VC Funding Floods Colorado Biotechs, But Will It Stifle Innovation?

Biotechs in Colorado, US, are enjoying a windfall of funding from Venture Capitalists who have to date invested $66.1 million in six of the state’s companies working in the fields of biofuel, medical devices and biopharma, according to a report released Feb 21 by OnBioVC, a Boulder-based tracker of investments in the life science industry.

The increase in money invested in the Colorado companies parallels a national trend. OnBioVC counted 305 companies received a total of $6 billion in 2011, up from 281 companies that collected $5.2 billion the previous year.

Small biotech have always been synonymous with innovation. Will that still hold true with this model? The question is asked this month by Stewart Lyman, a Seattle consultant, in an article in Xconomy.

“While this new model may generate good financial returns for VCs, is there much data to support the idea that this approach will succeed in generating new and useful drugs? Will it siphon money away from other approaches? What effect will adopting this model have on the biotech ecosystem?” asks Lyman.

His point is that the biotechs who have survived and thrived in the past quarter century such as Biogen, Immunex, and Genentech have been companies that established relatively large, cutting edge research programs that hired young, innovative scientists by promising them a certain degree of intellectual freedom to pursue research projects and build their reputations on the results.

“While these researchers were well compensated financially for their efforts, I don’t know of a single one who signed on for the money. Their true reward: the ability to make ground-breaking scientific discoveries, publish and present their data in prestigious journals and conferences, and help turn them into breakthrough medicines for treating serious medical problems,” he goes on.

Five years ago, in the heyday of small biotech funding, VC’s footed the bill for small companies with research staffs and brick and mortar headquarters. That proved not to have weathered economic hard times. This time around, VCs seem to be favoring the “virtual model,” small, single project startups who outsource R&D. Good for the funders, but not necessarily for drug development.

The primary goal of venture capitalists is to invest in companies that can be liquidated (via acquisition or IPO) for a significant return in a relatively short period of time. But are virtual companies counter to the very definition of the biotech ecosystem? asks Lyman. Having to outsource core skills will they loose hat biotechs have always been heralded for-talent? Will contract workers perform with the same passion as those who are directly invested in the success of a new drug?

“Can remote oversight substitute for walking down the hall to get your questions answered?” asks Lyman.
And where is the ability to follow-through if a single product does not deliver? The venture capitalist doesn’t suffer. But then who does?

“Every time a venture capital firm boasts about a biotech acquisition that provided a substantial return on their investment, let’s keep track of whether or not the acquired asset actually makes it to market,” says Lyman. “I’ve yet to see a sick patient cured by an infusion of stock warrants or the cutaneous application of cold, hard cash.”