Tag Archives: biotechnology

The Five Types of Biotechnology Companies

Type One:  Big Biotech

Biotech companies with full product lines and significant revenues that rival those of Big Pharma.  They have sufficient cash from operations (profitable) to support healthy, well-funded research pipelines and to acquire technologies that fit their business strategy.

Type Two: One Trick Ponies

Companies with a single major marketed product and sufficient revenues to support some operations with or without profit.  These companies are often acquisition targets for Big Pharma.  With no follow-on products or pipeline, company executives and investors are counting on the company being acquired before they run out of money, lose investor interest, or their product becomes obsolete.  

Type Three:  Prolific Pipelines

Biotech companies with pipelines of high probability technologies.  Their compounds have a sound basic science premise supported by encouraging preclinical and perhaps even Phase II clinical data.  These biotechs focus on developing a strong regulatory package of clinically relevant “proof of concept” data to support optimism for FDA approval and commercial success.   Single product companies might be acquired outright while multiple product companies may sell individual compounds (or technologies) while leaving the discovery research and early clinical development infrastructure in place.  These companies have recently been the source of compounds for Big Pharma looking to replenish and bolster their depleted pipelines.

Type Four:  Too Little, Too Late

These companies have compounds that will probably work, deliver positive clinical results, and even achieve FDA approval.  Unfortunately, their product will provide no meaningful clinical benefit over currently marketed products (some of which might even be generic drugs).  The commercial potential for these products  is limited.   These companies, nevertheless, continue to persuade investors with slick presentations espousing large market size numbers and an insistence that with “a new treatment” even a small percentage of that large market will result in significant revenues for the company.

 Type Five:  “Promises, Promises”

Biotechs that are developing products based on extrapolation of flawed or misinterpreted laboratory-derived conclusions.  This is different from bonafide discovery research based on progressively revealing evidence of potential safety and efficacy.  Unfortunately, while their story may sound plausible, there is little or no evidence to support hope for clinical or commercial success.  These companies thrive on finding investors who are looking for lottery size payouts from picking a winner where nobody else seems to appreciate or understand the medical and scientific techno babble.  These companies require eloquent CEOs who can tell a story and preach the promise of a promising technology.  Unfortunately, the only winners for this type biotech company are the executive teams who continue to be paid Big Pharma salaries and bonuses for prolonging the unfulfillable promise.

So what’s the point?

There are probably in excess of 4000 companies (private or public) worldwide that consider themselves “biotech” companies. 

             Think about the large number of Type Four and Five companies masquerading as Type Three companies.

             Think about the venture capital, investment, and research grant money that Type Four and Five companies wastefully divert from Type One, Two, and Three Biotech companies.

             Think about investor confidence in Biotechnology when Type Four and Five companies fail to deliver.


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Is the Big Pharma biotech well going to run dry?

The healthcare market is becoming increasingly demanding of the pharmaceutical industry to deliver products that are innovative and that can demonstrate clinically meaningful differentiation from currently available treatment options (including generic drug alternatives) .  This hurdle will become even more challenging as more mass market blockbuster products come off patent over the next five or so years.

The sources for these innovative products have historically been Pharma discovery research, start-up biotechnology companies, and university laboratories.  With a disappointing track record over the past decade or more, pharmaceutical companies have been narrowing their focus and downsizing their research efforts in favor of in-licensing technologies for development.  Looking for reduced risk and higher return on investment opportunities Pharma targets late stage technologies with proof of concept and a high probability of scientific and technical success.  Unfortunately, virtually every pharmaceutical company is now evaluating the same finite supply of technologies to find the few that fit the innovative, late stage, high probability of success profile.

Although one might expect a regular replenishing of the supply, this  should not be taken for granted.  While universities are fertile grounds for therapeutic concepts, targets, and interesting compounds,  few can afford or have the expertise to take potential drug candidates to proof of concept in a regulatory acceptable fashion that will mitigate the risk sufficient to warrant Pharma investment.   As a result, the diminishing supply of investment- worthy late stage programs is about to be exacerbated by the lack of adequate early stage discovery research funding.

At the same time, Biotech companies that can transform these promising technologies into viable development candidates have been starved for cash for the past two years making it nearly impossible to sufficiently fund new projects much less keep current programs adequately funded.  What this means is that the university/biotech pipeline of innovative new products that Pharma is counting on may soon become depleted if it isn’t already.

The obvious solution is for Pharma to accept more risk, invest much earlier, and collaborate.  Given the challenges of drug discovery research and the time required to get programs to proof of concept, Pharma may not have much time before the lack of discovery stage funding creates a gap in the flow of innovative pipeline products far greater than has ever been imagined.


Biotech: A Source for Big Pharma Innovative New Products

Biotech has proven to be a viable source for innovative new drug products.  The healthcare market’s increasing demand for innovation and the need to fill gaps in Big Pharma’s research pipelines in the face of blockbuster product patent expirations have driven Big Pharma to get a lot more aggressive in seeking innovation outside their own research teams than they have been for decades.

There are five critical success factors that could help the relationship between Big Pharma and biotechs remain a productive source of innovative new products for the healthcare market:

  1. Pharma must respect the scientific expertise of the small biotech companies and  resist the temptation to impose its bureaucracy and corporate expectations on the research teams of the smaller biotech companies
  2. As much pressure as there is to get products and technologies to market, it is important to make sure the science of these biotech innovations is allowed to be fully vetted before they are advanced to clinical trials.  Pushing technologies into and through development only to be disappointed by the clinical results in Phase 3 trials  may prematurely, inappropriately, and misleadingly dismiss perfectly good products that are not given a valid scientific chance to succeed.  Small modifications or adjustments in chemistry or better defined or better chosen clinical endpoints might lead to success where failure lurks.
  3. While there is a robust diversity of innovation being worked on at universities and in small biotech companies, the number of projects that will result in commercially viable innovative products is still finite at any point in time. And because innovation often starts in the university lab, Pharma should be looking for ways to finance and collaborate much earlier with basic science programs at universities to make certain the flow of innovation continues.
  4. Technologies and innovative products directed at a particular therapeutic target or disease are frequently dispersed across multiple companies, across different universities, and even across multiple departments within a university.  Pharma should develop programs to help facilitate collaboration amongst these disparate programs and projects to exploit the expertise and increase the probability of finding the best solutions for treating and possibly curing diseases.
  5. Universities and small biotech companies must better understand and appreciate the financial risks Big Pharma is taking in providing support at early stages of development and manage their financial expectations accordingly.