the tech and biotech bubble burst in 2000, and has continued with the mortgage meltdown and ensuing capital crisis. As financial institutions scrambled to save themselves, they shed much of their payroll—including most of the Wall Street banking talent that had focused on the biotech sector. The investment banks that biotech built—Hambrecht & Quist, Robertson Stephens, Montgomery Securities—did not survive, and Kinsella says no “serious” banks remained to serve life sciences startups, or to underwrite biotech IPOs.
Another consequence of the Wall Street meltdown, Kinsella says, is that Big Pharma companies have been hiring the biotech bankers laid off during Wall Street’s financial purges. As he puts it, “The sell-side guys were going to Big Pharma [companies] and saying they can cut better partnerships or buyout deals since they have an ‘inside baseball’ understanding of venture-backed biotechs, and they know how to wring the most concessions from a biotech’s board.”
Their influence has wreaked havoc on VCs, according to Kinsella. “Unfortunately, there really hasn’t been an IPO market in biotech since 2000,” says Kinsella. And the bankers-turned-business-development mercenaries “correctly perceived that the IPO exit doesn’t really exist any more. So Big Pharma companies—whose numbers have been halved in the last 20 years—are now really the only game in town.” And Kinsella says Big Pharma has been exploiting its “oligopolistic advantage” with ruthlessness.
“One might say that all this is just the way capitalism works, and on a micro level, I can’t argue that,” Kinsella says. “But on a macro level, I’m gravely concerned about what it means for the venture-biotech ecosystem. The providers of venture capital need to see a return, as do all participants in any ecosystem.”
In calling for an end to the hardball mercenary tactics, Kinsella says Big Pharma’s conduct is comparable to predatory overfishing by the Atlantic bluefin tuna industry. And in calling for a more sustainable ecosystem in drug development, he says, “Sometimes individuals don’t stop their behavior until all the great Atlantic bluefin tuna are gone.”
One consequence of not being able to rely on Big Pharma to play fair, Kinsella says, is that venture syndicates are less willing to take on the risk of developing drugs for chronic diseases. The current ecosystem is such that a drug must get approved pretty quickly, which rules out clinical trials with thousands of patients. It helps to explain why so many venture-backed biotechs prefer to develop new treatments around drugs already approved by the FDA, and why they are so reluctant to develop novel drugs for heart disease, neurological disorders, osteoporosis, and other chronic conditions.
“Almost anything of that genre is absolutely not financeable today because it requires too much capital, too much time, and pharma is so predatory and unreliable,” Kinsella says. An increasing number of biotech venture funds won’t
