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In-Person Insights on Virtual Biotechs at Xconomy Dinner

Don’t underestimate those brainy types riveted to their laptops at coffee shops in Harvard Square, because they could be managing the development of a potential breakthrough drug. That’s what I was thinking last week during a dinner hosted by Xconomy at a Harvard Square venue, where we discussed the virtues and limitations of virtual business models in biotech.

Bob told our guests—consisting of biotech executives, venture capitalists, attorneys, and consultants—that their comments would be kept off the record (with one notable exception within the group). So I’ll present some of the key ideas from the dinner without identifying the sources. However, I will say that our out-of-town guest, Duane Roth, shared an interesting critique of the problems with traditional product development in life sciences and how a type of virtual business model is at least part of the solution.

Roth, who is the CEO of the nonprofit industry group CONNECT in La Jolla, CA, ignited debate and thoughtful comments with his prescription for the ills of current R&D models. Many of the thoughts he shared are explained in greater detail in a paper he co-wrote for the Kauffman Foundation, which made the paper available online on January 25. He said that fully integrated companies with R&D, manufacturing, and marketing capabilities have fallen short on delivering enough new products to justify their large budgets. For example, Roth’s paper notes that FDA drug approvals have declined as R&D budgets skyrocketed. To back this, the paper cites data from the merchant bank Burrill & Company that show that in 2004 the industry spent $47.8 billion in research while the agency approved 36 drugs, while in 2008 research spending had swelled to $65.2 billion, but only 24 drugs were approved.

Roth argued that one solution is the creation of “product definition companies,” which are largely virtual firms that license technology from research institutions funded by the government. Such companies would have only a small group of full-time experts to manage the business, and they would rely on a network of professional services firms such as contract research outfits to handle the R&D and clinical work required. The companies would essentially operate in “the cloud,” he said. And rather than trying to take their drugs into expensive late-stage clinical development, the product definition company would sell a product to, say, a pharmaceutical company, which would then advance the product to commercialization.

“The new model is about moving products, not … Next Page »

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