Drug Baron

May 22, 2013
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How NOT to cut costs

DrugBaron’s mantra is simple: drug development is too expensive to make economic sense.  Because its impossible (not just difficult) to know whether a given asset is going to make it to the next value inflection point, the numbers only add up if you can ask the value-adding questions as cheaply as possible.

Paying for more information to guide decisions only makes sense if it materially increases your chances of reaching that pay-out.  And since most things make you more comfortable without making success more certain, they should be eliminated from the plan – or, rather, delayed until a positive outcome (approval and sales) are more certain.

Understanding the right WAY to cut costs is as important as embracing the need to cut costs in the first place

Driving costs out of the business in this way is central to the asset-centric investing paradigm born at Index Ventures and espoused by DrugBaron.

But watching different management teams operating in the asset-centric world, under extreme pressure to minimize costs, has revealed two very different strategies to achieve the cost reductions – one of which works; and one which definitely doesn’t.

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April 8, 2013
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The power of crowds – and their limits

The first internet revolution in the 1990s saw the emergence of on-line service providers who offered the same service as off-line competitors, but cut costs.  Big winners included Amazon and LastMinute.com.

But the second, and arguably bigger, internet revolution in the 2000’s was the emergence of social networks, with Facebook, LinkedIn and Twitter in the vanguard.  These surprisingly simple tools – Facebook is little more than a village noticeboard with millions, rather than dozens, of potential contributors – unlocked the power of the crowd.

Crowds can do some amazing things.  Whether you need to find someone extra smart, or aggregate thousands of tiny contributions to create something huge, virtual crowds organized through social networks have made possible what was previously unthinkable.

And the next target for crowds seems to be funding businesses – and most recently even academic science.

In principle, it sounds like a great idea: a small, almost invisible, contribution from enough people can together deliver enough resources to change the world.  Platforms, like Microryza, are springing up like mushrooms to harness these ‘donations’ and channel them to deserving causes.  “Crowdfunding” is on everybody’s lips.

The key difference with crowdfunding lies in the distributed decision-making capacity, rather than just distributing the cost

Can crowdfunding really shake the foundations of current financing models for biotech companies and for academic science? Or will it remain a niche opportunity dwarfed by conventional funding mechanisms?

DrugBaron predicts that initial excitement and expansion in the sector may rapidly be followed by disappointment and contraction – unless a solution can be found to the quality control issue when the funders cannot be expected to understand the details of the projects they are being asked to fund.

After all, existing public funding of academic science is nothing but “crowdfunding”.  Can social networks really do a better job of distributing our communal investment in research than research councils or even venture capitalists? Crowds can do amazing things, but crowdfunding biotech business or academic research might be a step too far.

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March 19, 2013
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Biosimilars are not similar enough: A proposal for true ‘biogenerics’

As the debate rumbles on about biosimilars, DrugBaron cannot help wondering if they are not in any case the wrong solution to a very real problem.  After all, when it comes to biologic drugs is biosimilar similar enough?

The principle of generic drugs mostly works very well, ensuring that at the end of the state-sponsored monopoly period, which allows super-normal profits to compensate and incentivize innovators, normal market economics applies to drug pricing.

It works because almost everyone (medical professionals and patients) believe the generic to be functionally identical to the proprietary drug.  Not just similar, but identical. The initial high price was pay-back for discovering and developing the drug in the first place, not a premium for quality.

Biosimilars attempt to extend the same principle to biologic drugs.  But the core tenet of the generics system (functional identity of the generic) is demonstrably absent.  Healthcare professionals and patients will not, and should not, accept that similar is good enough.

Yet no-one can doubt the need to find a solution to the problem of indefinite premium pricing for biologics.  As their ranks swell on the medicine cabinet shelf, it’s a pressing problem for the world’s healthcare providers.

Maybe, then, its time to look for a different solution? There is an alternative to biosimilars. Enshrine the principle of patent law directly into the regulatory framework for biologics: in return for approving the drug, ten years after approval the registrant must license others on pre-agreed terms to make the identical product.  Such a system, creating true ‘biogenerics’, would allow market economics to determine the price of biologic drugs while providing the patients with the real product, backed by extensive hard end-point clinical trial, not some cheap imitator.

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