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Where Are Biotech's Billionaires?

R. J. Kirk

You can become a billionaire by writing software, but not by treating cancer.

Medicines change our world, preventing heart attacks, easing mental illness, and prolonging the lives of cancer patients. But according to Forbes’ annual lists of the World’s Billionaires and the 400 Richest Americans, they don’t create billion-dollar fortunes.

On the 400, which was released last fall, I could only find three men who became rich by spearheading the development and marketing of a new drug:

  • The richest is Patrick Soon-Shiong, worth $5.2 billion, who made much of his wealth from a hospital generics business but also invented a drug called Abraxane; he sold the company that made it to biotech giant Celgene last year for $2.9 billion last year.
  • Randal J. Kirk, worth $2.2 billion, made his fortune by running and then selling off two makers of psychiatric drugs, New River Pharmaceuticals (attention deficit disorder) and Clinical Data (Vyvanse, for depression.)
  • Michael Jaharis, worth $1.9 billion, launched a company called Kos Pharmaceuticals in 1988 that developed a prescription version of the B vitamin niacin, to raise good cholesterol. It was sold to Abbott Laboratories in 2006 for $4.6 billion.

If we go into the deeper pool of the billionaires list, which includes 1210 people with fortunes of over $1 billion, there still aren’t many candidates. There’s Ernesto Berteralli, who inherited Swiss drug maker Serono and helped build it into Germany’s biggest biotech. He’s the richest health care-related billionaire, with a $10 billion fortune.Curt Englehorn accomplished a similar feat with Boeringher Manheim, sold to Roche in 1997. But I can’t find any other candidates. Again, it looks like inventing drugs is fantastically unlikely to make you rich.

Part of the reason is that health care in general is a pretty bad choice of a sector if you want to make a mega-fortune. Only 14 of the 400, or 3.5%, get their money from health care or medicine. On the 1210-person billionaires list, about 60, or 5%, made their money in health care. That compares to 90 billionaires from the tech industry, 80 from finance, and 140 who make their money from investments. (All that data is available by using our lists — and counting.)

Bertarelli, the top dog among health care billionaires, rates only 81st on the full list list. There are four technology billionaires and nine who made their money through investments who are richer than anybody who made their fortune in the health care field.

Yet even in the general area of health care, drug development doesn’t do well. Many people have made billion-dollar fortunes through the pharmaceutical business. But they have done it largely with generic drugs, or with drug whole sale. There are also several, like Alfred Mann and Gary Michelson, who made their fortunes in medical devices.

I emailed Randal Kirk to ask him why there were so few medicine-making billies. Was it that Forbes was missing people? (There have been enough private deals in biotech with undisclosed sums that this seems possible, but the beneficiaries would be at the low end of our lists.) Do researchers in biotech lack financial acumen?

Kirk dismissed those possibilities out of hand, and told me to ask the question differently. What do he, Jaharis, and Soon-Shiong have in common?

Kirk writes:

I think it is this: Each has largely devoted himself (and his capital) to one or only a very few highly concentrated positions in companies that they developed over years of effort. In my own case, I bought my first share of Clinical Data in 1999 and kept investing in the company through 2009. Similarly, New River Pharmaceuticals was founded by me in 1996 (IPO’d in 2004 and sold to Shire in 2007). In New River’s IPO not only did I not sell shares but was the second largest purchaser of shares that were then sold.

So why may that be a winning strategy? Aside from the more obvious advantages that naturally may flow from an intensely interested, dedicated and (I would like to think) capable shareholder, the length of the holding periods to which I refer may actually have been required in biotech because the product development cycle times have been so long.

This in itself shows why biotech hasn’t produced a Bill Gates, a Sergey Brin, or a Mark Zuckerberg. All of those men were able to make their fortunes by deploying their technical expertise quickly, with low barriers to entry. They might have needed outside investors, but they did not have to give up their controlling stakes. They made the right bet, and they got rich.

In biotech, by contrast, investors have to make the right bet and stick with it for years. Making matters worse, not only are the time frames of drug development measured in years or decades, the cost can be extremely high. A cheap drug development program can cost $50 million; an expensive one, for a heart drug, for instance, might cost well more than $1 billion. Most inventors who manage to invent a new drug and hold on to some interest in it cash out before the medicine gets to market or end up so diluted that they don’t make that much money. An odd result of this is that the men who have become billionaires by developing medicines have done so based on drugs that wouldn’t make anybody’s short list of the most important or best-selling medicines.

At the end of the day, though, this is bad for medicine. Inventing a new drug should be the kind of thing that makes you incredibly rich. The fact that it doesn’t is a misplaced incentive. Why shouldn’t inventing a drug that prevents heart attacks make you as rich as creating Facebook? The whole reason drugs cost so much is not to pay back drug company research costs, as people like to say, but to create a giant prize, like a lottery jackpot, that will get companies to pay what it takes to win. This would work better if individuals, not just mega-corporations, could get in on the lucre.

And it’s not impossible to imagine that, in the future, biotech innovators could hold on to a bigger share of their inventions. The global pharmaceutical industry is shedding research jobs by the thousands, and the number of new medicines reaching the market ahs been stuck in a rut even as the amount of sales a new drug can generate have dropped. But new science and new, more virtual approaches to creating biotech companies might change this. As we think about how to invent medicines – and we should think about it, because otherwise we may stop inventing new drugs entirely – we should consider how to make innovators incredibly, dramatically, stunningly wealthy.

