Skip to main content

Business and Markets

Startups vs. Big Pharma

Bruce Booth has opened up the number of authors who will be posting at LiveSciVC, and there’s an interesting post up on startups now from Atlas Ventures’ Mike Gilman. Edit: nope, my mistake. This is Bruce Booth’s! Here are some of his conclusions:

here’s a list of a few of the perceived advantages of Pharma R&D today:
Almost unlimited access to all the latest technologies across drug discovery, ADME, toxicology, and clinical development, including all the latest capital equipment, compound libraries, antibody approaches, etc
International reach to support global clinical and regulatory processes to fully enable drug development programs
Deep and insightful commercial input into the markets, the pulse of the practicing physician, and the payors on what’s the right product profile
Gigantic cash flow streams that provide 15-20% of the topline to support a largely “block grant” model of R&D (fixing R&D spend to the percentage of sales)
Decades of institutional memory providing the scar tissue around what works and what doesn’t (e.g., insight into project attrition at massive scale)
This is a solid list of advantages, and they all have real merit.
But like the biblical Goliath, whose size and strength appeared to the Israelites as great advantages, they are also the roots of Pharma’s disadvantages. All of these derive their value as inward and relatively insular forces. Institutional memory in particular can serve to either unlock better paths to innovation or to stifle those that want to explore new ways of doing things. Lipinski’s Rules, hERG liabilities, and other candidate guidelines derived from legacy “survivor bias”-style analyses are case examples of this tension – unfortunately the stifling aspects rather than the unlocking ones often triumph in big firms.
Further, these impressive corporate R&D “advantages” are of course the product of Big Pharma’s path-dependency: single blockbuster successes discovered in the ‘60s-70s led to early mergers in the ‘80-90s, and bigger mega-mergers in the late 90s-00s, to form the organizations of today. Bigger and bigger R&D budgets buying up more and more “things” in the quest for improved productivity. In a sense, the growth drivers underlying these mergers acted like the excessive hGH coming from Goliath’s pituitary – the scale and constant growth pressure was a product of a disease, not a design.

He makes the point earlier on that constraints on spending, while they may not feel like a good thing, may actually be one. More money and resources often leads to box-checking behavior and a feeling of “Since we can do this, we should”. There’s some institutional political stuff going on there, of course – if you’ve checked off all the boxes that everyone agrees are needed for success, and you still don’t succeed, then it can’t be your fault. Or anyone’s. That’s not to say that all failures have to be someone’s fault, but this sort of thing obscures those times when there’s actual blame to go around.
The post also goes into another related problem: if you have all these resources, that you’ve paid for (and are continuing to pay for to keep running), then if they’re not being used, things look like they’re being wasted. They probably are being wasted. So stuff gets shoveled on, to keep everything running at all times. It’s certainly in the interest of the people in those areas to keep working (and to be seen to be keeping working). It’s in the interest of the people who manage those areas, and of the ones who advocated for bringing in whatever process or technology. But these can be perverse incentives.
The main problem I have with the post is the opening analogy to the recent Mars mission launched by India. I have to salute the people behind the Mangalyaan mission – it’s a real accomplishment, and if it works, India will be only the fourth nation (or group of nations) to reach Mars. But going on about how cheaply it was done compared to the simultaneous MAVEN mission from the US isn’t a good comparison. Yes, the Indian mission is eight times cheaper. But it has one quarter the payload, and is targeted to last about half as long, and that’s leaving out any consideration of the actual instrumental capabilities. It’s also worth noting that the primary goal of the Mangalyaan mission is to demonstrate that India can pull it off; any data from Mars are (officially) secondary. I’d find the arguments about small and large Pharma more convincing without this comparison, to be honest.
But the larger point stands: if you had to start discovering drugs from scratch, knowing what’s happened to other, larger organizations, are there things you would do differently? Emphasize more? Avoid altogether? A startup allows you to put these ideas into practice. Retrofitting them onto a larger, older company is nearly impossible.

28 comments on “Startups vs. Big Pharma”

  1. bhip says:

    The point re: maintaining process for the sake of process is very true in Pharma (you have the gizmos, you have the infrastructure, and you have the $$….). This is further reinforced by their pathologically risk adverse approach to drug R&D (So what if that receptor SNP is only expressed in 0.01% of the population, test it anyway!). In most biotech, you simply don’t have the $$ for anything that isn’t mission critical &, by default, drug discovery/development is more efficient.
    Another difference in (smaller) biotech is processes that drive decision making for compound progression into/through development. Sometimes, Compound X is all you have (definitely not a Pharma issue) &, dammit, full speed ahead! This negates the ego, hand wringing &/or navel gazing that afflicts the process in Big Pharma. The other side of the coin- “which is better, Compound X or Compound Y? We can only afford to develop one” leaves some very good compounds sitting on shelves in biotechs, their patent life slowly ebbing away…..

