Business

Biotech leaders cite threats to industry’s funding model

PHILADELPHIA — The funding model for drug development is under severe strain as venture capitalists shift money to safer investments, the US government bankrolls less basic research, and a backlash builds against high-priced medicines, a panel of biotechnology industry leaders warned Monday.

Joshua Boger, founder and former chief executive of Vertex Pharmaceuticals Inc. in Boston, said drug companies should be enjoying a reputation for helping the health care system to save money by keeping patients healthy and out of the hospital.

“We’re the cost-lowering part of the medical world, and instead we’ve taken on the role of the whipping boys on cost. And it’s just not true.” Boger said.

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Health insurers and lawmakers have complained about the high cost of new specialty medicines such as the hepatitis C drug Sovaldi, which can cost $1,000 per pill. Vertex itself charges more than $300,000 per patient each year for a drug that treats some cystic fibrosis patients.

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Boger spoke at a forum on the opening day of the Biotechnology Industry Organization’s annual convention here. The panel recalled how venture capital fueled the discovery of new therapies during the past three decades, but also worried about the financing challenges that are facing the industry.

Robert Langer, institute professor at the Massachusetts Institute of Technology in Cambridge, Mass., who with several Boston-area venture firms has launched dozens of biotech and medical technology startups, said a leveling off of basic research funding from the National Institutes of Health and other federal agencies could slow drug development at a time of accelerating scientific progress.

“So many significant advances that have been important for the biotech and medical device industries have come in the early stages from basic research,” Langer told a standing-room crowd of more than 400. “A lot of these core technologies — gene editing, drug-delivery technologies — have come from NIH grants. I worry that in the future that could happen less and it could put us at a disadvantage.”

While government cutbacks threaten research scientists, biotech startups are facing a different squeeze. Venture funding for biotechnology fell 14 percent in the first quarter this year from the previous quarter, according to the National Venture Capital Association, which said venture firms were investing smaller amounts at each round and increasingly in later-stage companies with drugs in clinical trials.

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In the past decade, investors have become less willing to take a chance on early-stage research companies, said another panelist, Alan Walton, senior general partner at Oxford Biosciences Partners in Westport, Conn.

Although some wealthy individuals and disease foundations remain willing to bankroll riskier seed-stage companies, Walton said, “the big [venture] funds that are managing $1 billion are stuck at the later stage.”

Langer said some of his former MIT students have become venture capitalists after working in research labs and have a better sense of what will work.

“The venture capital firms today are smarter in some ways because they’ve seen different mistakes that we’ve made and they don’t do it,” he said.

Boger, however, said some of today’s venture firms are no longer willing to trust entrepreneurs on the trial-and-error methods that, in the first generation of biotech companies, often led to breakthroughs that were not part of the original plan.

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Recalling his own startup days at Vertex, Boger said his early investors “by and large did not question me on the science.” Today, by contrast, some venture firms will hire “23-year-old PhDs to try to outthink [entrepreneurs] in their field,” he said, adding, “I find this to be a disturbing trend.”

Robert Weisman can be reached
at robert.weisman@globe.com.
Follow him on Twitter @GlobeRobW.