Drug Truths

A site devoted to teaching about drug discovery and development.

What’s the Key Difference Between Biotech and Big Pharma R&D? Runways.

with 4 comments

As many people try to provide explanations of the relative decline of the productivity of R&D groups in Big Pharma, inevitably the terms “large,” “bureaucratic” and “cumbersome” are used.  As a result, these same people point to the advantage that biotech presumably has because its small size enhances agility, quick decision-making and collaboration.  These perceptions have turned into truisms as Big Pharma has moved to emulate small companies by creating small R&D units.

Biotech R&D is an important component of the discovery and development of new medicines.  However, the perception that this sector is more successful than Big Pharma is incorrect.  As shown by Gary Pisano in “Science Business – the Promise, the Reality and the Future of Biotech” (Harvard Business School Press, 2006), there really isn’t much of a difference in the success rates of either group.  Furthermore, in his blog post “Our Shrinking Biopharma Ecosystem” ( LifeSciVC, 9/9/11), Bruce Booth voices his concerns that the number of Biotech companies is declining as investment funds for these ventures are eroding.  There is a lot of pressure these days on existing Biotechs to deliver, which is a direct result of the venture capitalists (VCs) who have funded these start-ups wanting a more immediate return of their investments.

Thus, it is not unusual when talking to the CEO of a biotech company to ask:  “How long is your runway?” – meaning, how much time do you have until your funding runs out?  This sounds awful, but it may be an unintended advantage that a start-up company has over Big Pharma.

Generally, a Biotech begins by raising funds from a variety of venture capital companies.  These funds are meant to be able to get the start-up to a key decision point, a proof-of-concept (POC) study that supports the original scientific idea that the company was founded upon.  At that point, if the POC study is successful, the VCs can decide whether to invest more funds or to sell the company to Big Pharma to complete the emerging drug’s development.  But the Biotech’s funding is fixed, and its Board of Directors, themselves members of those VC companies that are invested in the enterprise, closely monitor all the company does, especially its “burn rate” , i.e. cash spend.

This type of situation has its appeal.  By necessity the scientists have to be extremely diligent with little room for error.  Every experiment has to be weighed for its cost and potential benefit.  But it also can be debilitating.  I once asked Roger Newton, then the CEO of Esperion, how he chose the doses for a crucial POC study his company carried out.  Roger was developing a potential new drug that had the promise of reversing atherosclerosis.  Roger revealed that the study design was based on the limited amount of drug material that they had.  He wanted to run two doses in his Phase 2 trial, one higher than the other, and so he simply divided the amount of drug that he had with one-third being the low dose and two-thirds being the high dose.  While clearly not an ideal situation, his POC study worked well enough that Pfizer bought his company.  You can argue that Roger was lucky.  If he had less material, his study probably would not have worked.

The Esperion example would have been handled differently in Big Pharma.  The research funds would have been available to make enough drug to run not two doses but more likely three, and there would have been a strong rationale to the dose selection.  While more expensive and time consuming, such a study would have been assured of providing a more definitive answer as to whether the drug worked or not.  Furthermore, had the study failed and it was thought that the knowledge generated in the first study warranted a second trial, this would have been done if the program was deemed important enough.  That was a luxury that Roger didn’t have.  For him it was “one and done.”

In general, this sense of urgency, or more appropriately, this sense of survival, doesn’t exist in Big Pharma R&D.  That is not to say that Big Pharma scientists don’t work hard, or waste resources – far from it.  These are extremely committed individuals.  Furthermore, I am not one who believes that you become stronger by living under duress.  I think that the creative process flows better when you can focus on your work and not worry about getting your next job when your Biotech company’s funds run out in nine months.

However, I think there are some learnings from Biotech that can be applied to Big Pharma.  Setting time limits for programs can instill a sense of urgency.  If you are committed to a research program, and you know it will end in less than a year, you will certainly focus on the key experiments.  Admittedly, you are not threatened with losing your job if all doesn’t go well, but after having committed yourself to a program for one or two years, you want to be sure you’ve done all you can to make it succeed before you move on to a new project.  Having set time points for project progression also is important.  Recently, speaking to a friend who is the CEO of a Biotech, it was mentioned that the Phase 1 start of a key compound was delayed by two months and that the Board was very unhappy.  In Big Pharma, such a delay is not always noted as you are managing a portfolio of over 100 such compounds.  Program progress should be routinely reviewed.  Delays – as well as the occasional accelerated progress – should be duly evaluated.  Finally, realistic budgets should be created and closely monitored.

The term “research management’ is not an oxymoron.  R&D is not some black box from which you hope something worthwhile will emerge.  While it is a creative process, it can be managed, and Biotech lessons can help.

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Written by johnlamattina

October 11, 2011 at 1:04 pm

Posted in Uncategorized

4 Responses

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  1. Thanks for another excellent post, Dr. LaMattina.

    I think your point is well made. Having to budget time and money demands a focus that can ultimately work to be a benefit of a biotech company. I also agree, however, that working under constant duress is usually counterproductive. The question I have is this: Has the current economic climate caused the biotech industry to tilt toward a state of duress? Third quarter VC investing in the life sciences plunged. Big Pharma may be able to provide a cushion that simply isn’t there for a smaller biotech firm.

    John Schneider

    October 11, 2011 at 7:39 pm

    • John,
      I don’t have a definitive answer for your question. You are correct in your assessment that VC funding has dropped this year. I am not sure as to whether this is an aberation or a trend. It is interesting to note that Big Pharma companies have started there own VC-type funds. the most notable one recently announced is from Merck and they plan to invest up tp $250 million. This should help make up ome of the difference. However, this overall drop in funding, if real, is a major concern. A lot of very novel projects begun at start-up companies have been funded by VCs and a lack of these resources will result in a drop in innovation.

      johnlamattina

      October 11, 2011 at 10:57 pm

  2. Thank you for the informative post. I think perhaps we are talking about small companies versus big instead of biotech and pharma. As a recruiter for the industry I have always had to categorize companies in my database as to whether they are “biotech” or “pharma”. It has been hard and is getting harder. Whereas big pharma used to be strictly involved in small molecule discoveries and the original biotechnology companies were about proteins or large molecules, this line has blurred. Some small companies are investigating small molecules. Are they really biotech? And big pharmas are trying to become biotechnology companies with whole divisions working on protein drugs. I have given up categorizing companies by anything but disease concentration now. It really is the size of a company that determines whether it is nimble and creative.

    Another point is that many employees of these smaller risky companies are huge risk takers themselves. This personality will perhaps force a different outcome than someone who is not a risk taker( people at pharma). These people are creative, bright and some of the top scientists in the industry. This different mindset has a lot to do with the perceived difference between “biotech” and “pharma”. It is a shame that so little money is going to these smaller companies recently and that many of the scientists are out of work or very stressed that their company could close any day.

    • Ellen,
      You make some great points. Amgen is considered a biotech, but it is as large as some companies traditionally considered to be big pharma. I should have better characterized the differences as start-ups vs. large companies. Thanks for your thoughtful feedback.
      – John

      johnlamattina

      October 15, 2011 at 10:34 pm


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