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Print Edition StoriesWednesday, June 23, 2010
Virtual biotechs cutting costs with focus on individual projects
By Jill Gambon, Special to Mass High Tech
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Some in biotech characterize the 1990s and early 2000s as the industry’s free-swinging, home-run era, with relatively easy access to capital and companies striving to bring blockbuster drugs to the market.
Now, some people describe the current state of the industry as the small-ball age, with investors being cautious and startups eyeing modest goals of shepherding new drugs through development.
According to industry professionals, biotech startups are increasingly being organized to develop particular products or therapies only as far as proof-of-concept or preclinical stages, with a goal of selling what they’ve developed to pharmaceutical companies or others that have the resources to advance development. The approach, which relies on a network of experienced contract employees working in a virtual enterprise, requires smaller amounts of initial funding, reducing some of the risks for investors, said Daniel Davis, director of the life sciences practice at Accounting Management Solutions Inc., a Waltham firm providing outsourced accounting and financial services. “Companies are looking for a more capital-efficient way to do business,” he said. “You don’t always need to build a company. When you create a company you create permanent infrastructure.”
Mike Webb, managing director at Exponential Pharma Ventures in Cambridge, likens the virtual company model in the biotech industry to the movie business, where people with specific skills, such as writers, cast and crew, are involved at various stages of the project, all overseen by a producer. With virtual startups, project managers can pull in scientists, researchers, lawyers or other staff as needed, instead of hiring full-time employees.
Under this model, often referred to as “project-based financing,” a Series A round might total $2 million to $5 million, compared to $10 million to $20 million for a more traditional biotech startup, Webb said. “There’s less money available for higher risk investments,” and venture investors have a shorter timeline for exiting the investment, said Webb.
“We’ve spent far too much money on lab build-out and infrastructure,” said Doug Orsi, managing director of HealthCare Ventures, a Cambridge investment firm.
While the number of virtual biotech companies had been on the rise, the financial meltdown in 2008 was a catalyst for the model. Focusing on a single project and outsourcing work can help companies get up and running with far less money. “It’s easier to get funding for a specific project. It’s harder to get funding for an entire company,” said Imran Nasrullah, chief business officer of the Massachusetts Biotechnology Council.
Jill Gambon is a freelance writer in West Newbury.
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