Biotechnology companies in the United States have a primary duty baked into their corporate charter to maximize profits and shareholder value; as do all for-profit corporations. Unlike companies in other industries, however, biotech companies do not compete on product pricing, quality, nor capacity to supply as means to maximize profits. This is because their products have market exclusivity upon FDA approval, which can be leveraged into maximized pricing. Patents protect manufacturing and distribution rights worldwide. Thus biotech companies have had little incentive to reduce development or operating costs to maximize profit margins on their drugs, especially in bull markets. Shareholders have had a happy ride as the industry has delivered on high ROI, despite the touted high R&D risk and costs.

Unfortunately, there are natural consequences of being a top profitability industry. Because most disease indications and their potential treatments are not blockbuster markets, the industry produces a very narrow sector of all the ‘cures’ needed. We lack treatments for 90% of all known diseases and the healthcare economy is already crumbling beneath the cost of those. Moreover, we have vanishingly few methods for prevention or early detection of common killers and have abandoned low margin products like vaccines and antibiotics until a crisis causes a stampede of reckless investment to push emergency product development (= Covid-19 testing, vaccines, and antiviral treatments).

Not just a ‘bear market’ problem

The frailty of the current business model is amplified in today’s bear market, causing company closures, retractions, lost time and effort toward R&D, as the burden of the shareholder demands come back to roost in the C-suite and on Wall Street. Some analysts are calling for a disciplined solution to the current crisis, “Biotech leaders must focus on the aspects of their business they can control to safeguard their companies and development pipelines. Return to operational excellence and prudent financial management”. Unfortunately, even if these companies are rescued, we are still faced with the legacy lack of productivity and overwhelming burden of cost in our biotech industry.

Because most disease indications and their potential treatments are not blockbuster markets, the industry produces a very narrow sector of all the ‘cures’ needed.

Regulating prices only “moves the cheese”

“Congress [has] passed historic drug-pricing legislation that would allow the government to restrict prices for drugs covered by Medicare…The bill wouldn’t directly impact the 211 million people with private insurance, but some experts say its provisions about pricing for drugs under Medicare could cause drug makers to try to recoup some lost revenue in the private market.” (https://rollcall.com/2022/08/10/senates-medicare-drug-pricing-may-ripple-into-private-market/)

This begs a social and economic question: Should we be relying upon high profit markets to fulfill our most basic and precious need for prevention, diagnosis or effective treatment for our human ailments?

The case for financial innovation in the biomedical innovation industry

Today’s biopharmaceutical industry was created from more than 35 years of scientific innovation in developing medicines, financed with high stakes venture capital and avid public financial markets. The following list of market failures in today’s biotech business model point to under-appreciated investment opportunities that can generate global impact in the treatment of a broad spectrum of human diseases (beyond classic neglected and rare) with commensurate returns; and indicate a need for financing innovation.

• Biotechnology industry is top in inefficiencies:
• Pharma Companies rely on majority of their profits from few products
• Vast majority of existing drugs are never repurposed for a 2nd or 3rd use despite $100’s M invested in R&D
• 90% of disease have NO or inadequate treatments
• Manufacturing technology is 40% efficient (creating significant waste) and is centralized in few locations without regulatory oversight, creating vulnerable supply chain
• Sales and distribution is > 50=75% of operating costs in Pharma — for medicines that have no real competition because patients are captive market

A business model shift reduces risk and delivers more productivity

Innovation in the business and financing model is arising from seasoned executive leaders in R&D, business development, intellectual property, and sales & marketing who are rejecting the limitations of their legacy industry and building new companies with a shifted business model. This new generation of companies expect to operate leanly, think beyond patent protections, compete on quality and price, cut out the middlemen, and keep focus on the purpose of the industry and let the profits follow in measure. As Peter Drucker famously said, “No financial man will ever understand business because financial people think a company makes money. A company makes shoes, and no financial man understands that. They think money is real. Shoes are real. Money is an end result.” Medicines are real.

This new generation of companies expect to operate leanly, think beyond patent protections, compete on quality and price, cut out the middlemen, and keep focus on the purpose of the industry and let the profits follow in measure.

Profit diversity across a broad portfolio

Just as the hardware store carries many items that no one customer will ever need, and no two or three items could sustain the store’s revenue requirements for a vibrant business, so too will companies in the new model facilitate development of a broad and profitability diverse portfolio. If they meet the objective of addressing many untreated conditions, the sum of these many will support a sustainable, robust cadre of companies.

But the time and scale for returns does not match today’s investment algorithms

Companies pursing affordability strategies like these are in operation today (examples include One World Pharma, Bridge Therapeutics, ReVision, Sequella, Medicines For All, Medicines Development for Global Health), with varying financial and corporate structures. They have one thing in common: finding aligned capital investment is rate limiting, preventing them from generating margins on steady revenue with high medical value products addressing unmet medical needs.

We propose developing a systematic solution to the financing conundrum. It will serve as a model that can unlock billions of already invested capital, both dollars and intellectual.

New design for financing a new biotech sector

We propose developing a systematic solution to the financing conundrum. It will serve as a model that can unlock billions of already invested capital, both dollars and intellectual. Such companies can provide ROI for investors that is risk adjusted with an ‘old fashioned’ business model that requires them to be cost and time efficient with the ‘customer’s” interests in focus: good medicine at sustainable cost. The financing blueprint should meet the following requirements of this new industry sector:

• Capital for companies/projects with a range of commercial potential (no reliance on block busters)
• Incentivizes companies to reduce the risk of regulatory failure and shorten time to reach patients
• Supports advanced innovations in manufacturing to reduce costs, enhance quality and create a secure drug supply chain
• Incentivizes companies to develop strategic commercial contracts for more direct (less costly) distribution of its drug products
• Incentives long-term sustainability – in all meanings of sustainable
• Delivers effective medicines at price-points which are accessible for all

This investment market presents investors ROI commensurate with reduced risks. For the reasons of prioritizing medical impact for the maximum range of patients and conditions, we believe that establishing such companies with long term, triple bottom line investment provides the world a robust public benefit, sustainable biotechnology industry.