There is an increasing feeling that we are short on new ideas to tackle the emergencies of our time: climate change, cancer and neurodegenerative diseases, shortage of resources of all kinds (starting with drinkable water), potential upcoming pandemics, and so on. Indeed, some studies show that papers and patents are becoming less disruptive over time, which means that patents and scientific publications are built on previous knowledge rather than proposing new solutions.
Therefore, there is a focus on academic research as a source of new solutions, where new ideas are tested more likely than in an industrial setting. Why is that? The industrial sector has moved its interest from research and development to the commercialization of technologies developed elsewhere.
As a consequence, it is hard to witness iconic innovations like in the past, when, for instance, AT&T’s Bell Labs achieved eight Nobel Prizes for inventions like the transistor, the discovery of cosmic background radiation, or IBM itself in the software industry.
In the biopharmaceutical industry, small and medium-sized enterprises (SMEs) and universities have become more and more important in generating new medicines and as sources of pharmaceutical innovation. High-tech SMEs come from academic institutions or incubators and rely heavily on the output of academic research. Some of the most important recent therapeutics and vaccines did not emerge directly from large drug companies; they were instead acquired through asset licensing, buy-outs of biotech firms, or came from publicly funded academic spin-offs.
Furthermore, SMEs play a pivotal role as innovation sources in high-priority areas related to public health, such as antimicrobial research and development. This has been highlighted in the COVID-19 pandemic, with crucial vaccines and drugs identified by academic institutions and/or SMEs, and developed through partnerships with larger biopharmaceutical companies (Moderna and the Pfizer-BioNTech alliance, both heavily supported by the US government through Operation War Speed). As evidence of this tendency, research published in Nature in 2022 found that 38% of the innovative treatments approved between 2010 and 2019 by the European Medicines Agency (EMA) were originated at SMEs or public institutions, and academia and/or SMEs were at the origin of approximately 47% of new product transfers.
In conclusion, the willingness of large firms to invest in scientific capability has declined and they concentrate their R&D efforts on the later stages of development, rather than on basic research.
Why do corporations bet more and more on academic research and on SMEs than on internal research? A study suggests that corporate research, and the large corporate labs in particular, fell out of favor with investors and, eventually, also with managers. The focus shifted to university research and startups, often venture-funded, that aimed to capitalize on the scientific and technical advances in university labs. According to this analysis, corporations turned to sourcing ideas and inventions from the outside, hoping to combine them with their downstream development and commercialization abilities. Therefore, at least in the biopharma sector, big pharma has become, instead of hardcore drug developers, ultra-rich venture capitalists focusing almost exclusively on regulatory phases, production, commercialization (don’t forget marketing) and building their pipelines based on what is known as mergers and acquisitions (M&A): they pinpoint promising companies with products (approved or under development) and just buy them. The prices paid on these M&As can be just delusional.
All in all, innovative solutions to our modern (huge) problems will likely come from public research, being COVID-19 vaccines one good example.
For some reason, which I admit I ignore, there is a wide consensus around the world that one of the preferred ways to transform research into technologies is by the creation of start-ups. Turning a start-up into a profitable company is a long, perilous, investment/labor-intensive, and highly uncertain process.
A brief explanation of how academic start-ups are typically created will allow us to understand what is at stake.
When a research project from an academic team is considered mature enough – there is a long list of shades on what mature means, a topic itself for the stand-alone article – the researcher that leads that project (or a member of his/her team) will create a company to further mature the technology and take it to the market (or sell it to someone else in an M&A). Typically, universities own a big chunk of the intellectual property related to these technologies therefore the university grants the researcher (or whoever wants to use the technology) an exclusive license. That licensing from the university to another party is the foundational event of a start-up. Universities and governments invest a lot of money in supporting this licensing and also nurturing and incubating ing these new-branded companies. These newly created entities can be incubated in the same research institutes where the research was done (with their typical set of conflicts of interests) or elsewhere (public or private incubators, other universities, etc.).
Does it make sense to focus so much on creating start-ups? Is the standard way of creating start-ups reasonable (there are golden rules that everybody is trying to follow more or less accurately)? I do not have the answer to any of these questions. Another question for which I do not have an answer either, but whose answer could be found in the statistics: what is the success rate of academic biotech start-ups? Maybe answering this question will shed some light on the other ones.
At least from a standard Google search, the first result of start-up statistics is that there are only very few. There is no official historical record in the US or Europe of start-ups, neither of their trajectories, successes, or failures. To the best of my knowledge, only one available report systematically addressed the number of university−licensed life science startups (i.e. firms producing products and/or services in biopharma, medical devices, or traditional pharma) and their success (or failure) for the 1980-2013 period. It was done for the top 50 US universities, in terms of the number of patents granted.
