The biotech industry is one that is epitomised by a start-up mindset. Genentech, which was the first true biotech company, was a start-up in 1976. It was started by Herb Boyer, a UCSF professor, and Bob Swanson, an out-of-work venture capitalist, based on the recombinant DNA technology discovered by Boyer and Stanley Cohen at Stanford University in 1974. The company was funded initially by the VC firm Kleiner Perkins. It is said that the view of other faculty at UCSF at the time was that ‘this recombinant DNA thing’ that is expressing proteins like insulin in E. coli would not work. Well, it did work for insulin and many other important proteins like human growth hormone and tissue plasminogen activator.
As you can read in my book: In pursuit of Unicorns: a journey through 50 years of Biotechnology (1), Genentech was the template for the development of the biotech industry, with many ‘start-ups’ being initiated thereafter. These were usually based on new technology out of an academic lab, founders from that lab and maybe another with the money coming from the emerging biotech venture capital companies. The very successful Genentech IPO in 1980 simply encouraged other investors into the space, and the industry was born.
New templates
Does this template work today, and are there other biotech start-up paradigms? There is no simple answer to that question. The original recipe still works - note the antisense RNA technology companies such as Ionis and Alnylam, the cell and gene therapy companies, and more recently the gene and base editing companies such as Intellia, Editas and Crispr Therapeutics (1). This approach relies on the development of new technology on which to base the company: these technology revolutions (rather than evolutions) do not happen all that frequently.
In the meantime, small companies are being formed based on other things, such as spinning out assets from a company that has been acquired or is looking to focus its pipeline or have a new way of looking at drug discovery based on the genetic basis of the disease. Alternatively, a company might be formed based on a drug discovery approach that has worked for one disease (such as cystic fibrosis) and could be applied to others.
The keys to success of these kinds of start-ups in the biotech industry are the same as those of technology-driven ones. It encompasses 1) having first-rate founders, 2) a stellar management team that has demonstrated success before, 3) access to the appropriate capital at the appropriate time by working with premier VCs, 4) an experienced board of directors, 5) great scientific advisors, and 6) a differentiated story to tell.
“Angel investors are a useful add-on to the potential pool of capital to access for small start-ups, but tend to make smaller investments and may not be able to participate when the big drug development bucks are needed”
A further requirement, if you are doing experiments, is access to lab space. These days, you can access incubator lab space pretty easily, especially in the biotech hubs like Cambridge, Mass Cambridge, UK, San Diego (La Jolla), Seattle or South San Francisco. Space is not limiting in this present environment: money is. Angel investors are a useful add-on to the potential pool of capital to access for small start-ups, but tend to make smaller investments and may not be able to participate when the big drug development bucks are needed. They are a mixed blessing.
Artificial Intelligence
You could argue that the new companies in biotech based on AI approaches, such as Isomorphic, are following that same template, but they are not. They are betting (and it is a bet) that their use of AI will circumvent most of the time it takes to do both drug discovery and drug development. These AI-driven companies like to say that they will be able to discover and develop drugs in 18 months - a time frame that appeals to tech investors but is completely unrealistic, given that drug discovery is an experimental science done in cells and animals. It is certainly better to raise $600m (as Isomorphic has done) on a technology-driven play and have time and money to develop the plan, than to have identified three targets you want to discover drugs on, but with no money. The best place is somewhere in between.
What does success look like?
The title—Be careful of what you wish for—is another way of saying that building a biotech company to discover and develop new drugs is not for the faint-hearted. It is a difficult and frustrating road. Do not think that you can do it all on your own, either, because it takes a growing band of diverse people to build a successful company. You can count on the fingers of two hands how many start-up biotech companies have become fully fledged, successful drug (now pharma) companies like Amgen, Regeneron, Alnylam and Gilead Sciences (1).
But success is not always measured that way. Many small companies are acquired at various stages of their development, usually but not always, when there is the prospect of a new medicine on the near horizon. This is a success for the small company and its investors. But remember that most biotech start-ups fail. There are even examples of companies that once raised several hundred million dollars or had a valuation in billions of dollars that have then failed. Failure is not an abnormal outcome: it goes with the biotech flow.
There are many people who tell me they want to start a biotech company. Only a few of them really know how to do it and have the passion and persistence to be successful. There are many bear traps to fall into. It is often good to work with people who have fallen into such bear traps and have the scars to show for it.
(1)In Pursuit of Unicorns: A journey through 50 years of Biotechnology. Cold Spring Harbor Laboratory Press, September 2024, by Tim Harris, can be obtained from the publisher or from Amazon.com.
Tim Harris has been in the biotech industry since 1978. He has founded and worked in several start-up biotech companies. He is presently an Operating partner at SV Health Investors.
