Stuck. That's how many of us feel about commercial lifesciences. The venture capitalists have abandoned us. The IPO market is largelyclosed to us. The momentum is once again with IT and all its apps, games andsocial networking variants. IT and life sciences both tend to cycle with largeamplitudes, as reflected for both in the last four decades. IT has the balltoday and is running with it. The energy sector is also energized. Meanwhile,innovation in life sciences is struggling like a mouse in a glue trap—and it'snot pretty.
The old guard is moving on, and the new biology, with all ofits promise, is trapped between a heavy and uncertain burden of regulation,price controls (AKA "reimbursement"), a lack of confident risk capital andtrouble meeting expectations. The science is much more nuanced than wasprojected to the public. We didn't lie. We just didn't know. Massiveindustrialization of R&D did not work to mitigate the long-expected patentcliff. Over we go. We've retrenched from the old R&D model as toobureaucratic, mechanical and uninspired, swinging back to academics and smallerfirms as the engines of discovery.
Politicians speak of small business as a source of jobgrowth, but they must not be, including the many small life-science businesseswith which I engage here in the Midwest. The inputs are often universitytechnologies, and funding is tough beyond friends, family, angels and SBIR/STTRgrants. Even the proliferating business plan competitions can put a few beansin the pot. The bugs in this system are many.
Universities have been using a playbook based on fear oflosing on one of those very rare big wins. Don't pass the ball for fear ofeither a touchdown, incompletion or an interception. The safer bet is to stayin the huddle as the game clock runs out. Time and money is lost in theanalysis process and the expectation of reimbursement of IP expenses early on.Small angel funds then treat a $200,000 investment as if it were $200 million.That makes sense to them. Capital is a scarce commodity in a recession, andthese funds are tiny.
There are few venture funds left for life-science startups.Those that remain focus on later-stage deals such as driving sales after U.S.Food and Drug Administration (FDA) approval or funding projects that largerfirms spin out, de-risked somewhat after the preclinical work is done.
The good news is that many are aware of this problem andexplore new, more open approaches. Perhaps the desire for blockbusterentrepreneurship can pass to a more personalized version that is lessbureaucratic, more about doing and then failing fast with grace. Today, we areseeing more corporate partnerships funding projects at small firms as largeorganizations have become less egotistical and isolationist.
Drug discovery happened for decades in smaller firms, butlately, that has been accelerating. This impacts the instrument industry (moreauction sites as small firms fail) and the contract research organizationindustry (smaller projects with fewer molecules spread over more fragileclients). The impact on careers as the pace of creative destruction acceleratesis a change we do not like. It is more important than ever to locate in adynamic life-science cluster where an ecosystem of small and large firms,management talent and capital sources all co-exist.
Several columns back, I wrote of attempts by professionalgroups to influence a comprehensive innovation strategy. Great minds arenoodling, and the tactical ideas are fine with respect to tax policy andreforming the FDA, but I've come to the conclusion that our biggest challengeis spiritual. There is far too much whining and pointing fingers to take timeto get down to doing.
Industry disappoints, and some want the government to do it.Government disappoints, and some want free enterprise to do it. Both play a roleand both will screw up now and then. I favor free enterprise because we canscrew up on a smaller scale, auction off our equipment and move on. It's toobad Freddie Mac and Fannie Mae could not have done that too. Government is badat stopping what it starts. They have no skin in the game other than ours, sothey take more of it.
We've started the year 2012 off rather badly, with U.S. debtmatching GNP and political candidates and their advocates throwing mud. In freeenterprise, we have winners and losers, just as we do in football. It's OK.Labs and plants will close as others sprout up. If you take a greater risk, youget a greater reward, or more likely, you get nothing at all. This works verywell in the aggregate.
I've made foolish investments (in retrospect) and sufferedthe consequences. Moving from the 1 percent back to the 99 percent is not fun,but I own my decisions. What I like even less is government making foolishinvestments with my money and yours. There is never an apology.
So here we are, stuck! Your assignment in this criticalelection year is to explain how and why free enterprise works—warts and all. Wemust explain the complexity of biology and disease. On both fronts, there willbe forces pointing to egregious examples, often out of context, to attract thevotes of our friends and neighbors. If we allow this to happen, withoutcountering the shouting with wisdom, we will be stuck for decades. Policy, likemedical decisions, should be based on evidence, not magic. Evidence to supportpolicy should not be selected from a menu; policy should be derived fromevidence. In 2012, we need to get this right.