This is the third in a four-part series about institutional patterns that leave most faculty inventions stranded. Here are parts one and two. This post is about how drug development ended up with a way to move valuable programs forward without always building full companies around them, and whether anything like that can work in healthtech.
Men that look no further than their outsides, think health an appurtenance unto life, and quarrel with their constitutions for being sick; but I, that have examined the parts of man, and know upon what tender filaments that fabrick hangs, do wonder that we are not always so; and, considering the thousand doors that lead to death, do thank my God that we can die but once.
— Sir Thomas Browne, Religio Medici (1642)
One surprising thing about life sciences investing is how vividly it confronts you with the many ways the human body can fail. In practical terms, that means many of the companies you see are developing treatments for grave diseases that are far from household names.
The other surprising thing is how tiny the teams can be.
The small markets are not the mystery. Neither are the small teams. A drug for thirty thousand people can still command a price that makes the math work, through orphan-drug incentives, pricing power, and the rest of the apparatus behind it. And a five-person team can move a program forward by contracting with organizations running the same sequence of milestones for dozens of others at once. Humanity has, in effect, industrialized its response to some of those thousand doors. The machinery exists; you just have to run it. The real puzzle is how drug development became one of the few places where a clinically valuable asset can be advanced without building a full company around it.
Now compare that with companies building devices, diagnostics, decision-support software, or research equipment. The underlying situation is usually similar. There is a promising invention, a credible clinical case, and a real patient need. Some supporting pieces exist, including contract manufacturers, regulatory consultants, and the occasional specialized CRO. But the vendor system is thin and fragmented, organized around too many different development routes to generate the concentrated demand that makes shared infrastructure self-sustaining. Downstream, the pull is weaker too. There are fewer large acquirers with business-development functions built to value and absorb assets in development, and fewer investors who know how to price a milestone they have seen a hundred times before. Each team is advancing a program by hand that looks as if it should work, through infrastructure that almost exists, toward a market not quite ready to receive it. “Come back when you have FDA clearance,” say investors. “Come back when you have revenue,” acquirers add. It can be a grinding, undercapitalized march toward a finish line that keeps moving.
Assume drug developers are not smarter or more disciplined. What created the conditions for a different organizational form to emerge, and how did that arrangement become so self-reinforcing that it came to seem natural?
Nobody planned it. The FDA organized drug review a certain way, for its own reasons, and the result was that suddenly everyone needed the same kinds of work done at the same stages (ie, IND, Phase 1, Phase 2, Phase 3, NDA) across hundreds of simultaneous programs. Predictable demand at predictable stages is what makes shared infrastructure economically viable, and the FDA created it without intending to.
Contract research organizations grew up to run preclinical studies and clinical trials because enough drug programs needed those services at those stages. Contract development and manufacturing organizations grew up to handle process development and scale-up for the same reason. Regulatory consultants who had shepherded dozens of IND applications became available by the hour. The fixed costs of world-class science (eg, equipment, expertise, facilities) could be spread across enough clients that each paid only for the work actually done.
That infrastructure wasn’t designed to enable lean drug companies. It emerged because the demand was there, and then made them possible as a side effect. The virtual pharma model — in its purest form, a company with no employees that converts capital directly into development work — did not precede the infrastructure. Nobody sat down in 1985 and decided to build a system that would let a tiny company advance a billion-dollar program. That approach only followed once the supporting infrastructure existed.
Ryan Avent, speaking about his time as a senior editor at The Economist, described his firm as not so much a business but as “a way of doing things consisting of an enormous set of processes. You run that programme, and you get a weekly magazine at the end of it.”[1] Drug development works much the same way. Run the program, and, if the bets are right, you get a drug. The company is almost incidental. What matters is whether the process is managed well enough to carry the asset forward.
A virtual pharma company is a handful of people and a lot of vendor contracts. That can look like a cost-cutting measure. It is really an answer to a more specific organizational question about how little structure an asset actually requires. In this case, the asset is a drug program — defined by its IP, development data, and regulatory route — with value independent of the organization built around it. It can become valuable long before the company does. It can be sold at almost any stage (eg, post-preclinical, post-Phase 1, post-Phase 2) as it accumulates evidence and value. Those exits do not require a complete company, just a credible asset and a minimal coordination layer.
The work itself is narrower than you might think. It sets direction, especially around indication and endpoints. It manages milestones and makes go or no-go decisions as results arrive. It selects and manages vendors. It talks to potential acquirers early, sometimes very early, to understand what an eventual buyer will need to see. And it allocates capital with enough discipline to reach the next decision point without building organizational overhead that will outlive its usefulness. What it does not do is equally important: employ bench scientists, operate manufacturing facilities, own equipment, or run clinical trials in-house. A Phase 2 biotech might have a handful of people.
This works in practice because the people who run these programs share a professional culture as much as a skill set. There is a cadre of experienced drug developers — scientists and operators who have worked across multiple programs, in startups and in industry — who can assemble around a new asset and be productive almost immediately. Everyone knows their role and expects their colleagues to know theirs; they speak an occasionally arcane lingua franca. The playbook is embodied in the people, not just the infrastructure.[3]
At the other end, large pharmaceutical companies maintain business-development functions whose job is to value and absorb mid-development assets. They can look at a Phase 2 program, understand what it is worth, and move quickly. That acquisition readiness is part of what makes the early-exit model work. In medtech, the function is weaker and less systematic, which is one reason devices don’t have the equivalent early-exit window.
Virtual pharma shows that advancing a clinically valuable asset does not require building a full company in the traditional sense. What it requires is the right coordination layer and the shared infrastructure to support it. Healthtech has neither, in the concentrated, self-sustaining form that model depends on, and not by accident.