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  • pjmccann3 pjmccann3 3 years ago

    It could also be a matter of market size. According to your 10.30.08 article, somewhere between 11 and 30 million people take statins…the most highly prescribed drug. Compared this to 500+ million Facebook and MS Office users, 100+ million linked in users, etc. and you get a pretty big difference in scale. Now divide that by the number of players in each market, pharma being highly fragmented, and you’ll start to see that part of the problem is at least related to share. The other part is that people prefer to be entertained rather than healthy.

  • Matthew Herper Matthew Herper, Forbes Staff 3 years ago

    True, but the market for Lipitor — a single statin — is as big in dollars as Hollywood’s annual box office take and bigger than the annual revenues of major league baseball. I still think there’s no reason that the drug industry couldn’t be creating jackpot winners at least as fast as, say, financial services.

  • medicalquack medicalquack 3 years ago

    Speaking of computers and drugs, Bill Gates did invest in a company that uses software to help develop drugs, lot of work done on research ever before a lab is opened up with software.


    Gary Michelson did it the old fashion way with a lawsuit and rightly so for patent infringements. I like what he has done with his animal organization too with hanging out a 65 million dollar bounty for researchers that could figure out a way to sterilize cats and dogs. That was a couple years ago, the day after the publicity stunt of an X-prize from Blue Cross with a 10 million dollar bounty for solving healthcare. Animals-65M, humans-10 M. Has it gone to the dogs?

    by comparison when we need the life saving research for new drugs, all we get today with over inflated values are more social network algorithms that would not stand to save my life like a drug or device could, go figure. Maybe we all need some rethinking on our priorities?

  • keithrobison keithrobison 3 years ago

    Another way to re-ask the question is “Why didn’t anyone hit these kind of numbers with major biotech success stories?”. I.e., why didn’t Amgen, Genentech, Genzyme, Celgene, etc. produce billionaires (what will Henri Termeer be worth after Genzyme is slurped?)

    Along the lines of what you have suggested, a lot of very promising biotechs are bought by big pharma before they can really explode — management is willing to sell now rather than risk waiting to go for the big payoff. Genetics Institute, Centocor, Millennium, Sugen, etc. On the other hand, perhaps only the big pharma could really drive the products created by these companies into the big time.

  • Matthew Herper Matthew Herper, Forbes Staff 3 years ago

    Termeer could receive as much as $221 million from the Genzyme buyout, a lot of it from his shares and options. According to our best-paid CEO list, his five-year pay was $75 million. Really wealthy, but doesn’t look like he’d make billionaire.

  • David Whelan David Whelan, Contributor 3 years ago

    Phillip Frost should be added to your list

  • Matthew Herper Matthew Herper, Forbes Staff 3 years ago

    Isn’t Frost’s wealth largely from Ivax, which falls under my “you can make money from generics” umbrella?

    (Soon-Shiong made a lot of his fortune from generics, too, but he did invent Abraxane himself and it alone delivered a lot of wealth with the sale of Abraxis to Celgene.)

    The generic drugs business looks like the best way to build up wealth in healthcare, because you can start small and it can be self-funding.

  • biotechvictim biotechvictim 3 years ago

    Good article, Mr. Harper!
    To me, the answer is clear-it is the fact that biotech is essentially a heavily regulated industry. FDA makes the whole process to take 10 years or more. Do you think Jobs or Zuckerberg could have succeeded if they had to wait 10 years? Of course, not.

    In fact, FDA makes former billionaires (Al Mann) millionaires since he used at least a billion of his fortune on MNKD, which stock is now at around 25% of its IPO price.

    I am now convinced that biotech investment is for people who wants to lose their money (on average). It is simply not worth it at the moment.

  • venturetech venturetech 3 years ago

    Interesting and much needed article. However, from running a productive academic research lab and establishing a start up, there are several issues at work here. First, the ability to freely innovate is difficult, believe it or not. Truly new drugs require new IP, of which NIH and pharma grants largely finance. Given the current financial crisis, NIH funding levels are ridiculously low and funds may go to ideas that are very far away from clinical translation (or even understanding). Proposals with more immediate relevance are often not viewed as innovative. Conversely, pharma is equally challenging as they want evidence of ‘reality’ rather than ‘hype’. Thus there is a chiasm that needs to be bridged. Second, this kind of discovery isn’t cheap and requires validation at multiple stages thus the reason why VC and angels (and eventually pharma) end up owning the llons share unless the inventor sticks to their guns over the long hall as you clearly illustrate in your piece. Third, there is the nagging problem of approval by the FDA. The FDA has a nasty reputation for cutting the legs out from good drugs that are often cleared in the EU and Asia. Real change is needed at this level. Lastly, as I have recently experienced with an app start-up company, its much easier and faster to write a bunch of code throw it on the web (or store) and get feedback on whats good or bad and create the next version. This doesn’t really mess with anyones lives too much and yes, it provides a lot of entertainment. So this will likely remain a mainstay for financial growth. I sincerely agree with your article and hope that novel incentives develop to reward drug discovery. But, given that pharma and biotech are seriously on the ropes (for various reasons), I’ll keep the hatches locked down and get back to experiments in the lab. Maybe I’ll have even more IP ready once the storm has cleared.

  • alokito alokito 3 years ago

    A lot of biotechs are based off of research in universities. If the university and a VC firm both have a stake in the company out of the gate, I wouldn’t be surprised if the founder(s) were left with a plurality or less. And that’s only the first round, you’re years away from real revenue and profitability. Biotech is very capital intensive, both for the research and the IP. Generally you can’t bootstrap the way a web startup can, and you can’t avoid many rounds of funding.