Global Biotechnology Industry
Transcript of Global Biotechnology Industry
Global Biotechnology Industry: Value Chain Analysis- ML00027-012
Global Biotechnology Industry
Value Chain Analysis
ML00027-012
Global Biotechnology Industry: Value Chain Analysis- ML00027-012
Table of Contents
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Complete Value Chain: Overview Complete Value Chain: Overview (cont’d) Raw Materials: Overview Raw Materials: Analysis Raw Materials: Burning Issue – Competing demand and sustainability Suppliers: Overview Suppliers: Analysis Suppliers: Burning Issue – IoT Biotech Producers: Overview Biotech Producers : Analysis Biotech Producers : Burning Issue – Government cost-cutting B2B End-Users : Overview B2B End-Users : Analysis B2B End-Users : Burning Issue – Ageing Population Appendix
Global Biotechnology Industry: Value Chain Analysis- ML00027-012
Complete Value Chain: Overview
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The global biotechnology industry’s value chain can be divided into four distinct stages: raw materials, chemicals, biotechnology producers, and B2B end users.
Raw Materials
Biomass
Reagents
Aquaculture
Agricultural Products
Suppliers
Lab Equipment
Software
IT
Biotechnology Producers
Medical/Healthcare
Food & Agriculture
Environment & Industrial Processing
Service Provider
Technology Service
B2B End Users
Healthcare Providers
Agricultural Producers
Consumer Good Manufacturers
Environmental Processing
Global Biotechnology Industry: Value Chain Analysis- ML00027-012
Complete Value Chain: Overview(cont’d)
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The global biotechnology industry’s value chain can be divided into four distinct stages: raw materials, chemicals, biotechnology producers, and B2B end users. Large companies are present throughout the value chain, although there is also opportunity for startups and SMEs.
Raw Materials
China Agri-Industries Holdings
COFCO Group
BASF
Bunge
Suppliers
Microsoft
Major Science
Merck Millipore
Thermo Fisher Scientific
VWR International
Biotechnology Producers
Amgen Inc.
Covance Inc.
F. Hoffmann-La Roche
Gilead Sciences
Novo Nordisk
B2B End-Users
Community Health Systems, Inc.
Fresenius SE & Co. KGaA
Archer Daniels Midland
Cargill Inc.
Unilever NV
Global Biotechnology Industry: Value Chain Analysis- ML00027-012
Raw Materials: Overview
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Raw materials producers are predominantly large multinational corporations. These include agricultural producers, chemical companies, and aquaculture for algae
Raw Material Producers
Global Chemical
Companies
Reagents
Aquaculture Companies
Algaculture
Agricultural Products
Biomass
Biomass for energy originates from a range of
sources including agriculture, forests
and waste
Global Biotechnology Industry: Value Chain Analysis- ML00027-012
Raw Materials: Analysis
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While there is opportunity for smaller firms in algaculture, large multinationals dominate both chemical and agricultural products.
• While biotech is more concerned with living organisms than chemicals, reagents and other items are necessary in the
biotechnology production process in order to create desired reactions or engage in research and development.
• There is significant concentration in the chemical industry, with large companies such as DowDuPont, BASF, Sinopec,
and ExxonMobil. Dow and Du Pont’s merger in August 2017 created the largest chemical company globally.
• Aquaculture companies are also important due to the abundance of marine organisms. Algae in particular has been
noted as having promising applications for biofuel and medical research. Research was pioneered in fuel production in
the mid 2000s, since then algae cultivators have been forced to diversify into other algae products in order to stay
afloat. Algae firms are generally start-ups or SMEs reliant on venture capital.
• Biotechnology is rooted in manipulating organisms, and so will require living organisms in order to research- namely
plants and crops ,as well as microbial cells and bacteria. To this end, biotech producers will rely on large
agribusinesses to supply them.
• There are large global companies present in agribusiness, and it may require dealing with particular locales for crop
production. Brazil for instance, is one of the largest producers of soybean, along with the US. Companies involved in
this stage will also come to rely on biotech companies at the end of the chain, and include Archer Daniels Midland,
Cargill, and ChinaAgri.
Global Biotechnology Industry: Value Chain Analysis- ML00027-012
Raw Materials: Burning Issue
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Competing demands of sustainability with increasing demand, particularly in Brazil
Agricultural producers are facing opposing demands of the ever increasing need to feed growing populations and lifestyles,
while also engaging in sustainable practices to ensure environmental health. China, which imports 60% of the soybeans
traded worldwide, bought 50.9 million metric tons from Brazil in 2017, accounting for 53.3% of total purchases, according to
customs data released in February 2018. There has been a surge in demand as the world’s top importer continues to buy
from Brazil after Beijing imposed a 25% tariff on U.S. shipments, including soybeans. Chinese buyers mainly use soy to
churn out cooking oil and ingredients for animal feed.
