Plenary: Investing in Bioscience: Linking Financial, Human, and Social Returns
In many ways the future of the biotechnology and pharmaceutical industries could not be brighter. Investors have seen a rate of return well above the average for other markets, and there's reason to think this will continue, explained Rajiv Kaul, portfolio manager for the Select Biotechnology Portfolio and Advisor Biotechnology Fund for Fidelity Investments. "I'm very excited about the future of the industry," he said in his opening remarks at the plenary session at Partnering for Cures 2013, "Investing in Bioscience: Linking Financial, Human, and Social Returns."
Yet if that's the case, then why is there so much uncertainty in the industry today? While investors are enjoying healthy returns, the industry needs to attract much more capital to deliver on its potential to save, extend, and improve lives. There are worrying signs that this isn't happening, explained moderator Michael Milken, chairman of the Milken Institute and founder of FasterCures.
"The world's economy is $72 trillion, but the revenue from biotech is less than $200 million," said Milken. "The promise of the biotech/bioscience industry is so dramatic that it's hard to believe how relatively small this industry is."
To be sure, the recent recession created turmoil for the industry, which saw a heavy reduction in both private capital and government investments. But there's something of a silver lining in the economic downturn that could help the industry, explained Robert Hugin, CEO and chairman of Celgene.
"One of the positive impacts of the Great Recession is that it pushed the need for integrated solutions and efficient investing," said Hugin. "If companies aren't able to make transformational change in patients' lives, they won't get investment." In other words, the constriction of investment capital has focused the industry on providing solutions to some of the world's most immediate challenges.
Richard Pops, chairman and CEO of Alkermes, advised biotech companies – particularly start-ups – to take a pragmatic view of the motivations of investors. "My sensibility is forged in the red-hot fires of investors, who don't care about philanthropy," he said. "They care about the rate of return."
It's a simple concept – that investors typically place financial return above social return – but for an industry known for long product cycles, it's a crucial insight for solving the capital conundrum. Speaking of his own company, Celgene, Hugin said, "We raised a billion dollars before we ever made a dime. It took 15 years."
And it's not just the venture capital market that faces headwinds; philanthropic giving and government grants are on the wane, too. "Philanthropy is not the way to go in R&D," said Christopher Egerton-Warburton, partner at Lion's Head Global Partners. "Grants alone are not enough. There is a critical need to get more capital in this space."
At least part of the solution, said Hugin, is that biotech companies need to start looking at building partnerships with their peers. "We had no choice but to collaborate, but it was the best business decision for us," he said.
Milken echoed this point, encouraging the industry to pool its resources more effectively, particularly as it relates to finding cures. An important part of FasterCures' work, he said, is "to do everything we can to strengthen the disease-specific network."
The panel also covered two areas of great promise. First was crowd-sourcing, which can harness global intellectual and investment capital through the right combination of incentives and passion. Second was the increasing role of companies outside the health industry. Milken cited the $500 million initiative by Google founder Larry Page and its potential impact on the industry. Egerton-Warburton added that "Google can bring so much more than just cash" – it can also bring in human capital and provide vision and leadership for specific endeavors. In other words, the biotech community could benefit greatly from the experience and expertise of other sectors.
In all, biotech finds itself in a very exciting moment. Not only are the fundamentals of the industry strong, but also the level of collaboration and coordination among the major stakeholders has created an innovation revolution.