The Missing Ingredient in Today’s Biotech: Guts

7/11/11Follow @xconomy

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to get much better. People with rare diseases, long ignored by the pharmaceutical industry, have legitimate reasons to feel hopeful about a lot of new treatments in the pipeline.

Third Rock is one clear example of a venture firm that has shown that the “anything is possible” attitude can still be profitable. The firm was founded in 2007 to make really risky, far-out bets on companies tackling things like cancer metabolism, epigenetics, whole new classes of protein drugs, and novel treatments for rare diseases. The final report card isn’t in yet on Third Rock’s performance, since venture investments take a long time to mature, but some of its first portfolio companies like Agios Pharmaceuticals, Alnara Pharmaceuticals, and Ablexis have all struck quite lucrative deals.

The firm’s strategy had to look like insanity to many people during the recession, when the masses were turning conservative. Yet by investing big when others were hunkering down, Third Rock has had its pick of the scientific litter, and shown that it knows how to turn those ideas into valuable properties that others in the industry will buy.

Certainly there are other venture funds out there who have shown they still have an appetite for high-risk, high-reward ideas—Arch Venture Partners, The Column Group, and Atlas Venture are a few—but Starr acknowledged that Third Rock finds it difficult sometimes to find VC firms willing and able to join investing syndicates.

Hearing that sort of thing makes me wonder about the long-term health of the industry. If the industry–VCs, scientists, entrepreneurs, everybody—can’t get the mojo back, then we could be sitting around with a lot of scientific insights in the lab that nobody really knows how to turn into products for human health. Everybody will be fixated on the 100 reasons why something won’t work, and failing to see the one reason why it might.

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  • R. Jones

    You can’t shame investors into shelling out more money to the same people who flushed the first 100 billion down the drain. If the history of biotechnology has taught the investment community anything, it’s that high risk investments provide you with a high probability that you will lose every dime. There comes a time when guts need to be replaced with brains.

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  • B. Wagner

    I think there is truth to the viewpoint that the industry is lacking guts. Regenerative medicine is a younger industry and has more examples of guts. However, when products move out of R&D, they encounter a critical mass of resources hired out of big pharma (freed up from that implosion you mentioned) in manufacturing, clinical development, and senior leadership. A team within a company can have guts (and many do!!), but if the leaders in development areas required to take good preclinical research into clinics lack backbone, then an internal team with all the guts in the world won’t be able to move all the way to the goal line. I think the example of Third Rock illustrates that guts are out there and can be nurtured, and that is encouraging. Perhaps we need to establish an industry-wide “gut-check” procedure to ensure that the “gutless” don’t rule the roost.

  • Landes

    Interesting article. Makes me wonder if the people who possess an “i’m going for it no matter the risk” attitude have left biotech for some other sector? If so, which one?

  • http://engageamerica.com Jesse_EngAmer

    A lack of guts is completely understandable and by no means surprising. The FDA’s overregulation on new medications, medical devices and treatments makes innovation absurdly costly. New pharmaceuticals and treatments are often not even researched due to the increase in approval times. Approval time drugs over the years have increased from just 7 months to a staggering 7.3 years (http://www.fdareview.org/harm.shtml). Fear and inaction drives the FDA’s activities. Approving dangerous drugs creates a huge backlash, but no one hears about the potential lifesaving drugs that are rejected. This fear creates a tendency to reject drugs or hold out for more research when in doubt.

    While all this may be shocking, it’s just another classic example of the FDA’a inability to work effectively with business and consumer groups to develop an effective solution. These regulations create an environment only big pharma can afford and while during the first 86 years of the FDA’s existence their budget was allocated by the treasury department it is now paid from the pockets of companies who want their drug reviewed. New start-ups can’t afford to compete with big pharma. FDA overregulation is largely responsible to this “lack of guts.”

    While the FDA has a responsibility to protect American’s from harm, its attempt over-regulate limits the speed which new solutions can be presented to consumers.

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