Why disruptive drugs are hard

I’ve spent my career working in Silicon Valley biotechs. Beyond the investor demographic, the most distinguishing trait of SV biotechs is a single word: Moonshot.

There is something inherently disruptive about the idea that makes it appealing to Silicon Valley. And this makes sense. It fits a tried & true pattern of how Tech makes money.

I love moonshots. The sheer ambition. The optimism for change. In more succinct words: it’s cool.

Unfortunately for us, biopharma does not make its money from ‘disruption’. As one of the most heavily regulated industries in the world, it incentives against working in white space.

Developing a drug for something that’s never been done (aka no regulatory path) requires more than brute-forced building. There are explicit hard things you can build your way out of (making the drug itself, unique clinical trial design, formulation innovation), but there are also macro obstacles that create unique headwinds against the disruptive biotech.

These are some of the challenges I’ve observed while working for such startups:

Making n = 1 drug categories means creating a whole new playbook beyond step 1 (FDA approval)

I’ve worked on dog longevity drugs. I’ve worked on food + small molecule cancer therapeutics. I’ve worked on protein powder as drugs (conceptually interesting where the ‘active agent’ is the absence of specific amino acids in the diet) [2]

Developing a non-consensus drug requires whack-a-mole to cover all your bases on IP, regulatory path, go-to-market (what type of doctor will prescribe it? who will reimburse? how will it be a commercial success if not standard reimbursement path?), etc.

This is ambitious but exciting to consider. Go-to-market and drug distribution is completely dominated by Pharma incumbents. If a newcomer were to make it to this stage, what does change look like?

Lack of potential acquirers & patient capital throughout the journey = lack of leverage to fundraise

In tech, it’s common for founders to say they will never sell- they will IPO and become a Fortune 500 company. This is also the only option for disruptive biotechs, given there are no natural acquirers for drug categories that do not exist [3].

While this is sexy to pitch at the seed, it can become a hindrance for later-stage rounds (and investors with short time horizons). Potential M&A exits create a market of options for your company (and paradoxically, gives founders leverage to keep fundraising). Without this market, the only path for weird biotechs is to commercialize and scale themselves. But they must find investors with time horizons long enough and capital networks deep enough to realize this…

Existing late-stage funding ecosystem bends biotechs to conformity

Neither of the above challenges would deter silicon valley/generalist investors. Arguably, both are positive things in their books. However, tech investors historically only scale up to a certain point of a biotech’s lifecycle. Late stage money (the larger checks required to commercialize a drug) all converge to the same pool of capital which is generally contingent on traditional biotech investor credibility [4]. This means that any startup (consensus or disruptive) is subject to the scrutiny and pattern recognition of the same investors.

Given SV-biotech industry is so nascent, we’ve only seen a few examples of companies that even reached this point. The ones we have seen are forced to package their unconventional technology or ideas into conventional products with actual regulatory paths [5]. This is not because people are ‘too conservative’ or not clever enough. Startups existing on the contingency of policy change have more than just a scientific hurdle to clear- they have a political one. Such a company is not just a drug company (needs more than just money and science to succeed).

Staying insulated from these pressures requires biotechs to either:

1) Be somewhat independent & revenue generating (aka not reliant on fitting to outside incentives) or

2) Use an alternative funding ecosystem (much like SV seed - series B) that can write the bigger checks to support late-stage moonshot companies.

Threading the loop on moonshots

Despite everything I’ve written above, I’m deeply optimistic about moonshots, scientific progress, and our ability to bring new treatments into the world. Any earnest effort towards this is admirable

However… if you ask for my deepest concern regarding such progress it’s this: How are we threading the loop on moonshots?

The science working is one thing (although a feat on its own). It’s quite another thing to prove it within the system that we have. It’s why I’ve been so interested in creation of a modern Pharma. Bigger players and big money will be crucial to meaningfully blaze the path for unconventional drugs in a highly regulated, infrastructural system. Without this critical mass, everything else may be a drop in the bucket.

[1] Specifying therapeutics within biotech as medical devices may be different

[2] In hindsight, this was one of the more interesting things I worked on from a formulation POV and forced me to think about practical considerations beyond the ‘does it work molecularly?’ Ex: Is it palatable? How can you formulate powder so people can consume their daily protein intake’s worth without digestion issues?

[3] Not to say m&a won’t happen! But it’s not a visible/research-able fact that the conventional late-stage investor can underwrite in diligence.

[4] Again, this could change at any moment by a company or fund. By late-stage, we’re talking about stage of drug development. Companies that need to raise $1B+ (minimum to develop a drug today). Afaik, there is not an alternative late-stage funding ecosystem for SV-biotechs in the same way the seed - series B ecosystem has been built.

[5] Unity Biotech is a widely cited example in aging field. What started as an anti-aging senolytics company eventually morphed into an ophthalmology co developing a very consensus drug against Regeneron’s Eylea