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Despite R&D Spending Growth at Pharma, Tool Shops Will Be Left in the Cold

This update serves to clarify a statement made by Margaret Flanagan of AstraZeneca. In an earlier version of the story, Flanagan was paraphrased as saying "There's nothing on the horizon" worth buying. In fact, she said: "There's nothing on the horizon that I consider to be a killer application--nothing that approaches the broad reaching promise we ascribed to the genomics technologies when they were first introduced."


NEW YORK, Feb. 27 - Though R&D budgets at big pharma are expected to continue expanding into 2004 and beyond, don't expect these companies to invest in new genomic tools or services any time soon, according to a recent panel discussion.


"There's nothing on the horizon that I consider to be a killer application--nothing that approaches the broad reaching promise we ascribed to the genomics technologies when they were first introduced," said Margaret Flanagan, global alliance director at AstraZeneca.


A number of economic events, some well known and others underreported, have resulted in a severe pull-back among most pharma and biotech firms in new-technology spending. According to the panel, which comprised an analyst and an investor as well as officials from pharma and tool companies, these events gelled into a kind of "perfect storm" that impacted the entire life-science industry. The panel discussion was held at the BIO CEO & Investor conference, held here this week.


Chief among these events has been what many drug companies consider underperfoming genomics technologies, according to Jeremy Levin, president and CEO of Physiome Sciences. "Not enough results," he said. Soon, Wall Street became jittery and jaded.


"Investors in pharma companies began to think that investing in gene databases was discretionary spending," said Thomas Weisel analyst Paul Knight. "This is because databases provide a long-term payout, not a short-term payout."

Compounding these two events is the belief that "there is a fundamental difference" between investors and pharmaceutical companies, said Levin. Pharmas want drugs and believe new tools may help them speed the process. Their investors want drugs, but they haven't forgotten that investments in most new genomic tools failed to generate much of what they promised. This is one reason why panelists universally agreed that the superheated M&A market is "an enemy" of investment in new technologies.


The last event was what Levin called a broad job "migration." Beaten by the soft market, tool and services companies began laying off researchers and selling off technologies. In the wings waited pharma companies, who happily snatched up downsized staffers and installed them into new in-house centers that performed the same research as the tool companies.


"We shouldn't fool ourselves and think pharmas and biotech will continue to buy ... tools and services," said Levin. "They will take what they can and set up their own services division."

The Scan

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