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Big Pharmas Are Dinosaurs 
May 7, 2002 | He's for patenting genes. Big pharmas, he thinks, are dinosaurs, edging toward the same precipice where mainframe companies
 Not much escapes Nathan Myhrvold's predatory intellect. His company, Intellectual Ventures, is on the prowl for more good ideas.
stood 25 years ago. The good news is Nathan Myhrvold mixes his contrariness with a healthy dose of optimism about genomics and proteomics. One thing he knows for certain is that the rules of drug discovery and commercialization are changing. Why does Myhrvold matter? He spent 14 years at Microsoft Corp. after he and his brother, Cameron, sold their company Dynamical Systems along with their advanced operating system Mondraian to Microsoft in 1986. His profile blossomed as head of Microsoft Research, but perhaps more importantly, he had the ear of Bill Gates, who once confided Myhrvold was one of the people he enjoyed conversing with the most. But what's a Princeton-educated mathematician, UCLA-trained physicist, gourmet chef, and paleontologist doing in biotech? Well, he's already cashed in on his investment in Rosetta Inpharmatics, which was just sold to Merck & Co. Now he runs Intellectual Ventures, which he's loathe to cast as a VC firm despite its name. The difference is it will fund his ideas rather than those of others.

Q: Eric Lander (at the Whitehead Institute) recently told me Nathan Myhrvold knows something about biotech and no interview has gotten to it yet. What do you know?
A: I'm excited about biotech in the way I was excited about the PC industry [in the late '70s]. My analogy is that biotech is in the same stage when Intel shipped the first microprocessor in 1971 (whose power and sales grew explosively, resulting in what Myhrvold calls an exponential economy) or the period when the Z80 microprocessor came out in 1975. Extrapolate that forward to a computer on every desk. First comes the rate of progress in many fundamental areas such as sequencing. In this case, the fundamental work is understanding the nature of the human body and diseases.

All of those things are growing at an incredible rate. How many people have been cured? Not many, but the drugs out there are not even the tip of the iceberg. All the early indicators are extremely positive.

Q: Why now?
A: Think about medicine as a product. It's not a very good product. There are a tremendous number of diseases that kill a lot of people because there is no adequate treatment. There is no treatment for most of the things that kill us. It's quite possible to envision treatments coming for untreatable diseases.

Antibiotics and public health dramatically changed human life expectancy during a 50-year period that peaked by the '30s. You needed a combination of public health, vaccinations, antibiotics, clean water and adequate sewerage. Polio was beaten back. Huge strides were made with malaria.

Since that time, there has been gradual improvement, but not another big leap. I think we're going to see in the next 20 years an enormous leap in the life span from biotech-originated therapies. Some will be drugs. Some will be related to diagnostics and knowing who needs to have certain types of treatments. There is a giant opportunity for social good and the economy.

Q: Are you in it for the money, the excitement, or the social contribution?
A: Some combination of excitement and social contribution. If those things happen, certainly there will be some money made. Money is not my key issue. Companies are going to need lots of capital. It does not happen for free. Look at how much capital is tied up in IT. It's a trillion dollars or more. It will take 20 years to create that much new value in biotech and bioinformatics. It won't happen instantly.

Q: There's been a lot of turmoil between big pharmas and small companies, some of which are struggling. What's going on and what role does Wall Street play?
A: If we rolled the clock back in the PC industry, you could look at how VisiCorp (known for marketing VisiCalc, the first spreadsheet) and Software Arts (which developed VisiCalc) destroyed themselves by having their relationship fall apart. There are bumps in the road. At the same time, you can't ignore Wall Street but [investors] should not throw out the baby with the bath water.

Q: What does the future hold for Big Pharma?
A: The drug business is still dominated by vertically integrated companies, most of which are more than 100 years old and whose roots were in the chemical [business]. They've had a similar business model [all this time]. Some will find a way to become reinvigorated, but in the long run, the 10 top companies in health care will be young.

The big pharmas today are like mainframe companies 20 years ago. Mainframes went from the center to a funny little niche. The mainstream market is about PCs. That was a radical shift.

Q: How will this go down in biotech?
A: Just over half of the drugs in clinical trials today were developed by biotech firms, not big pharmas. There were only a few just a few years ago. Then it's going to be 90 percent and then 98 percent. As this occurs, the center of gravity will shift. That's why you find so many of the big companies reaching out to the smaller ones. The most effective thing for Big Pharma is to work in partnerships.

Q: What specifically is the strategy of Intellectual Ventures (IV) with respect to biotech, and will you target certain segments? (The only companies IV will publicly say it has funded are a software company named OpenDesign Inc. and Rosetta.)
A: It's hard to know the exact moves. We're looking at a variety, and we kick the tires. The good news is the stuff I used to do is hugely relevant. Computers are the most important tool going forward. The primary reason the genome is sequenced today is that they have the computational power.

