I’ve been reading books about innovation for decades: when I was a neuroscientist, when I was at Google, and now while I’m running my own companies, Didero ML, Artifact Puzzles, and the Hoefnagel Puzzle Club. One of the biggest questions in the areas of innovation, science, engineering, business, and economic history, is what practices lead to the most impactful innovations. Post-Covid, an obvious answer is medical research that leads to health innovations, and the biotech startups that scale them into treatments.
One great resource to learn more about biotech is Daniel Levine's podcast, The Bio Report.
Daniel’s podcast is tight and geeky in format, aimed at the listener with a fair understanding of biomedicine and business, or who at least isn’t scared of them. His voice, his microphone, and the highbrow theme music performed by Jonah Levine’s jazz collective, all remind one of a show that might air on WNYC radio.
Don Drakeman appeared on the podcast last month, for an interview about his new book with Lisa Drakeman and Nektarios Oraiopoulos, From Breakthrough to Blockbuster: The Business of Biotechnology.
The book dropped on April 29th in the US, and on my doorstep in Port Townsend. I just wrote a 100-word review in the Business and Science sections of Didero. I learned enough from the book that I want to write about it at more length.
From Breakthrough to Blockbuster covers the nuts and bolts of biotech startups. What technologies are the most common bases of biotechs? How does the drug development process work? How are the companies financed and built, and how are their relationships with contract research organizations and big pharma structured? What personalities are happy as biotech founders?
The single most interesting chapter asks whether biotech startups produce more blockbuster drugs than huge pharma companies. It turns out they do, and the authors both take us through the numbers – most drugs that go to FDA priority review originate at biotech start-ups – and help us think about why. The single most striking anecdote in the book is the tale of the mRNA vaccine for Covid. In early 2020, researchers at GlaxoSmithKline (GSK) were well-positioned to score with this vaccine. GSK sold $8 billion of vaccines in 2019. GSK researchers had been working with mRNA vaccines. They applied to the committees that approve projects within GSK, and after several reviews, ended up in front of the senior management committee. The committee rejected the project, say that mRNA was not ready for prime time.
You have probably heard the rest of the story many, many times: also in early 2020, biotech startups Moderna (sometimes styled as ModeRNA) and BioNTech (whose VP scientists include Katalin Karikó) created mRNA covid vaccines, each in a few days, using online virus RNA sequences. Both produced blockbuster mRNA vaccines that saved millions of lives. The vaccines grossed $32 billion in 2021 alone, for Moderna, BioNTech, and BioNTech’s pharma partner Pfizer.
Big company committees with a bias for inaction recur throughout the book, as in innovation history as a whole. With both examples and quantitative analysis, the authors tell us of large, established companies that use centralized approval processes and multi-billion-dollar resources to achieve some impact, but not as much as the thousands of tiny biotechs start with little money. Those tiny startups develop new but unproven drugs, and compete for money from VCs and big pharma partners to run studies to find out if they work. Many tiny biotech startups fail, some are acquired, and a few get FDA approval for drugs that go on to be blockbusters. And that’s where most blockbuster drugs come from.
The authors also survey the literature that explores why this happens. The main theory they highlight: Small companies are funded by many decision makers (angel investors and VCs). Big companies have very few decision makers (senior management at 20 huge companies okay most internal funding for the entire industry). But research efforts are dominated by uncertainty, so independent bets made by many people do better. And corporate deciders fall prey to the sunk-cost fallacy, while VCs let failing companies fail and spend the money on new bets.
Its worth drawing a parallel to the tech industry: rich companies get many or most of their innovations by buying or partnering with tiny innovators, while tiny innovators try, by the thousands, sometimes scaling to become blockbusters, sometimes acquired, sometimes failing. It’s also striking how in both industries large companies can’t stop themselves from centralizing decisions about internal projects, thus passing up most of their chances for new blockbusters (drat!), while they do much better with acquisitions and partnerships.
I’m reminded of a practice that, as I recall, is used by both Y-Combinator and Andreessen-Horowitz: for small bets, any one decider can say yes. But more than anything this book points out that there’s a lot of value in letting cutting-edge research happen outside of your huge company and then buying the winners.