Over 200 GLP1 weight problems applications are in improvement immediately. Greater than 300 PD1/PDL1 most cancers applications exist. Better than 150 applications goal every of CD19 and KRAS. Therapeutic crowding has ratcheted up the aggressive depth in biotech to new ranges.
Whereas a perennial concern for many years within the biopharma business round “sizzling” mechanisms of motion (e.g., statins and SSRIs within the Nineteen Nineties, TNFs within the 2000s, PD1’s within the 2010s, GLPs immediately), this herding into well-established mechanisms has accelerated lately – each within the quantity of exercise and within the tempo of competitors.
Right here on this weblog we’ve coated these subjects numerous occasions prior to now, with the “March of the Lemmings” in most cancers in 2012 and “I/O: The Strategic Supernova In Most cancers Right now” in 2016.
However with the rise of China’s revolutionary sector, the proliferation of biologic medicine coded by DNA, and greater than dozen years of considerable capital, to call just some issues – the problem has solely gotten worse.
As illustrated in LEK’s Might 2025 report “Is Biopharma Doing Sufficient to Advance Novel Targets?” the size of the present crowding problem is staggering. All of those targets have at the least 50 applications in opposition to them in preclinical or scientific improvement.
Additional, the tempo of “quick follower” medicine is hanging relative the previous: in response to PhRMA’s latest report on innovation, the common time for a drug class to have three FDA approvals in it went from ~15 years in 1990-2003 to ~2 years in 2013-2021.
Many others have mentioned this “therapeutic crowding” matter, so I received’t belabor the factors right here. They’ve already explored and indicted it for a myriad of adverse impacts on the sector: poor biotech success charges, failures of IPOs and Smid-cap biotechs, lack of generalist buyers within the area, rise of quick sellers, and the demise of the XBI biotech index, amongst different dangerous karma for the sector.
However who’s responsible? VC’s, clearly.
Certainly, VCs are generally cited because the wrongdoer: we apparently begin and fund too many corporations doing the identical issues. An excessive amount of capital chasing too few novel concepts. Too many “me-too” applications.
Since 2012 when the JOBS Act primed the IPO pump, we’ve introduced over 600 corporations public on US exchanges, a lot of which doing related issues to different biotechs. Take into consideration what number of CART CD-19 corporations received began… or gene modifying and gene remedy performs… actually, dozens and dozens of them emerged, all chasing related indications. Throughout 2020-2021, the bubble in enterprise creation began over 180 biotech’s 1 / 4 within the US alone (which fortunately is all the way down to a 3rd of that not too long ago). Personal biotech buyers, together with and often led by VCs, have been behind most of those corporations.
In mild of all that, the criticism undoubtedly has some reality to it. VCs are partially accountable for startup biotech’s contribution to the rise in therapeutic crowding (although Pharma and different established gamers additionally do their half to contribute to this dynamic as properly).
However we are able to’t throw the newborn out with the tub water: sure, VCs helped crowd the area – however in addition they bankrolled the breakthroughs. No crowd, no medicine. With out early stage buyers, biotechs couldn’t actually get began, because the sector relies on them for capital at a minimal, and strategic value-add and company governance on an excellent day.
So right here’s my contrarian counterpoint: in the event you imagine in markets and capitalism, it’s important to embrace the aggressive rigidity that crowding manifests. Might the very best corporations with probably the most profitable medicine win. Fail to ship useful and differentiated medicines and your shareholders will face losses.
In the long term, this dynamic market of rewards and losses creates a mechanism for bringing nice medicine ahead – and I’d argue this method is nice for sufferers around the globe. There are some actual downsides, which I’ll point out beneath, however it’s risk-taking capitalism that delivers innovation.
Crowding round new improvements additionally isn’t a illness solely biotech VCs can succumb to: all VCs endure from a robust herding intuition. Actually, (over-)allocating capital to “sizzling” concepts is wired into the DNA of the enterprise capital business and the market cycle of innovation (euphoric peaks, despairing troughs).
The tech VC sector, practically 10x the size of biotech, does this on a regular basis.
Take ride-hailing app’s. Uber and Lyft are the large world winners, however at the least scores of startups have been launched within the US alone, and upwards of 150 corporations around the globe. Anybody bear in mind Sidecar? Began in 2011, earlier than Lyft, ended up shutting down in 2015. Or Juno? It began 7 years after Uber.
Or grocery supply providers. Not less than 50-70 startups fashioned to execute on this enterprise mannequin. Instacart is clearly the dominant participant, but it surely began 13 years after FreshDirect and greater than 20 years after Peapod. Tons of others failed alongside the best way. Add within the meal supply companies and there have been just a few hundred startups targeted on getting meals to folks.
The checklist goes on. Courting apps. Social media startups. On-line betting platforms. Electrical autos. So many “sizzling” areas, all of which received crowded rapidly, backed by VCs who hoped to select a winner.
In the event you have been good or fortunate sufficient to select one of many dominant winners, you have been a VC hero. However the actuality is most buyers in these areas possible misplaced cash… like lemmings working off crowded cliffs.
Even with these funding losses, there’s one clear beneficiary of the crowding into these areas: customers. And the crowds usually consolidate into just a few winners which have change into ubiquitous within the lives of most Individuals.
I’d prefer to imagine that in the long term, therapeutic crowding will ship one thing related. Whereas buyers in lots of offers will lose cash, people who ship worth for sufferers will accrue returns over time. And in every illness or indication, we’ll have a handful of permitted medical choices to offer sufferers decisions round what stage of benefit-risk they want, and to offer payors selection round what stage of price they’ll assist.