The report has some interesting findings. First, from 1990 to 2011, there was a steady increase in start-ups that never had business activity. Another bunch of them had some business activity but never had more than two employees (which the authors name ”Walking Dead”).
Second, the authors try to tackle the never-ending question of whether start-ups as a whole generate more money than the money they cost. Conclusion: ”Just under 90% (89.76%) of the e university−licensed startups in our sample never operated as public companies and did not report revenues, expenses, direct labor costs or direct taxes paid; hence, a full economic impact analysis exceeds our grasp”. Becoming a public company (i.e. operating in the stock change market) is a rather rare event in biotech start-ups, and those that stay private, depending on the geographic location, oftentimes do not make their books of account public.
Even though the existence of the walking dead is, in theory, avoidable and, again in theory, not inherent to the process of start-up creation, I think it points to a current phenomenon in the creation of start-ups. We assume that more is better, so one indicator to measure the success of innovation ecosystems and universities’ knowledge transfer offices is the number of start-ups created; there are of course many nuances to this single number (in some places the number of start-ups is broken down to active ones, etc). For obvious reasons, just counting new start-ups as a proxy of success is a strategy full of flaws, starting with the fact that you can create lots of walking dead. But even if we forget about counting start-ups, how can we measure if new start-ups are successful? More fundamentally, what does it mean, to be a successful start-up?
The answer to the last question is pretty straightforward: value created, whether economically (jobs created, profit margin) or, most importantly, in terms of solutions to a medical need. Those numbers are rather easily measured at the single start-up level, assuming that you can check the balance sheet of the company.
By Anne-Louis Girodet de Roussy-Trioson – Oakenchips, Public Domain, https://commons.wikimedia.org/w/index.php?curid=30694833
But what happens when we zoom out at the regional/national/global level?
In that case, there will be lots of walking dead. Some take off but then crash, and some, just a handful, will hit the jackpot, meaning that they will create new products successful in the market. The question is the following: do the successful ones justify the existence of the others? That question tends to be biased by anecdotic cases such as flaming successes. Let’s consider two well-known examples of those: Biontech and Moderna. Both companies are behind the mRNA-based vaccines that allowed us to put an end, for the time being, to the Coronavirus pandemic. The truth is that, before the pandemic, both companies were using their technologies to treat solid tumors, and at the time, it was an open question if they were going to survive in the mid-term. Indeed, both are still struggling to make significant progress on their clinical programs focused on mRNA-based vaccines for cancer treatment.
It might be argued that indeed the current model, which creates a lot of start-ups to find the successful ones, does work. New treatments are approved every year and economic value is being created.
The first part of that answer belongs to a very complicated discussion. Pharma will by default claim that we are making progress and that is just too complex to treat some diseases, which is why it takes so much time and money. That is a fair statement, but I think it should not be considered as an argument to consider other approaches that might be more fair and effective for patients, even if not so much for shareholders. A recent report has estimated that $50 to $60 billion is spent annually on failed oncology trials. There are, of course, many potential routes to make this picture better. There is one that is particularly provocative: what if, to improve the survival of patients suffering from serious diseases, diagnostics, early detection, and lifestyle are more important than therapy? If that is the case, then there are way too many companies, start-ups included, working on new treatments. The trick is that working on those approaches does not have a strong business model, although some new business model paradigms supporting these alternatives to classical drug development have begun to emerge.
So, it is difficult to determine the efficiency of start-ups on a global scale. But some people are nevertheless making money: venture capitalists make returns that justify their existence and big pharma acquires former start-ups through mergers and acquisitions, which makes pharma increase their value. The billion-dollar questions are: do start-ups as a whole create more value than the money they cost? If not, who is paying for that difference? The second question has a very obvious response: taxpayers.
There is a third and very disturbing question, which might lead to an answer to the previous ones. Academic start-ups, as explained above, are based on scientific discoveries from research labs. These discoveries can lead to treatments in very different ways, the creation of a start-up is just one of them. Discoveries can be used by companies via licenses or collaborations with the scientists at the origin of these findings. Academic teams, through public structures, can further develop these technologies. All of these options have pros and cons, the creation of start-ups included. Indeed, thinking of start-up creation as a one-size-fits-all solution to translate scientific discoveries might be a good choice in some cases, but not a wise decision in many others. So the question is: are we using scientific discoveries to develop new solutions wisely by creating so many start-ups?
I think that new ways of using science to solve society’s problems should be built, not based on market needs but on their potential to provide these solutions. These new models will have to be judged not in terms of economic benefit, but in terms of the impact of the solutions they bring.
Picture: By Anne-Louis Girodet de Roussy-Trioson – Oakenchips, Public Domain, https://commons.wikimedia.org/w/index.php?curid=30694833
