Inefficient Markets: Pharma Start-ups
Copyright Jack Mixner. 714 449 1040. www.mixnerstrategy.com
All of us who understand the travails a start-up pharmaceutical or medical device company goes through are willing to cut the businesses some slack. Hundred million dollar investments are the norm, even before profits, or sales for that matter, kick in.
Is this all a tremendous waste of time - and money? The reason we all put up with is it is the assumption that the alternative, that of developing drugs in-house at the big pharmaceutical companies, is just as inefficient, or more so.
Two assumptions are a work here:
- Little is better - less bureaucracy means faster development times
- There is plenty of money available to startups from the venture capital process.
Maybe we're wrong. It might make sense to reevaluate the efficiency of large companies' research and development process (Pisano). Perhaps they are better than we think at identifying just when an investment in a new drug needs to end. A good portion of the venture capital sloshing around on the balance sheets of startup pharmaceutical companies may be ill-invested (Pollach).
While we rely on capitalistic markets to ultimately decide whether an investment is a good one or not, it appears that a re-examination of the pharmaceutical market might be in order, especially if the money you are about to invest is your own.
References
Pollack, Andrew. It's Alive! Meet One of Biotech's Zombies. New York Time. 10 February 2007. http://www.nytimes.com/2007/02/11/business/yourmoney/11xoma.html?ei=5094&en=5b835935e2350efa&hp=&ex=1171170000&adxnnl=1&partner=homepage&adxnnlx=1171144076-/NBOQr59NAwxcKfsl4xHbw
Pisano, Gary P. Science Business: The Promise, the Reality and the Future of Biotech. Harvard Business School Press. 2006.