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Stuck between evidence and policy
February 2012
by Peter T. Kissinger  |  Email the author

Stuck. That's how many of us feel about commercial life sciences. The venture capitalists have abandoned us. The IPO market is largely closed to us. The momentum is once again with IT and all its apps, games and social networking variants. IT and life sciences both tend to cycle with large amplitudes, as reflected for both in the last four decades. IT has the ball today and is running with it. The energy sector is also energized. Meanwhile, innovation in life sciences is struggling like a mouse in a glue trap—and it's not pretty.
The old guard is moving on, and the new biology, with all of its promise, is trapped between a heavy and uncertain burden of regulation, price controls (AKA "reimbursement"), a lack of confident risk capital and trouble meeting expectations. The science is much more nuanced than was projected to the public. We didn't lie. We just didn't know. Massive industrialization of R&D did not work to mitigate the long-expected patent cliff. Over we go. We've retrenched from the old R&D model as too bureaucratic, mechanical and uninspired, swinging back to academics and smaller firms as the engines of discovery. 
Politicians speak of small business as a source of job growth, but they must not be, including the many small life-science businesses with which I engage here in the Midwest. The inputs are often university technologies, and funding is tough beyond friends, family, angels and SBIR/STTR grants. Even the proliferating business plan competitions can put a few beans in the pot. The bugs in this system are many.
Universities have been using a playbook based on fear of losing on one of those very rare big wins. Don't pass the ball for fear of either a touchdown, incompletion or an interception. The safer bet is to stay in the huddle as the game clock runs out. Time and money is lost in the analysis process and the expectation of reimbursement of IP expenses early on. Small angel funds then treat a $200,000 investment as if it were $200 million. That makes sense to them. Capital is a scarce commodity in a recession, and these funds are tiny.  
There are few venture funds left for life-science startups. Those that remain focus on later-stage deals such as driving sales after U.S. Food and Drug Administration (FDA) approval or funding projects that larger firms spin out, de-risked somewhat after the preclinical work is done. 
The good news is that many are aware of this problem and explore new, more open approaches. Perhaps the desire for blockbuster entrepreneurship can pass to a more personalized version that is less bureaucratic, more about doing and then failing fast with grace. Today, we are seeing more corporate partnerships funding projects at small firms as large organizations have become less egotistical and isolationist. 
Drug discovery happened for decades in smaller firms, but lately, that has been accelerating. This impacts the instrument industry (more auction sites as small firms fail) and the contract research organization industry (smaller projects with fewer molecules spread over more fragile clients). The impact on careers as the pace of creative destruction accelerates is a change we do not like. It is more important than ever to locate in a dynamic life-science cluster where an ecosystem of small and large firms, management talent and capital sources all co-exist. 
Several columns back, I wrote of attempts by professional groups to influence a comprehensive innovation strategy. Great minds are noodling, and the tactical ideas are fine with respect to tax policy and reforming the FDA, but I've come to the conclusion that our biggest challenge is spiritual. There is far too much whining and pointing fingers to take time to get down to doing.  
Industry disappoints, and some want the government to do it. Government disappoints, and some want free enterprise to do it. Both play a role and both will screw up now and then. I favor free enterprise because we can screw up on a smaller scale, auction off our equipment and move on. It's too bad Freddie Mac and Fannie Mae could not have done that too. Government is bad at stopping what it starts. They have no skin in the game other than ours, so they take more of it.   
We've started the year 2012 off rather badly, with U.S. debt matching GNP and political candidates and their advocates throwing mud. In free enterprise, we have winners and losers, just as we do in football. It's OK. Labs and plants will close as others sprout up. If you take a greater risk, you get a greater reward, or more likely, you get nothing at all. This works very well in the aggregate.  
I've made foolish investments (in retrospect) and suffered the consequences. Moving from the 1 percent back to the 99 percent is not fun, but I own my decisions. What I like even less is government making foolish investments with my money and yours. There is never an apology.
So here we are, stuck! Your assignment in this critical election year is to explain how and why free enterprise works—warts and all. We must explain the complexity of biology and disease. On both fronts, there will be forces pointing to egregious examples, often out of context, to attract the votes of our friends and neighbors. If we allow this to happen, without countering the shouting with wisdom, we will be stuck for decades. Policy, like medical decisions, should be based on evidence, not magic. Evidence to support policy should not be selected from a menu; policy should be derived from evidence. In 2012, we need to get this right.
Peter T. Kissinger is professor of chemistry at Purdue University, chairman emeritus of BASi and a director of Chembio Diagnostics, Phlebotics and Prosolia.



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