What are the characteristics of the top biotech startups?

Original answer on Quora

Richard Murphey, 5/16/2019

If we define “top biotech startups” as “innovative biotherapeutics companies started in the last 50 years that were acquired for or currently trade at $10B+”, the most surprising characteristic is that most of these companies have relatively inexperienced CEOs (CEOs under the age of 40). It’s hard to find comprehensive data on CEO age and biotech startup performance, but I did a writeup of this topic here.

If we define “top biotech startups” as “biotech startups that went public from 2018-Q1 2019” (here I’m just focused on therapeutics companies, not device, diagnostic, agtech, etc):

• ~25% developing small molecule drugs
• ~25% developing gene or cell therapy
• ~20% developing large molecule drugs
• 30% developing cancer drugs
• 20% developing rare disease drugs

This data comes from my startup database and analysis of IPO prospectuses.

More qualitatively, successful biotech startups:

• Develop drugs for severe unmet medical needs (ie cancer, or severe / neglected rare diseases)
• Have some novel biological / biochemical insight that gives them a better understanding of disease biology or a better way to hit a well-understood target
• If you are drugging a novel target, you really won’t know if it “works” until you test it in people. That takes a long time and a lot of money, and the risk that it works in animals / in vitro but fails in people is high
• If you are developing some chemical / biologic that can drug a pathway or target that is known to be a big driver of disease but hasn’t previously been druggable, you can get a sense for whether it’s working a bit earlier / for less money
• Have good disease models that correlate with human clinical outcomes
• Have robust data to show the target is valid, the molecule hits the target enough / the right way / without too much non-specific activity, the molecule has drug-like qualities, is safe, etc.
• Have a tractable clinical development plan: can get initial data on whether the drug is effective in humans quickly / cheaply. Phase 2 / 3 failure is the biggest driver of the cost of drug development. Reducing the cost and risk of your clinical program is important
• Phase 1 or 2 study with biomarker endpoints that are predictive of clinical outcomes endpoints
• Homogenous, well-defined, ideally genetically defined patient populations
• Take advantage of expedited FDA pathways like accelerated approval, breakthrough designation, fast track, etc. (cancer, severe rare disease)
• Have some experience on the management team. While you want diversity on your management team, you need people with technical and professional experience in the various aspects of drug development.
• Have an intellectually honest “truth seeking” culture. You want a management team and investor syndicate that is willing to kill programs as early as possible if they don’t work. Often this means that VCs run the companies through the early stages, as their jobs aren’t on the line if the program fails. If the management team just wants to push programs forward even if the data suggest that’s a bad idea (or if the management team doesn’t listen when told the data suggest things aren’t going as planned), that’s a bad sign