| In very simple terms, drug delivery can be defined as the process of releasing a carried bioactive agent at a specific site, at a specific rate. The maturing drug delivery industry is evolving rapidly, nearly unrecognizable from its humble beginnings in the 1960s. This $40-billion market has seen double-digit growth for the past two decades, and the industry’s success has spawned intense competition. However, times are tough in the pharmaceutical industry, due to the following: · The voluntary and forced withdrawal of several blockbuster drugs from the world market · A declining number of new drug approvals in the U.S. and abroad · Patent expirations on highly profitable drugs are threatening the earnings potential of several companies · High industry margins are spawning competition from generics · And perhaps most important for many readers of this report the average drug delivery stock has plummeted roughly 55 percent during the last five years, according to Deutsche Bank Securities. What is Happening to the Pharmaceuticals Industry? While drug delivery has traditionally been seen as a drug lifecycle management tool, several pharmaceutical industry leaders are now focusing their efforts upstream in pursuit of sustainable growth. Many companies now work with drug discovery companies very early in the development cycle, or are pursuing their own product portfolios. This type of collaboration requires drug discovery companies to work together more intimately with drug delivery companies, resulting in a wave of new opportunities and challenges. In a sentence the drug delivery industry is at an inflection point in its celebrated history, and rapid change is inevitable. What is Happening in Nanotech? Simultaneously, the world’s investment in nanotechnology is bearing fruit. Industrial nanotech’s origins can be traced to a wave of government-sponsored science the early 1990s. The proverbial torch is now being passed to corporations, which NanoMarkets believes will outspend governments in nanotechnology R&D within two-three years. Several nano “pure plays” have found liquidity for their principals, and many early nanotech start-ups have evolved into highly profitable growth-phase companies. Though one must be wary of hype, the business of nanotechnology is alive and well. What is the Outlook for the Pharmaceuticals Industry? As the pharmaceutical industry matures, meeting Wall Street’s aggressive growth expectations becomes increasingly difficult. Many companies will continue to grow via consolidation and acquisition. Over the next decade, several blockbuster drugs are expected to go off patent, resulting in an estimated loss of $30-40 billion in annual product revenues by several of the world’s largest drug companies. This change is partially responsible for acceleration of the industry’s constant need to “build the pipeline” of new compounds, and its subsequent need to rapidly enter new markets. What Will be the Effect of New Drug Delivery Systems? New drug delivery systems will help alleviate some of these concerns by extending product and patent lifecycles, creating New Chemical Entities (NCE’s) via reformulation of existing and/or orphaned compounds, and subsequent creation of value for shareholders and consumers. Mergers and Acquisitions NanoMarkets believes that merger and acquisition (M&A) activity will increase for nanotechnology-enabled drug delivery companies over the next five years. The December 2004 acquisition of C Sixty Corp. by Carbon Nanotechnologies is an example of this phenomenon, where both companies have impressive intellectual property portfolios. The M&A trend is being driven by the prospect of a revenue windfall, increased global competition, a greater reliance on outsourcing in the drug delivery industry, strong capital reserves within the industry, and increased regulatory pressures from governmental entities and the general public. Will Nanotechnology Cause Revolution in the Pharmaceuticals Industry? Several commercial opportunities exist at the intersection of nanotechnology and traditional pharmaceutical R&D. Though several companies are generating revenue today, a large degree of uncertainty remains on exactly what affects the industry will see over time. Nanotechnology is rapidly emerging as an answer to pharmaceutical industry formulation challenges, including: · Solubility enhancements · Reduction of R&D and manufacturing costs · Quicker time-to-market (TTM) for new drug candidates · Greater targeting ability that may allow for lower dosing requirements, potentially lessened side effects, and perhaps an answer to the ever-present customer demand for increased user-friendliness and convenience. | 
