SIC 2836
BIOLOGICAL PRODUCTS, EXCEPT DIAGNOSTIC SUBSTANCES



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 micro-biological 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.

NAICS Code(s)

325414 (Biological Product (except Diagnostic) Manufacturing)

Industry Snapshot

According to statistics compiled by the U.S. Census Bureau, establishments classified in this industry shipped products valued at $6.6 billion in 2000, compared to $5.6 billion in 1997. The largest class of products within the industry was blood and blood derivatives. By the late 1990s the international sales for blood and its derivatives were approximately $18.5 billion per year. Other major product classifications were vaccines, toxoids, and antigens; biological products for veterinary, industrial, and other uses; and antitoxins, antivenoms, immune globulins, therapeutic immune serums, and allergic extracts.

In the late 1990's the biotech industries reflected a strong focus on financial investment in research and development and numerous alliances between biotechnology companies and between government and the private sector. Often small biotechnology companies relied on pharmaceutical companies to supply approximately half of the capital necessary for company development, according to Ligand's. At the start of the twenty-first century, biotech companies were expected to reap the profits as new products entered the market.

Background and Development

Biological products were created with biotechnology, the scientific and engineering procedures involved in manipulating organisms or biological components at the cellular, subcellular, or molecular level. These manipulations were carried out to make or modify plants and animals or other biological substances with desired traits. Although examples of primitive biotech processes dated back to 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 latter decades of the twentieth century. Some analysts compared the biotech industry's impact on global medical care with the computer industry's impact on communication.

Biotech researchers produced 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 included recombinant DNA and monoclonal antibodies. Recombinant DNA involved 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 were able to select specific genes and introduce them into other cells or living organisms to create products with specific attributes. Monoclonal antibodies were developed from cultures of single cells using cloning techniques. They were designed for use in attacking toxins, viruses, and cancer cells.

The U.S. Food and Drug Administration (FDA) required extensive scrutiny of products developed by biotech researchers before they could be offered for sale. Because the biological products presented for approval often involved new technologies or innovative therapies for diseases that had not been previously treated successfully, the approval process frequently proved to be 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 as a result 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 through the use of Factors VIII and IX.

The earliest FDA approval for a modern biotech product designed for human therapeutic use was given to human insulin in 1982. Human insulin was used for treating 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 had been 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: 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 was to become 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 under the Medicare program. 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 also noted. 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 wining FDA approval for veterinary use included a vaccine against feline leukemia and a treatment for canine lymphoma.

By the end of the 1980s, sales of products developed around recombinant DNA technology exceeded $1 billion according to a study done by Consulting Resources and reported in Chemicalweek. Consulting Resources expected such sales to reach $4.29 billion by 1995 and to more than double again by the end of the century. The industry surpassed those estimates in 1994 by having $4.39 billion in sales—and in 1996 the value of shipments were estimated to have reached $6.15 billion.

In the 1990s 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.

Current Conditions

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 approval of a therapeutic product by the U.S. Food and Drug Administration (FDA) could last as long as 15 years, the FDA sought 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 with a 30-month average per drug before user fees. The FDA fiscal year budget increased to $216 million in 2000, and funding for the Center for Biologics Evaluation rose to $317 million and the Center for Biologics Evaluation and Research.

Global initiatives aimed toward eradicating deadly childhood diseases as well as steps toward the prevention of common illnesses such as ear infections promised thriving growth for the industry through the year 2005. 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 "userfriendly" vaccines by charging a premium for them.

Industry Leaders

One of the leading establishments classified 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. Approval, however, came only after a lengthy regulatory review and initial sales failed to meet projections. These difficulties left the company financially un-stable. 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.

In late 1999 the company manufactured and marketed seven products in the United States: three growth hormone products; a treatment to dissolve blood clots occurring during a heart attack, in the lungs, or in the brain during a stroke; an inhalant for cystic fibrosis; and two cancer treatments for a specific lymphoma and breast cancer. The company received royalties on sales of its products worldwide under a 1995 merger agreement with Roche Holdings Ltd. and other licenses.

Genentech operated from the world's largest research facility devoted solely to biotechnology. With 3,389 employees its 1998 revenues totaled $1.15 billion, up 21.5 percent from the previous year; while net income rose 41.0 percent to $181.9 million. That year Genentech reinvested more than a third of its revenues into research and development. Several new products were in development; a cardiovascular agent was to be marketed with partner Boehringer International GmbH pending BLA approval and Genentech filed for FDA approval of sustained-release growth hormone with partner Alkermes.

Genzyme Corporation, another major producer of biological products, produced products in niche markets, especially those targeted at genetic diseases. Headquartered in Cambridge, Massachusetts, the company produced biopharmaceuticals in a $75-million facility. Genzyme's 1998 sales reached $688.5 million, and they employed 3,500 workers.

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, affecting between 2,000 and 3,000 people in the United States. By 1996 the company began transitioning 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 1998 Genzyme's therapeutics line was broadened with the FDA approval of two new products: Renagel(r), for the control of blood phosphorous levels in late-stage kidney patients and Thyrogen(r), a product for follow-up screening of patients who had been treated for thyroid cancer.

