The Conundrum of the Life Science Industry

Post by Stephanie Marrus

Flashback:  It’s 1992, the year I opted into the biotechnology industry. Things were steaming. The two year old company I joined, founded by a former Merck researcher, had just gone public at an outrageous valuation without even one drug close to clinical trials.  Wall Street loved us.

Everyone was buzzing about the promise of biotech and the revolutionary advances from new technologies that would rationalize the haphazard process of discovering new drugs.  Instead of mass screening of natural products such as tree bark and plants to discover molecules that might have therapeutic benefit, we could structurally design drugs using computer models and algorithms.  Hallelujah! Structure-based drug design finally gave us a 20^th century approach for drug discovery. Now we would cure cancer, eradicate other diseases, change the course of human healthcare and get wealthy by doing good.

Fast forward twenty years to 2012 and the Biopharma/Biotech industry is languishing. The reasons are many: 

• An appalling number of drugs fail in clinical trials. It turns out that the human body is even more complex than we previously thought.
• Promising new technologies that we expected would increase our hit rate produced disappointing results. Some analysts even argue that focus on these technologies has hurt productivity by taking our eye off the tried and true natural screening methods that ultimately worked, albeit slowly.
• The FDA has tightened its criteria for approving new drugs and fewer drugs pass the hurdles. Some American companies opt out of our process, moving offshore for clinical trials even though lack of US approval means they cannot market here.
• Investors are deserting the life sciences space. Thanks to poor results in venture capital portfolios, less risky technology plays are favored. If investors do invest in life sciences, the money flows to” derisked” deals: drugs in late stage clinical trials, diagnostics, healthcare IT. Truly innovative (read risky) science doesn’t get funded.
• Venture capitalists are shutting their doors. Ten year venture capital performance has been dismal. Capital is drying up as limited partners aren’t re-upping for the next fund. Some estimate that 50% of today’s life science VC’s will be gone in a few years. Lack of VC funding is starving companies at early and middle stages, the most needy.
• Pharmaceutical companies, a critical source of Biopharma funding through partnerships, strategic investments and acquisitions, need late development stage products to replace their blockbusters that are losing patent exclusivity. In aggregate, small Biopharma companies, the most productive source of innovation, are working through an early stage pipeline. This results in a mismatch between Pharmaceutical need and the Biopharma offering.

Entrepreneurs who will seriously consider starting a drug discovery and development company given the lack of funding, low probability of scientific and development success, extended timeframes and the FDA have their sanity questioned. Similar challenges exist for medical device companies in smaller scale.

It is in this environment that we must ask: What can we, as an industry and a nation do? Should we roll over and accept defeat? Should we abdicate one of the most important industries in the world, one that serves human health? Are we willing to accept the end of truly innovative drugs that may alter the course of disease? If there are innovative drugs developed, what if we cannot access them in the US because they aren’t approved here? 

Defeat is not an option.  Many have proffered reasons for the demise of the industry. Viable ideas for solving our problems are offered less frequently. We know changes at the policy level need to happen, the most obvious being the FDA, but these will be mired in political process and take time.   

We are blessed with a core of experienced and savvy entrepreneurs, scientists and investors who know this space intimately. New ideas are being generated by the world’s top universities, medical schools and serial entrepreneurs. We should be able to find the business models and funding strategies to revitalize the industry if we apply enough brainpower to the problem. Startup America Partnership is bringing together life science participants to brainstorm ideas that can increase the number of new firms and accelerate the growth of existing firms. Let’s get our minds around this.

Stephanie Marrus heads the Life Science Working Group for Startup America Partnership. She is a business consultant to life science companies and an international entrepreneurship educator.