We're still figuring out what the right approach is. We talk to lots of people. It's a work in progress. It's a little like seeing the revolution. I'm mostly interested in what interests me and looking at how a combination of technology and strategy are going to create revolutionary things. The luxury is I don't have to jump in early to have something to do or make a living. (Myhrvold won't divulge his net worth, but a spokeswoman recalls he once made the Forbes billionaires list. A Web search of the list did not turn up his name.)

Q: Can you mention any specific companies?
A: I don't get into that. Rosetta was certainly a financial success. I don't know if it made the right decision in being acquired. I'm not saying it was bad, but now their future is tied up in Merck rather than being a pure play in biotech.

Q: What are the qualities you look for in an aspiring biotech company?
A: Ultimately it comes from the quality of the people. One thing that is a bit unusual about me is my long term view is quite contrarian (sic). The current wisdom is that the only way you make money is by owning a drug. I was on a panel recently and [a question was] is there any hope for biotech tools companies? Most said no or maybe.

People in the audience laughed, but I wasn't laughing. If you have a patent on a small molecule drug for a major disease, it's a fantastic way to make money. If someone gave me one tomorrow, God bless them, but it's not the only way to make money.

Q: What about Celera Genomics, which has been moving away from the tools and information business into drug discovery like everyone else?
A: When you get down to any specific company, there's always a bunch of issues you've got to deal with. Go back to [Adam] Osborne, the guy who went broke building the first portable computers. Oh my God, portable computers are a bad idea. Compaq got its start building portable computers. Osborne self-destructed for other reasons.

Because Celera has not made it in tools doesn't mean no one can make it tools. That's the wrong conclusion. It sold sequence data that the world understood it would get for free. I never understood its strategy.

Q: What are the barriers that will slow this market down?
A: Some of the barriers are political, economic, and scientific. If we look at [the technology], I'm very encouraged.

I don't want to single out any one thing except the role of the computer. Without databases and computer-processing capability, many of the things people are doing would not be conceivable. Bioinformatics is a universal tool.

Virtually, all progress going forward is going to benefit from that tool. You need an infrastructure to make those ideas real. Computers helped build the next generation of computers. That is increasingly their place in biology.

Q: Will gene patents hinder or help the industry?
A: Drug patents are good because they motivate someone to spend $500 million getting the drug approved. You find the gene and you find its purpose. Patenting that gene seems just as reasonable to me as owning a drug patent. It's called capitalism.

Why, you might ask, does Pfizer get a royalty [for making it possible for] all men to get an erection? Those are the rules of law in a developed country. The notion that you can get a patent is longstanding and well-supported. Without patents, who would come with all the money to do the research?

Q: Companies such as IBM, Compaq, Hewlett Packard, and Oracle are falling all over themselves to articulate a unique life science strategy. How come Microsoft, your former employer, doesn't have one? (Microsoft CEO Steve Ballmer has said maybe it needs one now.)
A: Microsoft traditionally has not entered niches even if they are important. Microsoft has left CAD tools to Autodesk, which specialize in it. Microsoft has no specialized tools for engineers. Given its historical profile, Microsoft has not gone into that type of market.

These other companies' products appeal directly to life sciences in a unique way.

Q: With these new drugs, will there be haves and have-nots that were envisioned with the information superhighway?
A: A lot of the haves and have-nots on the Internet are wildly overblown. Any time you have brand-new technology, it takes time for

Just over half of the drugs in clinical trials today were developed by biotech firms, not big pharmas. Then it's going to be 90 percent and then 98 percent. As this occurs, the center of gravity will shift. That's why you find so many of the big companies reaching out to the smaller ones.
it to roll out. The Internet is not perfect, but it has penetrated across income groups faster than any other technology we've come across. When people complain about a digital divide, I think a lot of it is overblown.

Nothing will ever happen instantaneously, but it's not so much a divide between rich and poor. The issue of getting broadband to large number of people isn't economic.

When it comes to medicine, there will be a delay between the first idea to getting behind the idea, to FDA approval, to everybody getting it. Some of that is economic. It's possible to whine about this, but that's a waste of energy. The thing we need to do is develop cures in the first place. It's a little premature to worry about access to a cure that doesn't exist yet.

John Dodge, Bio·IT World's executive editor of IT, recently spoke with the voluble Myhrvold to find out why he is so high on biotech.

Horizons is a new section debuting this month in BiooIT World. Horizons will offer an eclectic collection of stories, profiles, commentaries, and conversations that paints a broad canvas of thoughts, trends, and technologies that are poised to define the bio-IT landscape.

For reprints and/or copyright permission, please contact Angela Parsons, 781.972.5467.