Biotech: Not for the Faint of Heart

Sarah Lacy

Like the high school gym after the prom, the Westin St. Francis in San Francisco is finally winding down from the fever pitch of the JP Morgan Healthcare Conference. There are still a few more speakers, but attendees have dwindled and much of the enthusiasm that starts any big industry conference has long since drained.

I, too, am reeling from an overdose of information about everything from big pharmaceutical companies to tiny startups. I even woke up this morning with a sharp cramp in my calf—no doubt from running between presentations and meetings and cocktail parties in heels for the better part of 3 days.

But aside from all the story ideas and business cards, I’m coming away some perspective on a question I usually ask every healthcare VC I meet: Why on Earth would you invest in biotech?

VC veteran David Morgenthaler told me last night it's a question that has caused him to walk the floors many a sleepless night. It’s so hard to get a drug from an idea through approvals, let alone raise hundreds of millions to support that research. Even Amgen and Genentech—the companies little biotech startups want to be when they grow up—had endless rocky roads, and still get the once over by skeptical analysts. Like venture capitalists are only as good as their last deal, in biotech you are only as good as your newest drug. As a VC said to me this week, “If a cat has nine lives, Genentech has gone through about 27.”

So why all the grief? Two reasons occurred to me this week. The first one: In technology VCs can pretty much know if the technology will work, and hope is the market will be as big as due diligence suggests. In biotech, it takes a long, long time to know if the drug will work in humans and well enough to satisfy the FDA. But if you are making drugs to treat diseases like cancer or multiple sclerosis, there is so much upside potential for better treatment—the market is almost assured. You’re really just trading one risk for another.

Second, as a skeptical journalist, it’s easy to overlook the human element. I would like to think entrepreneurs and VCs are at least partly driven by the call for saving lives. As Genentech’s CEO Arthur Levinson elucidated in his presentation yesterday, the last decade has seen a whole new approach to treating cancer and new advances in tailoring medicine to an individual’s genetic makeup promise more changes. No matter what the reason, without all that cash, that wouldn’t have happened.

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