The long road: fostering entrepreneurship in the life sciences

My colleagues in EY’s Government & Public Sector and Strategic Growth Markets groups recently released a comprehensive report based on the 2013 version of the G20 Entrepreneurship Barometer. The Barometer, a collaboration between EY and the G20 Young Entrepreneurs’ Alliance, seeks to measure the health of entrepreneurship across the G20 nations using a combination of objective measures and survey data. The report, titled The Power of Three, finds that entrepreneurship is not just driven by small, innovative firms. Instead, the “power of three” comes from combining the strengths of three actors: entrepreneurs, governments and large corporations.

The Barometer measures entrepreneurship across five dimensions: access to funding, entrepreneurship culture, tax and regulation, education and training, and coordinated support. While these factors would be critical for developing and sustaining entrepreneurial businesses in any sector, the report caused me to reflect on the unique challenges of building biotechnology companies and clusters. Is there another industry where the expectation inherent in the business model is over a decade of highly uncertain, capital-intensive R&D without a single dollar of product revenue along the way? Despite this daunting proposition, entrepreneurs and investors have been attracted by the opportunity to create tremendous value in the form of new therapies that save or extend lives.

Being located in Boston, I am fortunate to work in one of the world’s great clusters for biomedical research — an amazing mix of academic institutions, private research foundations, entrepreneurial companies along with their investors and, more recently, large pharmaceutical concerns anxious to be “close to the action” of cutting-edge research. The “power of three” is thus highly evident here — government funding, principally through the NIH, fuels the research of academic labs, which in turn is translated into product candidates by entrepreneurs and an experienced cohort of venture capitalists. From the very beginning of the modern biotech industry, big pharma has also played a critical role to both finance (through strategic alliances) emerging biotech companies and implicitly validate research for the next group of investors (from the public markets). When private venture capital waned following the 2008 financial crisis, big pharma companies increased their own corporate venture activities to help bridge the gap and sustain a robust innovation ecosystem.

Being in Boston also means meeting with representatives from other cities, countries and regions that are trying to capture some of the local “magic” and replicate what has been built here. The truth, of course, is that while government funding of basic research was critical to fermenting the mix of ideas that gave birth to the biotech industry, most of what developed in clusters, such as Boston and the San Francisco Bay Area, occurred organically. Breakthrough innovation can certainly occur anywhere, but it is very difficult to recreate the mix of ideas, people, money and risk-taking culture that has sustained biotechnology for decades.

So what should countries — in the G20 or beyond — that desire to encourage entrepreneurship in the life sciences sector do? In addition to many of the recommendations in the report, let me humbly share a few thoughts:

Support basic research. It may seem obvious, but a robust environment of basic scientific research is critical to the idea generation that spawns entrepreneurial biotech companies. As the challenges of addressing significant unmet medical needs increases, cross-disciplinary research will be especially necessary. Finally, robust incentives are needed to encourage technology transfer and out-licensing to private industry, which can then pick up the baton to conduct (and fund) translational research.

Focus on inherent strengths. The biotech business model as it exists today is under tremendous strain and may not be well suited to many countries in the G20 and beyond who are seeking to foster their own life sciences clusters. New models are needed to vastly improve the efficiency of biomedical research, and the solutions may come from unexpected places. For example, emerging clusters could focus on disruptive medical technologies that require less risk capital in the development stage. There may be opportunities in data, which is fast becoming the currency of the life sciences industry at both the research and commercial end of the value chain. In addition to requiring more advanced IT skills which already exist in many countries, there is an opportunity to leverage population health data. Single payer health systems may be particularly well positioned to collaborate with entrepreneurial companies in mining this data for new insights regarding disease. Providing education and incentives for patients to participate in clinical studies (with appropriate safeguards) could also significantly alter the capital required for R&D.

Encourage capital formation. Well-meaning government officials are often focused on building physical infrastructure for the industry, and many seek to support entrepreneurial businesses through direct investment. But beyond the difficulty of picking winning technologies, the funding that governments typically provide is a mere drop in the bucket of what is required to bring a drug to market (typically several hundred million dollars). Thus the primary focus should be on encouraging private capital formation through tax and regulatory policy that helps alter the investment risk–reward equation. This idea is explored more fully in the G20 Barometer report, but in the case of life sciences, the approach can be pursued broadly at an industry level or in a more directed manner by targeting specific technologies or diseases with high societal need.

What do these factors have in common? Just like drug development, supporting entrepreneurship in the life sciences is a long-term proposition. I recognize that elected officials need to point to short-term results to sustain their programs — and everyone likes ribbon-cutting ceremonies and photo opportunities with entrepreneurs — but creating a sustainable entrepreneurial culture requires a different lens.

2 thoughts on “The long road: fostering entrepreneurship in the life sciences

  1. Hi Glen,

    Interesting read, especially at a time where, in the UK, R&D expenditure is falling in the Pharma sector (see http://www.telegraph.co.uk/finance/newsbysector/industry/10469628/RandD-spending-declines-for-first-time-since-crisis.html for a bit of background).
    As such, it’s imperative that the ‘Power of Three’ is maintained in reaction to this news to continue to encourage the innovation from smaller biotech companies that built up a mature and successful Life Sciences industry in the UK (and Boston/SF, and elsewhere in the world).

    You’ve mentioned what can be done at a country-level, but I was wondering what you thought could be done at a more reigonal/local/individual level? How could a group of people with a common interest in the industry seek to support basic research and promote disruptive technology, be it in a Professional Services capacity or otherwise?

    Look forward to hearing yours or anyone else’s response.

    Regards,
    Elesh

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