While deforestation in Brazil remains much lower than at its peak
in 2004, activity has increased since 2012. Brazil’s longest
recession in its history barely ended in 2017, and could see its
climate change credentials tested as strong soybean exports are
forecast to continue in 2018. An election in 2018 also had to
consider the voice of ruralistas in the country, which currently
control a significant bloc in both houses of parliament. This bloc is
pro-agricultural expansion. President Temer survived two
impeachment votes partly due to their support, so deforestation
could lose out to agribusiness.
Global Biotechnology Industry: Value Chain Analysis- ML00027-012
Suppliers: Overview
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Suppliers vary - while large companies dominate ICT and software, there is more opportunity for specialist
niche SMEs in lab equipment.
Suppliers
Lab Equipment Manufacturers
ICT
Software
Global Biotechnology Industry: Value Chain Analysis- ML00027-012
Suppliers: Analysis
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ICT is dominated by large firms and there’s increasing consolidation in lab equipment.
• ICT has become integral to research and development due to its capacity for instant communication and storage of
large volumes of data. Software can also be integral to modeling results or further manipulating data.
• There is a plethora of OEM manufacturers of ICT equipment, such as ASUS, Lenovo, Hewlett Packard, and Dell.
Software is likely to be dominated by Microsoft, although open source solutions such as Linux are available, as well as
publishers of more industry specific software.
• For provision of network services, there are companies such as Cisco, IBM, Microsoft, and Google. These companies
are large global players with significant resources.
• Biotechnology requires specific industrial equipment, such as bioreactors, which is where proteins are produced.
Scientific tools, materials, and testing equipment are highly specialized, so integration throughout the value chain is
unlikely. Given the high manufacturing skills required to make advanced lab equipment, it will most likely come from
industrialized economies.
• Pharmaceutical company Merck has acquired several life science product manufacturers, including the Millipore
Corporation in 2010 and Sigma-Aldrich for $17bn, announced in 2014 and completed in November 2015. There is also
opportunity for SMEs in this market to produce niche products. However, these can be prone to M&A activity, such as
BioReliance, which was acquired by Sigma-Aldrich in 2012 and is now part of Merck.
Global Biotechnology Industry: Value Chain Analysis- ML00027-012
Suppliers: Burning Issue
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The Internet of Things opens opportunities and risks in SmartLabs
While manufacturers have been offering remote monitoring and automatic data logging for years, the Internet of Things (IoT)
allows the integration of different instruments, from different vendors, into a single integrated platform. The SmartLab will include
a laboratory information system to which all lab components will be connected and controlled, from 'intelligent', self-cleaning lab
benches to smart safety goggles that can project chemical safety information and augmented-reality displays. TetraScience,
which connects data from all machines to a single dashboard, currently has 60 corporate and academic clients.
Suppliers must be prepared to offer smarter
solutions in products to appeal to clients. However,
the system must also be comprehensive and
accessible. During the early stages of adoption
problems are likely - for instance, if a company’s
smart thermometer monitoring a freezer is faulty.
Further, it presents security risks to the customer,
and companies must also ensure that systems are
protected from invasive hackers, or indeed
corporate espionage.
Global Biotechnology Industry: Value Chain Analysis- ML00027-012
Biotechnology Producers: Overview
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Biotechnology producers vary from large multinationals to start-ups. Biotechnology has a wide range of
possibilities for specialization, including healthcare, industrial, or agricultural applications.
Biotechnology Producers
Medical/Healthcare Industrial
Catalysts
Food/Agriculture
GMOs Pesticides
Global Biotechnology Industry: Value Chain Analysis- ML00027-012
Biotechnology Producers: Analysis
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While there is opportunity for smaller firms in algaculture, large multinationals dominate both chemical and agricultural products
• Biotechnology companies have high costs due to their focus on research and development and the length of time and
difficulty in testing and creating new products. The discrepancy in the cost and length of time required to manufacture a
new product has led to biotechnology products holding their patents for 12 years.
• Start-ups and SMEs can also thrive in this business if they can find access to venture capital. All of this leads to very
volatile profits for biotechnology companies. Many operate at a loss for many years until a highly profitable substance is
manufactured, which can then reap significant dividends.
• It is increasingly common for conventional pharmaceutical companies to enter the biotech industry by the acquisition of
an established biotech company, thereby gaining its hard-won IP assets. One such example was Roche’s acquisition of
long-established US player Genentech in 2009.
