Contributors: Barbara Handelin, Ph.D. and Karyn Polak
To learn more about Barbara and Karyn, click here.
The biotech and biopharmaceutical (biomedical) industries are failing us, medically and economically. We have the science to serve us better; we need the right market participants in order to truly deliver greater coverage, access, and outcomes.
You’ve seen the headlines: Drug pricing in the United States is out of control.1 Few technologies for early detection of life-limiting diseases (e.g., cancer and heart disease) or low-margin products like vaccines and antibiotics are receiving adequate investment, despite evidence these inventions have saved more lives than novel therapies. Drug shortages in the United States are at a record high.2 And pharmaceutical companies are saying the quiet part out loud and proud now – that some expressly choose to hold back one promising drug in favor of another already-patented one in order to maximize profits.3
The biomedical industry has received steadily greater investment since its origins in the 1970’s. In the United States, venture capital investment alone in biotechnology companies steadily increased from $1.5 billion in 1995 to $16.8 billion in 2020. Yet despite benefiting from billions in capital investment, the biomedical industry produces products that address less than 10% of all disease conditions: primarily those that can generate blockbuster profits and spectacular returns for private or public shareholders. This critical industry is overlooking, or leaving behind, 90% of society’s medical needs.
The “Why”
It isn’t because physicians are holding medicines back.
As long as the evidence of effectiveness is openly available to physicians and as long as their patients can afford a test or treatment, physicians are of course anxious to offer any and all new ways to diagnose and treat disease.
It isn’t because the public health agencies don’t recognize the need.
In fact, public health agencies and other health care advocacy organizations (e.g., The American Cancer Society) track and publish data on the positive and negative effects of early detection and standard treatment protocols on overall health and wellness.4 They’d much prefer, and indeed they advocate for, more vaccines and other preventive or early detection methods to catch cancer, heart disease, and other major diseases before they become intractable.
It isn’t because we lack knowledge or technology to solve far more medical needs.
In the late 1970’s, breakthrough discoveries of genes and molecular processes were beginning to reveal the biological basis of disease. From then on through the early 2000’s, biotech companies were founded on highly speculative discovery science, which required huge leaps of faith that glimmers of insight into human molecular physiology could be translated into safe, effective medicines, diagnostics, or preventives. The science was so nascent in those days that selection of target investments was later recognized as little more than breathing on dice at the craps table: the probability of success of any given invention/discovery being translatable into approvable products was unchanged by the careful selection of one idea over another, since there were too many unknowns for rigorous prediction of success.
Where to find such high-risk capital? A few inspired venture capitalists recognized a new speculative investment opportunity in those promising discoveries. High-stakes bets on high-risk ideas coming out of high-profile universities could be fertile ground for rapid wealth creation. Venture capital providers were happy to oblige for this potentially high reward.
As a consequence of 30 years or so of free-flowing (albeit high-cost) capital, our scientific understanding of molecular and physiological systems of disease advanced significantly. What resulted was a tsunami of data, discoveries, and understanding, flooding academic and industry journals with overwhelming knowledge. By the mid-2000’s, the global biomedical research and development (R&D) system was not just robust but was in fact drowning in millions of potential treatment, detection, and prevention candidates. With a much more mature and deep pool of scientific and technology knowledge in medicine, and the potential to meaningfully addressing a wide swath of the molecular mechanisms of human disease, the biomedical assets available today are much less of a ‘wild card’ bet for funders.
So, what’s the problem?
It's the financialization of the biomedical system that is failing us.
Despite their lowered risk profiles and high potential for medical impact, significant volumes of undervalued medical product candidates – ‘assets’ in the market vernacular – sit on a shelf or are abandoned rather than being pursued with investment support. Instead, capital continues to flow only in pursuit of products with the highest margins and biggest addressable markets, an often fatal misalignment of capital and perceived risk. The capital cost remains high both directly - ownership, control, financial expense – and indirectly in all that it leaves behind.
Since the inception of the biotech industry, each entrepreneurial company accepting the speculative capital of venture firms has given over two critical aspects of building a business: (1) ownership control, as the early to mid-stage capital sources take preferred shares and a majority stake and (2) control over product portfolio selection, now almost exclusively devoted to products that can be forecast to deliver maximum profits. Maximized profits in these companies are achieved primarily through the market exclusivity granted by the Food and Drug Administration (FDA) or the European Medicines Agency (EMA) and enforcing patent rights that together allow for unchecked initial price-setting and uncapped yearly price-escalation for their proprietary drugs.
Meeting the demand for this type of capital requires short lead times to capture greatest market and investor returns, often abandoning promising medicine in favor of speed to market. Rather than valuing breakthrough biotech on medical impact, the market values it based on profit impact. And there are only so many drugs and diagnostics that will ultimately maximize lifetime profits – and so many more that we need to maximize the number of people served and diseases avoided.
Why isn’t there a vibrant marketplace filled with companies working away at the 90% gap, at an affordable cost and accessibility to all? Companies engaged in producing the 90% of medical needs need lower cost capital invested with longer horizons that can reliably generate good (i.e., business-sustaining) margins.5 What will it take to build the asset owner/asset manager system that seeks lower risk (yet high medical impact) investment opportunities with commensurately lower returns on their capital?
An impact-first, impact-funded industry seeking meaningful progress to address that 90% -- built with enterprises focused on caring for the greatest number of people and treating the greatest number of health challenges possible – is what’s needed. In Part 2 of this article, we’ll share a blueprint for constructing this vision.
Contact Barbara at: [email protected]
Contact Karyn at: [email protected]
References
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“At least 14 essential generic cancer drugs are currently in shortage, forcing patients and doctors to make difficult decisions to delay or ration first-line treatments, or accept second-best treatments. ADHD treatments, antibiotics, children’s acetaminophen, and many other critical medicines are also in short supply.” https://www.statnews.com/2023/08/09/drug-shortages-public-pharma-option/
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An American Cancer Society report on 30-year reduction in cancer mortality 2022 (reference) showed that the 30% reduction in cancer mortality over 30 years was primarily attributable to early detection tests (mammograms, PSA, and colorectal screening) and smoking cessation – none of which were developed by the biomedical industry.
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How can we declare that margins and ‘customers’ will be reliably attained? Because medicines don’t compete for favor with their ultimate ‘customer’: the patient. Patients need medicine for their ailments; they aren’t choosing which brand to buy; they are prescribed what is needed. Therefore, effective medicines that address unmet medical needs will always generate revenue and savvy producers will be able to make them with suitable margins to sustain viable businesses.