Derek B. Lowe, Contributing Editor10.14.14
Predictions are hard. No, wait, let me amend that: useful predictions are hard. Just spouting off about what you think will happen though, that’s easy. I do it all the time myself. Some people make a pretty good living at it. But I think I may have a technique that could improve my accuracy.
Take a look at the last twenty years or so in drug discovery. Having lived and worked through them, I can think of several trends that took off, became wildly popular, and then subsided. Structure-based drug design, or “rational drug design”, as it used to be called, rather annoyingly, was one. Down with the big, slow, techniques of the big, slow companies and projects: docking could send you right to the active compounds. Combinatorial chemistry was definitely another. I well recall someone trying to convince me that traditional med-chem was in the process of vanishing, to be replaced by nothing except more and more combichem, whose advantages were apparently obvious to the most casual observer.
So to spot these, just remember that we always seem to go too far. It’s a human tendency; we’re built that way. Some of this comes out of conviction, because people absolutely love being right. I know that I do, and my wife can confirm this. And some of it comes out of fear of missing out. To use an example from an entirely different field, audiences for new artworks have long been fearful of being remembered as being like the people who booed the premier of Stravinsky’s Rites of Spring in 1913, or the ones who rolled their eyes at that new-fangled Impressionist paint-daubing stuff. Investors can read stories of people who turned down early opportunities in what later became the Microsofts and Amazons, and shiver at the thought. We don’t want to miss out on the next big thing, so sometimes we stampede toward it a little too enthusiastically. One example is the boom in internet-related stocks around 2000.
Look for the trends that just seem to be arcing off into the sky with no limit in sight, and ask yourself if there can, indeed, be a limit out there somewhere. Very, very few things in this world can actually be pushed this way. Diminishing returns or worse almost always set in eventually, but too often the only way to find out that you’ve gone too far is to, well, go too far. It’s a little less painful if you can instead watch someone else go too far, but then (as just mentioned) you’ll probably worry that you’re missing out on something great, up until the moment that it isn’t quite so great. One of the things that drives excess in the stock market is when more cautious investors finally crack, after watching apparently-clueless people rake in ridiculous amounts of money for what seems to be an impossibly long time.
Psychology is the problem. The analogy to investing in the stock market is an unfortunately close one. All you have to do to be a successful investor, as was pointed out decades ago in Fred Schwed’s, Where Are the Customer’s Yachts?, is to buy a basket of diverse stocks and sit on them. Don’t mess with them, don’t pay any attention. I read recently that one large investment firm found that some of their best-performing accounts turned out to belong to people who’d forgotten that they had an account. Then just wait until everyone is talking about how high the market is going, when stock tips are flying left and right, and sell everything. The market will continue to go higher, he warns, because you probably sold “too soon”, but pay no attention. Sit there and wait, because it will come back down. Wait longer, until everyone feels as if they’ve been burned by the stupid stock market, ripped off by the weasels who sold them all those worthless stocks. Now it’s time to buy. The market will continue to go lower, most likely, because you got back in “too soon”, but pay no attention. You have a few years to wait until everyone goes crazy again, and it’ll be time to sell. This strategy works wonderfully, but it’s also impossible to follow, because it feels as if you’re doing the wrong thing at the wrong time. Everyone loves the market, and you’re getting out?
The same thing applies to ideas, and to ways of doing business. One would have to put outsourcing in this same category. Like the other drug development ideas mentioned earlier, it’s not going away, but it’s something that can be overdone, and probably was. My own guess as to when the outsourcing wave crested was when we started seeing all those stories about one-person virtual companies. Now, the idea of a mostly-virtual company is not a stupid one, and it can work well under the right conditions and in the right phase of a company’s life. But one person? Contracting out absolutely everything? I think this was where things finally hit the reducio ad absurdum level. No doubt some of these are still around, and a few might even be successful. But what are the odds? It’s for sure that we haven’t been seeing a boom in one-person drug development operations, and I haven’t been tempted to strike out on my own as LoweCo. Suggested slogan for the investor roadshow: “How Lowe Will You Go?” Maybe not. If I do anything like that, it might be a good sign that it’s time to head for the exits.
The good part about this process is that the top of the wave has an awful lot of foam in it. Once that subsides a bit, we’re left with the parts that worked, and with people who’ve experienced the parts that didn’t. Those drug discovery techniques I mentioned—computational methods, combichem—didn’t really go away. They just took their places in the list of things that can be tried, when things look appropriate to try them. They fell from their peaks, when the attitude was, “What are you talking about! It’s always appropriate!” But that’s just what has to work its way out of everyone’s brains for real progress to be made.
So, if you look around today, are there any practices that seem to be in the crazy phase? At the moment, I don’t see the gleam of fanaticism showing up too much, but it’ll be back. Perhaps the conviction among so many companies that small, near-orphan markets are the key to success might be one place where things are going over the edge. Herbert Stein, one of Nixon’s economic advisors, was famous for his saying that “If something can’t go on, then it won’t”, and you could make an argument that the pricing model behind these therapies can’t go on. That might just make everyone speed up, trying to get theirs while the getting is still relatively good. But although that sort of thing can get pretty excessive, it’s still not the same as the We Have the Final Answer period. One of them is a rush for a door that everyone feels must be closing; the other is a conviction that we’ve abolished the idea of doors closing at all.
