“Biotech is moving from the age of information to the age of imagination.” Speaking at Biotech Showcase™ 2017, Dennis Purcell, founder and senior advisor at Aisling Capital, says the biotech industry needs a new approach that approximates the type of disruption that Uber brought to transportation and Amazon and eBay brought to retail sales. Instead of embracing those lean models, healthcare is overloaded with middlemen.
Rather than tweaking the current system or continuing business as usual, Purcell challenges the industry to move toward an era of imagination and lay the groundwork for the next 10 to 15 years. He is doing his part to shift risk from companies and payers to the financial market, preparing for the launch of a healthcare futures market for diabetes later this year. Oil, gas, corn, wheat and soybean markets made similar transformations decades ago, stabilizing pricing and expanding opportunities in those sectors. Now, he says, it’s time for the healthcare industry to do that, too.
Great management vs. great science
Regardless of how the healthcare futures market turns out, biotech executives need to develop strong skills to manage in this changing environment. “We, as an industry, don’t embrace technology like we should,” says Daniel Burch, VP Global Medical Officer, PPD® Biotech. For example, digital health solutions are being developed to use patient data in new, more efficient ways. It’s getting investment attention, but it is unclear where, exactly, digital health fits into the overall industry. Emerging solutions such as monitoring patient adherence, engagement and some physical statistics have promise, but the biotech ecosystem is taking a cautious approach.
That’s partially because drug developers must be risk adverse in terms of patient health, but there’s an inelasticity of supply, Jason Rhodes, partner at Atlas Venture, points out. “Despite all the IPOs and mergers and acquisitions, only about 110 companies were created last year in the US.” That figure has been consistent for years. In contrast, he cites a 400 percent increase in high tech and software companies. “The breakthrough science is necessary and far from sufficient.”
In selecting companies for investment, Rhodes favors those driven by science to those with well-seasoned managers. So does Sam Hall, principal at Apple Tree Partners. While good management and good science both are important, Rhodes and Hall both look to the science.
What’s behind flavor of the year investments?
In 2016, platform technologies, rare disease and oncology were favored investments. Neuroscience and cardiovascular developments were out of favor, despite huge needs in those areas. The reason, the speakers agree, is based on a risk/reward analysis. As Hall explains, an abundance of data for well-characterized disease or molecules derisks projects. Significant unmet needs suggest a large market, which affects pricing and reimbursement decisions. “Your ability to be reimbursed is eroded if your solution isn’t better than your competitions’ product,” Hall says. The days of products that offer only incremental benefits are gone.
Investors want to diversify their investments but, nonetheless, some areas become overfunded. For instance, money has rushed into immune-oncology. “The next set of investments won’t be for those technologies, but for the therapies that follow them,” Rhodes predicts.
Investors may consider vertical or horizontal investment models, or rely on companies’ external partnerships to reduce their risks. Atlas, for instance, likes “built to buy” companies that already have strong development partners to help them hone the science, Rhodes says. “These pharma partners bring insight and expertise, and provide equity or non-dilutive funding that other investors use to mitigate the risks.”
While traditional venture capital funds invest with their shareholders in mind, new sources of revenues are emerging. Sovereign wealth funds are starting to come into play, allowing companies to remain private. “We haven’t seen this yet for the biotech market,” Purcell says.
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