Scott Dessain and Scott E. Fishman, Preserving the Promise: Improving the Culture of Biotech Investment. Elsevier, Academic Press: Boston; 2017, ISBN: 978-0-12-809216-3.

Reviewed by: Mary Ellen Cosenza, PhD, MEC Regulatory & Toxicology Consulting LLC, Moorpark, CA, USADOI: 10.1177/1091581817732768

This book was written to explore the challenges of funding early development ideas and technologies. Some of the areas of focus include moving technology into the clinic, university challenges, and the mysteries of biology. The authors have their own experiences with and definition of the period in drug development between the lab bench and the marketplace or the “Valley of Death” (VoD) and bring their investment experiences to the discussion. Some of the questions they hope to address are: “why do things get shelved for the wrong reason?” and “why things aren’t working better than they are?” The book is divided into 4 sections and an epilogue.

Innovation Meets the Translation Gap

This section is written in a manner that pulls the reader in and makes the challenge personal. It will be easily understood by scientists and nonscientists alike, yet the authors have a slightly jaded point of view of the invention process that comes across throughout.

Chapter 1. Stop the Madness and Cure Something

A good part of this section discusses the “VoD” and so it is worth noting their definition: starting at “the moment a provisional patent is filed for a discovery by a university and the end as when the intellectual property identified in that patent has become a realized invention, an animal-tested molecule that can be submitted to the US Food and Drug Administration for approval of testing in humans.” The translational gap is caused by 3 main truths: universities don’t make what companies need, good innovation is not always a good investment, and technology transfer wastes money and innovation. The authors note that the system can only support a limited number of drugs as the money is not endless. The challenge is how to match available resources to the best/right opportunities.

Chapter 2: Into the Valley of Death

This chapter discusses the process of funding early start-up companies (of which there were over 7000 in 2013). The funding process of venture capital groups, Angel investors, and NIH (National Institues of Health) small business funding mechanisms is reviewed. Great emphasis is put on the challenges of funding the development of certain classes of compounds, such as antibiotics and pediatric rare diseases. The tolerance for risk and interdependence of academia and the drug industry are all mentioned.


Chapter 3: Clinical Promise ≠ Investment Practice

This chapter describes the process of decision-making on investing in early-stage biotech companies. The vagaries of the investment markets, effects of global markets, political swings, and the collateral impact of regulatory decisions are reviewed. A good example was the impact of gene therapy clinical trial deaths and how these led to a lack of funding and set back this modality for years.

Chapter 4: Velcade, a Biotech Success Story

Chapter 4 tells the story of Velcade and how its developers were able to make the transition from academia to the clinical. Providing scientific validation and understanding the mechanism of action was key to a successful transfer that eventually led to commercial success.

Chapter 5: Biotechnology and the Future of Pharma

This chapter gives a nice overview of what makes biotechnology different than traditional pharmaceuticals. It also describes the size of the industry, the numbers employed by the biotechnology industry, and explains why it is essential to the future of big pharma. It also explains the orphan drug process and how this has played into many of the biotechnology industry successes.

Chapter 6: Why Pharma Should Care About the Valley of Death

This chapter reviews the outsourcing discovery model and describes why big pharma supports incubators, accelerators, and “centers of innovation.” The authors also explain why pharma has put more emphasis on later stage, lower risk, but very expensive investments. They also highlight the recent findings that large percentages of academic research have been not been reproducible by industry scientists. The incentives in academia are fundamentally different than commercial drivers.

Chapter 7: Porter’s Five Forces and the Market for Angel Capital

The authors use Michael E. Porter’s “Five Competitive Forces that Shape Strategy” to help explain the “gap” in the biotech VoD and why it is more challenging than other industries. Better ways are needed to bridge this gap, particularly when biomedical research is of such benefit to society, and so much of the early research comes from government funding via NIH.



Chapter 8: Out of the Frying Pan: The Fire’s Not So Great Either

This chapter focuses on the challenges of technology transfer from universities to commercial enterprises. It describes how the Bayh-Dole Act of 1980 created incentives to patent and exclusively license technology and unlike other tech (eg, software) industries, biotech has long development time lines. University lawyers and tech transfer departments and related “conflicts of interest” (COI) have led to a process that the authors’ content wastes money and innovation.

