Charting Success in Biotech
Recently, I was discussing with my Partner about the pathways to success for biotech start-ups.
Biotech innovators typically face two primary options to maximise value of their discoveries: either monetizing the pipeline or striving to evolve into a big pharma company. While many successful biotech companies follow the first pathway with caps around $2 billion, only a selected few can reach big pharma status with market caps exceeding $50 billion (e.g. Regeneron). What factors drive this vast difference, and what should early-stage biotech founders truly focus on?
The Two Pathways
1. Selling the Pipeline
Selling a drug pipeline is a common strategy and often provides a quicker, more straightforward route to financial success. In this model, the biotech focuses on developing promising drug candidates, which are then sold to larger pharmaceutical companies, allowing founders to realize financial returns sooner. This model offers several advantages:
Faster Returns: Selling the pipeline allows for earlier exits without the long, costly process of bringing a drug to market.
Risk Mitigation: Drug development is inherently high-risk, and selling allows the startup to share or transfer that risk to the buyer.
Focus on Innovation: By selling, the biotech can concentrate on R&D, its core strength, rather than expanding into manufacturing and commercialization.
Securing a promising pipeline can lead to the next financing round or pave the way for future discoveries. However, transforming into a big pharma means a startup needs to succeed multiple times, each more challenging than the last.
2. Becoming Big Pharma
The road to becoming a big pharma company is far more demanding, requiring not only innovation but also the ability to oversee the entire drug development cycle—clinical trials, production, commercialization, and distribution. Only a handful of companies, such as Regeneron, have successfully taken this route, often achieving market valuations over $50 billion.
Becoming big pharma is a higher level of success that cannot be predicted or planned from an early stage.
In favorable market conditions, a lucrative offer could come; but investors are more likely to agree to sell a successful pipeline rather than continuing to invest in expensive and uncertain research and development. Timing the sale well can be a smart decision. On the other hand, becoming a pharma can still be a long-term goal to pursue. So, VC investors typically do not expect founders to decide which path to follow from the start. Instead, a pragmatic scientist focused on developing robust research and products is far more convincing than a CEO preoccupied with becoming the next big pharma.
Here are some key considerations for biotech founders.
1. Scientists as CEOs: Founders with deep scientific expertise can be key drivers of success, as they often understand the true value of the technology they are developing. A great example is BioNTech, whose founders were among the first to recognize the global impact of COVID-19 and the transformative potential of their mRNA platform - although initially designed for cancer treatment, can trigger a powerful immune response. Their “Project Lightspeed” in partnership with Pfizer led to the first FDA-approved COVID-19 vaccine, making BioNTech a billion dollar company out of covid.
2. Collaboration with Pharma: Good drugs are hard to come by. At some point, biotech companies have to collaborate with larger pharma. Whether it's for funding expensive late-stage trials, navigating regulatory approval, or scaling up manufacturing and distribution, partnerships can provide essential resources and expertise.
3. Adapting to the Market Environment: Biotech need to remain flexible and adapt to the macro environment. Decisions about whether to sell the pipeline or continue development in-house should be guided by current market conditions and the specific strengths of the company. The story of Vertex could be a good illustration.
The biotech sector is marked by its high stakes and transformative potential. Founders have to navigate a complex landscape, balancing scientific innovation with strategic business decisions. By following the major pathways to success—selling the pipeline or becoming big pharma—and considering key factors like leadership, collaboration, and market adaptability, biotech companies can chart a course towards success.
Always keep in mind: Follow where the science takes you.
