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Open Space Articles: Virtual R&D Drug Development In The New Millennium

by David Collier

The venture capital-backed biotechnology industry is caught in a bind.  While there is strong demand from “big pharma” to acquire promising drugs from biotech companies, the rising costs of drug development and the risks inherent in the process have led to poor returns for venture capital investors in private biotechs over the past decade.  Biotech companies today face a very different environment than they did in the heady days of the 1990s.  Salaries in biotech are 50-100% higher than they were then.  The public has fallen out of love with biotech and IPOs are virtually nonexistent.  Today, exits for venture capital investors come about only when a big pharma steps up and actually buys a biotech company rather than simply taking an option or a license on its drug program.

So how are the VCs responding?  With a growing interest in funding “projects” rather than companies.

The pre-2000 model for building a biotech company was simple.  Find a scientist with a discovery that might lead to a new drug.  Bring in a team of biologists and chemists to experiment with different chemical variations of the potential drug, try them out in cells, try them out in mice, then in bunnies and dogs, and eventually try them out in humans.  This meant building a team of anywhere from ten to fifty people to deal with all the complexities of the process: chemistry, biology, regulatory affairs, clinical medicine, finance, business development, patent strategy, etc.  Plus it meant building laboratories, animal handling facilities, and acres of cubicles.  And for most of these companies, all of these people and all of this infrastructure were working to develop just one, or at most two or three drugs.

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