• Most major pharmaceutical companies have active target-discovery research programs heavily reliant on
biotechnology, and smaller new companies such as Exelixis and Cephalon do focused drug discovery and development
often using unique proprietary techniques. In addition to direct drug development, there are companies like Abbott
Diagnostics and Becton-Dickenson that are looking for ways to use new disease-related genes to create new clinical
diagnostics.
• Biotechnology’s remit means it has a wide array of end-users and possibilities. In agriculture, it has been focused on
improving crops. More than 90% of US-grown corn, soybeans, and cotton are bioengineered. The most publicly
notorious company engaged in this was Monsanto, which was acquired by Bayer in 2016.
Global Biotechnology Industry: Value Chain Analysis- ML00027-012
Biotechnology Producers: Burning Issue
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Governments cost-cutting could have a negative impact on profitability
In the US, federal and state legislatures, health agencies and third-party
payers continue to focus on containing the cost of health care. The 2010
Patient Protection and Affordable Care Act, which has already imposed
significant health care cost containment measures, also encourages the
development of comparative effectiveness research and any adverse
findings for players’ products from such research may reduce the extent of
reimbursement. Biotechnology producers rely heavily on the reimbursement
for their principal products through government programs such as Medicare
and Medicaid in the US and similar programs in foreign countries, and a
reduction in the coverage and/or reimbursement for its products could have
material adverse effects on the product sales, business, and results of
operations. In the US, there is an increased focus by the federal
government and others on analyzing the impact of various regulatory
programs on the federal deficit, which could result in increased pressure on
federal programs to reduce healthcare costs. Cost containment measures
and healthcare reforms, resulting in drug price reductions, could affect the
sales growth and profitability of biotechnology producers.
Global Biotechnology Industry: Value Chain Analysis- ML00027-012
B2B End-users: Overview
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Biotech’s wide applications mean it has various B2B end-users. The main verticals are healthcare,
agriculture, consumer products and industrial manufacturing.
B2B End-Users
Healthcare providers
Large companies
State sanctioned providers
Agricultural producers
Large consumer product
companies
Industrial manufacturers
The NHS is the publicly funded national healthcare system for England and is
also the largest single-payer healthcare system in the
world.
Global Biotechnology Industry: Value Chain Analysis- ML00027-012
B2B End-users: Analysis
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The multiple applications of biotech give a wide variety of players in this stage of the value chain
• The main buyers range from healthcare providers to the agricultural sector, indicating a moderate number of medium-
to large-sized buyers. While medical biotechnology is the most lucrative segment, the agricultural and industrial sectors
are also significant in size and are growing at a fast pace.
• In many countries, the prices of at least some prescription drugs are subject to control by government agencies. There
are various approaches, a common one is reference pricing, in which the price of each drug in the country is
benchmarked to its price in a set of comparison countries.
• Even though a biotech company might have several buyers (e.g. distributors, hospitals, and so on) in a given country, if
it is unable to freely negotiate an industry price due to price controls, then in effect it is operating in a monopsony.
• Agribusiness firms can operate in a symbiotic relationship with biotech firms, providing the necessary biomass but also
benefitting from biotech’s products, such as transgenic crops .These large firms include Cargill, Archer Daniels Midland,
and Bunge.
• Other applications include in consumer products and industrial processes, where enzymes give a reaction necessary-
for instance, in washing detergent. Consumer products is dominated by an oligopolistic market with firms such as
Bayer, Procter and Gamble Unilever, and SC Johnson.
Global Biotechnology Industry: Value Chain Analysis- ML00027-012
B2B End-users: Burning Issue
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An aging population is presenting significant challenges to healthcare providers
Lower birth rates in developed economies combined with advances in medicine and lifestyles, has led to projections
that the combined senior and geriatric population will reach 2.1 billion by 2050. It will vary from country to country, with
Japan already showing significant concerns. Japan’s population shrank by 512,000 in 2019 and on current trends the
proportion of people aged 65 years and older will increase from the 2019 level of 28% to 38% by 2050. Despite
scrapping the one-child policy in 2015, China saw its birth rate decline. Estimates made in 2019 suggest that over-60s
in China will make up one third of the population by 2050.
For healthcare providers and governments, social policy
needs to adapt to these pressures. As well as an
increase in the amount of ill health, population ageing
will mean a greater prevalence of age-related
conditions. including mental health conditions such as
dementia. This requires a stronger emphasis from
providers of social and community care, for-profit
providers may experience spiraling costs, with little in
the way of revenues from consumers or insurance
companies.
Global Biotechnology Industry: Value Chain Analysis- ML00027-012
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