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The Impact of Bigness in the Life Sciences: A View from Windhover's Start-Up Symposium

This article was originally published in Start Up

Executive Summary

Bigness is pervading the life sciences. Larger investments and larger partners are driving start-ups toward the largest markets to get ROI, encouraging in-licensing and rollup strategies. In devices, the trend towards size comes at the expense of developing niche markets. Meanwhile, biotechs are realizing they must integrate more and more technologies in parallel to get a complete biological picture of disease.

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Systems Biology: The Post Proteomics Era Begins?

Several emerging companies are building platforms around the concept of systems biology, which is premised on the idea that drug and diagnostic discovery require studying the ways in which the various elements of biological systems-including, but not limited to, genes and proteins-integrate and interact within an organism or function. This ambitious undertaking requires an arsenal of high-throughput technology and expertise drawn from a myriad of disciplines including chemistry, bioanalysis, molecular and cell biology, medicine, and informatics. The immediate challenge facing aspiring systems biology companies is to sustain themselves by creating sufficient value from their expansive technologies during the years it will take to come up with a novel diagnostic or therapeutic. Along with traditional discovery deals, as well as deals to resurrect partners' projects which have failed for lack of understanding about their proper use, several players are proposing interim steps to create product businesses, like using their technologies to find undervalued in-licensing candidates.

The Search for Certainty: Trends in Early- and Late-Stage Dealmaking

The industry's decade long search for novel drugs with novel mechanisms of action has increased the risk of drug discovery; meanwhile, new technologies have not significantly improved productivity. One result: enormous pressure to find late-stage products, and extraordinary prices for them, best exemplified by Bristol's $2 billion purchase of rights to ImClone's cancer antibody. And while these prices don't necessarily reflect the values of the particular drug, but far more important defensive issues, they nonetheless raise the pricing umbrella for all late-stage transactions, forcing buyers, in the short-term, to figure new ways of amortizing these increasingly costly investments. Meanwhile, the industry has seen a sharp decline in the number of early-stage transactions, reflecting the fact that such deals have not improved new-product productivity but have in fact increased R&D risk, or at least not decreased it. A number of relatively young biology companies are therefore exploiting valuation disparities to buy older chemistry firms in order to create integrated discovery platforms, on the model of Vertex and Millennium. These newer acquisitive biotechs hope to leverage the platform and sign the same kind of high-value deals the older firms have, but to do so far sooner in their corporate lives. Meanwhile, companies founded around predictive technologies aim to provide the R&D (and potentially marketplace) risk reduction Big Pharma wants in return for collaborations that give them the discovery assets they don't have. But apart from a few high value deals, Big Pharma hasn't yet bit. A few companies aim to amortize the risk of their R&D investment by broadening their goals from small molecule therapeutics to less traditional areas, including diagnostics.

Building Platforms in Orthopedics

Consolidation has created a widening gulf between small start-ups with innovative technology and large multi-faceted companies that control sales and distribution channels, making life difficult for mid-sized companies caught in the middle. Nowhere is this more true than in orthopedic devices. Now, some investors are finding opportunities in mid-sized companies by using them as platforms to build more substantial plays. The goal isn't market leadership, but value creation for shareholders, which can be done on a more modest scale.

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