Small pharma contributes more to innovation than big companies

An HBM New Drug Approvals report shows that small pharma companies now invent most FDA-approved drugs:

We see that a smaller and smaller share of new drugs come from big pharma. Big pharma and large biotech companies have discovered 10-12 new approved drugs a year for the past decade. Small companies developed 10-15 new approved drugs a year until the last few years, where they have rapidly increased the number of approved drugs coming from their labs.

This chart shows what kind of firms “originate” drugs that are ultimately approved. It’s important to note what is meant by “originating” here. HBM defines “originator” as the group that “discovered the drug or undertook the first significant clinical development effort”. So “originator” has a very wide range of definitions: it could be the company that discovered the drug, or the company that took it into Phase 1. Universities, startups and pharma often collaborate closely at various stages, so it’s hard to attribute accomplishments to one group or another in many cases. So it probably makes sense to have some leeway in defining who the “originator” is, but it still would be nice for more clarity.

A more objective metric is looking at what company owned a drug at time of FDA approval:

The prior chart showed who “originated” drugs that were approved by FDA in a given year. This chart shows who “owned” the drug at the time of approval. This is less subjective, as the sponsor of the application is public knowledge, although the sponsor of a drug submission did not necessarily do much work discovering or developing the drug.

For example, if a startup spends 10 years developing a drug and completes all required studies, and then a big pharma company buys the startup and submits the drug for FDA approval, the big pharma company would be listed as the “owner”. Since many startups take drugs through phase 1 or 2 and then sell to big pharma (or even sell at preclinical stage), this analysis does not reflect which kind of company did the brunt of the R&D work.

Startups vs. small companies

But some of these small companies are fairly established and aren't really "startups". HBM defines "smaller" companies as any company with revenue less than $100M -- this certainly includes companies that wouldn't be considered startups.

To narrow the dataset down to true startups, I manually researched the development history of the drugs approved in 2018. I defined “startup” as a company that receives venture capital funding. Because it takes a long time to approve a drug, I classified companies as startups if they received venture capital in the last 15 years. This is a somewhat arbitrary number, but because the process of starting a drug discovery process to FDA approval takes an average of 14 years, I thought this was appropriate.

My analysis shows that 19 of the new drugs approved in 2018 were developed by companies that received VC funding in the last 15 years. Thus 32% of 2018 newly approved drugs were developed by startups, per my definition of startup.

So that’s our figure for number of new drugs developed by startups. How many drugs approved in 2018 were developed by big pharma?

We don’t need to do any additional research for this, as HBM defines this category for us. HBM provides data on the top 30 biopharma companies (including the two categories “top 10 pharma companies” and “other large biopharma companies”). I’ll define big pharma as the top 30 biopharma companies per HBM. The top 30 big pharma companies originated 13 of the novel drugs approved in 2018.