Are small biotechs more productive because they have no other choice?Posted: March 21, 2012 Filed under: Innovation Leave a comment
Over the last few years, much has been written about the poor R&D productivity of the big pharma companies. There is a bit of a controversy as to whether or not small biotechs are truly more productive, but one can’t deny that many of the new drugs being launched didn’t originate from the labs of companies like Pfizer or Sanofi, but rather small, resource-constrained biotechs like Seattle Genetics (Adcetris) or Optimer (Dificid), to give a couple of examples.
Why is this? Many theories have been bantered around such as biotech’s more collaborative culture, the agility of smaller companies or the science vs. financial-focus. I think all of these ideas have merit, but I would like to examine another cause that I think many people overlook: small biotech companies don’t have a lot of other options.
Now before you say “Yeah, I’ve heard this before, it’s do or die at the small biotechs”, hear me out because that’s not quite where I’m going with this.
Let me start with an anecdote: I was working on a diabetes drug at a big pharma company and during one of our meetings the project lead put up a slide that showed how far behind we were compared to the competition. Our lead compound was in pre-clinical testing, while two of our competitors were already in phase II trials. Yikes, we were at least 3-4 years behind. Why was that? It wasn’t because our program was having trouble, but rather because the program had been put on “pause” almost 5 years before while our resources went to other “higher priority” projects. The project lead was understandably quite frustrated as he had been involved in that initial research and was now being asked “can you please do this faster?”
This type of thing goes on all the time at the big pharma companies; with research budgets in the billions of dollars, R&D portfolios are constantly re-evaluated and resources are reallocated. From the top, this makes sense since why would you put $500M into project A, when putting $500M in project B gives you a bigger NPV (at least according to your model)? The problem is, portfolio strategy is not an exact science and when one of those assumptions you made in your forecasting changes next month, your resource allocation can end up looking completely wrong.
Now contrast that with a small biotech company. A handful of scientists and business folks find some promising technology and decided to develop it. They spend months trying to line up financing and when they do, they have a nice pile of cash that has one purpose: develop the idea they started with. Now this isn’t to say that development plans don’t change, because they do, but the thought never crosses their minds “Hey, maybe we should stop working on this compound and try something different, we can always come back to it.” Even when things appear gloomy and failure seems almost certain, there is no real path other than forward. They aren’t competing against another project for resources because there is no other project. There is no opportunity to put things on “pause”. Projects keep going until they either fail or the money runs out.
What is the consequence of this lack of options? Projects that one day seem like a dead-end keep getting funded (for a while at least) and some of those turns out to be great ideas after all. The same project in a big pharma company? It gets shelved and may never see the light of day again.
How can big pharma fix this problem? Well, the answer isn’t that straightforward. As I mentioned, portfolio strategy is not an easy thing to get right and handing over a multi-billion dollar per year R&D budget to scientists to play with isn’t in the realm of possibility either. What we are seeing is a strategy by big pharma companies to cut R&D budgets and use that cash to support academic research and emerging biotechs. Is this the right strategy? Only time will tell.