  2. johnnyboy says:

    Oh I don’t know about all this; however tempting it is to reflexively go along with this received idea that biotech is so much more innovative and nimble than big pharma, I’d really like to see some (probably impossible to obtain) data evaluating this critically. For having participated in a few due diligence visits (as a Big Pharma looking into deals with startups), I’ve seen some biotech compounds that were obviously doomed, but had been pushed way, way further than they would ever have been in a Pharma company, merely because that is all the biotech had to push. If that’s not wasted time and money I don’t know what is. You could argue that the capacity of big pharma to quickly kill compounds that don’t check all the boxes makes for greater efficiency, not lesser – and that those boxes have been added there for a reason, usually past experience.
    And about innovation: my experience goes back 10 years so may no longer be reality, but in any case my Big Pharma outfit invested millions and millions into all the fanciest research toys available, and the personnel to operate them, without any well-defined objective, based mainly on the starry-eyed opinions of academic-oid researchers confident that this new approach would surely take discovery to the next level (toxicogenomics, metabolomics, etc… all those cool things that get people all excited at meetings, but AFAIK haven’t yielded that much in terms of applicable results). You could easily argue that this level of investment, not accessible in a bare-bones startup, is the real definition of innovation. You could just as easily argue that it’s a sign of waste and misspent resources. It all depends on what the results are in terms of useful drugs produced. Sure you could say that biotechs have been more productive than pharma in putting out new drugs recently, but that’s based on the biotechs that actually succeed, not on the myriads of startups that crash and burn after a few years and millions spent fruitlessly.

  3. I have to agree with johnnboy. The accepted wisdom is that biotechs are much more efficient at R&D and have a better track record. However, you can’t ignore survivorship bias: there are a ton of small biotechs that fail, but one big difference is they usually fail quietly without a lot of people noticing.

  4. LifeSciVC says:

    The point isn’t historically whether biotech (typically made in the image of pharma) has been more productive or not – ample evidence from Pisano’s 30-year analysis and others suggests its not in the aggregate.
    The point, I think, is going forward, if you had a “clean sheet of paper” and could design a drug R&D organization from scratch, how would you do it? Is there a new model for drug R&D that could be more efficient? I’d love to hear from readers of this blog on what this new R&D organization of the future might look like?
    One thing I’m certain of – it doesn’t look like any of the Big Pharma R&D organizations of today. I do, however, think some of the hyper-networked, capital efficient, tightly-focused drug discovery startups today, run by seasoned R&D veterans liberated from the bureaucracy, are doing interesting things – and that this nimble model offers some real advantages.

  5. CMCguy says:

    While Start-ups may indeed lack the Goliath disadvantages I am not sure they have advantages of being David so they will win the confrontation and later grow up to be King. Small does not automatically foretell success since often carry plenty of baggage (or maybe just the wrong stones in their pouches), chief of which can frequently be overly academic science mindset that may well support possible innovation culture without ability to transition to a usable drug candidate or then develop to market. I see Big Pharma as extremely wasteful of what they have (especially of talent), and even possible broken R&D-wise in the past few decades of mega-mergers but to suggest Biotechs are being efficient is almost laughable. Anyone who deals with outsourcing, which most biotechs must do to “save costs”, is not likely to characterize such relationships as efficient and are a matter of no other choice. I have no real data but how much many biotech products became successful because an experienced individual or partner came on board to throw ropes down into the holes they had dug themselves into.

  6. ADC chemist says:

    I think what’s missing in the discussion here is that startups are usually founded by people who have a singular, compelling idea that is so interesting that it can rake in millions of dollars with the promise of a game changing future drug.
    So even if there is a high failure rate, what does become successful looks really new and innovative because it had to be in order to capture the initial VC funding.
    In big-pharma there is no outside force that requires a novel/deliverable idea to raise money and therefore there is a tendency towards less risk.

  7. pgwu says:

    The law of averaging seems to go against any sustainable difference with people moving back and forth between pharma, startup, and CROs.

  8. electronswapper says:

    Doesn’t look like any company, big or small, is very good at drug discovery these days! If you look at a lot of “deals” they never seem to result in marketable products. There IS a lot of PR, execs making money etc. but not much else. Too bad, making compounds and seeing how they work was a lot of fun.

