Metabio: Startup failure or Smart Disinvestment?

Startups

Dec 31

The other day, I devoured the New York Times opinion piece “Pfizer stopped us from getting Ozempic decades ago” (1) alongside the related Jeffrey Flier’s paper documenting his failed startup journey. They painted a picture blaming Big Pharma for delaying the discovery of game-changing GLP-1 drugs like Ozempic or Wegovy, which are now all the craze in 2024. These drugs are not just diabetes treatments, they can foster significant weight loss (over 15% of body weight), they could potentially offer benefits against addiction, Alzheimer’s and even Parkinson’s. Yet, the more I read, the more I found myself questioning this narrative through the lens of the startup trifecta framework and through the lens of decision-making theory.

At its heart, this is the story of Metabio, a rare documented case of a startup failure story without a silver lining. In 1988, they discovered the potential of GLP-1 drugs for diabetes treatment and maybe weight loss. They secured support from two partners, Calbio and Pfizer, who provided capital and expertise. But soon, Pfizer pulled the plug early during the first 5 years in the development phase and Metabio could not continue its research, eventually closing in 1992. Jeffrey Flier, one of the cofounders of Metabio insists that this disinvestment is a strategic error by Pfizer. But is it really?

Let’s first take our forensic startup glasses and examine the startup trifecta: (1) the right team, (2) the right market and (3) the right partners. Then, we’ll analyze the decision-making criteria that likely influenced Pfizer’s choice.

Hindsights from the startup trifecta

Was it the right team for the job?

To answer that question, 3 elements are salient in this case and they are under the control of the team and its founders: the technical strength of the team, their commitment to the project and the capacity to deliver the product.

Technical strength: The team was technically strong: they the potential of GLP-1 drugs, and secured the exclusive worldwide licensing of patent for GLP-1 as a diabetes therapy.

Founders commitment: None of the three founders was willing to leave academia showing that they were not fully committed to the startup. A weakness.

Capacity to deliver: The team quickly discovered that the human GLP-1 had a very short half-life of only a few minutes, meaning that the drug was not effective in the body, which was a huge hurdle to developing a commercial product for alternative therapies. The team tried but failed to develop solutions that would deliver the drug through the nose or through the skin instead of by injection. Did the team have what it takes to get the product to the next stage of development?

If the strategic intent was to deliver a commercial product that would not require injection, then, this was probably not the right team.
If the strategic intent was to deliver a commercial product that would be more effective than existing diabetes treatments by injection, then, maybe it was the right team.

Was the market ready for that product?

The market readiness is outside of the control of the founders and its team. It defines the constraint in which the company operates. The team must be able to read the market and adapt to it and pivot if necessary and if possible.

By the late 1980s, Big Pharma hunted for blockbuster drugs - ones that deliver annual sales over $1bn. This quest placed outsized expectations on any drug development effort. The insulin market, worth less than $2bn in 1995, probably did not seem like an obvious candidate for blockbuster sales - though it would later grow tenfold to $20bn by 2020.

The early 80s had seen a significant development in the insulin drug industry with the technological advancement of biosynthetic insulin that resolved the fear of supply shortage of insulin from animal origin. It was also cheaper to produce. Pharma had an effective treatment against diabetes, they had resolved their supply problem and now they were focused on finding alternative treatments through a different delivery (oral, nasal, cutaneous), or more effective (better glucose control, more flexibility in timing). While Metabio was still searching for an alternative treatment, it retreated to focus on injectable delivery.

Meanwhile, the HIV pandemic was high on everyone’s mind, and it was a big driver of major R&D investment across the pharmaceutical industry, which probably created a competition for R&D resources with other treatments like diabetes. Timing is everything.

Did they have the right partners?

This question is about the strategic alignment and the complementarity gained through the partnership. The Metabio story tells the tale of what seemingly started like perfect partnerships but later unraveled like loose threads due to strategic misalignment. Eventually, Pfizer wanted non-injectable diabetes treatments, probably viewing another injectable as unlikely to achieve blockbuster status. Calbio, focused on their heart failure treatment Natrecor, and saw little reason to continue after Pfizer's exit. Eventually, Metabio's injectable-focused strategy clashed with their partners' priorities.

A smart disinvestment decision for Pfizer?

