Monday, July 14, 2014

Three Signs it's Time to Invest in Biological Technology

When I started down the "bioengineering technology" path in the late 90's, the natural assumption was that it would quickly follow the rapid market success of the internet. There was widespread optimism in the power of research and engineering, nearly endless capital to fund bold ideas, and a heartening stream of good news in the form of breakthrough discoveries (DNA sequencing, stem cells, systems biology). We are now fifteen years or so since that prominent wave of activity. While there have been some notable successes (personal genomics), the general sentiment is that biological technology has not caught the wave of market success that was expected. It's definitely not time to give up on the industry, but it may be useful to ponder what the appropriate timing is for the coming market success.

While it is never possible to predict market success, the following three signs are pretty good indicators that the wave is upon us.

1. A hero company emerges
A key trigger to signal the dawn of a new era is the emergence of "hero" companies. We are all familiar with examples in the internet industry-- Google, Amazon, Facebook. These are companies that are widely admired, exceptionally well funded with nearly bottomless revenue streams, possess exceptionally deep employee talent pools, are constantly in the news, and seem to effortlessly increase market value by billions of dollars at a time. The key here is that it doesn't matter who the hero company it, the fact that one has emerged is a sure sign of broader market success. The momentum and wake of such a company stimulates the entire industry-- driving new investment capital, becoming an acquirer of start-ups, providing training grounds for talent, fueling a swell of public investment, raising awareness in mass media to drive additional revenue, and so on.

In the cellular technology space, we have yet to see a company rise to this level. At various times, there were strong contenders coming from various fields such as stem cell science, miniaturization and automation systems, novel analysis instruments, and synthetic cell engineering. These cases were highlighted by big venture funding investments (generally above the 9-digit mark), impressive technology and products, and genuine excitement among the scientific communities. In almost all cases, these heroes-in-training hit a plateau as their acceleration slowed. Much of this was due to lofty expectations of investors, but also due to factors highlighted in #2 and #3 on this list. However, there is no rule that a hero has to be an overnight success, and some of the more patient companies are starting to show renewed momentum.

2. Publicly funded infrastructure is understood by the public that funds it
For those of us in the right age group, we first started using products such as email, web browsers, smart phones, and tablets at stages when most of the public (think parents) would comment "I've heard of that gizmo... very cool technology, but I can't imagine it'll be mainstream." While there are multiple factors leading to this transition, one of the central aspects is that a broad infrastructure needs to be in place for entrepreneurs to launch their companies and products from. Even for fast moving fields like electronics or internet, it took decades of work to put together the underlying systems and knowledge pools necessary for commercial success. On top of that, there is a time period where these systems are only used and understood by small groups-- the military, professional scientists, enthusiasts. At some point, this knowledge crosses the threshold to the public, and revenues start to flow.

The infrastructure for biology is bit foreign to most consumers. A common misconception is that biological technology is a component of the bio-pharmaceutical industry. While there is some overlap, the underlying infrastructure is different. By my definition, a key difference is that the products created via biological technology will not be "drugs." They may be used by bio-pharmaceutical companies, but just as easily find applications directly in consumer hands. Some of the initial steps have taken hold, such as the creation of a generation of bio-engineers to fill academic, scientific, industry, and innovation talent pools (this still requires heavy life support from government funding until commercial funding is ready). This has led to commercial application of many core technologies, building up manufacturing, marketing, and sales channels. Probably the two biggest infrastructure challenges to enable a biological technology renaissance is the creation of a more transparent healthcare marketplace, and regulatory (and popular) understanding of how to interpret personal biological information. Interestingly, both topics are trending in the public awareness.

3. Mass market applications
It is nearly impossible to achieve #1 or #2 without delivering a product that has mass market appeal. Often, a novel technology will initially be used to develop products marketed towards a niche user group. For biological technology, this is almost always the research community (academic and bio-pharmaceutical). It should only be a matter of time before an enterprising company figures out how to deliver a product that expands beyond this niche. Stay tuned for future posts that will speculate on where these may come from.

The emergence of these three elements for biological (dynamic cell) technology is likely within 5 years (if funding of basic science and infrastructure continues). Fifteen years after the first wave, many of the initial biological technologies have been matured in the "real world", and there is an impending convergence of biology with electronic device and personal information products. In the coming years, there will likely be a lot of risk, turnover, and competition in the innovation marketplace as the best companies position themselves for long term success. As every entrepreneur inherently knows, it's great to be able to spot the coming wave, but if you are not already there, it's too late. The good news for everyone else is that regardless of which company wins, the outcomes will be truly impressive, and likely to last for many years.

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