Chapter 9: Getting to Australia

This chapter uses the story of Glybera, a gene therapy for LPLD (Lipoprotein lipase deficiency) to bring up the topic of drug pricing in the United States. This is a political hot potato that is extremely complicated. They discuss some of the ethical arguments around this topic but in the end blame much of it on the unnecessary impediments to the progression of medical discoveries from universities to the clinic. They use the allegory of the British paying for prisoners to be sent to Australian penal colonies versus paying for the safe arrival of prisoners in Australia as a way to illustrate the problems with the current funding models.

Translation Gap 1: Universities Don’t Make What Companies Need

Chapter 10. When Is an Experiment Ready for the Valley of Death?

This chapter describes the disconnect between the rewards at the university level and what drives their technology transfer departments versus what is needed for actual development and commercialization. In other words, universities don’t make what companies need. The drivers for individual scientists and the publication and patenting process is often in conflict with generating the types of data and technologies that companies can be persuaded to invest in.

Chapter 11. Unintended Consequences of Applying for a Patent

This chapter outlines the patenting process in more detail. Have a patent or strong intellectual property, which can be expensive to do, is no guarantee that others won’t challenge your work. Having the right CEO for an entrepreneurial company is key to success. Someone with the right blend of passion, objectivity, and fundraising skills is difficult to find. The CEO also has to be able to license the right technology and build a company.



Chapter 12. What if It Doesn’t Actually Work?

One of the keys to success or failure is the existence of solid IP (Intellectual Property) as collateral for raising money and prospective commercial value. There are biases in the decision processes about what to patent and when. This is on top of the current problems with reproducing academic research findings. The goals of some investment groups can be to license in as many shots on goal as feasible. technology transfer offices (TTOs) are not incentivized to translate their innovations into something that is commercially viable.

Chapter 13. Building a Better Mousetrap

If there are so many companies that fail in the “VoD,” then clearly there are improvements needed in how investment decisions are made. Better validation of technology could lead to less money and resources wasted during this phase. If there is only finite money available, how do you ensure it is put in the right places. New groups have been developed to help support early inventors build a better package around their technology. Several large universities now have “in-residence” programs to help with this early process as well. The NIH also has departments now that focus on small business development. The authors contend that “failure to improve methods of converting IP into solid investment collateral will continue to impede the development of innovations likely to make a difference in people’s lives, while wasting entrepreneurial resources and investor money.”

Translation Gap 2: Good Innovation Is Not Always a Good Investment

Chapter 14. Due Diligence and Angel Incentives

New technology is valued on the strength of its promise. Appropriate due diligence is needed as the decision-making process can be variable and based on different experiences. There are almost 300 000 Angel investors in the United States, but making the right match is not easy. This chapter walks through the due diligence process steps. They break down the elements into 3 categories: (1) exogenous factors, (2) mediators of development, and (3) fundamental requirements for the investment thesis. They then review many of the exogenous factors in greater detail, such as unmet need, clinical practice, and size and growth of addressable market.

Chapter 15: What Is Value?

Value is defined as “financial, scientific, personal, and social” (should be societal). This chapter discusses the values of patents and novel technology. It also reviews the regulatory challenges of conducting clinical trials and determining if there is a viable development pathway. Other attributes potential investors will look at are financial viability, an exit strategy, past successes of the management team, and contingency planning. They also discuss some of the fatal flaws they have seen during due diligences. They then review why big pharma invests in the markets they do and how this is a disconnect from where there is often the greatest need (eg, tropical diseases). Is there a way to reconnect financial incentives with clinical need?

Chapter 16: Angels at the Crux of Invention

This chapter discusses the motivations behind Angel investors (investors in early stage drug development companies) and how this is disconnected from what is really needed to move good scientific ideas forward. The authors wrote this book because they recognized that the selection process needed to be improved and financial incentives need to be adjusted. Science is unpredictable but investors want to de-risk the process. Effective due diligence requires a deep understanding of the science and of the drug development process. There are many steps along the way that are subject to failure that are unpredictable (such as the first time a molecule is put into an animal). The time lines for drug development are very long and it is almost impossible to predict the state of medical practice or reimbursement will be years into the future.