Here is where it gets interesting: the drug development is a high stake betting game. This requires excellent decision-making criteria to survive. Pfizer was created in 1849, they have been in business for 175 year now at the time of writing this post. Bearing in mind that the longevity of a company in the S&P 500 has dwindled to less than 20 year (4), they must be doing something right in their investment decision-making… and knowing when to quit is key.

Let’s try a theoretical example with made up assumptions. With five development stages (e.g.: proof of concepts, several clinical trials, FDA approval) each having 50% success probability, the overall odds are a mere 3.1%. For a $30 million upfront investment without additional further investment, you would need a high market confidence that the drug could achieve blockbuster sale status above $1bn after 15 years of development to simply recoup your investment over a 25 year period with a zero NPV using 15% IRR and assuming only 10 years of exclusive commercialization. Given the strategic misalignment, the size of the insulin market at that time, this specific opportunity probably did not scream like the right one to recoup Pfizer’s investment. Meanwhile, Pfizer was advancing several future blockbusters like Zoloft (antidepressant), Norvasc (hypertension) and Zithromax (antibiotic) and it may have seemed a sounder decision to prioritize these investments instead of sinking funds into the Metabio opportunity. Sometimes knowing when to fold is as important as knowing when to hold.

See a brief evaluation of Pfizer’s investment decision in this micro case study.

Could have Ozempic arrived earlier on market if Pfizer had made a different decision?

The truth is more nuanced of course. About when Pfizer was disinvesting from Metabio’s GLP-1 research, another scientist, John Eng discovered in 1990 in the venom of the Gila lizard a molecule, now called exendin-4, that was similar but more stable than the human GLP-1 that central to Metabio’s research (5)(6). After development of synthetic versions of the molecule, they developed exenatide that was eventually FDA approved in 2005 after 15 years of development, and commercialized under the name Byetta. It turned out to be the key to developing effective GLP-1 drugs. What’s more, this version of the drug only requires weekly injections, not daily injections.

Insights

This story teaches two timeless business lessons wrapped in a serendipity of nature observation.

First, the startup trifecta framework (the right team, the right market, the right partners) highlights how promising technologies, can still fail when the trifecta fails. Success is not just about the product and the value proposition, it’s about the team’s ability to deliver, to adapt to the market signals and to navigate partnerships.

Second, good decision making means knowing when to quit and not judging decisions solely by outcomes. It’s a calculated decision with a bet. A good decision doesn’t guarantee winning and winning does not validate a poor decision, just like in poker. For sure, it would have been a great outcome if Pfizer’s investment in Metabio had enabled them to be in the GLP-1 race today, but maybe that specific opportunity was not the right one for them given the team, the market readiness, and the strategic misalignment between partners.

Bonus: Nature’s solution all along

When digging into the stories of Ozempic and Metabio, I was struck by the power of biodiversity and serendipity. The Gila monster, can survive long period without eating because of its slow metabolism. Who would have thought that the venomous saliva of a lizard would turn out to be the key to developing more effective diabetes and weight loss treatment? It should remind us that preserving and studying the biodiversity on earth is not just a wishful idealistic aspiration, it is a necessity. Nature has already figured it out, and we should continue to get inspired by it.

Resources

(1) Pfizer stopped us from getting Ozempic decades ago, December 25, 2024. https://www.nytimes.com/2024/12/25/opinion/ozempic-weight-loss-pfizer-diabetes.html?searchResultPosition=2

(2) Drug Development Failure: How GLP-1 Development was abandoned in 1990. Jeffrey S. Flier. Johns Hopkins University Press. Summer 2024. https://muse.jhu.edu/article/936213

(3) The insulin market reaches 100 https://pmc.ncbi.nlm.nih.gov/articles/PMC8915140/

(4) McKinsey on Finance, December 2023 The https://www.mckinsey.com/~/media/mckinsey/business%20functions/strategy%20and%20corporate%20finance/our%20insights/mckinsey%20on%20finance%20number%2084/mckinsey-on-finance-number-84.pdf

(5) The rise of Ozempic: how surprise discoveries and lizard venom led to a new class of weight-loss drugs. April 2024. https://theconversation.com/the-rise-of-ozempic-how-surprise-discoveries-and-lizard-venom-led-to-a-new-class-of-weight-loss-drugs-219721

(6) How a Canadian scientist and a venomous lizard helped pave the way for Ozempic . June 28, 2023. Global News Canada

https://globalnews.ca/news/9793403/ozempic-canada-scientist-venomous-lizard-weight-loss/