Is Big Pharma Stifling Biotech R&D?
Kevin Kinsella, the founder of VC firm Avalon Ventures, says that big pharmaceutical firms are essentially eating their seed corn—letting greed drive them into cutting deals that fundamentally undermine the health of the biotech industry that provides a lot of their innovation.
This helps to explain why so many venture-backed biotechs prefer to develop new treatments around drugs already approved by the FDA, and why they are so reluctant to develop novel drugs for heart disease, neurological disorders, osteoporosis, and other chronic conditions.
“Almost anything of that genre is absolutely not financeable today because it requires too much capital, too much time, and pharma is so predatory and unreliable,” Kinsella says.
Full article at xconomy.com. Hat tip to Megan McArdle.
Sounds awful.
A better title would be is big government stifling biotech R&D.
The article is somewhat misleading. It’s faulting big pharma for not paying higher fees when buying biotech firms. But, as the article suggests near the end, what’s good for the individual firms (getting the best deal) is not good for the biotech industry as a whole, which relies on venture capital to survive. But I cannot think of other industries where we make the argument that over-paying would benefit society. If the returns to capital were greater, competition would drive up the price big pharma is willing to pay for a biotech company.
Not a pretty picture. But why, Linda is government at fault?
If you want to market a drug you have to have FDA approval. Approval costs mega bucks. Therefore, only drugs with wide appeal or with clear lifesaving effectiveness are likely to be worth trying to develop. Only certain kinds of markets exist that can can earn back the billions needed to get through the regulatory process.
After the FDA approves, you have to get Medicare to approve it for Medicare patients.
If these processes were cheaper, there would be more incentive to develop niche drugs. A number of ways to reform drug approval have been proposed, and Medicare wouldn’t have to be so involved if it was closer to a defined contribution subsidy scheme than is currently the case.
Thanks, Linda. that makes sense.