Understanding biotech struggle

Biotech hopes to transform not only the pharmaceutical industry, but also human health and the lives of millions. Without a healthy biotech sector, the great promise to impact human health will go largely unrealized. So we need the sector to perform well.

In the last 30 years, “aggregated” revenues have grown for biotech companies (as expected in any emergent industry), but profits have been very poor so far (with the exception of some amazing biotech start-ups). Biotech is underperforming, it is definitely not a mature industry yet.

Since the dawn of the sector we have heard predictions of imminent prosperity, but so far, nothing. It needs more time, I used to think. But maybe the problem is structural in nature and time won’t solve the problem. The sector has borrowed business models from other high-technology industries under the premise that if they worked there they would work in biotech. Right?

Wrong. Not all the high-technology industries are alike, and science based businesses have unique challenges and need unique approaches. Those challenges stress traditional business models such as the ones used in services, IT or medical devices, for instance. In other sectors, science is a tool for creating new products and services. In biotech, science is the business.

And why science conflicts with business?

• Science focuses on methodology, business focuses on results
• Science values openness and sharing, business values secrecy and intellectual protection
• Science demands validity (is the idea valid?), business demands utility (is it useful, will they buy it?)
• Science measures itself on how it contributes to a body of knowledge, business on financial performance.

No wonder why they don’t get along very well. Once science becomes a business there is tension between one set of principles and the other. This may be at the core of the poor results that biotech has as a whole, university and business are two worlds that talk a very different language.

When I compare the different innovation sectors of healthcare entrepreneurship, I use a very simple 2x2 matrix to illustrate the differences among them. Services, Information technologies (IT) and medical devices are performing really well today. Complexity in biotech is huge, as it is based on intellectual property (secrecy limits the "learning" of the sector as a whole) and it needs a longer time to market. We need to help life sciences sector a bit more, understand their struggle and maybe compensate the initial market failure addressing the risk uncertainty and allocating more government capital into it. If biotech delivers, the impact on healthcare will be amazing.