THE BIG PICTURE

While many investors and entrepreneurs have made considerable money in biotech, as far as creating self-sustaining profitable companies, the old biotech models have failed, for the most part. Biotech companies have inefficiently deployed capital for the last 25 years, learning costly lessons at investors' expense. Long development cycles and underestimation of risk have resulted, essentially, in the destruction of capital. Many companies focused on achieving milestones specific to product development, financing, or strategic partnership, losing sight of what should be the intended end goal of any solid business venture: profits.

Some may assert that we are at an inflection point and just need to wait a little longer to realize that all the spending and entrepreneurship to-date will pay off. However, there is little reason to believe that today's unprofitable majority of biotech companies, many still struggling to raise capital and develop products of value, are well-positioned to make up for their past mistakes anytime soon. The fact is that biotech's reputation as a promising industry is due to the successes of only a few companies.

With 4000 private and 600 public biotechnology companies worldwide, of which over 50% are in the United States, only a few percent have a track record of increasing profitability, including Amgen, Genentech, Biogen Idec, MedImmune, and a few others that belong to the Big Biotech class. All the rest, regardless how profitable they may have been as investments, are not yet successful businesses.

The biotech sector's poor track record does not necessarily suggest a dismal future for emerging companies. The challenge is to learn from the errors of the past before deciding whether to start a company and how to build it into a successful business.