Small pharma innovates more

The majority of new drug development now takes place at startups with little to no commercial revenue. Contrary to the claim that raising prices on old drugs drives innovation, large pharmaceutical companies, generally defined as those with $10 billion or more in annual sales, rarely discover new drugs. Large companies have bureaucratic research and development (R&D) processes, in which scientists have comparatively little incentive to innovate. Researchers at emerging firms, on the other hand, may be driven to innovate by the remunerative model such firms use — i.e,. researchers share more fully in the economic rewards of successful drug development. Therefore, the majority of new drugs are now discovered and brought into human clinical trials by emerging startup companies — defined as those with $500 million or less in annual sales, or less than $200 million in annual R&D spending — funded by venture capital and hedge funds. In 2020, early-stage, unprofitable companies brought nearly 62 percent of new industry-originated drugs approved by the FDA to the clinic, with no less than 54 percent of drugs brought to the clinic by emerging firms in each of the last seven years (2016–2022).

Emerging companies are taking their innovations to market without the help of Big Pharma. Large companies that fail to discover drugs in-house often assert that the venture capital used for drug innovation would disappear if large companies sold drugs at lower prices. This claim assumes large companies will purchase the rights to sell drugs developed by emerging companies, whether through licensing agreements to sell on the emerging company’s behalf or by acquiring the emerging company altogether. But this model of drug development, which peaked in the 2010s, is quickly fading as emerging companies increasingly bring new innovations to market on their own. Our analysis found that, in 2013, 23 percent of emerging companies that originated novel drugs retained marketing rights to those drugs through the entire FDA approval process. By 2022, that percentage had more than tripled, to 75 percent. In fact, some drugs originated by profitable companies are now licensed to emerging companies to sell. Of the 17 drugs originated by established companies in 2022, four are currently marketed by emerging companies.

Emerging companies innovate more while earning less revenue and spending less on R&D. Startups rely on venture capital to develop new and innovative drugs with a higher level of accountability than large companies, spending less per innovative drug developed than large, inefficient companies.

Our analysis shows the pharmaceutical industry is rapidly evolving in favor of agile startups that embrace new ways of innovating and are free of the bureaucratic processes that plague larger companies. In practical terms, emerging companies are developing new medicines with fewer resources, all while charging patients less.

Benefits of Small Pharma

Sizov ’23 (Ksenia, Founder & Director at SK Pharma, MSc of Global Management from the University of Salford, “What are the Benefits of Being A Small Pharmaceutical Company?”, 01/26/2023, LinkedIn, , SE)

Many pharmaceutical companies prefer to remain small and have no intentions of growing into large enterprises. At the same time, there are many reasons why people looking for jobs in the pharma industry prefer staying at a small company.

Here are some reasons why.

1. Increased Agility

Regardless of the industry, it’s easier for companies to be agile when they are small. Fewer decision-makers make it easier for small organizations to make decisions and move forward without getting bogged down in red tape and bureaucracy. Additionally, carrying less weight means smaller pharmaceutical companies can pivot faster when needed, such as during a global pandemic.

2. Focused Expertise

Many small pharmaceutical companies focus on a single disease community or disease state rather than attempting to research many diseases. This means they have more subject matter experts who can make informed recommendations based on intense research and development without getting distracted.

3. Flexible Employees

In larger pharmaceutical companies, employees tend to stay in their lane. While this can have some benefits, it leaves little room for flexibility or knowledge sharing. In contrast, employees at smaller pharmaceutical companies are often trained to handle duties that go beyond the role they were hired for. This means they can be more flexible in taking over responsibilities and may be more likely to stay with a company, knowing they have room to grow and develop into new opportunities.

4. Patient Focused

Many people get into the pharmaceutical industry because they want to help patients. Small pharma companies are often closer to the patient side, including seeing how their work directly impacts patients. This can be rewarding for people who want to see their work's positive impact on patient outcomes.

Small pharma have created more life-changing meds

Ullah ’22 (Emaan, Cambridge graduate and former president of the Cambridge Union, Bachelor of Arts, Geography from Cambridge, “Small pharma is outperforming big pharma, new book suggests”, 02/17/2022, Varsity, , SE)

Small biotech firms have ‘created more life-changing medicines’ than all major pharmaceutical companies combined, say Cambridge researchers

Published on Monday (14/2), From Breakthrough to Blockbuster: The Business of Biotechnology, demonstrates how the small, inexperienced entrepreneurial companies that constitute the biotech industry have created more life-changing medicines than all of the major pharmaceutical companies combined.

The book was written by Cambridge Judge Business School Associate Professor Nektarios Oraiopoulos, biotechnology entrepreneur Dr Lisa Drakeman, and Cambridge Judge Fellow Donald Drakeman. Oraiopoulos explains that “the driving force was to bring together the complex reality of running a biotech company with the insights offered by the academic literature.”

Stefan Scholtes, the Dennis Gillings Professor of Health Management Cambridge Judge Business School, has written about the new release, questioning how it is “possible that a few thousand small companies, many of them short-lived, can outcompete the mighty pharma majors at their own game.”

Despite the high costs required to develop drugs and the complex regulatory environment, the book discovers how the biotech industry’s ability to tolerate and manage risk has outweighed the pharmaceutical industry’s advantages of scale, scope, and resources.

It also shows how academic researchers and investors have worked together over the past half-century to create an industry consisting of thousands of small entrepreneurial companies, most with fewer than 50 employees – and it is these small companies that have discovered “40% more of the most important treatments for unmet medical needs,” all while while spending less than the highly experienced pharmaceutical industry.

The reason for this, the authors argue, flows from the structure of the biotech ecosystem: the existence of thousands of small companies, all competing for funding from thousands of different investors, is what generates the high volume of risk-taking required to develop novel products, particularly in an environment where there is no definitive means of predicting the product characteristics needed for success.