Bigtime Biotech Thinkers Steven Burrill and Gary Pisano Agree on Bright Future of Industry, Disagree on How to Build Value

10/8/09

Harvard Business School professor Gary Pisano is considered a leading scholar of biotech industry economics, and has developed a reputation for providing treatises on how biotech firms have been unable to generate profits throughout history. Steven Burrill gives his own critiques in his life sciences banking and investment firm Burrill & Company’s industry reports. These two top minds in biotech united—and at times clashed—during a segment of the MassBio Investors Forum in Boston this week.

Both Burrill and Pisano agreed that the biotech industry is in for some dramatic changes. Burrill, CEO of San Francisco-based investment firm Burrill & Company, forecasted that new diagnostics would outperform new drugs as moneymakers for life sciences firms as the U.S. healthcare system evolves from a system of reactive care to preventive care over the next decade or so. And sounding a familiar drumbeat from his deep analysis of biotech in his book “Science Business,” Pisano said the industry needs further integration to remove some of the inefficiencies that have made developing biotech drugs such a costly and risky business.

But the two collided over how biotech startups should think about building the value. People in the industry should ask themselves how they can create the greatest amount of perceived value of biotech inventions in the shortest amount of time, and then cash in on that value, Burrill said. “It’s never going to be as good as we hope it will be,” he said. This sparked a brief debate between Burrill and Pisano about the merits of perceived versus actual value in the biotech industry. Pisano took the stance that focusing on perceived value could cost the biotech business loss of confidence among investors if they lose money because the promise of a life sciences invention fails to deliver.

“I think over time perceived value and real value have to match up or investors will get wise and stop buying,” Pisano said.

This debate is timely because many biotech companies are desperate for more dollars to continue operations. But the sinking value of companies and other market forces has made fundraising particularly difficult for life sciences firms over the past year. The big elephant in the room for the industry is that there are some 135 public biotech companies with less than a year’s worth of cash in their coffers and 70-odd firms valued at less than the amount of cash they have in the bank, Burrill said. It’s tough to argue with that point. For private venture-backed biotechs, the strained values of their public counterparts are contributing to the poor evaluations for their own fledgling operations.

The good news for biotech entrepreneurs, Burrill said, is that the life sciences industry is … Next Page »

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  • http://www.bioanswers.com gregory simpson

    I definitely agree that the transition from a new drug to a diagnostically (preventative medicine) driven business model is inevitable. We are already seeing those changes by the investments companies such as Affymetrix are making in disease specific diagnostic gene array platforms.

    My issue is what new eduction platforms are going to be needed to support this change in Health care strategy?

    Would venture capital investment in developing training and education models, provide an avenue? Particularly for those companies with compromised cash follows.

    The fact that there are so few opportunities for the broader community to interact with these advanced technologies, much less understand them, mitigates against the long term viability of the current biotech business model.

    In addition, since the health insurance platforms will also be changed, providing education solutions at the payer/payee levels will become more of a premium over the next decade.

    Any comments?

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