  9. dichotomous says:

    @LifeSciVC – The question, to me, is how to scale biotechs’ variabilized costs and clarity of scientific need to a big player. One model would be an exodus of scale and capability to external players in discovery / translation akin to CROs in development, allowing big companies to scale R&D cost to the number of good ideas and avoiding unneeded process. It will feel risky to let a lot of expertise go out the door, and the transition will be horrible for many, but I don’t see how the “big pharma” industry can collectively do anything else in the medium – longer term.

  10. Nick K says:

    To echo what #3 said, in reality biotechs may not be any more efficient or innovative than Big Pharma. We only ever hear about the biotechs which have succeeded, not the dozens which have failed, taking every penny with them.
    Does anyone have a figure for the success rate of small pharma? What percentage of biotechs actually make money?

  11. DrSnowboard says:

    “Anyone who deals with outsourcing, which most biotechs must do to “save costs”, is not likely to characterize such relationships as efficient and are a matter of no other choice. ”
    hear hear, but no-one will pay for FIPCos anymore as the cracks down which time gets lost or wasted in outsourcing are silent on the balance sheet…

  12. Hap says:

    I thought that lots of startups were at best concerned with getting a potential methodology or drug to the point where another (big) company could develop it into a drug, and at worst were concerned with getting something to the point where a big company will pay for it. By their nature, then, they are depending on someone else to maintain all the infrastructure necessary to do that – the analytical and process tools, the expertise (which in most cases is tacit and isn’t transferrable), and of course, the cash flow. In that case, a lot of the excess baggage isn’t excess.

  13. johnnyboy says:

    @4:”I do, however, think some of the hyper-networked, capital efficient, tightly-focused drug discovery startups today, run by seasoned R&D veterans liberated from the bureaucracy, are doing interesting things – and that this nimble model offers some real advantages.”
    Not exactly sure what you mean by “hyper-networked, capital efficient, tightly-focused”, but it sounds to me like a few people with one idea and lots of VC money, outsourcing all the work. Opinions may vary on the adequacy of this approach; my own is that the main innovations wrought by this model will be in the creation of new ways to lose money.
    It is not fruitful to try to dream up new ways to do R&D without thinking about why the current lumbering R&D structures of big pharma have been developed as they are now – which is mainly as cumulative responses to ever-increasing regulatory requirements. Your innovative R&D structure can be as quick and nimble as a Peter Pan hopped up on six-packs of Mountain Dew, it will only crash faster and harder when running into the unmovable behemoth that is the FDA.
    In my opinion the main way to make R&D more efficient is to get the FDA to be more flexible. Good luck with that.

  14. anon says:

    FDA!! RAWWWRRRR they are so big and mean asking for pre-clin data before getting to do an IND filing…

  15. exGlaxoid says:

    Having worked at a big company and now for a much smaller place, I can say without a doubt that while big pharma wastes some money, they got things done far faster, better, and much more efficiently. They could afford machines and automation to weigh vials, run HPLCs, and do mundane tasks, rather than have people spend all day doing simple tasks. Also, people could get access to special equipment, skilled people and animal models in a timely manner.

  16. newnickname says:

    “Academia” wasn’t part of the comparison, but based on my experience, even a top notch academic lab can outperform a small biotech startup. In academia, as in Big Pharma, a lot of distractions are removed by a dedicated infrastructure of people that you don’t have to see or deal with (unless you want or need to: instrument support, etc). That lets you just focus on the research.
    A few real drugs HAVE come directly out of academic labs but, in general, academia is more focused on basic research. If they redirected their purpose to make a drug, a well-oiled major academic lab would beat most small biotechs to a pulp … IMO.

  17. werdo says:

    If LifeSciVC is the real LifeSciVC, thank you for joining this “conversation”.
    What strikes me about the comments is that so many are focused on a counterargument against an argument that was never made; e.g, “Biotech is more efficent than Big Pharma”. To LifeSciVC’s point, the argument as I read it was more along the lines of “Big Pharma was built for an industry that has changed dramatically — the model is no longer relevant/optimal”. It is almost impossible to craft a reasonable counterargument to that!
    The fact that so many comments address the former rather than the latter simply underscores one of the biggest problems we face in drug discovery: asking/answering the right questions at the right times.

  18. PharmaFan says:

    The main difference is the culture. I would think there are far more demoralized and disillusioned scientists in Big Pharma than in small biotechs.

  19. Hap says:

    If the industry has changed to a model that is not effective at producing drugs and is unsustainable (cheap labor to find your drugs, hoping that big expensive companies will last long enough to fund their development), then having organizations better fit that model doesn’t help.

