I’ve discovered a hidden gem! From Breakthrough to Blockbuster—The Business of Biotech. A book about the players, the numbers, and the challenges in the biotech industry.
Here are 10 key insights for biotech leaders:
1. Molecules + Money = Medicines
The scientists need the financiers; the financiers need the scientists. It’s a marriage, a 100% symbiotic relationship. To create new medicines, both sides must be able to see the world through each other’s eyes and work well together.
“Biotech companies are the offspring of a marriage of convenience between science
and money. These two essential components are jointly invested in the pursuit of profits and promising medicines.”
2. Seven of the top ten best-selling drugs in 2019 came from biotech companies.
No matter the hurdles, biotech companies have clearly disrupted the drug development market…
“An analysis of all products approved by the Food and Drug Administration (FDA) from 1998 to 2016 indicates that biotech companies created nearly 40% more of the most important medicines for unmet medical needs and did so with much lower overall costs. These breakthrough products have often become blockbusters as well. Most of the ten best-selling medicines in 2019 originated in biotech companies.”
3. Persuasion is the most important science.
And your persuasive edge will come from deeply understanding your partners:
• agenda, goals, motivations
• mindset
• concerns, fears
• internal structures, decision-makers, politics
“One of the key reasons for identifying these influential and important groups is to emphasize the need for entrepreneurs to be able to speak convincingly to each in their own language. As entrepreneurs deal with these groups, they will rarely, if ever, have the upper hand. Accordingly, they will need to manage the relationships primarily by articulating persuasive arguments showing that if the stakeholders can help the company fulfill its mission, the stakeholders will, at the same time, be successfully achieving their own goals.”
4. It doesn’t cost $1.4 billion; it costs $2.56 billion if you include time costs!
There’s a lot of debate on what you should include or exclude when you calculate drug development costs but no one would argue with Einstein that compound interest is the 8th wonder of the world!
“If all the money that is spent in drug development were instead invested in stocks and bonds, the investor would have a lot more money at the end of a dozen years than at the beginning because of the financial miracle of compound interest. For example, money invested at a 10%
compounding interest rate will double just about every five years.”
The average time from preclinical research through FDA approval is 15 years. Why would an investor tie up their money with you and not put it in something else? 15 years can do financial wonders. Think carefully about potential acquisition/exit points and where those fit in along your trajectory to keep selling your story to investors.
5. If only a drug would cost only $2.56 billion…
Well, the following puts things into further perspective…
“While the lost opportunity costs essentially double the overall costs of drug development, another factor plays an even more dramatic role. The single largest cost associated with the development of any successful pharmaceutical product is the cost of all the unsuccessful drugs that had to be discovered, developed, and tested to find the one that finally works.”
6. Drug development costs are constantly rising.
Forget Einstein for now. If we look at the “real”, out-of-pocket drug development costs, those have grown from $0.52 billion in 2003 to $1.4 billion in 2013 (both figures in 2013 dollars). That’s a 166% increase in a decade!
Drug development costs are going up mainly because clinical failure rates are also going up. The chances of getting FDA approval in 2003 were 20% whereas in 2013 only…12%. And here are some reasons for that:
“Researchers and industry analysts have offered a number of reasons that could explain this drop: the “better than the Beatles” problem, where new drugs are designed to be not only as good as but also better than the best current standard of treatment; the focus on more challenging targets and diseases; the increasing complexity of clinical trials and the hurdles for regulatory approval as well as reimbursement pressures (for example, demonstrating benefit with respect to comparator drugs rather than placebos).”
7. Your job is to keep selling your stock!
Back to the art of persuasion… I loved this quote by my fellow Greek Stelios Papadopoulos, aka the “Godfather” of biotech:
“One veteran investment banker, Stelios Papadopoulos, said to a meeting of biotech executives one of us attended, ‘Until you get a product on the market, all you’ve got to sell is stock.’ No matter how exciting the company’s scientific work may be, the money needed for those research and development efforts has been as important to the company’s overall success as the molecules being developed.”
8. No party has a secret advantage in biotech-pharma alliances.
Deep knowledge of technology does not provide better insights into the ultimate value of the product. No one can better predict which new treatments will make it through the Valley of Death.
“In something as unpredictable as drug development, there is rarely a chance to have a secret advantage. There are so many unknowns in the development process that neither buyer nor seller is likely to have an asymmetrical edge. This inability of all parties to predict the future commercial value of a potential drug accurately is not limited to early-stage programs. It can be seen even in the licensing of products that have completed nearly all stages of development.”
9. Pharma is slow… adjust expectations.
It takes pharma a lot longer to reach an authoritative decision than the biotech company expects, even on matters where both companies are fully aligned.
“For the biotech company, the partnered product may be the crown jewel, but within a large pharmaceutical company that is managing dozens or even hundreds of ongoing R&D projects, many decisions about this particular alliance require the approval of committees responsible for evaluating all individual research programs in light of the company’s numerous other opportunities and obligations.”
[Btw, this applies to the early days too. You should be developing relationships with pharma from Day #1. No responses or initial interest says nothing about the value of your technology. They’re slow. They’re busy. Something else has their attention. Persevere.]
10. The future of biotech is in the hands of public and private healthcare payers.
If governments and insurance companies can’t pay premium prices for drugs, institutional investors won’t invest in VC funds, which means there’ll be no VC funding, no biotechs, and no new drugs.
“To sustain venture investing in biotechnology, the venture capitalists, and especially their investors, need to be confident that the people making decisions at the pharmaceutical companies or investment funds that make those exits possible will continue to believe two things: first, that a product that beats these daunting odds will be approved for commercial sale by the regulatory agencies in the most important pharmaceutical markets; and second, that such an approval will create sales of the product at high enough profit levels to provide an attractive return on the very substantial investment required to pay for this successful drug development effort plus pay for all of the unsuccessful ones. If these beliefs no longer seem reasonable, then the flow of money pouring into biomedical research will screech to a halt,
and the associated economic growth will stop along with it.”
To me, that last point was fascinating and humbling at the same time, because it unites everyone in biotech, especially after August 2022 when the Inflation Reduction Act (IRA) was signed. Because although everyone has their own agenda, everyone wants the biotech industry to thrive and counts on policymakers for that.