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 poised to solve some of the largest global problems of today such as climate change, water and food shortages, the energy crisis, and healthcare. “It’s a fabulous time to be part of this industry and a fabulous time to be part of the development of these sciences,” he said. The bad news is that the business strategies that enabled Amgen and Genentech to prosper do not provide a model for success to startups.
“If you did what we did over the last 30 or 40 years, you would fail today,” Burrill said.
The biotech industry is reeling at the moment from the downward pressure on the price of their drugs expected because of healthcare reform in the U.S. and competition from biogenerics. Biotechs need to do a better job of integrating their drug discovery technologies and expertise in multiple disciplines to lower their risks of failure in delivering products to the market, Pisano said. His concern is that the industry has previously built individual firms around single ideas more often than taking that idea to an existing company with the infrastructure in place to turn it into a profitable product.
“Every idea gets its own firm,” Pisano said. “My concern is a firm is a pretty expensive envelope to wrap an idea in.” The Harvard professor also advocated a business model in which smaller firms stay independent while plugged into a larger network of academic and commercial entities to leverage outside knowledge and resources. (There are several examples of more integrated business models adopted by life sciences startups that are incubated in labs, owned by larger companies such as Pfizer and Cambridge, MA-based Biogen Idec (NASDAQ:BIIB), where they reduce their overhead expenses by sharing equipment and other resources yet maintain core teams that work on their own products like traditional startups do.)
Both Burrill and Pisano are leading minds in biotech, but I thought that the picture that Burrill painted of the future of healthcare was particularly visionary. “I have a somewhat BlackBerry-centric view of what healthcare will be in 2020,” Burrill said. “In 2020, most of healthcare is going to be you or I spitting on a chip that gets put in a cell phone or a BlackBerry, which, much like a GPS system, is going to send information up to the magic computer system in the sky to analyze it and it’s going to be predictive of what’s going to happen to me. Healthcare is going to become an information-centric business driven off a confluence of technology that’s going to change everything.”
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