Why biotech companies don't work
Wednesday, 17 August, 2005
In 2001, Cynthia Robbins-Roth was a passenger in a small plane which crashed in Alaska. The crash broke "every bone between her eyebrows and upper jaw", she says.
The year before the accident saw the publication of Robbins-Roth's book From Alchemy to IPO: The Business of Biotechnology, which cemented her reputation as one of the first and best analysts of the biotech sector -- one-time Genentech research scientist, founder and principal of BioVenture Consultants, editor of industry newsletter BioVenture View. The accident, not surprisingly, "had a big impact on my ability to run around the country and go to conferences," she jokes today. "But it turns out I'm really good at tissue and bone regeneration."
That's just as well for the biotech community, including Australia's -- this September, the California-based Robbins-Roth will pay her first visit to Sydney in a formal role, as a keynote speaker at Southern Cross Equities' 'DNA, Devices and Dealers' conference.
So what message will Robbins-Roth be bringing to Australia's would-be biotech company-builders? A simple one: Don't. Stop before you build, and try to come up with a more creative way to commercialise.
Companies, Robbins-Roth warns -- or, more specifically, "the old California biotech start-up model" -- are part of what is wrong with biotechnology today. By way of explanation, she offers some history.
While she was out of commission following the plane crash, the biotech industry was too, falling victim to the dotcom boom and the equity sector's general aversion to anything that wasn't an IT play. After the dotcom bust, fear outweighed greed, in the old truism that 'investment is the balance between fear and greed' -- investors developed an aversion to risk. Rather than invest in 'pure biotechs', equity was channelled into so-called speciality pharma plays, most of which, Robbins-Roth says, are not really biotechs at all.
"There used to be a time, 30 years ago, when we saw incentives to invest in entrepreneur-driven companies," Robbins-Roth says. "Big pharma didn't believe they needed biotech, in the 70s and 80s, so you had to start up companies.
"But now, we're still following the same model. That's a bad thing. The venture industry has changed. It's a mature sector now, not a bunch of cowboys wanting to do cool entrepreneurial things. And its investors want a certain rate of return."
Like the rest of us, Robbins-Roth has had her fill of conferences where the program is made up of biotechs complaining that VCs don't understand them, VCs complaining that they don't see enough in which to invest, and big pharma complaining that it can't keep its pipelines full.
"Why are we trying to get the venture industry to change its strategy so we can keep doing what we want to?" she asks. "A new start is needed -- stop building these companies. There's not enough money in the whole universe to keep all these companies alive. Most of them aren't even companies -- they're projects. And even if you had the money you don't have enough good managers."
The message especially applies in places like Australia, Robbins-Roth says, where private equity opportunities are limited. "But even companies in [San Francisco's] Bay Area can't raise money," she says.
In the last few years, Robbins-Roth and her business partner, Carol Hall, have chosen to work with biotech communities outside the Bay Area -- Texas, Canada, Taiwan, Singapore, Scotland, New Zealand. Each area has the same issues, she says -- lacking money and depth of management, too much time and energy is spent trying to save companies. "But the failure of these companies will have nothing to do with the failure of your products," she avers, "but the failure of your strategies.
"In the last four years, my focus has really shifted to what is going on outside North America and Europe. What you guys are experiencing is really an accelerated version of what we're going through here."
The best way for places like Australia to survive and create a thriving biotech industry, Robbins-Roth says, is to hook into the global R&D network. Why, she asks, are investors excited about India? Not because it is developing exciting new technology, but because it is entrepreneurial and cheap, taking on manufacturing, clinical trials and other roles in the global biopharma services and infrastructure industry in a cost-effective, timely manner.
"Let's say in Australia you come up with a technology that is possibly useful in cardiac medicine," Robbins-Roth suggests. "Instead of forming a company, you hook into the network. If you've got a CRO, sales and marketing -- what do you need to set up a company for?"
To date, Robbins-Roth admits, there are few good examples of this model in practice. But she points to Californian company Vistagen Therapeutics (whose CEO, Ralph Snodgrass, she describes as "incredibly smart" about how to get the most out of non-equity sources of funding) and its work with Cato Research. Cato, she says, has two strings to its bow: it was a CRO with decades of industry experience, and a 'venture group' which invested CRO services and management instead of dollars. Cato manages projects with its investment companies, giving them access to services and management in exchange for equity or debt. Cato has provided Vistagen with clinical, regulatory, grant writing and business development capabilities, without the need for Vistagen to hire staff.
Partnerships like this one, she says, are preferable to company-building. But how do you stem the desire of academics at universities and institutes to establish spin-offs and start-ups? It may not be so hard, Robbins-Roth says: "I've talked with a lot of tech transfer folks in the last few months, and they tell me: 'We keep building spin-offs because our bosses tell us we have to'." Universities and governments see company start-ups as a metric for the success of the biotech industry. But the message from the tech transfer experts, Robbins-Roth says, is: "We don't think [these companies] are ever going to be successful. They're stupid and wasteful'."
In a recent column in industry newsletter BioWorld, Robbins-Roth argued that US financier and philanthropist Michael Milken was right when he warned biotech in 1991 that it would cop it sweet by refusing to accept that it was no more special than any other sector of the market. "He emphasised that while our science is way cool, sooner or later market forces come to bear on all of us," she wrote. Biotech's chickens have come home to roost, and a global funding crisis for biotech is forcing the industry to look for new approaches to innovation. "Nobody has found the perfect solution. But everyone is pretty sure that major structural change is required."
DNA, Devices and Dealers will be held on September 7-8 in Sydney. Details: www.biotechbuzz.com.au
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