Over 200 GLP1 weight problems applications are in improvement at present. Greater than 300 PD1/PDL1 most cancers applications exist. Higher 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 “scorching” mechanisms of motion (e.g., statins and SSRIs within the Nineteen Nineties, TNFs within the 2000s, PD1’s within the 2010s, GLPs at present), this herding into well-established mechanisms has accelerated in recent times – each within the quantity of exercise and within the tempo of competitors.
Right here on this weblog we’ve coated these matters plenty of instances up to now, with the “March of the Lemmings” in most cancers in 2012 and “I/O: The Strategic Supernova In Most cancers Immediately” in 2016.
However with the rise of China’s modern sector, the proliferation of biologic medicine coded by DNA, and greater than dozen years of plentiful 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 a minimum of 50 applications towards them in preclinical or scientific improvement.
Additional, the tempo of “quick follower” medicine is hanging relative the previous: based on PhRMA’s current 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” subject, so I gained’t belabor the factors right here. They’ve already explored and indicted it for a myriad of destructive impacts on the sector: poor biotech success charges, failures of IPOs and Smid-cap biotechs, lack of generalist traders within the house, rise of quick sellers, and the demise of the XBI biotech index, amongst different dangerous karma for the sector.
However who’s guilty? 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 comparable issues to different biotechs. Take into consideration what number of CART CD-19 corporations acquired began… or gene enhancing and gene remedy performs… actually, dozens and dozens of them emerged, all chasing comparable indications. Throughout 2020-2021, the bubble in enterprise creation began over 180 biotech’s 1 / 4 within the US alone (which fortunately is right down to a 3rd of that not too long ago). Non-public biotech traders, together with and often led by VCs, have been behind most of those corporations.
In mild of all that, the criticism undoubtedly has some fact to it. VCs are partly answerable 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 nicely).
However we are able to’t throw the infant out with the tub water: sure, VCs helped crowd the house – however in addition they bankrolled the breakthroughs. No crowd, no medicine. With out early stage traders, biotechs couldn’t actually get began, because the sector is determined by them for capital at a minimal, and strategic value-add and company governance on day.
So right here’s my contrarian counterpoint: for those who consider in markets and capitalism, you need to embrace the aggressive pressure that crowding manifests. Might the perfect corporations with essentially the most profitable medicine win. Fail to ship precious 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 world wide. There are some actual downsides, which I’ll point out under, 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 undergo from a robust herding intuition. In truth, (over-)allocating capital to “scorching” 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, almost 10x the size of biotech, does this on a regular basis.
Take ride-hailing app’s. Uber and Lyft are the massive international winners, however a minimum of scores of startups have been launched within the US alone, and upwards of 150 corporations world wide. Anybody keep 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 companies. A minimum of 50-70 startups shaped to execute on this enterprise mannequin. Instacart is clearly the dominant participant, however it began 13 years after FreshDirect and greater than 20 years after Peapod. Tons of others failed alongside the way in which. Add within the meal supply companies and there have been just a few hundred startups centered on getting meals to individuals.
The record goes on. Courting apps. Social media startups. On-line betting platforms. Electrical autos. So many “scorching” areas, all of which acquired crowded rapidly, backed by VCs who hoped to choose a winner.
In the event you have been sensible or fortunate sufficient to choose one of many dominant winners, you have been a VC hero. However the actuality is most traders in these areas possible misplaced cash… like lemmings operating off crowded cliffs.
Even with these funding losses, there’s one clear beneficiary of the crowding into these areas: customers. And the crowds typically consolidate into just a few winners which have develop into ubiquitous within the lives of most Individuals.
I’d prefer to consider that in the long term, therapeutic crowding will ship one thing comparable. Whereas traders 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 selections round what stage of benefit-risk they want, and to offer payors selection round what stage of price they’ll help.
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 limitations to entry: coder can hearth out a product providing rapidly. Time to market is quick, and getting important shopper suggestions permits a startup to iterate on its product rapidly. R&D cycles instances are days, weeks, and months. Market competitors between startups occurs in a short time, and sometimes intensely. Effectively-known monetary metrics help in monitoring the momentum of those performs (e.g., MRR, CAC, customers, and so forth). A deep and broad pool of seed, early stage, and progress traders 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 will probably 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 huge winners over the course of time, typically inside 5 years.
This isn’t actually how biotech works.
Boundaries 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 stop hurt (and show efficacy), resulting in extended cycle instances measured in years, and sometimes a long time from concept to permitted medicine in new applied sciences.
Direct competitors between drug candidates doesn’t occur early in improvement; as a substitute, competitors actually solely happens by way of capital allocation selections of traders making implied comparisons round goal product profiles (TPPs). True head-to-head competitors between merchandise is delayed typically till approval. Scientific knowledge 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 (international Section 3s), and sometimes not till commercialization. Scale could the truth is work towards nimble modern analysis and early improvement. Additional, untimely scaling for a startup is sort of counterproductive (big burns for early stage corporations), quite than useful escape velocity.
All of this conspires in biotech to result in an ecosystem the place companies should persist for much longer with a view to reveal their precise product profiles. Profitable companies are capable of credibly talk the TPP of their applications, and work out learn how to increase capital (take fairness dilution) and do partnership offers (take asset dilution) with a view to keep sufficient steadiness 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 traders 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” personal progress capital, which basically forces loss-making development-stage biotechs into the general public markets. In harder instances, like at present, extra startups will starve throughout this journey than would possibly in any other case; however in frothier instances, extra will survive than most likely ought to. As a result of capital allocators are human, their worry and greed drive this market cycle. And people feelings transfer resulting from comparative knowledge 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 length crowding dynamic additional signifies that “me-too” or much less differentiated merchandise will survive longer than they could within the tech sector – at instances surviving all the way in which 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, normally 5-10 years after a startup types.
In a free market that’s actively allocating capital to new startups, the creation and persistence of gamers in crowded areas is certain to occur – partly 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 at all times a unique approach on affinity, efficiency, supply, pharmacology, selectivity, dosing, and so forth… And entrepreneurs good at promoting that dream will discover traders to again them. However, in the long run, most desires don’t come true – although it typically takes a very long time in biotech to appreciate that.
Luckily, to a minimum of a modest extent, me-too or incrementally totally 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 strain on web drug costs.
In abstract, crowding is the anticipated consequence of an energetic 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 danger 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 show worth; dilution of scarce administration expertise over too many comparable startups; and, long run investor losses resulting in a shift (outflows) to different sectors, to call just a few. These are actual, and in search of to mitigate these dangers is vital, however in a free marketplace for capital allocation they’re unlikely to go away.
Startups crowding into scorching areas is axiomatic with markets. In a sector outlined by science, R&D, and danger capital, crowding isn’t essentially a bug – it’s a function. Winners will emerge from the gang and convey new and differentiated medicine ahead – and sufferers will profit.
