Here is a good article from Stewart Lyman at Xconomy (I find I like a lot of Stewart's articles) regarding the solidity and security of virtual biotechs. The article questions whether this is a model that we'd want to perpetuate as a dominant form. Why not?
The basic argument against this type of company has two main prongs. The more serious of the two in my view is that these companies are often built on a research idea or premise that they acquired somewhere else (often academia) and don't have the wherewithal to confirm whether the science is sound. If these companies embark on a development program with the underlying science being bad, they are doomed to fail. Stewart cites many cases where the literature is either flawed (retractions) or non-reproducible. See the Amgen and Bayer studies on this issue. Reproducibility was less than 11% for "landmark" cancer papers for example.
The second argument is because the companies are virtual, they don't contribute to the development of vibrant biotech clusters. Clusters help sustain an ecosystem by providing a steady labor pool and a critical mass of intellectual power and innovation. Leading biotech clusters continue to draw investment in places like Boston, San Francisco and San Diego. Virtual companies -- are well -- virtual. They don't provide a lot of infrastructure and contribution to clusters.
The main reason virtual biotechs are popular of course is that they reduce the capital needs of the company. The company really then focuses on a good management team and hopefully a good molecule/technology. But if the quality of the latter is compromised, that's where the idea falls apart. And of course, these companies are really just building a project to be sold.
Posted by Bruce Lehr May 4th 2012.
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