It’s instructive, although, to dig into a number of the profound variations between tech and biotech investing to know how crowding differentially impacts our respective sectors.
In lots of areas of tech investing, there are minimal obstacles to entry: an excellent coder can fireplace out a product providing rapidly. Time to market is quick, and getting vital shopper suggestions permits a startup to iterate on its product rapidly. R&D cycles occasions are days, weeks, and months. Market competitors between startups occurs in a short time, and infrequently intensely. Nicely-known monetary metrics help in monitoring the momentum of those performs (e.g., MRR, CAC, customers, and so on). A deep and broad pool of seed, early stage, and development buyers exist, allocating capital to the winners (and, over time, away from the losers). If a startup can obtain escape velocity, main to an enormous discount in its price of capital, it could possibly scale even sooner… and scaling creates dominant market positions, resulting in consolidation and a “winner take all” dynamic. So crowding in tech dissipates into just a few large winners over the course of time, usually inside 5 years.
This isn’t actually how biotech works.
Obstacles to entry have traditionally been very excessive, as deep scientific experience and built-in capabilities are required (although that is altering as drug R&D experience democratizes and commoditizes across the globe). R&D is very regulated to forestall hurt (and show efficacy), resulting in extended cycle occasions measured in years, and infrequently a long time from concept to permitted medicine in new applied sciences.
Direct competitors between drug candidates doesn’t occur early in improvement; as an alternative, competitors actually solely happens by way of capital allocation selections of buyers making implied comparisons round goal product profiles (TPPs). True head-to-head competitors between merchandise is delayed usually till approval. Scientific information is the one actual forex of competitors (scientific or preclinical), not any strong monetary metric.
Lastly, scale benefits don’t actually accrue till a decade into the corporate life cycle: both in very late scientific research (world Section 3s), and infrequently not till commercialization. Scale might the truth is work in opposition to nimble revolutionary analysis and early improvement. Additional, untimely scaling for a startup is sort of counterproductive (large burns for early stage corporations), reasonably than useful escape velocity.
All of this conspires in biotech to result in an ecosystem the place companies should persist for a lot longer with a view to reveal their precise product profiles. Profitable companies are in a position to credibly talk the TPP of their applications, and determine increase capital (take fairness dilution) and do partnership offers (take asset dilution) with a view to keep satisfactory stability sheets to rework their candidates into precise medicine. If you are able to do it sooner or cheaper (like what China has been doing not too long ago, or AI/ML guarantees to do), that clearly helps create R&D benefits throughout that lengthy innovation course of.
Additional, in contrast to tech, there’s a comparatively small universe of buyers allocating scarce funds to assist these new and rising companies navigate that R&D journey to market. There’s additionally an absence of late stage, “much less valuation delicate” non-public development capital, which primarily forces loss-making development-stage biotechs into the general public markets. In more durable occasions, like immediately, extra startups will starve throughout this journey than may in any other case; however in frothier occasions, extra will survive than most likely ought to. As a result of capital allocators are human, their concern and greed drive this market cycle. And people feelings transfer resulting from comparative information packages (and TPPs) of R&D stage medicines, not monetary metrics, which often results in mispricing/dislocations available in the market – all a part of what makes biotech investing each a possibility and a problem.
This lengthy period crowding dynamic additional implies that “me-too” or much less differentiated merchandise will survive longer than they could within the tech sector – at occasions surviving all the best way to drug approval. This happens largely as a result of one solely actually is aware of for positive if a drug is a meh “me-too” product till mid- or late-stage scientific trials have learn out, often 5-10 years after a startup kinds.
In a free market that’s actively allocating capital to new startups, the creation and persistence of gamers in crowded areas is sure to occur – partially as a result of no agency plans to make a undifferentiated product. I’ve by no means heard a pitch from an entrepreneur that declares “we’d prefer to make a second-in-class product”. Everybody has a dream for why they suppose they’ll make both a first-in-class or best-in-class product. It’s all the time a unique approach on affinity, efficiency, supply, pharmacology, selectivity, dosing, and so on… And entrepreneurs good at promoting that dream will discover buyers to again them. However, in the long run, most desires don’t come true – although it usually takes a very long time in biotech to comprehend that.
Luckily, to at the least a modest extent, me-too or incrementally completely different merchandise do even have a spot within the biopharma market: they provide extra selection for sufferers round comfort, tolerability, or efficacy, in addition to potential competitors for formulary or payor standing, resulting in stress on internet drug costs.
In abstract, crowding is the anticipated consequence of an lively marketplace for capital allocation (and administration groups’ time allocation), and occurs in tech and biotech enterprise investing. Whereas there are profound variations in how this herding intuition impacts the 2 ecosystems, it’s simply a part of the innovation cycle – and a part of the artistic destruction so vital in threat capital markets.
There are, nonetheless, actual downsides to over-crowding for biotech which can be vital to not gloss over, particularly in particular illness areas and modalities: actual alternative prices of not funding out of favor areas with excessive unmet wants; affected person participation and maybe over-enrollment in trials for medicine unlikely to exhibit worth; dilution of scarce administration expertise over too many related startups; and, long run investor losses resulting in a shift (outflows) to different sectors, to call just a few. These are actual, and searching for to mitigate these dangers is vital, however in a free marketplace for capital allocation they’re unlikely to go away.
Startups crowding into sizzling areas is axiomatic with markets. In a sector outlined by science, R&D, and threat capital, crowding isn’t essentially a bug – it’s a function. Winners will emerge from the group and convey new and differentiated medicine ahead – and sufferers will profit.
