On September 3rd, I reposted a piece that appeared in Xconomy, written by Shawn Iadonoto - CEO of Seattle's Kineta. In it, he noted that problem with funding in the biotech industry for early translational research in the developing drugs. He opined that th eFederal government should look to change its funding formula to allow more NIH money to flow to private companies for translational research veruse its current heavy focus on funding basic research in universities and hospital research programs.
Today, we have a post on a similar topic - that being the more difficult funding situation for translational research - especially with venture capital being much tighter than in the past. In this post, by Seeking Alpha's Jason Chew, he writes about the strategy he sees emerging to allow small biotech's to bridge the "Valley of Death" to allow new technologies to reach proof of concept stage. He talks about the current NIH funding formula and it is clear that there is not that much money devoted to early stage proof of feasibility reaserch. What is available from the NIH, comes in the form of phase I and phase II SBIR grants. According to Chew, only 0.03% of VC funding actulally goes to seed stage projects due to their high risk of failure. Unfortunately, the number of applicants for SBIR funding is on the rise and this mechanism can't resource everyone deserving.
Jason's prediction? Firstly, and this cannot be considered a surprise, the industry will shake out. There are more biotech's and redundant projects out there than can be sustained. Let's face it. It is a normal stage of evolution for every industry to experience consolidation as it matures. Biotech is reaching the 30 yr mark or so and is certainly crossing that point where consolidation should be expected. Jason expects two model to emerge as viable:
- Hybrid biotech's with strong platform technology
- Virtual biotech's with strong managment teams that outsource all operations
The former have a strong IP position and can generate additional cash by licensing their technology to industry players while developing their own pipeline too. The latter focus on speed and cost containment. It is the "virtuals" who can fill the niche of translational work and provide proof's needed to keep projects/technologies going. These companies will manage multiple projects, build core expertise in management and provide financial wherewithal to bridge te "Valley of Death". Then the Big Boys can buy the projects to bring them to market after they've been de-risked.
Posted by Bruce Lehr September 6th 2010.