In recent years, numerous biotech companies have adopted a portfolio approach with the promise that this strategy both diversifies risk and increases shots on goal. But results have been mixed and very few have achieved drug development success. Though initially strong, the reception by the investor community is finally beginning to weaken.
Why hasn’t a portfolio approach worked and what can we learn?
With the Rise of AI, What IP Disputes in Healthcare Are Likely to Emerge?
Munck Wilson Mandala Partner Greg Howison shared his perspective on some of the legal ramifications around AI, IP, connected devices and the data they generate, in response to emailed questions.
- A large portfolio to balance overall technological risk is not a novel concept; others do it better. Big pharma has traditionally built large portfolios with specialized teams and knowledge to manage them. There is no reason to believe that biotech is equipped to do this better than pharma is already doing it. Investors looking for a portfolio play can invest in an established big pharma with significant experience in professionally managing this approach. And notably, even large companies are recognizing that more focused portfolios perform better, as evidenced by their leaner portfolios driven by strategic rationale.
- Biotech’s unique value proposition is the innovation that results from strong knowledge in a specific pathway or a novel proprietary platform; diversification is its antithesis. Though ostensibly riskier, the ‘science-first’ biotech approach delivers higher returns as well as a differentiated opportunity for savvy investors. And it drives real innovation in life sciences. This has been borne out over time by the really successful biotechs that have made transformational drugs like Regeneron or Genzyme, or those that have become high value acquisitions like Pharmacyclics.
- Diversification as a primary strategy doesn’t necessitate VC fees. A primary focus on diversification suggests the investor has no specialized knowledge and is simply tracking the market via a representative population sample. Why should LPs pay a premium to VCs to make diversified investments when it’s easier to invest in a biotech ETF that’s better diversified…or even an index fund that follows the S&P?
- Paradoxically, some portfolio approaches magnify risk. We have seen VCs roll up their portfolio companies to create one larger company with the promise of efficiency and risk sharing. If they really had strong belief in the science of a company, wouldn’t they be diluting its value by adding other companies along with it? Bringing lower value assets together with high value assets does not reduce risk – it multiplies risk. Conceptually, the multiple shots on goal strategy has merit, but only when you have one high value target (for example KRAS or CD47) and you are approaching that target in multiple ways, giving you the best opportunity to realize its value. But when you have a portfolio of companies/programs working on different molecular targets and different diseases, this actually translates to single shots on many goals!
- Portfolio approaches can result in adverse selection. Founders with significant faith in their science and platforms shouldn’t want to take on the risk of others. When that faith is lacking, there is an incentive to be part of a larger pool. This again leads to risk amplification across the pool, rather than the intended risk reduction.
Innovation comes with risk — all of us in biotech understand and accept this. We then look to balance it through flawless execution. And this is where experienced VCs can partner with founders and drive real value creation that leads to therapeutic outcomes for patients.
Photo: Vector DSGNR, Getty Images
A Personalized Approach to Medication Nonadherence
At the Abarca Forward conference earlier this year, George Van Antwerp, managing director at Deloitte, discussed how social determinants of health and a personalized member experience can improve medication adherence and health outcomes.
Sree Kant is an experienced biotech executive, and company builder with more than 20 years in life sciences and healthcare. He currently serves as the Founder and CEO of BAKX Therapeutics. Previously, Sree has headed the Investments and Partnerships function at Life Biosciences, led early partnering strategy for Pfizer, was a Principal at the Boston Consulting Group, was a founding member of India’s first preventative, managed health company, and started his career at Ranbaxy labs in New Delhi and London. Sree has an MBA from the Indian Institute of Management, and an MPH from the Harvard School of Public Health.
