A Conversation with Nancy Chang OnTheRecord Taking the Pulse of Biotech

Biotechnology is risky business. For every start-up that succeeds, between 15 and 20 fail. for HIV, just to prepare the materials alone cost $50,000 per patient, not counting our Houston Branch board member Nancy Chang beat the odds with Tanox Inc., a 20-year-old costs or our time. biotech company that has agreed to be acquired by industry behemoth Genentech Inc. When Tanox first started, I put every- thing I had into the company. We didn’t pay ourselves salaries; the company’s first tele- Q: With such a high failure rate, are biotechs phone system was built on borrowed mon- at risk of extinction? ey. But we did what we had to do to make progress, to grow the company, and these A: Just the opposite. Pharmaceutical compa- were gutsy, risky moves. nies are realizing that it’s so expensive to discover new drugs that they’re relying more Q: How has globalization changed the and more on biotechs for the discovery, de- pharmaceutical industry? velopment and concept phases. Look at it as Big Pharma relying on the little guy. This A: Every biotech company that starts out to- way, they don’t have to pay for the failures. day is global by necessity. You have to learn Eventually, they partner with the smaller how to do business all over the world, to do biotechs that do pass muster. research and development work outside the U.S., to have partnerships with international Q: You came to the U.S. from Taiwan at age companies, to deal with different regulatory 23, earned a Ph.D. from Harvard and started a agencies in other countries. You have to ap- biotech company. How did that come about? preciate that the world is small, but you have to look at it as one big marketplace. A: I was a professor at the Baylor College Part of it is the Internet. When you do of Medicine. At the time, we discovered an research, everything you publish is on the antibody that neutralized the HIV virus. The Internet. The pace of turning knowledge department chairman was so excited about and new technology into a commodity has the discovery that he suggested we commer- become faster, in a way, because so much cialize it. information is at your fingertips—all you My husband at the time was just begin- includes a viral-entry inhibitor antibody to need is the desire to know. ning to work on the idea of developing an treat HIV/AIDS. In 2006, Tanox completed a The industry still has a good profit mar- anti-IgE as an allergy treatment. IgE is the phase 2 trial for this drug showing that it is gin, so people naturally want to be in the causative agent in allergy diseases. During safe and effective in reducing the HIV viral field. In China, India and other countries, that time, we also needed additional space load in AIDS patients. there are both the profit motive and the for our laboratories. All of these things need for better medicine at cheaper prices, seemed to happen at the same time, and we Q: What are the biggest challenges facing a and they are investing in this industry. thought, “Why don’t we start a company?” biotech start-up? We formed Tanox in 1986 to focus on Q: Will China emerge as a leader in the both HIV and allergies. We took the allergy A: As inventors, we take all of the risk in the pharmaceutical industry? drug from concept to market. Back then, beginning. In the end, we partner with big- the idea of creating a molecule that could ger companies to get access to the resources A: China may have the ambition, but I don’t take away the causative agent in allergies we need to make a drug a reality. believe its focus at this time is to develop the was revolutionary and counter to the central Take Xolair. It took us 17 years of steady next generation of drugs. North America will dogma. work to develop. We took risks and staked continue to be the leader for new medicine Twenty years later, after partnering with our careers and Tanox’s future on this one in the next 10 to 15 years. Novartis and Genentech, we had a drug drug, taking it from beginning to end. We What I believe the Chinese would like named Xolair. It was the first antibody ever are fortunate that the drug worked. Some- to focus on is providing better health care approved by the Food and Drug Administra- times the drugs may not work, and people’s overall to its people. In doing so, China tion to treat moderate to severe asthma. In careers can be over. will expand the market for the current gen- 2006, Xolair sales were close to $450 mil- To initiate a human study requires a ma- eration of drugs. Even if you’re just talking lion worldwide. In addition to Xolair, Tanox jor commitment for a small company. For in- about 1 percent of 1.3 billion people, that’s a now has a solid pipeline of new drugs that stance, for our very first human clinical study major market in the making. What is of real

