The End May Not Be Near But The Future Is Not Looking Very Good

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I have always been an optimist about the future of biotechnology and the future contribution of the life-sciences industry to health and healthcare. There have been a fair number of market cycles since I first began studying the biotechnology industry in 1984. When venture capital was tight or the window for initial public offerings slammed shut, I was always confident that those downturns in financing were temporary. Sooner or later the level of investments in early-stage biotech would rebound and the public markets would again be open to biotech companies with significant products in later stage development. My optimism that the markets would recover rested on my faith in the long-term rationality of the investment markets, both public and private. As long as basic research continued to provide the foundation for significant commercial opportunities, sooner or later profit-seeking investors would seize on those opportunities. It is the “as long as basic research” part of that premise that causes me to be concerned.

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Although the near-term prospects for biotech funding are reasonably stable, I am very concerned about the long-term prospects for the biotechnology industry in specific and for significant innovation in pharmaceuticals. I have previously posted about some of my impressions of the BIO 2014 meeting in San Diego, but a great deal of my concern about the future of the biotechnology industry is related to a statement made by Jim Greenwood, the President and CEO of BIO. In the course of a long conversation with Keynote Speaker Hillary Clinton, Greenwood prefaced one of his questions with this statement: “On the domestic front it’s pretty hard to argue that we have a bigger problem than the debt.” I was truly astonished that the man charged with leading BIO would believe that the United States’ debt, which has been steadily declining, is a bigger problem than the United States’ declining investment in basic biomedical research, which is the lifeblood of the industry he represents.

I frequently have casual conversations with scientists from San Diego’s major research institutions–including The Scripps Research Institute, The Salk Institute, UC San Diego, and the Sanford-Burnham Medical Research Institute. Virtually every conversation includes a depressing discussion of the dismal state of biomedical research funding. But there is no need to rely on anecdotal reports to get a sense of the state of basic biomedical research. This excerpt from a media release by FASEB (Federation of American Societies for Experimental Biology) tells the story with hard (painfully hard) numbers:

  • In constant dollars (adjusted for inflation), the NIH budget in fiscal year (FY) 2013 was $5 billion (22.4 percent) less than it was in FY 2003 (Figure 1, NIH Appropriation in Current and Constant Dollars)
  • The number of competing research project grants (RPGs) awarded by NIH has also fallen sharply since 2003. In FY 2013, NIH made 8,283 RPG awards, which is 2,110 (20.3 percent) fewer than in 2003
  • Awards for R01-equivalent grants, the primary mechanism for supporting investigator-initiated research, suffered even greater losses. The number awarded fell by 2,528 (34 percent) between 2003 and 2013 (Figure 2, Number of Competing Awards).

The FASEB summary of the plunge in NIH funding tells a grim tale. Overall, the total decline in NIH funding over the decade is more than 20%. The number of R01 grants, the lifeblood of university research, is down 34%. Those numbers are devastating.

In 1985 there were less than 30 biotechnology companies in San Diego. Now there are hundreds; and, more importantly, there is a dynamic cycle, beginning with startups and progressing through their inevitable successes and failures, that is a key feature of the biotechnology industry. There will always be far more startups that fail than startups that succeed. If that weren’t the case, every venture capital or angel investment would be a home run. But without the lure of attractive new opportunities to create the next generation of startups, that dynamic cycle that leads to a reasonable number of successes and reinvestment in startups will inevitably end. If concerns about the deficit continue to paralyze Washington and override concerns about investing in the future, then I am no longer an optimist about the future of the biotechnology industry and future innovation in pharmaceuticals that can transform healthcare.

 

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