products of the 1980s had involved the use of recombinant DNA proteins without further alterations. During the early 1990s, researchers turned their attention to products requiring more extensive genetic modification and to more obscure applications.

During the first few years of the 1990s, the FDA granted approval for several products with uses targeting human conditions. These included a treatment for chronic granulomatous disease (a genetic abnormality affecting the immune system and resulting in severe or life-threatening infections), for acute pulmonary embolism, to aid in chemotherapy and bone marrow transplants, and for kidney cancer. Products winning FDA approval for veterinary use included a vaccine against feline leukemia and a treatment for canine lymphoma.

In the 1990s, the FDA granted approvals for vaccines against rabies, tetanum toxoids, and pertussis. According to government statements, vaccines were one of the most effective and cheapest ways to eradicate some diseases. Accordingly, the National Institute of Health's Office of Financial Management reported that funding for vaccine research and development rose 65 percent from 1993 to 1999. Concern about health-care costs during the early 1990s focused the national spotlight on the pharmaceutical industry, and questions were raised about the high cost of biological products.

In the late 1990s, advances in research methods, a faster FDA approval process, and strategic alliances formed a strong network for growth in the biotechnology industry in the United States and internationally. While the approval of a therapeutic product by the FDA could last as long as 15 years, the FDA tried to reduce the length of time for the final approval process. A user-fee program, which was refined under the Food and Drug Modernization Act of 1997, allowed the FDA to hire more reviewers to speed up approvals. In the late 1990s, 30 drugs received approval in an average of 11.7 months, compared to the average 30-month wait per drug before user fees. By 2008, the FDA's requested fiscal year budget had become $2.1 billion, $105.8 million more than its 2007 request.

Traditionally, prices were kept low in the vaccine industry because of government intervention. In addition, the manufacture of vaccines is complicated and expensive, and companies have to deal with the possibility of lawsuits. Thus, very few companies manufacture vaccines. However, analyst group Wood Mackenzie predicted growth in the market from $9 billion in 2004 to $13 billion in 2009. Part of the reason for growth was the appropriation by Congress in December 2005 of $3.8 billion for flu-pandemic preparation, earmarked mostly for the development of vaccines and medicines. This move was influenced by the threat of a bird flu pandemic in 2005 and the flu-vaccine shortage of 2004. The flu-vaccine shortage occurred when Chiron, a biotech company in California, had to dump 48 million doses (almost half the U.S. supply) due to bacterial contamination detected at the company's plant in Liverpool, England. The SARS (severe acute respiratory syndrome) epidemic in China in 2003 also affected thinking about vaccine development. Flu-vaccine shortages continued to be a concern throughout the mid-2000s, and more companies considered expanding into the business.

In 1985, U.S. children received seven routine vaccines: diphtheria, measles, mumps, pertussis, polio, rubella, and tetanus. According to the Centers for Disease Control, with the addition of a hepatitis A vaccine in the early 2000s, the list totaled 14 in 2005. The list grew longer after 2006 with the FDA approval of an HPV vaccine for cervical cancer.

One of the newest developments in the industry in the mid-2000s was the cell culture, which uses various cells (human, and monkey or dog kidney) rather than eggs as the medium in which to cultivate vaccines. With cell culture, production time could be reduced from six to three months, avoiding the risk of egg contamination or shortages. The field of reverse genetics engineering also was growing. This technology keeps up with fast-mutating strains of flu, such as the bird flu in Asia, and can help ensure a steady and safe supply of vaccines.

A new class of vaccines called subunit vaccines were also being developed. Subunit vaccines use only the antigens, or the parts of the microbe that stimulate the immune response. They have fewer side effects than live vaccines and may cause a stronger immune response than those created by a live vaccine. One of the ways antigen molecules can be created is through recombinant DNA technology. The hepatitis B vaccine was one of the first vaccines to use this technology.

The development of universal vaccines was also a hope of manufacturers. Universal vaccines do not have to be reinvented every few months and would provide manufacturers with more steady revenue from the product.

Growth of global initiatives aimed at eradicating deadly childhood diseases, as well as steps toward the prevention of common illnesses such as ear infections, thrived during the mid-2000s. Patient compliance was expected to increase as new technologies allowed the development of combination vaccines and new "needleless" vaccines. Manufacturers tapped into a new source of income from the more "user-friendly" vaccines by charging a premium for them.

Current Conditions

Whether it was the SARS scare or the avian flu and more recently the swine flu, interest in vaccine development has been on the rise over the past decade. According to industry watcher Scientia Advisors, global sales, including prophylactic and therapeutic vaccines were projected to increase from $16 billion in 2007 to $35 billion in 2014. Thus, the industry was experiencing a number of "vaccine-focused" biotechnology start-up companies.

Meanwhile, the swine flu pandemic prompted development of the H1N1 influenza vaccine in 2009 with orders reaching $7 billion. This upturn in vaccine demand was forcing pharmaceutical companies to utilize outsourcing to Contract Management Organizations (CMOs) as a means to fill those orders. For example, according to Les Edwards, CEO of Isogen, a CMO headquartered in Newark, Delaware, told Contract Pharma in 2009 "We are seeing a trend where the big pharmaceutical companies are pursuing the most efficient and cost-effective ways to bring these specialty vaccines to market-- and they are finding the small-scale, specialty CMO to be their best option."

