It’s likely there will be more wins at the research institutes in coming decades, as the four forces driving biomedical research and development — industry, government, finance, and academia — evolve the ways they collaborate.
The partnership between biology research and private equity investors is perhaps the most intricate and variable. This is unsurprising since it is a fairly recent phenomenon, dating to a 1976 meeting of Robert A. Swanson, a venture capitalist with the Silicon Valley firm Kleiner Perkins Caufield & Byers, and Herbert W. Boyer, a biochemist at the University of California at San Francisco. In the early 1970s, Dr. Boyer and Stanley Cohen, a geneticist at Stanford, had pioneered a new scientific field called recombinant DNA technology. Excited by the commercial potential of this scientific breakthrough, which he’d read about in a journal, Mr. Swanson called Dr. Boyer and requested a meeting. Dr. Boyer agreed to give him 10 minutes of his time. The meeting extended from 10 minutes to three hours over beers; by its conclusion, Genentech was born.
Mr. Swanson and Dr. Boyer faced skepticism from both the academic and business communities, but within a few short years, they had invented an entirely new industry. In the decades that followed, venture capitalists partnered with scientists to forge new companies from the research laboratories of leading universities and independent institutes all across the United States. (Lacking a well-developed venture capital industry, Europe and the rest of the world lagged behind, but by the 1990s, the model developed in the U.S. had been replicated in the United Kingdom, France, Germany, and Israel.)
For many years, venture capitalists were a common sight at research institutes, walking the halls in search of the next hot biopharmaceutical startup, much as they staked out Stanford for dot-com opportunities. When the biotech bubble burst in late 2000, the venture capitalists disappeared, and with the prolonged slump in biotech shares, they have stayed away.
But in 2003, new drug approvals, including Genentech’s Xolair for asthma, Biogen’s Amevive for chronic psoriasis, and Gilead Sciences’ Hepsera for hepatitis B, prompted a mini-rally in biotech stocks. Although most venture capitalists are still looking for later-stage investments, some say they are revisiting the labs. “We’re back in these institutes,” says Dennis Purcell, senior managing partner of the $400 million Perseus-Soros BioPharmaceutical Fund.
The labs, for their part, are adding drug development skills, moving new molecules farther along the road from lab to clinic. In part, they are taking more control of their discoveries’ futures, making sure they are developed properly. But they are also hoping to claim more of that later-stage capital, or to reap a bigger reward from pharmaceutical partners. “Among my partners, as we look at the academic institutes, they’re getting later and later stage,” Mr. Purcell says. “They may not have all the infrastructure of a company, but you can certainly buy things out of the institutes at a much later stage than you could 30 years ago.”
To some extent, the institutes are simply responding to market forces. If the market undervalues basic science, as it has in recent years, the labs can move in the direction of more applied research. But whether that move will result in more successful biotech startups, or in more innovative drugs’ reaching the market, remains open to question.
“There’s extreme pressure today for academic institutions to be major contributors to economic growth,” says G. Steven Burrill, chief executive officer of Burrill & Company, a San Francisco-based life sciences merchant bank. “That didn’t used to be part of their brief; they were there to win Nobel Prizes. But there’s still a big gap between a science project and a company. We have an awful lot of biotechs that are science projects disguised as a company.”