From Skin Creams to Life Insurance to Medical Care, Biosciences Are the New Frontier of Business OpportunityPublished: February 27, 2002 in Knowledge@Wharton
Research in the biological sciences holds the potential for breakthroughs that could transform the world. But scientific advances also can be baffling and more than a little intimidating, especially for business people.
Faculty members at Wharton say that the brave new world unfolding in such esoteric fields as genomics, bioinformatics and proteomics offers many opportunities for companies in a variety of industries. But firms will only be able to capitalize on these opportunities if they learn how to use the research and bring new products and services to market. At this stage, many companies are far from ready to do so.
"The biosciences have an unusual feature," says Paul J. H. Schoemaker, research director of the William and Phyllis Mack Center for Technological Innovation at Wharton. "With the biosciences you have a confluence of multiple streams of technology – everything from gene sequencing to traditional molecular biology and even information technology. It’s very difficult for companies to wrap their arms around it all.
"On the whole, most managers, especially those in the fields related to the biosciences, are unprepared and somewhat confused about what this all means," Schoemaker adds. "In fact, their instincts about how to manage these new developments may be wrong. With the level of uncertainty so high, the normal reaction of a manager is to try to control things, but this may be the wrong [approach]. With the biosciences, you need to be prepared to be flexible, to ride the wave, and develop strategies for succeeding no matter what the future brings. This kind of response isn’t easy because it’s not in the toolkit of most managers. Most of the time we don’t want to be reminded of uncertainty. We try to shove it under the rug."
The potential for scientific breakthroughs is enormous, and the marketplace is responding accordingly. Pharmaceuticals provide just one example. Now approximately 1,500 biotech firms exist and about 300 biotech drugs are in late-stage trials. UBS Warburg predicts that sales will top $6 billion by 2005.
An article in BusinessWeek Online last month noted that despite the high-profile failure of biotech company ImClone to get the FDA to review its cancer drug Erbitux, and despite negative announcements from eight other biotech companies, the long view actually "looks good." The article cited several analysts pointing to advancements in biology and chemistry that "have increased the volume and quality of potential drugs being researched," even as the number of young biotech firms, aided by financing in the late 1990s, is growing.
In the field of genomics, much attention is focused on the emergence of new therapeutic drugs. But marketing professor George S. Day, co-director of the Mack Center, says advances in genomics also hold promise for other businesses. "The companies that are going to make a lot of money in the short run are diagnostics companies and computer manufacturers," he suggests.
One challenge is being able to "unlock the human genome using very, very large scale computers – vastly greater than anything we have now – to analyze gene structures and the flaws in them," Day adds. "That allows for the advancement of personalized medicine: You will be able to tailor a particular medicine to a patient’s particular combination of gene and defect, which is astonishing when you think about it."
To help managers understand how developments in the biosciences will affect their companies, Wharton Executive Education has developed a course called "Genomics and Beyond: Business Implications of the Biosciences Revolution." Schoemaker is a co-director of the course. Also participating is Day, who along with Schoemaker is co-editor of the book, Wharton On Managing Emerging Technologies.
The course addresses three areas of importance for companies: What kind of business model is going to be successful and how will it evolve over time; how can executives best organize the firm – through its structure and financial incentives – to take advantage of new technologies; and how can companies acquire and develop the capabilities to use bioscience to create new wealth.
Larry Huston, manager of innovation at Procter & Gamble and a member of the Mack Center’s Emerging Technology Program, says the biosciences differ from other technologies that have reconfigured the business landscape in the last two centuries in that they "are far more mysterious."
"Most of us can look at the Internet, for example, and understand it pretty easily," Huston says. "But a lot of this stuff in genomics and bioinformatics and so on is fairly new. Even people in the science and R&D areas of companies are not completely educated about what the possibilities are. I think the angst factor is much greater in bioscience than with other technologies because there is a lot to understand and the developments are coming so fast. Many people running businesses today can’t even keep up with the business stories about this subject without feeling lost."
The announcement in the summer of 2000 that the human genome had been mapped made worldwide news. Whether more than a handful of scientists and science-news junkies really understood what that meant at the time was another story altogether.
Slowly but surely, however, businesses are recognizing that they must become more familiar with such terms as genome (the genetic material in the chromosomes of an organism); genomics (the study of genomes, including gene mapping, which involves figuring out the positions of genes on a DNA molecule); bioinformatics (using computers to create information databases that permit analyses of genomes, protein sequences, biomolecules and other organic matter); and proteomics (the cataloguing and analysis of proteins in cells and tissue).
Research in the biosciences will revolutionize some obvious industries, such as pharmaceuticals, chemicals, agriculture (plant genetics) and health care. Also affected will be consumer products, information technology, and life and health insurers (where the potential use of genetic profiles to decide who gets coverage and at what cost has already generated debate).
"In health care, most physicians aren’t trained in something like genomics, so even they have to ramp up on this and learn about it," says Lawton R. Burns, professor of health care systems and management. "I look at genomics and the other biosciences from the perspective of the value chain. In health care, research holds a lot of promise. But we have to understand and overcome the barriers to seeing that promise realized by rank-and-file healthcare practitioners and consumers. Overcoming those barriers is how you add value. What will it take for a rank-and-file physician or hospital to use these technologies in the diagnosis and treatment of a patient with a given disease? What will it take for developments in biotech to filter into every day practice? And who’s going to pay for it?"
Huston says many consumer products companies are exploring how new knowledge in genomics may change the way these companies produce new products in areas such as hair, skin care, nutrition and weight management. "In the future we could very well be designing products based on looking at consumers’ genomes. We may design a product based on what a person’s genes tells us about his or her skin. If we want to address wrinkling, we may need to know what biological proteins can be managed within and between cells to cause certain effects that eliminate wrinkles. It’s a matter of getting product development work down to the level of impacting the cells rather than relying on empirical observations that are more surface-oriented."
Genomics, informatics and the rest sound like something out of science fiction. But they are very real, and potentially highly profitable.
Says Huston: "Innovation drives wealth. Science drives innovation. We are talking about a huge new science here that will be one of the major wealth creators in the next 25 years – and, even more importantly, a science that will significantly improve the lives of consumers. Admittedly, there is considerable social and political debate about how to best utilize this emerging technology. Executives can’t be on the sidelines. The stakes are just too high."