…return on investment in pharma R&D is already below the cost of capital, and projected to hit zero within just 2 or 3 years. And this despite all efforts by the industry to fix R&D and reverse the trend.
The billion-dollar pharma startup that Silicon Valley has totally missed
A Cincinnati native who studied biology at Harvard then earned a law degree from Yale, it was when Ramaswamy began working as an analyst in 2007 at the hedge fund QVT Financial in New York that he first observed the problem that defines his work today. He noticed that many big and small pharmaceutical firms abandon promising drugs for various reasons having nothing to do with their efficacy. Sometimes, it’s a strategic decision to focus elsewhere; sometimes, it owes to a lack of resources. Seeing an opportunity to complete the development of some of these abandoned late-stage drug candidates and get them to market quickly, Ramaswamy struck out on his own in 2014.
Having earned the trust of QVT was key. The firm, along with Dexcel Pharma, an Israeli firm that reviewed Ramaswamy’s work at QVT, provided Ramaswamy’s new holding company with just less than $100 million in capital — a feat, given that he was just 28 years old at the time.
How Valeant had a bright idea but took it too far
There are three types of Valeant criticisms that often get lumped together:
- It attacked the traditional approach that corporate R&D was the only thing that mattered in pharmaceuticals, which upset a lot of entrenched stakeholders
- It did some things that were morally questionable but perfectly legal (e.g., price optimization, inversions)
- It did some things that were morally questionable and legally gray (e.g., the specialty pharmacy incident)
This article does a great job of pointing out that the outrage over #2 and #3 mask the success that Valeant had with #1. There’s no reason to believe that corporate R&D is inherently better for the world than biotechs, and you could certainly see a smart, talented scientist preferring the fast-paced startup culture of a biotech based in Boston to a large corporate based in New Jersey.
How can pharma firms market their way back to growth?
Knowledge@Wharton covers a recent book I helped author with a team from McKinsey, Google, and Wharton on the future of digital in pharma marketing. Learn more at http://www.pharma3d.com/