There was recently a fascinating article in Forbes magazine which discussed the new millennium of R&D outsourcing and the rise virtual biotech teams (which I’ve also consistently seen an increase in the last 3 or so years during the financial crisis in the US) the most fascinating points that were brought up was the fact that currently venture capital firms are in little bit of a bind in regards to getting a decent return on their investment As an example, both the cost of drug development, which has dramatically increased to nearly $1 billion to bring a drug to the market (according to Tufts University) and the cost of biotech executives salaries (which have risen between 50-100% from the 1990s boom era) have made it harder for Venture Capital firms to get a substantial return.

The emerging virtual biotech model,which some Angel and VC investors are now funding, so far seems a very lean and resource effective model. Virtual biotech’s nowadays are actually being built with very small teams that outsource as much as possible to reduce any overhead costs. Typically from my experience these teams can be as small as one full time CEO with a fully part time/consultant executive team through to a more classical 5-10 person full time team. The aim of many of these virtual biotechs is getting to signal with their lead therapeutic, this means getting some proof concept or proof mechanism data that their drug works either in humans or animals to help raise the next financing round. So far in this tighter financing environment this model has proved to be one of the more successful strategies for founding new biotech companies, as can be seen with theFlexion Biotech deal with Pfizer. The flip side of this is that a lack of signal in a lead molecule can also be more lethal set back both to a new therapeutic and virtual biotech.

I personally wouldn’t be surprised if this push to innovate both in biotech business models and how clinical development is done doesn’t result in a more cash and resource effective strategy for bringing new therapeutics to the market and brings in higher returns for biotech investors.