Only a few years ago, very few investors were interested in biotech. How quickly things change. Last year was the most active for biotechnology IPOs since 2000, with 38 biotech companies selling themselves on Wall Street. And 2014 is off to a roaring start. This is great news for biomedical innovation in general, and Boston in particular.
What has changed? For one, fundamental scientific discoveries made over a decade ago are now making their way from academic labs at places like Harvard and MIT, all the way to drugs that can help patients. The human genome was sequenced in 2000, and a little more than a decade later, key beneficiaries are today’s cancer patients. There has been a fundamental shift in how we treat cancer. We are now able to determine the precise genetic lesions that represent the Achilles’ heel of a given cancer, and target highly specific drugs to the cancer cells.
Many of the recent biotech IPOs are companies whose cancer drugs are in clinical trials seeking to improve the lives of patients with specific types of tumors. This is the case for my own company Verastem, which is in late-stage trials in a rare and lethal cancer called Mesothelioma, that carries a specific genetic lesion.
Second, the financial markets have become much more permissive, as a direct consequence of the large amounts of capital being pumped into the system by the Federal Reserve through the “quantitative easing” programs designed to counteract the financial crisis of 2008. It took a long time for this added capital to find it’s way to biotech companies, which are among the riskiest assets on Wall Street; biotech firms tend to spend over a decade losing large sums of money on expensive research and clinical trials, before a fortunate few bring their first drugs to market. Starting in 2013, the added “risk capital” unleashed after the 2008 financial crisis finally began to bet big on biotech IPOs.
Third, biotech has matured and grown to the point where a large group of entrepreneurs and managers have been trained in key biotech clusters, of which Boston is perhaps the most significant. These next-generation leaders learned how to build successful drugs and companies at formerly small startups such as Biogen, Genzyme, and Vertex, and are now leading the next generation of biotechs, which will spawn several important and large new biotechs in their own right.
Finally, the Food and Drug Administration has found fertile ground to approve more fundamentally important new drugs based on detailed scientific understanding of diseases, especially in the case of cancer and specific rare conditions, known as orphan diseases because they strike so few people. This has been due to a confluence of events: new scientific knowledge gleaned from the human genome project, and similar large government effort; increasing capital available to companies to do the right science and clinical trials; and optimized management and scientific teams, borne from thirty years of growth in the biotech industry.
Biotech is a notoriously cyclical industry, with brief moments of investor enthusiasm giving way to long fallow periods of tepid interest. This time, however, biotech innovation hubs like Boston have built a critical mass comprised of top universities and hospitals, leading large biotech companies, hundreds of small startup biotechs, and an ecosystem of experienced and well-trained entrepreneurs, scientists, and drug developers. While investor enthusiasm may again wane over time, the biomedical innovation driven by world-class science and cutting-edge biotechs is here to stay, and the next generation of breakthrough drugs and transformative companies are advancing relentlessly to help patients in need.
Dr. Christoph Westphal is a partner at Longwood Fund and executive chair of Verastem, a Cambridge-based biotech firm.