Investors to small biotech: we want our money back

Over the years in working in the health field I have always believed that if you develop good drugs and take care of patients that profits will naturally follow.

By Richard Meyer on Mar 10, 2009

Over the years in working in the health field I have always believed that if you develop good drugs and take care of patients that profits will naturally follow. However big pharma is big business and there is considerable pressure to keep the stock price high so that more money can be used to market and develop drugs. However this could be a two edged sword. I am referring to an article in today's Times entitled "Drug Investors Lose Patience". In summary the article examines how venture capital firms are demanding, when new drug clinical trials fail, that some firms liquidate and give back invested dollars. The only thing that is important to these investors is ROI. They could care less about the drug development process or the success ration of new drugs to get approval.

It's becoming more and more difficult to succeed with a new drug today. The FDA often requires additional clinical trial data for approval and more and more drugs are failing in clinical trials. In addition even a new drug is approved by the FDA most insurers now want data that proves it better than generic alternatives. This means more costs and less time to recoup development costs which now could be as high as $1 billion.

What is troubling to me is that smaller biotech companies who are best at innovation may have their source of funding cut off in the name of ROI. In one case the Times cites a company that has been trying to develop new drugs for 16 years and still has not succeeded. While I will admit 16 years is an long time to go without success there still are no guarantees in science. Drug companies are merging because it's become too expensive to develop new drugs in today's economic and regulatory environment. However bigger does not always mean better. Small biotech companies are needed to continue to innovate and explore new treatments. If investors now are saying "game over, we want our money back" it could send a dangerous signal that the money needed for drug development is all but gone.