What is your definition of a success?
I had many thought-provoking conversations during the 2013 JP Morgan Healthcare Conference in San Francisco last week. One particularly interesting question came up in conversation with Mike Boss, currently executive-in-residence at Bentley College’s Center for Integration of Science and Industry. He is currently studying characteristics associated with successful biotechnology companies. So I asked Mike, “What is the definition of success?”
a) Launching a product?
b) Providing a satisfactory return on investment? or
c) Moving the industry forward?
Does success equal bringing a product to market?
It’s not a real BCG event without PowerPoint, and so the presentation at Tuesday’s BCG reception provided some interesting topics for discussion. Among the data sets shown was a provocative slide illustrating the increased cost in bringing a drug to market. The increase was in fact due to the cost of failure. And that ‘failure cost’ stemmed from a company continuing to develop and/or launch a product that was not likely to gain market share. While new therapeutics gained significant market penetration if they were the first or second product to market, products that were third to the market were significantly reduced in market share, and if fourth there was really no market penetration. But who gets a bonus based on stopping a program? And when can such decisions about likely failure be made?
The exceptions to the premise that 3rd or 4th to market drugs are not commercial successes were not really discussed. Drugs that are 3rd or 4th to market can be very successful if they offer differentiation from their predecessors. Anyone remember Lipitor? How many billions in total sales? How many patients treated? On a more modest scale Aloxi the fourth 5HT3 inhibitor to the market was very successful for MGI Pharma and Helsinn due to unique features that were differentiating and that could be included in the labeling. Lusedra (fospropofol), on the other hand, had potentially valuable differentiating features compared to propofol and standard of care agents for procedural sedation yet still failed in the market due to challenges with labeling requirements for its administration.
Given the cost of bringing a single drug to market and the high rate of failure in the market, can one still make a case that a product launch equals success? Even medically differentiated products may not be successful if regulatory or reimbursement issues raise barriers to market penetration.
Is success simply a positive return on investment?
Kosan, Sirtris, and Verastem: what do these companies have in common? Kosan, for those of you who remember, had an IPO five years after being founded. Sirtris, a pre-clinical company based on sirtuin research, was acquired just four years after inception for $720 million by GSK. And just last year Verastem bucked current trends by having an IPO for $55M while still a pre-clinical drug company less than two years old.
One can debate the merits of these deals, but what is not in doubt is that these three companies provided a great return for their investors, with little more than the promise of a bright future based on interesting science and a name-brand team. For investors in these companies, they were certainly a success. But will they ever develop a drug?
Or can success be measured by contributions to building the Industry?
Somatix and Alnylam. These are two examples of companies founded on novel technology platforms, gene therapy and RNA interference, with broad applications for drug development and therapeutics.
Somatix, you will remember, was one of the first gene therapy companies. Founded in 1988, it merged with Hana in 1991. The combined company and its IP assets were acquired by Cell Genesis in 1997, which merged with BioSante in 2009 in a $38M all-stock deal. For the record, BioSante focuses on female sexual health, and its therapeutics are not based on gene therapy. Clearly by measures of product launch or return on investment, Somatix was not a success. However, the lessons learned from Somatix and other gene therapy companies are paving the way for follow-on companies that can learn from these pioneers’ mistakes. History may show that the most valuable aspect of the failures of gene therapy will be the application of lessons learned to chart successful pathways in the new fields of stem cell and cell therapy.
Alnylam, founded in 2002 and the first RNAi company to IPO in 2004, has a current market cap of $1 billion. And though Alnylam has yet to bring a product to market, it has taught the industry lessons in how to leverage IP assets to the fullest through locking up key intellectual property early in the field and leveraging this to maximize revenue through strategic partnering and licensing strategies.
What’s your view?
A company that does any one of these three things particularly well could be viewed as a success. However the companies that are able to move the industry forward, and bring a product to market, while delivering a strong ROI to their investors – those are the companies that will be best remembered as having been truly successful. What is your definition of success?