In October 1999 Genzyme entered an agreement to acquire Cell Genesys for approximately $350 million, according to a company press release. The acquisition offered Genzyme access to Cell Genesys's extensive intellectual property portfolio in gene therapy and to the human monoclonal antibody technology developed by Abgenix.

Alpha Therapeutic Corporation is a leading provider of human blood and plasma products is with between $250 and $500 million in sales in the late 1990's and over 2,900 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. In 1999 Alpha Therapeutic was undergoing a major facilities expansion.

Alpha Therapeutic's products included a plasma expander for maintaining blood volume in critical situations, three coagulation factor products for the treatment of hemophilia, and an immune globulin product to replace missing antibodies in people with compromised immune systems.

America and the World

Exports by U.S. biotech companies exceeded imports. According to government statistics, exports totaled $973 million in 1990, $1.19 billion in 1992, and $1.56 billion in 1995. Imports totaled $271 million in 1990, $420 million in 1992, and $613 million in 1995.

Although U.S. biotech companies pioneered the development of the industry, other countries were making significant progress. For example, research for an AIDS vaccine led to increased understanding of therapeutic vaccines in Switzerland. Industry watchers also noted that Japanese scientists were making gains. Some feared that future market domination by the Japanese could parallel the earlier experience of the electronics industry.

Research and Technology

In 1987 the U.S. Patent and Trademark Office announced that it would issue patents on non-naturally occurring nonhuman animals, thus opening the door for patenting biotech-engineered animals. Although some hailed the decision as a boon to biotechnical research, others objected on ethical and religious grounds. The decision also drew protests from animal rights activists and environmental groups.

By 1998, 54 therapeutics were approved to treat human diseases such as heart attack, hemophilia, growth deficiency, diabetes, hepatitis, genital warts, several cancers, and genetic disorders. The Pharmaceutical Research and manufacturers of America reported 350 new medicines in development based on biotechnology, with 140 companies performing the research and development. Of these, 151 were for treating cancer, 77 were vaccines, 29 were for the treatment of HIV infection and AIDS, 19 were for autoimmune disorders, and eight were for blood disorders.

AIDS research also received considerable attention throughout the 1990s. By 1998 60 medicines were available to treat AIDS and related infections. Recombinant DNA techniques had been used to demonstrate the life cycle of the human immunodeficiency virus (HIV) and show how the virus caused AIDS. Recombinant DNA techniques were also being used in the search for vaccines and therapeutic agents for AIDS treatment. Other areas of ongoing research in ways to use DNA focused on heart disease, cancer, Parkinson's disease, and bone marrow recovery in patients following transplantation.

Further Reading

"1999 Washington Biotechnology and Medical Technology Annual Report: Carl Feldbaum CEO Interview." Washington Biotechnology and Medical Technology Online, April 1999. Available from: http://www.wabio.com/ind/annrpt/ceo_feldbaum.htm .

Alpha Therapeutic Company Web SIte, 1999. Available from http://www.alphather.com .

Burton, Thomas M. "Hemophiliacs Sue Firms, Foundation Over AIDS in '80s." Wall Street Journal, 1 October 1993.

Darnay, Arsen, ed. Manufacturing USA. 5th ed. Detroit: Gale Research, 1996.

"Drugs and Biotech Prognosis 1999." Businessweek, 11 January 1999. Available from http://www.businessweek.com .

Edwards, Mark and Joan O'C. Hamilton. "10 Deals That changed Biotechnology." Signals, 17 November 1998. Available from http://www.signalsmag.com .

Folkers, Gregory, and Anthony S. Fauci. "The Role of U.S. Government Agencies in Vaccine Research and Development." Nature Medicine Vaccine Supplement, May 1999.

"Frost and Sullivan-New Combination Pediatric Vaccines Provide Lucrative Market Opportunities." PRNewswire, 28 September 1999.

Genentech. "The Biopharmaceuticals: FDA-Approved Biopharmaceutical Drugs and Vaccines." Access Excellence, 1997. Available from http://www.gene.com.ae .

Genentech. "Genentech, Inc. Scientific Achievements." Access Excellence. 1999. Available from http://www.gene.com.ae .

"Genzyme to Acquire Cell Genesys." Cambridge: Genzyme Corporation, 18 October 1999. Available from http://www.genzyme.com .

Genentech, Inc. Corporate Web Site, 1999. Available from http://www.gene.com .

Genzyme Corporate Web Site, 1999. Available from http://www.genzyme.com .

Heller, Karen. "For Investors, It's More Than Just Hope Now." Chemicalweek, 17 January 1990.

"Hoover's Company Capsules." Hoover's, Inc., 1998. Available from http://www.hoovers.com .

Matveld, H. Edward, and Karen L. White. "Alpha Therapeutic Corporation." 1997. Available from http://www.biospace.com .

"1998 Survey: Biotechnology." Washington: Pharmaceutical Research and Manufacturers of America, 1998. Available from http://www.phrma.org .

Starr, Douglas. "Book Excerpt: Blood An Epic History of Medicine and Commerce." Businessweek Online, 1999. Available from http://www.businessweek.com .

United States Census Bureau. "Statistics for Industries and Industry Groups: 2000." Annual Survey of Manufacturers. February 2002. Available from http://www.census.gov .



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