  20. supplement joe says:

    As one who is in small tech I find our drug development is neither nimble or hyper. It is slow because we can’t make a mistake or we are doomed. Outsourcing is a minefield, consultants very hard to screen at the outset, even knowing what the next move is can take longer than dust settling. No one knows for anything for certain because our drug candidate has its own novel challenges very specific to it. This is no different anywhere else I suspect. The whales have a lot of experience down every hallway – there is just no substitute for that collective input of experience.

  21. johnnyboy says:

    @17: Last time I checked, big pharma was still producing approved drugs, and turning a profit year after year. The survival of big pharma companies for many years to come is not in doubt to anyone who’s taken a look at their balance sheets, apart from one or two of them (who will probably get swallowed up rather than go bankrupt). It’s clear that making new drugs is becoming more and more difficult and costly, that the “good years” are behind us, and that we need to get used to big pharma not being so big anymore. But being skinnier and a bit tired isn’t the same as being dead. And the biotech success stories – Amgen, Biogen, Gilead, Vertex, etc – all had to get to a respectable size before they could attain those successes. Are their current methods and internal processes really that different from those of the bigger pharmas ? If so, maybe that is where you should look for improvements to R&D, rather than trying to start over.
    The people who say things like “the model is no longer working and pharma is failing” are usually people accustomed to making a lot of money from their investments, but are now disappointed in pharma’s returns. Perhaps big pharma is broken as a money-making instrument, but it’s still OK at making drugs. And it’s still on big pharma’s door that those nimble startups will go knocking when it’s time to do their clinical trials.
    When faced with a changing situation, you can either try to adapt your organization, or scrap everything to start over from scratch. I don’t know what the best approach is, but personally I’m not very big on reinventing the wheel, especially a wheel that’s as complex and intricate as big pharma; tinkering with it makes more sense than throwing it out.

  22. MidPharmaFan says:

    @21: Good point on adaption and evolving – it works for the body and can work for the pharmaceutical industry. Let’s not confuse the Big Pharma inefficiencies (caused by scale, too much success and resulting complacency) with the efficiency that pharmaceutical companies have from retaining know-how and some really differentiated capabilities that they can’t access in CROs. Mid-sized pharma companies have this potentially, for example Celgene, Gilead and Actelion (and the old days of Big Pharma). They can keep the dynamism and skills without the bureaucratic glue – MidPharmas to the fore!

  23. MDACC Grad says:

    I’m going to go out on a limb here and say what we all know is true. HR has made it their business to compartmentalize as many job titles and job functions as possible. This makes it easier for them to classify individuals for comparisons (ex. they want you to have as limited a range in salary for your position as possible to compare you to coworkers and outside “talent”), easier to replace individuals, and easier to bolt on new segments/departments. If you work in a large pharma company you have been itemized. Your age, salary, skills, experience, etc. into spreadsheets. [This is not an exaggeration, this is factual.] Because the upper executives have allowed this to happen (and in some many cases encourage it because they like to play with your numbers when looking at aquisitions/mergers), you now have companies that are pieced together out of stacked legos, as opposed to how startups are built which is with overlapping welds. But hey there fancy readers, don’t go out and hire an HR consulting firm to fix this just yet, because that means you already forgot who caused the problem in the first place.
    Biotechs have a lot of overlap which translates to interdisciplinary roles. There is a lot of drug development and company development that can occur when people are allowed to see the big picture of what they are working on. That works both in terms of preventing money from being thrown away on bad decisions, to increasing value with new insights. One might be in the lab and stumble upon some novel excipient properties which mean nothing but a report in big pharma. Yet in a startup you also happen to participate in to regulatory work and know the FDA is looking for new formulations for certain pain killers. Bam, blockbuster IP just popped up in your pipeline.

  24. Jumbo says:

    So, joining this a little late, but want to add my $0.02. I have been employee #5 in a start up that successfully went public, and subsequently have worked for a top-10 global pharma and what used to call itself the largest biotech. So I think I have some useful perspective. Johnnyboy is right that one consequence of restricted finances is not having a second horse to ride so you whip the one you got until dead or preferably partnered. I do find it ironic that Bruce, after his snarky dismissal of intelligent design, proposes that the salvation of the pharma industry is intelligent design! That may be, but it will take investors and entrepreneurs having the courage to commit to projects that pharma doesn’t think are interesting. Right now VCs appear to specialize in two things: starting companies to deliver therapeutics that pharma has declared an interest in or starting companies focused on orphan diseases. While both may be legitimate business strategies, I see neither leading to real innovation or new ways of generating targets, leads and therapeutics for the big diseases that still afflict millions. I agree, a new model that fuses the resources of pharma with the focus of a startup will lead to breakthroughs in the future. But as has been pointed out (and admitted to by Bruce) the track record of startup biotechs in terms of reaching the goalline isn’t encouraging. Simply declaring we have learned from our mistakes and we are going to work in a “hyper-networked, capital efficient, tightly-focused” manner doesn’t encourage me that the new model is ready to replace the old one.

