Last month, we attended the Business Association Italy America event entitled “Beyond Borders: The Age of Global Biotech,” in San Francisco. The event hosted a panel featuring several luminaries that had not only created successful biotech companies, but the biotechnology industry itself.
Not surprisingly, they provided interesting insights on the future of the science and the industry both during the panel discussion and in our direct conversations with them afterwards.
Pitch Johnson asked the central question of the debate, namely whether or not the current biotech downturn signaled a temporary or permanent change. Johnson, the founder of venture investment firm Asset Management, is one of the scions of venture investing (dating back to 1962 with Bill Draper, father of Tim Draper who founded Draper Fisher Jurvetson [DFJ]). He’s also among the initial investors in biotech stalwarts like Amgen and Applied Biosystems (now Life Technologies).
Responding to Johnson, David Low, a Managing Director at Lazard Freres, opened on a brighter note – specifically that the biotechnology industry comprised a handful of startups 30 years ago and now consists of dozens of billion-dollar firms. But his outlook for the future was bleak: “The U.S. public markets are not deep enough to fund biotech in the way they have in the past. In the next couple of weeks we will see the IPO market severely tested. VeriStem came to its IPO today with 80% already signed by non-public market investors, which gives an appearance of scarcity and leads to success, but not every firm can do that.”
Low was not merely reflecting the pessimism of the battered financial markets. Academic and scientific experts felt the same fears. Douglas Crawford, Associate Director of UCSF’s QB3 and Managing Director of Mission Bay Capital, pointed out that “human biology is incredibly unforgiving” as a reason that biotech faces such “dark times,” as the cost for developing new drugs is approaching $1.5 billion, and “formerly gold-standard tests like PSA tests to detect prostate cancer are now being shown to have little value or even be detrimental.” He explained that for universities, “there is a growing recognition that publishing scientific papers is no longer sufficient. We need to get involved in commercialization, which is one reason that UCSF started Mission Bay Capital.” He also mentioned that even in academia, competition with China is a growing challenge: “UCSF is currently in a pitched battle to retain three great researchers, each with decades of tenure. Peking University is [likely] going to win two of them and possibly the third.”
Roberto Crea, one of the scientific co-founders of Genentech, talked about his early days at the company 35 years ago (including tales of his roommate Stanley Boyer reading Machiavelli to glean management advice). He has more recently launched biotech startups like CreAgri and ProtElix.
Building on Crawford’s comments, he talked about the emphasis that China is putting on agricultural and industrial biotechnology (Client registration required) while the U.S. kicks foreign graduate students out of the country as soon as they are able to join the workforce. He also described his excruciating (and ultimately unsuccessful) attempt to start a new biotech company in bureaucracy-encumbered Italy. But he emphasized that the U.S. still holds opportunities, and as an expatriate Italian, he still believed that his adopted home of the United States offers the best environment to start a new biotechnology company.
In sum, a group that has seen biotech since it was a baby now has serious doubts about the industry as an adult. Except for the heartfelt passion of an expatriate for his adopted country, all of them saw big problems with few solutions for European and U.S. drugmakers, and a grim prognosis for the future. As we’ve noted previously, the incumbent drug industry – from small-molecule Big Pharma to biodrug startups – are facing challenges that are daunting at best and likely to be insurmountable (Client registration required). That doesn’t mean that medicine will go away. But as these veterans acknowledge, it will likely take the form of a very different industrial constellation than we see today.