G. Steven Burrill reaches into his pocket and pulls out an electronic device. “This is my iPhone,” he says, scrolling on its screen and poking an application. He holds it against his trademark pink shirt. “And this is my EKG.” Sure enough, a pulsing fever graph moves across the screen in a pattern very similar to an electrocardiogram reading. “This records it, sends it to the cloud, and down to my cardiologist.”
Outside the window of his 27th-floor suite overlooking San Francisco’s Embarcadero, a small cluster of morning clouds against the sunrise lends its effect as Burrill flips the phone back into his suit jacket pocket, quite proud of the demonstration.
And why shouldn’t he be? The consummate biotech insider, Burrill sits on the board of AliveCor, the San Francisco-based technology start-up that developed the iPhone app. His investment firm, Burrill & Co., is the largest investor in AliveCor.
Burrill’s enthusiasm over an app developer may seem like new behavior, given his record of investment in traditional biotech firms. The most recent coup for Burrill & Co. is the sale of the hepatitis C drug developer Pharmasset to Gilead Sciences for $11 billion. Burrill & Co. was one of the largest investors in Pharmasset, and Burrill was chairman of its board until January 2011. But Burrill now views traditional biotech in a broader health care perspective.
His main talking point for some time now has been “The Three Ps”: personal, preventive, and predictive. It’s an approach to medicine that he says will amalgamate small and large molecules with digital technology to define the future of health care—a future that big pharmaceutical companies are struggling with.
The route to bringing drugs to market has changed fundamentally, he points out. “It used to be you basically had to prove safety and efficacy, you threw it over the wall, and the system absorbed it,” he says. But insurance coverage is posing a heightened risk as health care legislation evolves. “Now, the real question is, ‘What is the pharmacoeconomic equation that will determine that a drug will be paid for?’ ” He adds that regulatory hurdles have also become higher as the Food & Drug Administration struggles to develop approval pathways for new scientific and therapeutic approaches.
“The burden is on the innovator to prove a new drug is better and costs less than products on the market,” he says. “This puts an enormous barrier on innovation and a protective layer on things already on the market.” Burrill believes that good technology will get financing, “but remember that the power is on the side of the people with the capital, not on the side of the entrepreneur.” And the hill is steep. As investors, “we would say no to 99 out of 100 things we see,” Burrill says.
Moreover, investors are uneasy about staking companies with new ideas that face economic and regulatory uncertainties on top of the usual risk of a new drug’s failing. “Those things in the aggregate spook the investor,” Burrill says.
Big drug companies, meanwhile, are acting strangely, Burrill says. “There is clearly a kind of bipolar nature to big pharma,” he says. “They are paying up for developed compounds where there has been a substantial risk reduction and they can see the market opportunities. On the flip side, they are putting out some reasonable amounts of money on pure-play discovery hits. What is even more strange is how big pharma is reaching all the way back to the academic institutions.”
What is obvious, he says, is that major pharmaceutical companies are well into the process of converting from vertical enterprises engaged in everything from discovery to marketing, to far more horizontal operations heavily engaged in marketing and distribution. But the shift is not happening easily. He points to former Pfizer chief executive officer Jeffrey Kindler’s failed effort to “turn the ocean liner called Pfizer around” with forays into biologics and digital health as an example of how large companies are resisting fundamental change.
Others are also resisting change, he notes. “Twenty-two percent of our gross domestic product is in health care, and a lot of people don’t want to vote themselves off of the island,” Burrill says. “There is an enormous amount of perverse incentive to keep the system the way it is in the face of this onslaught of technologies that will totally disenfranchise large amounts of the health care system today.”
Still, change happens. “Health care is a funny label, because we are actually in a very dysfunctional ‘sickness care’ system,” Burrill says. “But we are moving to an increasingly effective ‘wellness care’ system, using a confluence of technology to improve outcomes at the patient level.”
The trick will be to identify the companies that best define the future.
“I think we are going to see some strange bedfellows,” Burrill says. “Samsung has a major biosimilars deal with Biogen Idec. Six months ago, you would have said, ‘Samsung? What do they have to do with biotechnology?’ ” He points to Google, Facebook, and Twitter, which came from nowhere to become major economic forces in just a few years. “It is not apparent today who will be the dominant players in 2020,” Burrill says, “but you might not bet on big pharma.”