Time is money. That’s true in any industry. In the biopharmaceutical industry, it is estimated that it takes 10 years to research and develop a commercial drug product. A mid-range estimate of the average development cost for an approved drug product is $1 billion.
Why so expensive? Time. The passage of time is the great sword of Damocles hanging over every stage of new drug development. That the technology itself might fail is discouraging enough, but that time should run out for a company can be devastating, and time runs out when funds run out.
A focus of the medicines industry today is reducing that development timeline. MassBio’s recent Impact 2020 provides some important insights on how the industry must sustain innovative research even as funding is strained. Reduce the timeline, reduce the cost. Finite funds can go farther if development proceeds at a more rapid pace.
Conversely, reducing costs allows time to be less an adversary. One reason for the increased investment and presence of global pharmaceutical companies in Massachusetts is that they are seeking to reduce their development timelines by partnering with early stage companies that have already moved their technologies to a certain point in the road. In turn, many small biotechs seek to advance their technologies toward an objective, in the hope of getting help from above – namely, the larger drug companies.
The “virtual” route is one path being chosen by emerging life science companies. A virtual is formed around intellectual property (IP), the patented technology (perhaps a potential new drug) that is the core of the company’s existence. In the true virtual model, we see the company’s officers all smiling at us on the company website, but not when we walk into their office – because the office doesn’t exist. The virtual may have an address, but that’s just for the mail.
Such virtual companies outsource all lab-based development. The company is still incurring research costs, but not the costs associated with leasing office and lab space and providing payroll and benefits.
To some extent, the virtual model has always been present. After all, when Mark Ptashe and Tom Maniatis founded Genetics Institute 30-plus years ago, its address was Ptashe’s garage. But, as Curtis Cole of CB Richard Ellis notes, “The capacity of the region’s Contract Research Organizations (CROs) and Contract Manufacturing Associations (CMOs) to assist in the advancement of a company’s research is greater than ever today.” The virtual model is made possible by both a desire to cut costs and the presence of such strong research services.
Virtual Real Estate
So, does the virtual model threaten the real estate industry? It doesn’t seem so. While many companies start as virtuals, they more often evolve into hybrids or traditional companies with their own labs. The hybrid company houses its corporate operations in an office and assembles a team that manages the work of partner CROs and CMOs in advancing the research and product development. One such example is Tesaro of Waltham. Tesaro was virtual before establishing an office footprint in 2010. Well over $100 million in venture capital financing and a successful IPO later, Tesaro remains a hybrid, with offices, but no labs or factory.
That a virtual or hybrid would remain in such modes even after significant financing seems more the exception than the rule, however. A quick sampling of the top 12 Massachusetts VC-backed biotechs of 2012 and top 15 of 2013 reveals that only four remain in virtual or hybrid mode today. With exceptions such as Tesaro, Zafgen, Rhythm Pharmaceuticals, and AlloCure noted, it seems a strong hypothesis that the best-funded biotechs tend to move from the virtual model into their own labs when significant funding arrives.
So, the use of the virtual company model doesn’t seem a threat to the commercial laboratory development industry. As long as time remains the adversary and companies need to buy time by reducing costs, the virtual route will be well trafficked.
Peter Abair is director of economic development and global affairs at the Massachusetts Biotechnology Council (MassBio).
