One of the big discussions in biotech in recent years has centered on the virtual business model. With IPOs hard to pull off, it just made more sense to many in the venture community to back a new generation of small developers with one or two programs that could be pushed into mid-stage development and then sold off. A host of global outsourcers made it possible to efficiently stage clinical studies.
Today's news that Shire ($SHPGY) has scooped up FerroKin BioSciences for $100 million upfront and $225 million in milestones offers support for the pro-virtual advocates. FerroKin was founded by Dr. Hugh Young Rienhoff Jr. in San Carlos, CA. He hired just a handful of staffers, assembled a group of 60 vendors and operated the company out of his house. In a fascinating article in The Atlantic last year, he explained how this dispersed virtual executive team used email and social networks to review issues and make decisions. The team was fast, efficient and successful, pushing through four Phase I safety and tolerability studies and launching mid-stage dose ranging trials for a new drug that promised a better treatment for anemia patients suffering from an iron overload.
By the end of last year, FerroKin had convinced Shire that it had an orphan drug potentially worth much more than the $27 million its venture backers had put into the company. A review of adult data at the end of last year helped seal the deal.
"Some people have said, 'How can you really accomplish this? You should have a lab, how can you not have a lab?'" Laura Eichorn, who keeps the books for FerroKin, told The Atlantic. Eichorn lives in the Midwest.
FerroKin launched at the end of 2006, providing a payback in just a little more than 5 years. It last reported raising $12 million in 2010. That experience looks similar to the recent sale of Stromedix, a virtual biotech in the Boston area, which Biogen Idec recently acquired. With the new generation of virtual companies earning solid returns, you can expect to see a lot more of them gaining traction, and ringing up their outsourcing contacts, in the years ahead. And that has big implications for the vendors who can fit into the same network, offering quick access to data to a dispersed group of decision-makers.