The case for "biotech paranoia"

This week I wrote a post at Forbes – my first! – called "Only The Paranoid Biotechs Will Survive". I like celebrating big biotech deals as much as the next person, but as I wrote in the post, I'm not breaking out the balloons and streamers just yet:

If you’re a biotech exec or investor, then nothing warms your heart more than a big acquisition – and last month’s was a whopper. In exchange for $800 million upfront plus downstream biobucks, BMS acquired Flexus Biosciences, whose lead immuno-oncology drug hasn’t even been tested in a single patient.

Is this, as venture capitalist Bruce Booth opined, a “fair recognition of value”? Perhaps. But most VCs and pre-commercial biotechs probably shouldn’t break out the bubbly. Instead, they should be afraid – very afraid – of how the industry is changing, and look hard at whether their early-stage R&D programs are poised for a successful deal down the road.

Coincidentally, this deal hit the wires just as I had finished reading Only the Paranoid Survive, the classic business strategy book by Intel's Andrew Grove. If you haven't read it, I recommend it – mainly to get you thinking about how to identify and respond to "strategic infection points".

When I heard about the BMS/Flexus deal while still under the influence of Grove's book, I got ... well, paranoid. As I've discussed before (here, here, here, and here), the drug industry is undergoing massive changes to how new agents are commercialized. But I don't think that this is purely a Pharma issue, and that biotechs are immune – and neither should you:

Biotechs need to be paranoid about this shift, even though they’re years away from the market – because their potential Pharma partners are. As Pharmas nervously experience the industry’s evolution first-hand, they’re more likely to demand at least some differentiation data before they make an offer for biotechs’ assets.

I think the way for biotechs to manage their paranoia is to be much more aggressive, far earlier in R&D, about understanding how their drugs compare with existing and pipeline agents. Because at the end of the day, this is the only thing that will make the difference between success and failure for growth-stage companies:

...I’d argue we’re in the midst of a “strategic inflection point” that threatens many biotechs’ ability to secure Pharma deals. Whereas the biggest hazard to biotechs in the past was moving too slowly or running out of funds, it’s hard to deny that today, the risk of not demonstrating clinical differentiation is far greater.

And if that happens, then a decade from now, only the biotech execs and investors that are paranoid today will have survived to tell the tale.

Read the full post here – it's my first at Forbes; hopefully there will be many more to come.