The Three (or Four) P's of Entrepreneurship

The Colorado BioScience Association (CBSA) convened an all-star cast of Colorado biotech entrepreneurs yesterday morning for a Q&A session. On the panel were Richard Duke, President of Apoplogic, Larry Gold, CEO of SomaLogic, Steve Orndorff, President of Accera, Tim Rodell, President of GlobeImmune, and Jack Wheeler, CMO of MicroPhage.

All five were serial entrepreneurs; they had endured the highs and lows of entrepreneurship multiple times and had lived to tell about it. What does it take to be an entrepreneur? Jack presented his "three P's of entrepreneurship": patience, persistence and perseverance. To this Steve added a fourth P: passion. Since persistence and perseverance seem to be synonyms perhaps we should substitute passion for perseverance.

Patience is good, you've got to wait for the right opportunity, not act simply because of the lack of time (which is synonymous for money for the most part). You must persist in your endeavor despite obstacles that will indeed arise. If you tend to avoid difficulties and rejections, entrepreneurship is not the path for you. And what carries you through the difficult times is a true belief in what you're doing; a passionate belief in the product or technology.

When it came to what the biggest stumbling blocks to success were, most stated the technical hurdles they had to overcome. Larry's company had overcome those hurdles and was now facing an even more daunting challenge: the U.S. healthcare system. How to get payers to pay for new diagnostic tests? Although the life sciences industry can be very entrepreneurial and open to new ideas and technologies, the healthcare industry is much different and imposes many obstacles for new products.

Genentech's Pricing Rationale

In the WSJ's continuing quest to determine how and why drugs are priced as they are, Marilyn Chase interviewed Genentech's CEO Dr. Arthur Levinson. Levinson defended the rapidly escalating price of cancer drugs by comparing total domestic spending on cancer drugs, $15 billion, against the GDP, $13.6 trillion, which by my calculations is a drop in the bucket. But 42% of Americans will get cancer and half will die of it. So where are our priorities? Shouldn't we be spending even more money? Well, in fact we are. In 2007 the National Cancer Institute's budget was $4.8 billion and there are billions more coming in from private foundations. Nevertheless, it's still small compared with the GDP.

What about the other controversial pricing issue at Genentech, doctors using $50 worth of Avastin to treat age-related macular degeneration instead of $2,000 worth of Genentech's Lucentis, the drug approved by the FDA to treat AMD. Despite the fact that both Avastin and Lucentis are VEGF inhibitors the FDA wasn't about to approve Lucentis without Phase III clinical trials costing $40,000 to $45,000 per patient. Hence the added price.

Although Genentech's margins are healthy, pre-tax margin of 34% for 2006, Levinson points out that these are lower than both Microsoft, 37%, and Oracle. Oracle's fiscal 2006 pre-tax margin was actually 33%, but close enough. This does bring up a point however; would Genentech generate more profits if they could? Keeping profits below other industries by capping prices, free drug programs, large research budgets could be a strategy for sustainable and healthy growth without incurring the scrutiny of politicians.

RHIOs Call in Sick

Information Week's cover story this week, Diagnosis Critical, paints a pretty bleak picture of health IT in this country. At issue is the ability to exchange patient data between healthcare providers in a Regional Health Information Organization (RHIO). I mentioned a RHIO which I had personally experienced in a blog last January; the Integrated Physician Network (iPN) Avista. Although RHIOs have some advantages for providers and patients, the economics are not sufficiently compelling for hospitals to create them without grant funding.

The failure of a role model RHIO, the Santa Barbara County Care Data Exchange, at the end of 2006 highlights the problems facing RHIOs and the exchange of patient information. The problems ranged from too ambitious to lack of community support, but in the end the providers could not see the value in the network. SBCCDE spent eight years building their network, if they had been able to accurately predict the time and expense in setting up the system they may have been better able to set expectations. But had they possessed that information at the start would they have proceeded with the project in the first place?

Integrated healthcare systems, such as Kaiser Permanente and the UK's National Health Service, have strong economic incentive to streamline processes and reduce costs, motivating them to persevere even when struggling against daunting cultural and technical hurdles. But the loose federation of healthcare providers in the U.S. doesn't have those incentives; the costs of inefficiencies just get passed along to the consumers.

The American Health Information Community, an advisory group to the federal government, is expected to recommend that doctors using health IT systems receive higher reimbursement rates for treating Medicare patients. Although creating financial incentives to drive health IT is a powerful motivator, there are people who feel that nothing short of a government mandate will be necessary to drive adoption. I'm all in favor of holding out a carrot, but do we really think using the stick will speed the process?