  25. Anonymous says:

    johnnyboy’s comments place the premise on firm ground, imo.
    To play along with the initial question, as an R&D veteran liberated years ago, and in my 4th start-up, I could offer a clean sheet idea for my desired workplace, while holding the belief there will not be one R&D organization type but several that fit into an ecosystem of start-ups feeding large powerhouses that can tackle later stage development with existing infrastructure.
    But, before launching into a lot of detail, which I would enjoy, especially with beverage in the dark hours of the night, I can say that my 4 start-up experience show me that one of the most important factors is the ability to work in a small, uniform cultural environment that fits one’s personality well with a team carefully built to fit the culture such that the whole company works at high efficiency with fun, enthusiasm and passion that is the most freeing phenotype of being “liberated” from Pharma. A singular vibrant culture is a trait that is impossible to maintain with the size of Pharma which harbors in different departments and functional areas (scientific vs. business functions) different cultures that HR tries in vain to fit into one mission statement and code of conduct that is a component of measuring performance.
    With insights into several companies across different regions, these cultural elements are quite variable, which is good because we of the great unwashed scientific ranks don’t all have the same approaches to success. For instance, I have yet to see a Boston biotech whose culture appears to be a place I think I could thrive. And that statement is in no way a criticism of Boston, just the reality I have seen about how culture adds expectations to what is valued in terms of experience, demeanor (as in how one convey’s a postion of leadership or rank) etc., and how those expectations influence fit.
    Hitting our targets is tough, but we usually prevail. Surviving pre-clinical testing and early clinical studies washes away most of our hopes. Even with continued success in development, we compete with ourselves to make the most compelling treatment. It makes no sense to add to these challenges organizational drains of energy to just make it through the day at the Wonderdrug Factory. To me, this is the only important distinction I would focus on, as all other considerations fade out when the best human traits of kindness and caring emerge from a vibrant and well managed culture to support the products and the people.

  26. Derek says:

    The biggest challenge is that this experiment can’t be performed under controlled conditions: Big Pharma has entrenched sales/commercial activity (may times concentrated in a small number of products with disproportionate revenue). The risk associated with disrupting an operating strategy from the ground up is a very challenging prospect for a publicly traded company (at least one that cares about its market cap in the face of public perception).
    Likewise, a smaller biotech (and, as a caveat, there is a *wide* range of small here…) in a sense are forced to operate in nimble, efficient ways due to the risk profile of the success they are chasing. And, if the biotech is successful, the likely outcome is to be swallowed by Big Pharma (and hopefully provide a return for one’s investors, founders, etc). The “survivors” of the risky game often do not get the chance to be an innovative large company…
    Perhaps with the recent slate of IPOs, more companies will get this chance. Although it is unclear if the public markets will value their niblicity (?) akin to Genentech in the 90s… As an example, Evotec (Market cap 500MM) is a company that has built a discovery-focused organization on multiple different technology platforms over the past ~15 years. Genocea (Market Cap ~350MM) went public in 2014. Will they have the opportunity to continue to be a nimble, innovative company? Will they fall into the range of an Evotec and (effectively) be punished by the public markets? (I pick Genocea here as an example of a company with a good technology platform, management team, and innovative pipeline).
    This is a fun topic to play with, almost due to the “Matrix-style” inevitability of success being swallowed (Big Pharma = the Matrix? Sorry, it’s late and I needed a metaphor). I believe there are too may forces pushing towards smarter development and commercialization – it may be incremental, but I think there will be more opportunities for innovation and success within pieces of the development spectrum, in particular with the convergence of technology platforms that are providing a better window on cellular function and patient stratification. We’ll see – hopefully these benefits make their way to patients. The stock market can continue to shrug its shoulders and investors can continue to have this debate, but hopefully the clinical outcomes continue to move in the right direction.

  27. Dr. Manhattan says:

    “Big Pharma = the Matrix? Sorry, it’s late and I needed a metaphor”
    Did you swallow the red pill or the blue pill?

  28. spell-chuck says:

    Thanks, Dr. M. I want to pile on. Hey, Derek#26 – niblicity?? Do you think you can get away with that by adding (?)? I know it’s late so maybe trying to make up new words should be forgiven even though there are fine words out there for the grabbing – nimbleness (no, Derek, not nimbleocity!) Just don’t skip on consonants and you might just get away with it. (We’re watching you:-o). BTW – thanks johnyboy; I think you got it.

Comments are closed.