It seems that biotechnology has gone from the hottest growth sector to yesterday’s news in a blink of an eye. Offshoring seems to be the culprit. From SignOnSanDiego.com:
Increasingly, the venture capitalists who fund new life-science companies are shopping for existing drugs to refine instead of backing scientists to make discoveries. When startups are created, they’re often minimally staffed. More drug companies are farming out research work to scientists in China, India and Eastern Europe, where tasks are done more cheaply.
For California, the birthplace of biotechnology, the stakes are high. Of the estimated 260,000 Californians who work in the life-science industry, about 70 percent are employed in high-paying jobs in drug, medical-device or diagnostic-tool companies. In San Diego, an estimated 36,600 employees work at about 500 companies, according to BIOCOM, the local biotech trade association.
Many of the highly touted biotech start-ups of a few years ago just did not pan out. And many of these, just like the dot.com’s before them, had over-hyped their potential. I remember more than one investor talking about this biotech or that biotech being the next “Microsoft” investment. So as investors began to experience the reality of the risks in this industry, venture capitalists tied to that industry shifted their strategies.
In an effort to revive Wall Street interest, venture capitalists shifted to creating companies that develop late-stage products or existing drugs that can be revamped to treat other diseases.
Such companies don’t require the big staffs or laboratories lavished on San Diego’s pioneer biotechs, which often took a decade or more and spent hundreds of millions of dollars to get a novel drug to market. Instead, drug companies are stretching dollars by farming out tasks to U.S. contract research organizations or cheaper offshore companies.
America seems to be re-living the story of the hare and the tortoise over and over, never seeming to learn its lesson. Most of our economic growth is not coming from venture capital backed high potential firms. Although those deals get the headlines, their true impact on the economy is marginal. Even in the best of times, venture capitalists only pick about one real winner out of ten investments, and most only make about three investments a year. High potential deals do have their place in our economy. They can bring us breakthroughs that can shape markets of even create new industries. But they are not at the heart of this entrepreneurial economy.
Our economic growth is coming from small businesses that are prudently growing their businesses one job at a time, toward the goal of creating a sustainable venture that will build wealth over the long-term.
(Thanks to Jim Stefansic for passing this along).
Werd to that!