I assume (because I’m too lazy to look it up) that all the big defense contractors became big because of WWII. Spot-check: Ratheon - yup, magnetrons. Lockheed - Army planes. Northrop - Navy planes. Martin Marietta - nope. Apparently Marietta’s juice was the Cold War - rockets.
Wars are the public-sector example of Marc Andreesen’s great market theory, that “the market pulls product out of the startup.” In WWII, the market was Uncle Sam.
Fighting a worldwide plague is a lot like fighting a world war, and that extends to the relationship between government and business. Historically, the US has funded biomedical innovation through NIH and BARDA. Of the two, NIH is much bigger, but at $6 billion, NIAID is only 15% of the NIH budget, and emerging infectious diseases (EID) is just a fraction of NIAID’s portfolio. Over the last 10 years, BARDA became the real gorilla for funding EID innovation, with a 2019 budget of $1.3B, most of which went to mid-to-late stage development of diagnostics and drugs for EID. In 2020, BARDA got an additional $15 billion to fund development of COVID-19 vaccines and diagnostics. (NIH got an extra $2 billion.)
BARDA didn’t exist 20 years ago. It only started focusing on EIDs in the last seven years. I don’t know anyone in the industry who things COVID is a flash in the pan. We’re all telling ourselves that this changes everything.
Still, I think the pull of this pandemic on biotech will be stronger and more permanent than I think most in the industry realize. Biotech has always served the healthcare market. Going forward, it’s going to spend a lot more time serving the public sector market.
The first time I attended BARDA’s industry day conference, everyone fit in a small hotel ballroom at the Grand Hyatt, and it was equal parts public and private sector attendees. By 2019 it was spread over two hotels and overrun with industry. I give it three years before they’re in a convention hall. Industry is showing up because BARDA has the budget and the focus to pick winners and make fortunes.
We industry folks still talk about BARDA as a funder. The folks at BARDA, though, think of themselves as customers. And they’re right, of course. The customer always is.
Sooner or later, reality will assert itself. We’ll accept that, at least within infectious disease, BARDA sets the roadmap, and we can either fill the need or walk away from the market.
We won’t walk away. You can make money selling fighter jets, and you can make money selling passenger jets. You can make money selling cancer therapies, and you can make money selling vaccines. But whether you’re developing jets and drugs, this stuff is hard. It’s expensive. And often, it fails. In this world, you want customers who pay as they go and accept the possibility of failure, even if the market is smaller.
The amount of technical risk that COVID-related funding eliminated is staggering. We have vaccines based on entirely new platforms going into millions of patients. We have diagnostics platforms a decade in development that burst onto the market with public support. Supply chain capacity has grown in some niches by orders of magnitude. Telling ourselves that we’re leveraging federal funds to advance our core platforms is fine as far as it goes. But at some point, it stops being true. At some point, selling to the federal government is just the business we’re in.
That’s not necessarily a bad thing. The reason infectious disease had so little commercial activity before COVID was because infectious disease was a crappy market. After COVID, it may go back to being a crappy market.
But we all know that’s wrong. There is no “after COVID.” This changes everything. Including, I suspect, who we’re selling to.