the finish line first often wins the biggest prize. With real money, a biotech team can do studies in parallel like big pharma (who do have recurring revenue, lots of it). Time is the enemy. Management doesn’t have to live hand-to-mouth waiting for the data from one study to raise money for the next. But the other enemy is risk. While biotech may be operationally similar to big pharma, it is a different business with a very different risk profile.
Biotech managers with pharma pedigrees can easily confuse the two. So spending wisely has a corollary of its own—Avoid potentially fatal risk. With big-company-style clinical development, managers don’t have the forced discipline of learning from initial mistakes before graduating to the next level in the labyrinth of drug development. Early cancer immunotherapies failed, despite extensive spending in clinical trials, because the technology was incomplete. No amount of cash could have saved them. When the problem is systemic, parallel trials simply reproduce the problem.
At best money can only reduce financing risk. A manager tries to match his burn rate to the total risk without knowing what it is. Full-time employees are cheaper than outsourcing and easier to control, but come with fixed overhead costs. Whether a team has to respond to opportunity or setbacks, or stretch to the next milestone or market window, it is much easier—and more fun—to make a small company large, than a large company small.
Two additional rules define the boundaries of the biotech playing field:
—You have to spend money to make money; holding still is not an option. Even experienced managers can find themselves caught in a trap that in many cases is unavoidable. “I had to spend the money to develop the technology. Now that I know what to do, I wish I had the money to do it.” The best CEOs raise funds even in difficult markets, but investors pay the price.
Hence, the final law—Don’t run out of money.
In the past, easy money has not brought out the best in the biotech industry. The 2000 venture “vintage year,” fueled by cash generated in the Internet Bubble, turned in the worst performance in the last 20 years. Vast sums invested in genomics and other “omics” returned precious little to investors. For many reasons this time is different, but the laws of finance still apply.
