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The San Diego Union-Tribune ran an article worth reading yesterday about the effects of offshoring on the biotechnology sector. Since the investment busts early this decade, investors have been increasingly wary about funding technology startups with lots of promise (blockbuster drug ideas) but few tangible results (clinical data). As a result, investment capital is skewing more and more towards incremental product offerings, those companies developing drugs with existing trial data or repositioning current formulations.
Another solution is the idea of the virtual company: Housing management and a skeleton crew of technical experts in the states and offshoring all of the actual "work" (ie. lab development) to contract firms in India or China. In San Diego, where over 36,000 people work in biotech, this is a major concern. Why keep paying for lab space (and workers) on expensive property when PhD's in Bangalore can do the same job for less? Ivor Royston, one of the fathers of the San Diego biotech sector, has a good quote:
“Today there are more virtual companies, more outsourcing, not a lot of big labs, and fewer lab scientists being hired as we focus on developing clinical products,” said Royston, a partner in the venture-capital firm Forward Ventures. “There is also a growing gap between innovation and product development, between a great idea and being able to develop something for the clinic. And that hurts.”
This issue directly affected St. Louis last year, when software developer Tripos, Inc. lost the bid for a Pfizer drug-discovery contract (along with 2 other US firms) to an offshore company. More broadly though, you have to wonder how the rise of "virtual companies" might shuffle the biotech landscape here. St. Louis lags behind SD and the Bay Area in terms of commercial research infrastructure. If all of the labs are overseas anyhow, though, could smaller regions such as ours benefit from the decentralization? Also, what happens to the tech transfer process if all a startup needs is IP and a contact in China? Interesting things to think about.
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