I have heard it said “History doesn’t repeat, but it rhymes.” As we enter a period of great flux and change in the pharmaceutical industry, can we observe any lessons from the past that at least provide some harmony to the decisions we are making today?

The origins of the modern pharmaceutical industry are very much founded on a similar entrepreneurial spirit that drives the current blossoming of new biotech companies. Visionaries like Charles Pfizer and Eli Lilly, leveraging mostly their own resources rather than venture capital, created an industry that truly changed the course of history. In the 19th century they had the luxury of rather longer timelines and different expectations of income growth, but these men took often quite humble technologies such as a better capsule maker and turned their companies into drug discovery power houses. Over the first 100 years these companies generally poured their profits back into R&D, identifying and developing compounds discovered by their own scientists. Of course there were some notable exceptions (such as the partnership that brought insulin to market) but the usual model was a go-it-alone approach to drug development.

Forty years ago developments in the academic world began to change this dynamic. The invention of the techniques of recombinant biology made it possible to cheaply turn natural proteins into drugs. The 1980s saw the first blossoming of these new biotech companies, and initially old pharma had a good collaborative relationship with the new biotechs. Whether through partnerships or occassionaly through acquisitions, big pharma was ready to join with biotechs to help bring their discoveries to market.

This changed in the 1990s when, with a slate of new drugs targeting large medical needs, pharma brought in unprecedented revenues. They used new molecular understanding of drug targets and combinatorial chemistry to massively industrialize the drug discovery process. But a consequence of this huge investment into internal R&D was to make it much harder for external drug discoverers to get lucrative partnerships. Though deals were done, it was very much a buyer’s market and one where big pharma often exhibited the NIH (Not Invented Here) syndrome.

But a funny thing happened in the first decade of the 21st century. All the billions invested by big pharma did not bear the expected fruit. As their blockbusters went off patent, the global drug companies became increasingly desperate for innovative drugs regardless of the source. Sometimes, in an effort to conserve resources, they even licensed their own programs to external startups, hoping that someone else’s investment could generate a de-risked asset they could add to their portfolio closer to launch. A buyer’s market very much became a seller’s market.

How do these history lessons inform our approach today? In many ways, the melody is still the same. Drug discovery still is an entrepreneurial enterprise. However, big pharma is shifting its business model, focusing resources on late stage clinical development and marketing while looking externally for innovative drugs to fill the pipeline. To feed big pharma’s appetite for new drugs, a new generation of entrepreneurs has stepped up, backed not only by VCs but also by Angel investors and other funding sources. In the past, VCs sought out investment opportunities, screening hundreds of proposals from independent entrepreneurs to find a potential breakthrough opportunity. Today, seeking to improve their chances for success, VCs increasingly are following two other models to fund starups. Several funds have assembled internal teams, reviewing diseases, mechansisms and modalities in consultation with experts to identify opportunities that they found themselves, often within internal incubators. These startups are frequently set up in partnership with big pharma, with an acquisition by the investing pharma sometimes baked into the business plan. Alternatively, syndicates are being assembled to create companies de novo with huge startup resources of hundreds of millions of dollars. Rather than using those sums to build multiple startups exploring a spectrum of diseases and treatments, they aim to create companies with the critical mass necessary to hopefully guarantee success with the technology upon which they are founded.

These two strategies: internal incubation or huge startup seeds have created an unexpected sense of déjà vu. With the large investments VCs are making into startups of their own creation, they risk playing the old tune that burdened pharma in the 1990s. Having invested in incubating their own ideas, VCs may be harder to convince that an investment in an external idea is worth it, a sort of new-era NIH syndrome. I think we are already seeing some evidence of this, with the focus on new investment in a very small number of geographical areas. If it wasn’t discovered in Boston, or at least willing to move to Boston, is it worth investing in?

It remains to be seen how the next stanza of the drug discovery epic poem will be written. Here’s hoping that old traps are avoided and contributions from any source of innovation continue to have a chance to join the chorus.