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I don’t want to rain on anyone’s parade, but you need to not get hopeful about promising coronavirus vaccine Phase 1/2 study results.
Because the biotech industry is not optimized to deliver drugs to market. It is optimized to make profits.
Because the biotech industry is not optimized to deliver drugs to market. It is optimized to make profits.
For the uninitiated:
Drugs and medical devices in the US have extensive regulatory hurdles imposed by the FDA. These are generally more good than bad, but they have some side effects, no pun intended.
To clear a drug for market, you have to demonstrate safety and efficacy.
Drugs and medical devices in the US have extensive regulatory hurdles imposed by the FDA. These are generally more good than bad, but they have some side effects, no pun intended.
To clear a drug for market, you have to demonstrate safety and efficacy.
This is done in a series of phased clinical trials. Phase 1 trials are the smallest, earliest experimental research. Phase 2 is where things start to get real, but is not enough to clear a drug for market.
Successful Phase 3 trials can result in a marketable drug.
Successful Phase 3 trials can result in a marketable drug.
Phase 4 trials are often post-market trials, but let’s ignore this.
The phases are steps in a funnel: only some drugs go from Phase 1 to Phase 2, even fewer make it to Phase 3, etc.
The phases are steps in a funnel: only some drugs go from Phase 1 to Phase 2, even fewer make it to Phase 3, etc.
Now, because these stages of the funnel are such a strong filter, the biotech industry has optimized itself around this.
So biotech startups form with no intention to get a drug to market.
They are formed to get *patentable research* to a certain phase.
So biotech startups form with no intention to get a drug to market.
They are formed to get *patentable research* to a certain phase.
When they succeed, they sell the rights to the research, to the extent that they can, to a firm more capable of driving the next phase forward.
This is how biotech firms exit.
Now, that’s the end part of the equation. But what’s the starting point?
Federal grant money.
Now, that’s the end part of the equation. But what’s the starting point?
Federal grant money.
The business model for biotech startups looks a little bit like tech but with an added variable. Biotech firms will raise investor money like anyone else. But they can also qualify for federal research dollars, and this money is relatively permissive from an IP point of view.
The probability of any successful Phase2 trial making it to market is very low. A new drug costs about a billion dollars to develop.
So what happens is that “Big Pharma” manages risk by buying rights from successful startups.
So what happens is that “Big Pharma” manages risk by buying rights from successful startups.
Those startups manage risk by taking free money from the government, some of which is earmarked only to go to “small busineses.”
So any given “promising result” from Phase 2 is far more likely to die in Phase 3 than not. It is, however, an immense payday for the people involved in the biotech startup space.
This business structure has been driven by the regulatory landscape. It’s way, way easier to get to a successful P1/P2 than to a marketable drug, just like it’s way easier to build a company that Google will buy than it is to build the next Google.
With a lot of attention and investment in a Coronavirus vaccine, this story will play itself over time and time again. It’s going to be very easy to get that initial funding, and earlier promising results, because they are unlikely to get out of P3, won’t temper investment.
