Can you build a venture scale biotech company without making your own drugs?
Specifically, I am talking about companies building drug-device combinations or delivery mechanisms. I have been talking to a lot of companies over the last few years that fall under this category. This multi-part exploration is meant to share some of my learnings - hopefully founders will find it useful.
The short answer is YES. You can build a venture scale biotech company that makes someone else’ therapeutic agent work better. But there is one condition you absolutely have to fulfill.
You have to reach best-in-class status.
In the drug-only world, there are examples for follower drugs to eventually become blockbusters in many indications - Zantac vs Tagamet, Lipitor amongst all the other 5 statins, Eliquis, Humira. But this is not true for drug delivery companies. This market doesn’t reward the second position as much.
Why does this happen?
A. Combination products typically create a "winner-takes-most" market due to high switching barriers
Once on the market, combination products can develop competitive moats that make life hard for followers. If the first combo product secures key hospital contracts, formulary positions, or becomes the standard protocol, switching to a new entrant is difficult, to say the least. In devices, user experience and training matter: doctors get comfortable with one system and may resist switching to another unless it offers a clear improvement. This behavior favors the incumbent, especially if the first mover had a head-start to refine their device and accumulate usage data.
By contrast, drug-only markets often allow side-by-side competition more readily. Physicians might rotate through several therapeutically similar drugs to find the best for a patient, or payers might cover multiple preferred brands. For example, many patients cycle through different statins or antidepressants if one doesn’t suit them. This means a later entrant drug can still capture share without needing to “displace” the first entirely. Interestingly, in some large disease areas, no single drug can supply the whole market, so multiple blockbusters emerge (e.g., five different anti-TNF biologics each exceeded $1B in sales at one point). Combination products tend to serve more specific niches (like a particular mode of delivery), where the #1 product can potentially saturate much of the demand for that niche.
A combo product usually must either be first or clearly superior to justify its complexity. If a second-in-class combo is merely comparable, customers ask: why switch or adopt it at all, given the inherent hassle of new hardware or training? The margin for differentiation needs to be higher.
Example: EpiPen’s dominance was led by the brand becoming synonymous with epinephrine injectors and by Mylan negotiating exclusive school access programs and insurance formulary preferences. A new competitor like Auvi-Q not only had to match EpiPen’s clinical efficacy but also overcome entrenched purchasing contracts and prescriber habits, a non-trivial challenge. Sanofi had to invest in marketing Auvi-Q’s benefits, but Mylan’s contracting strategies with payers limited Auvi-Q’s access to many patients.
The drug was the same (epinephrine) and the delivery mode was also the same. Auvi-Q offered clear usability advantages (voice instructions, compact size). These features earned positive feedback from users and studies showed patients preferred Auvi-Q’s design.
However, in emergency medicine, conservative attitudes meant some providers valued EpiPen’s long track record over Auvi-Q’s novel design. Auvi-Q’s differentiation, while real, wasn’t enough to instantly overcome decades of familiarity with EpiPen. Auvi-Q at its peak could take 10% of the market, but a product recall in October 2015 ended up forcing them to abandon the market, handing EpiPen a monopoly.
B. Reimbursement is challenging without clear evidence of cost-effectiveness
Combination therapies face intense scrutiny from payers and health systems on cost-effectiveness. If a combo product is significantly more expensive than alternatives (be it an older drug or a generic device/drug pair), insurers will demand evidence of superior outcomes. It is different from drug-only scenarios. If the conditions being treated are common, payers might still cover multiple options to give physicians flexibility, especially if each drug has some patients who respond better to it. Another lever drug companies have that delivery companies don’t is price. A new me-too drug might launch at a slight discount to win formulary inclusion. Combo products, by contrast, usually are protected by proprietary device components and have no generic equivalents, so there is a floor below which they can’t drop.
Example: Proteus Digital Health raised $500M and spent 20 years developing a smart pill platform with ingestible sensors. Their first product was Abilify Mycite - which combined the sensor platform with the generic drug, Abilify. Average monthly cost was $500-800 for the generic medicine. If you used the smart pill version, it would cost upwards of $1600. Many payers placed it on high non-preferred tiers or refused coverage, effectively choking any possible uptake. Their question was why should we cover it without evidence of better outcomes. In the end Proteus sold its assets to Otsuka for $15M, a steep decline from its $1.5B peak valuation.
Ok enough negativity.
What is an example of a company that was best-in-class and had a great outcome?
ALZA
When J&J acquired them in 2001 for $10.5B, they had used their delivery platforms to create several best-in-class treatments.
1. Osmotic [Controlled] Release Oral [Delivery] System (OROS):
OROS tablets use osmotic pressure to deliver drugs at a controlled rate. A semi-permeable membrane surrounds a drug core, and laser-drilled holes allow drug release. Water entering the tablet builds pressure, pushing the drug out at a consistent pace, independent of GI factors, ensuring stable blood levels.
2. D-TRANS:
Delivers drugs through the skin via concentration gradient using a reservoir and membranes.
After acquisition, quite expectedly, J&J looked for ways to make their portfolio assets work better by leveraging ALZA’s platform. They launched Invega OROS combining their Janssen developed drug paliperidone (for schizophrenia and schizoaffective disorder) with the OROS platform, making a once-daily tablet that delivers consistent plasma levels. It is difficult to make granular estimates, but I speculate the portfolio of products brought in by this acquisition and other assets in the J&J portfolio that benefitted from the platform have driven more than $60B worth of sales.
Wait, that's all? Just one example? Ok, one more!
Halozyme
Halozyme approached drug delivery biochemically, addressing the challenge of large biologic drugs that traditionally required lengthy intravenous (IV) infusions. Its innovative enzyme-based technology, ENHANZE (recombinant human hyaluronidase), temporarily breaks down tissue barriers, enabling rapid subcutaneous (SC) absorption of biologics, even in higher volumes than previously possible. This significantly improved patient convenience and reduced healthcare costs, transforming treatments that required hours of IV infusion into quick, subcutaneous injections that could be taken at home.
Halozyme's technology facilitated the development of Roche's subcutaneous versions of Herceptin and Rituxan—branded as Hylecta and Hycela, respectively. While IV Herceptin requires 30–90 minutes per dose, SC Herceptin (Hylecta) takes just two minutes. Clinical trials (e.g., HANNAH, SafeHER for Hylecta, and SABRINA for Hycela) demonstrated non-inferior efficacy and safety compared to IV formulations. Both Herceptin and Rituxan were already best-in-class treatments; now, they offered convenience as well.
Halozyme has pursued a partnering model and been extremely successful at it. Virtually every major biologics company partnered with Halozyme to use their tech for their assets – Roche, Pfizer, BMS, Janssen (J&J), Baxter, and others – often paying sizeable upfronts, milestones, and royalties. This culminated in Halozyme generating over $500 million in annual revenue in 2024 just from royalty streams.
There is another crucial advantage that Halozyme provides for big pharma: their delivery tech can extend the market life and differentiate their blockbuster drugs. When Roche’s Herceptin (IV) was nearing patent expiry, a subcutaneous version using Halozyme’s enzyme offered new IP and patient convenience, helping defend market share.
Halozyme currently has a market cap of $8B.
In the next part, I will make some more observations about paths that have led to suboptimal outcomes.
If you found this interesting, or you are building in the space, or you want to discuss something related, feel free to connect with me. I also welcome all feedback, so please drop them in the comments or DM!
I am writing to find more people I should know of in the world. If this reached you and you think there is one person in your circle who would also appreciate this, please, please forward it to them. It would mean a lot to me!