Chapter 17: Investment: A Nuanced Decision

What to invest in is based on a combination of business and scientific knowledge and experience. There are emotional factors that play into an Angel investor’s decisions. Three factors are intellectual curiosity, the desire to make something happen, and the need for the rush. This chapter also discusses the intangibles such as the “secret sauce,” just the right amount of innovation. There are macroeconomic and regulatory forces that are not controllable and unpredictable. Finally, the authors note “good innovation is not always a good investment.”

Chapter 18: Ready for a Long-Term Relationship With a Science Experiment?

This chapter goes through the details of the financial and deal terms. They describe the process of gathering more data to derisk a project and the hope that there is a mutual interest in success between the scientific founders and Angel investors. The financial details of fundraising rounds, common shares versus preferred share, and convertible debt are reviewed. There is a lot of detail on convertible debt, writing off debt, and exit strategies.

Chapter 19: Investing in Hockey Sticks

A home run market opportunity is rare, but the promise of steep revenue growth upon approval keeps investors interested. Early investors will want a return on their investment, which can be achieved as milestones are met, and the company valuation increases. They may exit early with and larger investments may come from venture capital, banks, or big pharma. Missing key milestones can led to a loss of funding. Failed programs are the norm in this industry and even big pharma has been shredding their research and development infrastructure in favor of late stage plays. The authors argue for a better alignment of the interests of founders, investors, and society respecting both financial and medical objectives.

Chapter 20: Harps for Angels

The authors wrote this book to help improve the process by which investments are raised and spent. They note that it should be a collaborative effort; one that involves TTOs, company founders, and investors playing the long game together and aligning incentives to create an investment proposition that benefits society. This chapter also discusses intangible regional factors, such as the entrepreneurial culture, tax incentives, access to intellectual capital, and proximity to university and industry resources in areas such as Boston/Cambridge and San Francisco. They worry that deals will continue to be struck on the idiosyncratic experience of the parties in each deal, rather than analytical guidance.

Chapter 21: Connecting Innovation to Investment

Different funding organizations are discussed. One example is the North Carolina Biotechnology Center in Research Triangle Park. Disease-specific philanthropic organizations (venture philanthropy) such as the March of Dimes and the Cystic Fibrosis foundation differ from venture capital in that they are more altruistic. The transition between Angel and large-scale institutional funding is an equally critical juncture for companies. One down round can wipe out an Angel’s investment. They can lose even when picking a winner. The authors make a case for granting royalties rather than liquidity rights as a way to keep the focus on the long game.

Translation Gap 3: Technology Transfer Wastes Money and Innovation

Chapter 22. Mitigating Supplier Power

Misaligned incentives get in the way of clinical development because TTOs are incentivized in ways that oppose supporting innovation. They used a blinded story of a deal that failed to be executed as a way of explaining this misalignment. The technology transfer business model is based a probability model. The more “lottery tickets” the better. They make a case to backload license fees, shifting that cost burden. Then also describe the types of interactions that happen at the Biotech Showcase, a biotech-partnering meeting held in conjunction with the annual J.P. Morgan health-care conference. It is a speed dating service for biotech. The also propose that education scientist on the commercialization process and how the markets work might also lead to better deal making.

Chapter 23. Preventing Speeding by Closing the Road

The premise of this chapter is that the COI regulations that seek to protect the academic ideal from the temptations of the commercial realm technology transfer wastes money and innovation. The goal of the regulations is to set up a firewall that theoretically will protect the integrity and purity of the science, reduce incentives for fraud, and maximize the safety of subjects involved in clinical research. The COI regulations unintentionally prevent the inventor from becoming fully engaged in the scientific progress of their technology and the authors suggest that there may be ways to prevent inappropriate financial incentives but still maintain some involvement.

Chapter 24. Breaking Old Habits

This chapter focuses on changing the way things have always been done. There are accepted operational models that need to be challenged. One suggestion is to engage in the commercialization community earlier in the innovation process. One example is the Oxford University Innovation model. Other models are discussed as well.

EpilogueChapter 25. Epilogue: Why We Do This

Improving the process of getting drugs through the VoD is essential. Large pharma companies have cut research and development budgets and are outsourcing research. The financial models for investing and commercialization are complicated. Standard operating models need to be challenged. In the end, there is a patient waiting!

Overall Summary

The book is full of interesting anecdotes about failures and successes in bringing early innovation and technology forward to a successful commercial drug/medical product. The authors have direct experience in this VoD and their dissatisfaction with the process comes across in their writing. They have several good proposals for improving this process.