What If The U.S. Government Stopped Funding Biotech?
By Louis Garguilo, Chief Editor, Outsourced Pharma
It sets off a real tension – ideological, economic, even personal.
But here it is: What would happen if the U.S. government cut direct financial support for “biotechnology research,” leaving it entirely to investors, private and public markets, and bigger pharma?
This rather outlandish hypothetical has been instigated over years by a critical questioning regarding the influence of governments in biotech and global innovator ecosystems.
The more immediate catalyst to this present deliberation, though, comes from comments during a recent editors’ roundtable discussion on trends throughout the biopharma industry.
In effect, the moderator summed up a portion of the conversation by commenting, “Well, maybe we’d be better off here in the U.S. having a government like they do in China.”
Say what?
To be fair, the reference was to a now customary negative comparison placing China ahead of the U.S. based on how much each government “funds” biotech.
But to me, this sounds like a loser’s lament. Frankly, preferable is a government much dissimilar from China’s.
In our drug innovation and development industry, what would that mean? Who would even entertain such a discussion?
I was sure James Sapirstein would.
He’s an Outsourced Pharma Advisory Board member who has been involved in biotech funding for decades, an experienced drug developer via pharma, and a former CEO of a startup biotech.
Now happily ensconced in Florida, Sapirstein is growing the biotech industry there through an investor-led strategy, and is part of a group that has created what’s called the Miami Biotech Collective (which we’ll look into subsequently).
If You Believe In Magic
The inherent premise here is we can generate more biotech investment because of less government involvement.
Theoretically charming, you say.
Unfortunately, we have a healthcare system only capitalistic by comparison; the entire apparatus would need be altered before the removal of government funding of biotech would in any way be “helpful.”
Undeterred, I propose the provocation to Sapirstein as such:
What if there are no NIH grants. No BARDA. If we’re going to “beat China,” won’t it be by embracing more of what the U.S. is known for – individual risk-takers and ample funding avenues?
He starts by dissecting what people (like those editors above) mean when they praise China.
Decades ago, China initiated a deliberate national industrial strategy:
- Massive state-funded infrastructure
- Manufacturing facilities that are state-of-the-art
- “Biotech cities” built in advance of demand
- Government underwriting risk
These components are individually powerful and fit together cohesively – in the order as given.
The strategy began predominantly with the Chinese government fronting the establishment of contract manufacturing. Next came a concerted biotech-industry plan facilitating innovation to flow into and out of this “prebuilt system,” as Sapirstein decribes it.
It’s an interesting concept that in the U.S. we seem to be revisiting, i.e., concentrating anew on manufacturing and CDMOs. (also see: With CDMOs Like This, Who Needs Biotechs?)
Sapirstein notes the establishment of contract manufacturing organizations as a catalyst to global drug-industry entrée has proven a wise decision by the Chinese government.
The salient point is that a national strategy (i.e., high government outlays) can make way for global market forces to take shape – even, it appears, by a government run by the Chinese Communist Party.
On the flip side, though, many argue (persuasively) the China biotech growth is as much about coopting IP and other coercive mechanizations than other factors.
Such kinds of government influence and distortion is what can come with government funding.
We believe the actions in China have damaged U.S. biotech. Thus, today a fundamental argument for increased U.S. government funding is based on the level of Chinese government involvement.
I’m not convinced that works out for us.
Be that as it may, Sapirstein asks me to forget China for the moment. He rejects the entire premise that in any part of the world biotech can behave “like a normal consumer or B-to-B market.”
“We can’t do this as an industry on our own,” he avers.
The timelines are too long; capital requirements in the aggregate too massive. The regulatory burden is by necessity stringent and structural. And relating to our outsourcing-focused biotech model, “the manufacturing infrastructure is shared.” All leading to the reality that “returns on investments are back-end weighted and very uncertain.”
“If government exits entirely, I’m convinced early-stage innovation collapses first,” says Sapirstein. “And that matters throughout the industry.”
Actually, he (and many others) believe the U.S. is already experiencing a partial withdrawal of capital – brought on not through elimination of governemnt funding, but through policy uncertainty.
He starts with the Inflation Reduction Act that mandated reduced IP runway for small molecules, and the expansion of government “price negotiations” on commercial drugs deepening investor fears over long-term ROI.
“When a biotech pitches to raise capital, you need to show investors expected return on investment, and the timing. If that is disproportionately uncertain these investors do not come in.”
Sapirstein estimates “we’ve probably lost over 250 products in the last year because of this. Potential drugs that just won’t ever see the light of day.”
“Add to that no NIH funding?” he says and shakes his head.
We thus arrive at a seemingly universal position: There’s no desire for less government funding, but we want less government intrusion in the marketplace.
Unfortunately, history tells us the latter always increases with the former.
But Other Funding Exists
So where would the money come from to replace government funding?
Well, for starters, consider in a single week-long event in San Francisco (JP Morgan Healthcare Conference), institutions gathered representing something like $60 trillion in assets under management.
Big Pharma, for its part, would not somehow vanish if government funding in biotech dissipated. If it had to, what investment/innovation models would Big Pharma come up with? I think that’s a fair question to ponder.
Would Pharma begin to “spin out” well-funded biotechs for investors to get a piece of?
And as discussed earlier, might our established and growing CDMOs (with their recurring revenue streams) become innovators? Some already have.
Our industry’s mind-meld says without government largesse our biotech industry collapses.
Can't that attitude be altered? Or at least, as we are doing here, be seriously questioned?
Is the amount of government funding a sane way to evaluate the value of individual biotechs, our industry as a whole, and those governments themselves?