A large proportion of new treatments and life sciences breakthroughs can often be traced back to humble beginnings in a start-up venture. Why is it that these smaller companies seem so adept at developing innovative products? What have they got that larger companies are lacking? V-Bio Ventures takes a look at some of the factors making start-ups hotbeds for innovation.
This VC Views article was guest authored by Willem Broekaert from V-Bio Ventures.
Today’s successful drugs are, more often than not, rooted in start-up companies. An increasing share of blockbuster drugs, although marketed by large pharmaceutical and biotech companies, originated in start-ups and were internalized through licensing deals or M&A. To name just a few examples: AbbVie’s Humira, the world’s best-selling drug in 2019, was originally developed in the laboratories of Cambridge Antibody Technology, and the pioneering immuno-oncology drug Opdivo, sold by Bristol Myers Squibb, hatched out of Medarex.
Research at V-Bio Ventures shows that 70% of the $82 billion revenues from the top 10 selling drugs in 2018 came from externally discovered drugs. This begs the question: what makes these start-ups better nurseries for innovation than established companies?
Close to the source
Revolutionary ideas rarely spring up within the start-up companies themselves. To get to the root of innovation, we have to look beyond both the pharmaceutical companies and the start-ups. Most impactful new products are based on many different academic discoveries, resulting from untargeted open-ended exploratory research. Start-ups often excel when linking up with academic originators of great ideas; translating these ideas into products or product prototypes is in many cases the gist of their business model.
So, why are academic leaders more inclined to entrust their revolutionary ideas to a cash-constrained start-up rather than to a resourceful large organisation? Firstly, academic culture is highly person-centric: the names of individual experts often function as a brand of their own, with laboratory units named after their leading principal investigator (PI). This fits well with the people-oriented culture of start-ups, which are built around a handful of visionary leaders. They are usually open to accommodating a PI, either as part of the founding team or as a privileged advisor. In a start-up setting, a PI can experience a great sense of involvement and direct impact; more than they would in a collaboration with a large corporate organisation, where they would be competing for attention with dozens of others. Secondly, members of the start-up culture have an appetite for early, risky ideas; a good match with the academic culture of pursuing high-minded yet uncertain goals.
Startups are biotech hotbeds because they are irresistibly attractive to the best people with the most innovative ideas. - Willem Broekaert, V-Bio Ventures
However, a symbiotic relationship with academia can only explain a part of the competitive advantage of start-ups. Indeed, there are many successful start-ups, like Argenx and Galapagos, whose roots did not lie in academia. So, what are some other key factors at play?
Laser-like focus on the goal
By their very nature as a fledgling entity, start-ups need to have a laser sharp focus on a well-defined goal. The main advantage of a narrow focus is that the technological and business roadmaps, however complex, often fit in the mind of a single person or is contained to a very small team. Execution of the business plan can therefore be clearly laid out and tasks can be allocated in a straightforward manner. This contrasts with large organisations where task allocation is complicated by the multiple intertwined and sometimes competing goals. Overall, this focus makes start-ups more efficient in nurturing innovation than their larger counterparts.
A tribal affair
A start-up’s social organisation can be compared to that of an ancient tribal group: in the face of fierce external competition and limited resources, achieving team objectives within the shortest possible timeframe is directly linked to the group’s survival. For a start-up not to go under, every member has to maintain a zealous conviction in the company’s central thesis, be devoted to the company’s central goals and work to the best of their abilities at all times. This do-or-die spirit and strong group identity makes for extraordinarily good team motivation. Furthermore, the short chain-of-command in start-ups adds to the feeling of personal impact and ownership at all levels of the organisation.
Another key factor for the success start-ups is that these companies are strong magnets for talented people willing to dive headlong into adventure. In tech or software start-ups, management teams are typically formed bottom-up by friends with similar backgrounds; people who coincidently met at school or at work. In biotech, by contrast, management teams are usually formed through a well thought out process. A top calibre management team is purposefully brought together, a task often performed by the founding entrepreneur or the leading venture capitalist.
Given the slow and multidisciplinary nature of the biotech R&D process, it takes several years and dedicated specialisation to obtain a managerial level proficiency. Management teams of biotech start-ups are brought together not only because each member is exceptionally well suited for the job, but also because they all have complementary skills. The result is a diverse group of people with different traits, experiences and professional backgrounds. If all team members have a mutual compatibility and strong dedication to the company, freshly assembled teams can result in synergistic and energetic team performance.
To learn more about why the pharmaceutical sector provides such fertile ground for start-ups, read this VC views article.
The razor-sharp focus of start-ups, combined with an experienced and dedicated top management, means that every key aspect of the company receives ample attention and strategic reflection. On top of that, the board of directors adds another tier of experienced people to ensure that the company stays in tune with the agreed business objective.
Willem Broekaert, managing partner at V-Bio Ventures, concludes: “Startups are biotech hotbeds because they are irresistibly attractive to the best people with the most innovative ideas. The attraction of start-ups lies in providing people with the opportunity to directly impact the success of the company, giving them the satisfaction of winning a gamble against the odds.”