The Genentech legacy: Healthcare’s innovation challenge
- Healthcare in the US is highly regulated and politically sensitive, but it’s economically significant: Nearly 1 in 5 American dollars spent go to the sector.
- The amount of money involved and the field’s complexity present plenty of opportunities for problem-solving and tech advancements, but startups targeting this industry have a lot less room for error.
- Despite the challenges, implementing healthcare solutions can be rewarding — both personally and professionally. Industry pioneer Genentech is a good example: after creating oncology drugs that saved countless lives, it was acquired by Roche for $46.8 billion.
In 1975, unemployed 29-year-old venture capitalist Bob Swanson cold-called biochemist Herb Boyer for insight on the emerging field of gene editing.
Boyer offered 10 minutes at a bar near the campus of University of California-San Francisco, where he was an assistant professor.That meeting led to the pair cofounding Genentech, the iconic biotechnology firm that is credited for creating the industry and setting the standard for commercialized research, growth-obsessed venture capital and healthcare spinouts.
Nearly 50 years later, the Swanson-Boyer meeting is Silicon Valley lore not because it started a trend, but because it remains so unusual.
As important and economically expansive as healthcare is, its reputation for innovation is mixed. Of the so-called “Magnificent Seven” tech firms that have dominated public markets in recent years, none compete primarily in the industry that accounts for nearly a fifth of US gross domestic product.
“The healthcare sector is highly regulated and political,” said Chris Cera. He’s CEO of software development firm Arcweb Technologies, which has developed a speciality in the arcane and sensitive arena of healthcare products.
The firm went remote during the pandemic, though Cera lives in Philadelphia, where he developed a reputation and network for bringing modern approaches to old systems. Cera, who cut his teeth in the pharmaceutical industry, would like to see a lot more examples like Genentech, still an icon of pairing business with practitioner.
Why focus on healthcare products and spinouts?
Healthcare, which can include everything from hospitals and insurance to drug makers, has lots of problems worth solving. All that consumed nearly 18% of the US GDP in 2023.
For years, though, that complexity scared away investors and broad entrepreneurship circles, benefiting incumbents. Healthcare became one of the most consolidated industries in the American economy, where just a handful of the largest providers capture almost 90% of total spending.
Plenty are trying to do something about. Last month, Pittsburgh accelerator AlphaLab Health announced a $10 million revolving investment fund focused on life sciences — one of the most active corners of commercialized science. Maryland stakeholders are working to speed the connection between health research and implementation in the healthtech market. In Philadelphia, the University City Science Center is importing health entrepreneurs, and boosters cheer its successes, from the reported $430 million that the Children’s Hospital of Pennsylvania earned from its stake in spinout Spark Therapeutics to Penn startups like Oncora Medical and Bainbridge Health.
“You might need a million dollars to bring something to market in this space,” said Cera, of Arcweb. “There’s less room for error than in other industries, but we need to solve problems here because it is just so important and impacts everyone’s daily life.”
Bad science and bad information kill people every day.Chris Cera Arcweb
Earlier this month I took a call with a life sciences booster who berated me for Technical.ly not reporting enough on the examples of universities, health systems and other institutional giants increasing their product releases and company spinouts.
For decades, software has been synonymous with technology. That era is closing, with robotics, semiconductors and biology reasserting themselves — but healthcare spans those and is enough of an innovation laggard that it still needs software solutions. Hence its emerging focus for the disruptor class.
Cera has made a career being part of teams that bring healthcare ideas to market. Entrepreneurs and investors hope for juicy financial returns.
The work also feels more important than in other industries, he said: “Bad science and bad information kill people every day.”
How do healthcare innovations go from lab to market?
Two broad ways healthcare innovations arise: new research and old problems.
Genentech was founded on emerging science that Boyer had helped develop as an assistant professor. Before Spark Therapeutics sold for $4.8 billion, its core innovation was identified as financially viable by cofounder Jeff Marrazzo when he was a consultant stationed at a hospital. In these cases, new research was transferred to a newly-formed private company that went to market.
The other big pathway is when industry insiders spot an existing problem that can be solved. This is where Cera’s Arcweb has specialized.
In 2021, after prominent health data leaks, the CARIN Alliance, a patient advocacy group, hired Arcweb to release a “UX Guide,” detailing best practices for consumer app developers that handle patient information. It’s one of 200 Arcweb projects across 100 clients Cera cites as an example of the efficiencies and protections software can offer healthcare.
Software is less invasive than medical devices, but big healthcare institutions have still been slow to modernize their tech stacks.
“Conservative lawyers at large companies have almost no incentive to approve software tools,” Cera explained, “which makes innovation difficult.”
Hence the popularity of taking ideas into new startup ventures. What advice does Cera have for first-time healthcare entrepreneurs?
“This can be complex, [as you’re] dealing with family, friends, and doubters who tell you to keep your job,” he said. “Spinning out as fast as possible is generally a good strategy.”
Back in 2009, Swiss healthcare conglomerate Roche acquired Genentech for $46.8 billion. Its blockbuster oncology drugs have saved lives, and made a lot of people lots of money. Few healthcare innovations have generations-long business legacies. Most intend to make lasting good.
“Healthcare is quite a bit harder than other sectors. You can’t just bulldoze your way into these companies; it requires a well thought out, coordinated plan,” Cera said. “But you can have an impact here like nowhere else.”