SouthwestEconomy 8 FEDERAL RESERVE BANK OF DALLAS • MARCH/APRIL 2007 “Every biotech company that starts out today is global by necessity.”

concern is what will happen to the Chinese continue to come people as they become more affluent and to the U.S. seeking prosperous. The incidence of chronic con- better opportunities; ditions such as cardiovascular disease and they are the force be- diabetes will increase, and that will require a hind creativity in the lot of resources to manage. U.S. But this, too, is changing. What if, in Q: So the opening up of China and other the future, people no countries has impacted how the pharmaceutical longer want to come industry has evolved? to study in the U.S. or no longer have to? A: It definitely has. Before, a majority of the What if the knowl- discovery process was done in the United edge base stays home? States. Now, a lot of the processes are being At some point, we will have to face the tre- handle drug distribution or provide proper offshored to India and China. Many compa- mendous risks of brain drain. medical and nursing services to patients suf- nies are now doing the early phases of drug fering from this terrible disease. screening, proof-of-concept studies and even Q: How can the U.S. maintain its edge in the early phases of clinical development in medical research? Q: Clearly, the challenge remains for your emerging markets. industry to continue fighting against the Governments outside the U.S. allow you A: There is a price to pay for being the in- disease. more leeway for drug testing and research. novators, but it is also something we have to Countries like the United Kingdom, Singa- protect. We cannot look at everything as an A: HIV won’t be eradicated in our lifetime pore, China and South Korea are now lead- economic calculation. We have to preserve because of the way the virus stays in the ing the way with stem-cell research, aiming creativity and help people understand the infected cells. It’s incorporated into the host to build their reputations, competence and benefit of cross-fertilization across different DNA and hides there until the patient’s im- competitive advantages in this promising disciplines. Often, new ideas come from a mune system weakens. Patient survival de- new field while hurdles to U.S. research re- fresh look at old problems. pends on the ability to stay ahead of the main. We need an education system that en- curve. Adding more challenge to this situ- Anywhere there are major bottlenecks courages students to go into science and ation is that the virus keeps changing and in the U.S., the industry looks to other coun- technology, to do more than manage pro- can evade all therapeutic intervention. In the tries to get things done. If advances are made cesses, to do more than be a part of a service U.S., maybe 25 to 30 percent of the virus is overseas, these other countries may gain the industry. From grade schools to universities, resistant to all prevailing drugs. upper hand. creativity must be fostered in order for sci- HIV/AIDS is a disease in which patient ence to succeed in producing the next gen- advocacy has exerted strong influence on Q: What does the future hold for your industry eration of medicines. drug development and usage. Patients who in this country? have AIDS often live with the virus for years. Q: Where could globalization accomplish more? Many are intelligent and knowledgeable A: The good thing is that the U.S. is still the about their disease and the biology of the one place where people value creativity. A: Until just recently, globalization has not HIV infection. They know the drugs’ effica- There are savvy investors and hard-driving impacted the fighting of AIDS. It is clearly cies as well as their toxicities and want to entrepreneurs in the U.S. who are willing to a matter of the haves and the have-nots. see preventive vaccines and more effective invest their money, time and expertise on Today, you can carry the virus and expect antiviral therapies developed. So they have innovative ideas in new drug development. to live a full life—if you have the financial become advocates in the development of This is one of the competitive advantages wherewithal to handle this chronic, manage- drugs to treat HIV. that will keep the U.S. at the forefront of able disease. We have come far in developed And that’s a good thing. I believe we pharmaceutical development. nations. could accomplish more with other diseases What worries me is the U.S.’s ability to As for the rest of the world, patients given the same level of interaction and ad- maintain its position as the center of creativi- from underdeveloped countries have little vocacy. ty and innovation. For now, most people still or no access to these expensive drugs. Be- have to come to the United States to get edu- yond the fact that they cannot afford the cated, which is where it all starts. The best medicines, these countries also don’t have and the brightest of the developing world adequate health care delivery systems to

FEDERAL RESERVE BANK OF DALLAS • MARCH/APRIL 2007 9 SouthwestEconomy