BioWorld Today Columnist

This month, I was inspired by Esquire Magazine's recurring column "What I Have Learned." Usually they have some famous person - actors, politicians, authors, Big League coaches - sharing their pithy pearls of wisdom. But once a year, Esquire invites its readers to send in contributions.

As I started pulling together the numbers for this past year's venture deals, a few biotech pearls of wisdom occurred to me. Like maybe: "If it didn't work the first 10 times, it ain't working any time soon, even if Kleiner Perkins backs it."

Or perhaps: "If you know about the deal, the smart money has already come and gone."

Or maybe even: "Gray hair and fancy titles on resumés don't equal actual ability."

But the biggest thing I keep thinking we should have learned by now is a combo of:

1. "No, really, there aren't enough dollars in the universe to pay for that therapy, no matter how cool the science."

2. "Marketing strategies based on getting tough with little old ladies will not play out well in the press."

3. "Perpetual motion machines - including perpetual growth stocks - don't exist in our universe."

For some reason, the biotech sector continues to believe that it is somehow exempt from those basic laws. The more our companies can't make them work, the madder they get and the more they look for someone outside the industry to blame.

Biotech has been incredibly creative historically at more than science. The sector came up with imaginative new ways to manage scientists and fund R&D, generate incredibly innovative new therapies with small infrastructure and put novel funding structures together when public markets were cranky.

But somehow the industry's inventiveness is stymied by the challenge to come up with a cost-effective way to generate innovative therapies that address meaningful medical needs, without bankrupting any more U.S. families.

There is lots of discussion about broken models, but somehow the only new twists coming from inside the industry are overseas outsourcing (already becoming not-so-cost-effective), specialty pharma/repurposing (I know! Let's buy unwanted molecules and mystically avoid development failures while generating huge profits!), and a host of less-than-exciting approaches like functional foods.

Even some of the best and brightest - seen during the recent JPMorgan meeting - could not get past the idea that the situation is all the fault of the FDA and investors who refuse to change their behaviors - "We want things to stay the way they always were!"

Where the heck is that entrepreneurial spirit?

It's time to stop whining that it's not fair and not possible to support innovation unless conditions stay the same. If you don't figure it out, someone else will - someone who won't have a vested interest in maintaining your infrastructure and expectations of return.

OK, enough cranky stuff. Let's take a look at the numbers.

Back in 2006, money was flowing primarily to companies with clinical studies ongoing, and especially to firms that were not doing discovery work in house. Even the series A deals were looking awfully mature, compared to the early R&D support seen in previous times.

Table 1 (see below)shows a breakdown of the Series A, B and C and up venture investments from 2006. Of note is that for Series A financings, 56 percent were clinic stage, and 70 percent involved specialty pharma. For Series B, it was 60 percent clinic stage, and 70 percent specialty pharma, and for Series C and up it was 83 percent for clinic stage and 17 percent for specialty pharma.

Interestingly, the numbers from 2007 show a real shift away from specialty pharma dominating at any stage of investment. I guess that presentation at Merck's conference for venture capitalists stating that they were not all that excited about repurchasing specialty pharma product candidates was noted.

What did stay strong was investor appetite for companies with some clinical data, even in that first round. Eight of the 48 companies raising Series A rounds had candidates in Phase II testing. The old days (OK, really old days) of going public before hitting the clinic are long gone. Table 2 (see below) shows the breakdown for 2007.

Through last year, 37 percent of the Series A were in clinical trials or on the market. For Series B, it was 46 percent, and for Series C and up 94 percent. Also, 49 percent of the Series A financials were in specialty pharma, which also garnered 32 percent of the deals in Series B, and 43 percent in Series C and above.

So how to get those molecules into the clinic if investors want clinical data before investing?

Well, researchers are getting ever more creative about funding sources and using collaborations to move the science along. And those disease-focused foundations are becoming important partners, providing cash, access to specialty assays and tools, to patients and to clinical specialists.

But bottom line: Stop believing that adding another 10,000 employees will help.

Stop thinking that the markets will continue to reward really great science if it's coupled with unrealistic business strategies. Third-party payers and patients usually care a lot more about cost-effectiveness than you think they will.

And while the federal government has to be the slowest way to make change ever invented, the lack of infinite dollars demands change - whether Hillary is elected or not.

Robbins-Roth, PhD, is founding partner of BioVenture Consultants, and can be reached at biogodess@earthlink.net. Her opinions do not necessarily reflect those of BioWorld Today.