Why disruptive drugs are hard

I’ve spent my career working in Silicon Valley biotechs. Beyond which VC funds the company, I’d say the most distinguishing trait of SV biotechs is a single word: Moonshot.

There is something inherently disruptive and against the status quo about the idea that makes it appealing to Silicon Valley. And this makes sense. That’s how Tech makes its money.

I love moonshots. The sheer ambition and niche ecosystem to support it. The optimism the Valley has for people to change the world. It’s inspiring.

Unfortunately for us, biopharma does not make its money from ‘disruption’. In fact, as one of the most heavily regulated industries in the world, it biases 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 apply subtle pressure against the small biotech. These are some of the challenges I’ve observed while working on such startups:

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

I’ve worked on dog longevity drugs. I’ve worked on combo small molecule cancer therapeutics. I’ve worked on protein powder as drugs (this was quite conceptually interesting as the ‘active agent’ was actually the absence of specific amino acids in the diet) [2]

Beyond the regulatory path, developing a product as a drug (if it is not a shiny new molecule/biologic/gene therapy for consensus disease) means a game of whack-a-mole to cover all your bases on IP, 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?), patient convenience, standard of care, etc

I personally find this really interesting and exciting to think about. Go-to-market and drug distribution hasn’t really changed and 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 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 most disruptive biotechs, given there are no natural acquirers for drug categories that do not exist [3]. While it’s sexy to pitch at the seed, I suspect it can become a hindrance for later-stage rounds, interacting with more conservative investors. Pointing to potential M&A exits creates a bigger market of options for your company (& downstream of this, leverage to keep fundraising). The only option becomes being widely commercially successful yourself (big risk; big reward).

Existing funding ecosystem for late-stage drug development bends startups to conformity

I don’t think either of the above challenges would deter silicon valley/generalist investors. Both are actually positive things. However, late stage money is usually always contingent on traditional biotech investors [4]. This means that any startup (consensus or disruptive) is subject to the scrutiny and pattern recognition of the same investors.

We’ve only seen a few examples, given SV-biotech industry is so nascent that few companies 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. 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 drug development hurdle to clear- they have a political one. Not to say it’s impossible but such a company is not just a drug company (& would likely need even more resources to cover the distance).

If the existing ecosystem creates downstream pressure, there are two potential solutions for disruptive drug companies:

1) They are 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.

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I’d like to note that despite everything I’ve written above, I am deeply optimistic about moonshots, scientific progress, and our ability to bring new treatments into the world. There’s no better legacy than drugs that will be around to keep people healthy, long after we’re gone. Any earnest effort towards this is awesome

But if you ask me for my deepest concern regarding my niche industry, it’s this: How are we threading the loop on moonshots? The science 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 become so interested in creation of modern Pharma. I think bigger players and big money will be crucial to meaningfully blaze the path for unconventional drugs in a highly regulated, infrastructural system. Without 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 it won’t happen! But no, it’s not a consensus truth 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.