Derek B. Lowe
Contributing Editor
Derek B. Lowe has been employed since 1989 in pharmaceutical drug discovery in several therapeutic areas. His blog, In the Pipeline, is located at www.corante.com/pipeline and is an awfully good read. He can be reached at derekb.lowe@gmail.com.
Take a look at the last twenty years or so in drug discovery. Having lived and worked through them, I can think of several trends that took off, became wildly popular, and then subsided. Structure-based drug design, or “rational drug design”, as it used to be called, rather annoyingly, was one. Down with the big, slow, techniques of the big, slow companies and projects: docking could send you right to the active compounds. Combinatorial chemistry was definitely another. I well recall someone trying to convince me that traditional med-chem was in the process of vanishing, to be replaced by nothing except more and more combichem, whose advantages were apparently obvious to the most casual observer.
So to spot these, just remember that we always seem to go too far. It’s a human tendency; we’re built that way. Some of this comes out of conviction, because people absolutely love being right. I know that I do, and my wife can confirm this. And some of it comes out of fear of missing out. To use an example from an entirely different field, audiences for new artworks have long been fearful of being remembered as being like the people who booed the premier of Stravinsky’s Rites of Spring in 1913, or the ones who rolled their eyes at that new-fangled Impressionist paint-daubing stuff. Investors can read stories of people who turned down early opportunities in what later became the Microsofts and Amazons, and shiver at the thought. We don’t want to miss out on the next big thing, so sometimes we stampede toward it a little too enthusiastically. One example is the boom in internet-related stocks around 2000.
Look for the trends that just seem to be arcing off into the sky with no limit in sight, and ask yourself if there can, indeed, be a limit out there somewhere. Very, very few things in this world can actually be pushed this way. Diminishing returns or worse almost always set in eventually, but too often the only way to find out that you’ve gone too far is to, well, go too far. It’s a little less painful if you can instead watch someone else go too far, but then (as just mentioned) you’ll probably worry that you’re missing out on something great, up until the moment that it isn’t quite so great. One of the things that drives excess in the stock market is when more cautious investors finally crack, after watching apparently-clueless people rake in ridiculous amounts of money for what seems to be an impossibly long time.
Psychology is the problem. The analogy to investing in the stock market is an unfortunately close one. All you have to do to be a successful investor, as was pointed out decades ago in Fred Schwed’s, Where Are the Customer’s Yachts?, is to buy a basket of diverse stocks and sit on them. Don’t mess with them, don’t pay any attention. I read recently that one large investment firm found that some of their best-performing accounts turned out to belong to people who’d forgotten that they had an account. Then just wait until everyone is talking about how high the market is going, when stock tips are flying left and right, and sell everything. The market will continue to go higher, he warns, because you probably sold “too soon”, but pay no attention. Sit there and wait, because it will come back down. Wait longer, until everyone feels as if they’ve been burned by the stupid stock market, ripped off by the weasels who sold them all those worthless stocks. Now it’s time to buy. The market will continue to go lower, most likely, because you got back in “too soon”, but pay no attention. You have a few years to wait until everyone goes crazy again, and it’ll be time to sell. This strategy works wonderfully, but it’s also impossible to follow, because it feels as if you’re doing the wrong thing at the wrong time. Everyone loves the market, and you’re getting out?
The same thing applies to ideas, and to ways of doing business. One would have to put outsourcing in this same category. Like the other drug development ideas mentioned earlier, it’s not going away, but it’s something that can be overdone, and probably was. My own guess as to when the outsourcing wave crested was when we started seeing all those stories about one-person virtual companies. Now, the idea of a mostly-virtual company is not a stupid one, and it can work well under the right conditions and in the right phase of a company’s life. But one person? Contracting out absolutely everything? I think this was where things finally hit the reducio ad absurdum level. No doubt some of these are still around, and a few might even be successful. But what are the odds? It’s for sure that we haven’t been seeing a boom in one-person drug development operations, and I haven’t been tempted to strike out on my own as LoweCo. Suggested slogan for the investor roadshow: “How Lowe Will You Go?” Maybe not. If I do anything like that, it might be a good sign that it’s time to head for the exits.
The good part about this process is that the top of the wave has an awful lot of foam in it. Once that subsides a bit, we’re left with the parts that worked, and with people who’ve experienced the parts that didn’t. Those drug discovery techniques I mentioned—computational methods, combichem—didn’t really go away. They just took their places in the list of things that can be tried, when things look appropriate to try them. They fell from their peaks, when the attitude was, “What are you talking about! It’s always appropriate!” But that’s just what has to work its way out of everyone’s brains for real progress to be made.
So, if you look around today, are there any practices that seem to be in the crazy phase? At the moment, I don’t see the gleam of fanaticism showing up too much, but it’ll be back. Perhaps the conviction among so many companies that small, near-orphan markets are the key to success might be one place where things are going over the edge. Herbert Stein, one of Nixon’s economic advisors, was famous for his saying that “If something can’t go on, then it won’t”, and you could make an argument that the pricing model behind these therapies can’t go on. That might just make everyone speed up, trying to get theirs while the getting is still relatively good. But although that sort of thing can get pretty excessive, it’s still not the same as the We Have the Final Answer period. One of them is a rush for a door that everyone feels must be closing; the other is a conviction that we’ve abolished the idea of doors closing at all.
Derek B. Lowe
Contributing Editor
Derek B. Lowe has been employed since 1989 in pharmaceutical drug discovery in several therapeutic areas. His blog, In the Pipeline, is located at www.corante.com/pipeline and is an awfully good read. He can be reached at derekb.lowe@gmail.com.