Fixing the Biotech “Valley of Death”

Finance influences—and in many cases hinders—drug development. For Andrew W. Lo (Charles E. and Susan T. Harris Professor; Professor of Finance; Director of the Laboratory for Financial Engineering (LFE) at MIT Sloan), there’s a better way to do things. As Lo says, “Shouldn’t the science drive the financing rather than the other way around?” His research in the fields of biotech and pharma, galvanized a decade ago by losing six people he loved to cancer in the span of four years, is working to make the relationship between the science and business of drug development more productive.

“Finance plays a huge role, sometimes way too big a role, in how drugs get developed,” Lo said in a 2021 seminar at Princeton University, and fixing the model could have “tremendous impact.”

He focuses on the “valley of death,” where promising, and potentially transformative, ideas are left to languish due to a lack of capital to sustain their growth and development. Advocating for greater funding diversity—financing a portfolio of therapeutic development projects in order to de-risk investment—led to him becoming co-founder of BridgeBio Pharma Inc. in 2015. The company is now valued at $1.5 billion, with two drug approvals to its credit and more than 30 in the pipeline.

Lo also studies the impact of academic technology transfer—an increasingly important component of the biomedical ecosystem—and mission-driven investments, to better inform decision-makers in their allocation of resources. In one recent study, Lo, along with former MIT Technology Licensing Office director Lita Nelsen, SB ’64, SM ’66, SM ’79, MIT students, and LFE research affiliates, assessed MIT’s intellectual property (IP) portfolio. It was the first systematic analysis of a portfolio of therapeutics companies that has licensed IP from one specific academic institution.

Their research suggests that MIT licensees may have been more innovative than the industry average, and that academic IP can contribute critically to a company’s success. “The link between academic IP and drug approvals isn’t a straight line, and our analysis doesn’t capture all aspects of MIT’s contributions to therapeutic innovation. But with examples like Alnylam, bluebird bio, Editas Medicine, and Sangamo—all companies that have licensed MIT IP—it’s clear that MIT is creating innovative therapeutics on a regular basis,” Lo says.

In 2019, in a pair of studies co-authored with MIT research affiliates Kien Wei Siah, SM ’17, PhD ’21, and Chi Heem Wong, SM ’17, PhD ’21, Lo highlights the role of data science and machine learning in improving the efficiency of the clinical development process, specifically filling in the gaps around missing values to develop more accurate predictions about the outcomes as well as estimates of clinical trial success rates. He notes that “more accurate risk metrics will eventually lead to fewer big failures, faster approval times, greater cost savings to the entire healthcare system, and more investment capital for developing breakthrough therapies.”

Ultimately, Lo’s goal is to help address the bottlenecks in how new therapies get developed and accelerate biomedical innovation through better financing. As he said in the seminar, “The more financing that comes into the industry, the faster the scientific progress we’re going to make will be.”