Biotech has always been a bit like an open-air market bazaar. Now the industry needs to become a little more stable, more predictable. It ought to be part of something you could call an “innovation supply chain.”
At least, that’s the view of Noubar Afeyan, the managing partner of Cambridge, MA-based Flagship Ventures.
Biotech is like a souk, Afeyan says. It’s the Arabic term for an open-air marketplace. For centuries, merchants went there to hawk their wares for the highest price possible, and buyers sought to haggle for deals. It’s capitalism in its most raw form. It happens in rural American flea markets, and it happens in Istanbul.
Buyer beware.
This is basically how biotech works: It starts when an entrepreneur or researcher is inspired to create a new drug or medical technology. It’s immensely daunting and risky to create. So, he or she goes on a quest to raise money from adventurous investors to develop the widget over many years.
Once the idea passes a tough series of tests, the little biotech company, usually running low on cash and energy, heads to the souk. There, it finds Big Pharma companies, and hopes to entice them to pay the highest price possible for whatever it’s selling.
Ideally, the entrepreneur and VC can get rewarded for the risk they took, and the value they will provide to patients. Pharma companies, despite the ineptitude of their own R&D labs, know they can always head over to the souk and find good new products to keep their businesses humming.
But cracks have emerged in this system for life science innovation. Biotech VCs are reeling after a decade of investments that sounded good at the time, but which nobody in Big Pharma wanted to buy, or pay much for. Returns for most firms are nowhere near high enough to justify the risk, and so they are struggling to convince pensions and endowments to keep backing their wild biotech ideas.
Big Pharma companies, for their part, often feel like they’ve been snookered a few too many times by overpaying for biotech companies that didn’t deliver on their promise. (Ask Merck about San Francisco-based Sirna Therapeutics, or Bristol-Myers Squibb about Alpharetta, GA-based Inhibitex).
The result is that very few VCs are still strong enough to invest in early stage biotech innovation. Many Big Pharma companies have grown wary of the souk, or have noticed that there aren’t as many things to buy there anymore. Pharma has been scrambling to figure out how to keep the entrepreneurial ecosystem strong enough—cutting deals with academic institutions for example—in the hope that it will still have some good drugs to buy 10 years from today.
This is where Afeyan enters the picture, with his idea of the “innovation supply chain.” Flagship, a firm he co-founded in 2000, is one of the few still investing in truly disruptive biotech ideas. Like every firm, it has made its share of bad bets. But it has had a few hits lately, with companies like Agios Pharmaceuticals, Moderna Therapeutics, and Tetraphase Pharmaceuticals.
But instead of just dreaming up companies, building them, and hoping for the best, Afeyan says there has to be a more orderly