The development of universal vaccines was getting closer to becoming a reality when scientists at Oregon State University introduced a new "adjuvant" based on "nanoparticles" and produced with the familiar food product, lecithin. As reported in Science Daily, "Adjuvants are substances that are not immunogenic themselves, but increase the immune response when used in combination with a vaccine." Early research suggested the lecithin-based nanoparticle adjuvant was more effective than the vaccine adjuvant aluminum hydroxide, commonly referred to as alum, already approved by the FDA in the United States. Assuming it proved to be safe, "it could become the basis for a revolution in the production of vaccines and serve as a universal carrier," according to Zhengrong Cui, assistant professor of pharmaceutics at OSU in Science Daily,

Industry Leaders

One of the leading establishments in this category was Genentech, Inc. Headquartered in San Francisco, Genentech pioneered the development of first-generation biotech products, including recombinant human insulin. In 1988, the therapeutic Activase won FDA approval for dissolving blood clots in heart attack patients. However, approval came only after a lengthy regulatory review, and initial sales failed to meet projections. These difficulties left the company financially unstable. Roche Holdings Ltd., a Swiss pharmaceutical maker, acquired majority ownership of Genentech in 1990. Under Roche's umbrella, Genentech continued to make significant contributions to the industry.

One of Genetech's most important products was Rituxan, which treats non-Hodgkin's lymphoma and which the company sold along with Biogen Idec. Avastin, which treats colon cancer by choking the blood vessels that nourish tumors, was also one of Genetech's products. Others cancer products included Herceptin (for breast cancer) and Tarceva (for lung cancer). The company also produced drugs to treat cardiovascular disease, cystic fibrosis, and asthma.

Genentech operated from the world's largest research facility devoted solely to biotechnology. With 11,100 employees, its 2008 revenues totaled $13.4 billion, up from $3.98 billion in 2004. Roche took full ownership of the company in 2009.

In the early 2000s, IDEC Pharmaceuticals joined with Biogen to become Biogen Idec, based in Cambridge, Massachusetts. The company focuses on drugs for cancer and autoimmune and inflammatory diseases. The merger of the two companies, along with the sale of Rituxan, resulted in a sales increase of 225.6 percent in one year to $2.21 billion in 2004. With 4,700 employees, the company's net sales in 2008 were $4.09 billion.

Genzyme Corporation was another fast-growing producer of biological products. The company manufactures products for niche markets, especially those targeted at genetic diseases. Headquartered in Cambridge, Massachusetts, the company produces biopharmaceuticals in a $75-million facility. Genzyme reported 2008 revenues of $4.6 billion and employed 11,000 people. Revenues continued to climb with $3.8 billion in 2007 and $4.6 billion in 2008 with 11,000 employees.

One of the best-known Genzyme products was Ceredase, which was used to treat Type 1 Gaucher's disease. Gaucher's disease, an incurable metabolic disorder most common among people of Eastern European Jewish ancestry, affects between 2,000 and 3,000 people in the United States. By 1996, the company began to transition U.S. patients from tissue-derived Ceredase to Cerezyme, which was produced by recombinant DNA technology. By mid-1999, the transition was completed globally.

In an effort to expand its portfolio, Genzyme bought ILEX Oncology in 2004 and Bone Care International in 2005, and had plans to acquire Bioenvision Inc. in 2007.

Another giant in the industry in the mid-2000s was Amgen Inc., of Thousand Oaks, California. The company targeted cancer, nephrology, inflammatory disorders, and metabolic and neurodegenerative diseases. Among its top sellers were the anti-anemia drugs Epogen and Aranesp. Enbrel, which treats rheumatoid arthritis, is another top seller for the company. In 2005, Amgen acquired Abgenix, a firm that manufactures human therapeutic antibodies, for $2.2 billion. Amgen's sales for 2008 were $15.0 billion, and it employed 16,900 people.

Another industry leader was Alpha Therapeutic Corporation, a subsidiary of the Green Cross Corporation. Alpha Therapeutic was a leading provider of human blood and plasma products in the mid-2000s with 2,600 employees. The company, headquartered in Los Angeles, was founded in 1948 and was incorporated in 1978 by its parent company, Yoshitomi Pharmaceutical Industries, Ltd., Japan's tenth largest pharmaceutical company. Novartis Pharmaceuticals Corporation of East Hanover, New Jersey, was also making a name for itself in the United States. The company was an affiliate of Novartis, a Swiss drug giant that was buying companies in the United States in the mid-200s. One of the companies Novartis bought was Chiron, previously the world's fifth-largest vaccine maker.

Prominent companies specifically in the vaccine manufacturing business were GlaxoSmithKline, Merck, Wyeth, and Sanofi-Aventis, which together made up more than 60 percent of the market share in 2005.

America and the World

The United States led the world in investment in biopharmaceutical research and development in the mid-2000s. Although Europe had previously dominated the industry, many European companies relocated to the United States in the late 20th century, partly because of government price controls and cost-containment measures enforced in Europe. The time to obtain approval for new drugs was also longer in Europe. According to the Pharmaceutical Research and Manufacturers of America (PRMA), the average time from invention to market for a new drug in the United States was four months, while in Europe it ranged from 7 to 19 months. More drugs were therefore launched in the United States between 1998 and 2002 as U.S. manufacturers introduced 85 new drugs while Europe manufacturers introduced 44.

Research and Technology

In 2004, U.S. biotechnology companies invested an estimated $49.3 billion in research and development, an increase of 12.6 percent over the year before. According to the PMRA, the areas that experienced the most advances in research and technology in the early and mid-2000s were rheumatoid arthritis, Parkinson's disease, Alzheimer's disease, schizophrenia, diabetes, high blood pressure, high blood cholesterol, and HIV/AIDS. In 2003, the FDA approved the first of a new class of drugs to prevent the HIV virus from attaching to healthy cells. Advances were also made within existing classes of drugs for HIV/AIDS. For example, patients were able to take a prescribed drug only once or twice a day, instead of multiple times during the day as was the original protocol. As of 2006, there were 83 new drugs for AIDS and AIDS-related diseases under development, including 33 antivirals and 24 vaccines.

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