Medical devices don't move through a single development route. There is no device equivalent of Phase 1, 2, and 3. A PMA, reserved for novel high-risk devices, might seem closest to what drugs go through, but the FDA doesn’t impose a standardized sequence. Two PMA programs can look completely different from each other. Specialists exist (eg, device CROs, regulatory consultants, contract manufacturers) but they are fewer and less specialized than their drug development counterparts, organized around too many different configurations to generate the same concentrated demand. The consequence is that device companies have to internalize more of the work that drug developers can contract out. The company grows to fill the gap the infrastructure can't supply. In that sense, every device startup is partly a workaround.
Reimbursement makes the problem worse in a specific way. For drugs, the route from approval to patient access is frustrating but at least roughly linear. For devices, the commercial path is often a separate maze: bundled payments, facility fees, professional fees, distinct coding for the device and the procedure, Medicare coverage that varies by administrative contractor, payer-by-payer contracting with commercial insurers. A 2023 study found that among novel devices and diagnostics requiring a new Medicare reimbursement route, the median time to achieve at least nominal coverage was 5.7 years after FDA authorization, longer, on average, than it took to get FDA clearance in the first place. More than half were still waiting when the study was published. That delay keeps asset value low until very late in development, which closes the early-exit window that virtual pharma depends on.[4]
But the stranded innovations in university tech transfer offices are not just devices. Some are diagnostics, which may have access to contract labs but not to anything like the combined clinical, regulatory, and reimbursement support that drug developers can buy off the shelf. Some are lab equipment and research tools, which may be manufacturable on contract but still have to build quality systems, field service, and customer support for themselves. Some are research software and algorithms, for which there is barely a specialist ecosystem at all. Others are lower-risk products — training aids, monitoring tools, consumer health applications — that face no major regulatory gauntlet but still have to figure out commercialization on their own. The details differ, but the pattern is the same. There is too little volume in any one category to support shared infrastructure, and no organization willing to take responsibility across categories. So each new program ends up building its own solution, not because the people involved are unsophisticated, but because no one has made it their job to assemble what already exists.
Novonate began inside Stanford’s Biodesign Innovation program, where a team spent years making prototypes and gathering clinical feedback before spinning out. They had a specific and well-documented problem in sight. Umbilical catheters in neonatal intensive care units were secured with tape and adhesive, a method associated with high infection rates and “catheter migration” in one-third to one-half of cases. The solution was LifeBubble, a dome-like device that gave nurses a consistent, reliable way to secure the catheter. It went through dozens of design iterations before it was ready for market.[5]
NICUs are not a venture-scale market. A few hundred high-acuity units in the United States, a patient population most investors dismiss. But the concentrated customer base that looked like a liability turned out to be a feature; the entire market was reachable with a small commercial effort. And the team had asset discipline, letting what the product needed determine everything else, without accumulating organizational overhead the asset didn’t require. Small raises, surrogate endpoints instead of expensive pivotal trials, a path to commercial viability that stayed visible throughout. CEO Eric Chehab recalls: “We felt like we might have a shot to make the economics work.” Novonate was acquired by Laborie Medical Technologies in February 2023.
Not a unicorn. As James Wall, a Stanford pediatric surgeon who advised the company, put it: “No one’s retiring off this technology or off this company.” But it was a successful outcome that returned value to investors and put a product in the hands of nurses who needed it. What Novonate doesn’t tell us is what to do when the asset can’t reach a natural acquirer and the early-exit window never opens.
That was exactly the problem Duke Rohlen set out to solve. After a career of building and selling medtech companies at unusual speed, he concluded that the early-exit model that therapeutics relies on simply does not work in medtech. Rohlen explains:
“Single product companies are highly risky...Single product companies are inefficient...Single product companies are beholden to a buyer universe that has all the power.”
So he went in the other direction entirely.
Maverix Medical, formed with backing from KKR and Hologic, is building a portfolio of diagnostics and devices across the lung-cancer care pathway, from early detection through biopsy and interventional technology. It acquires assets where they exist and develops them where they don’t, using Hologic’s diagnostic capabilities and commercial infrastructure and KKR’s capital as supporting resources. The exit is not the standalone sale of any one product but the clinical and commercial value of an integrated lung-cancer platform.[6]
This is not virtual pharma. It is a different organizational answer to the same structural problem of how to advance assets when the environment is too harsh for them to survive on their own. Rohlen’s answer was to expand the unit of organization from the product to the clinical domain. Asset discipline — the same logic Novonate applied to a single product — now operates across a portfolio, with infrastructure, relationships, and institutional knowledge accumulating across programs rather than being rebuilt for each one. Rohlen had the track record and the capital relationships to organize at that scale. Not everyone does. Maverix demonstrates that the coordination logic is portable, even if the organizational form has to change entirely.
The Cystic Fibrosis Foundation didn’t have a commercial rationale or a strategic backer. It had a disease community watching the median survival age sit at 32, and an impatient president, Robert Beall, who believed that “we have a responsibility for our patients’ destiny.”[7] Here is Beall on why the Foundation had to act:
“We had the gene. We had some targets. We understood the basic underlying defect... All these things could come together in a test tube, but it was taking academic scientists too long to do it. We had to accelerate the pace and bring industry in to that process, which meant we had to de-risk it. We had to take the early risk to draw them in.”
Beall again: “I approached several groups. Not many people returned my phone call.”
So the Foundation supplied patient capital, took on the coordination role the market had abandoned, and organized the effort around a defined clinical need rather than market size. The result was the first genuinely effective CF treatments and, eventually, a royalty stream that returned $3.3 billion to the Foundation when it monetized its Vertex-related royalties in 2014, funding further research.
The CF Foundation model is not virtual pharma either. CF affects roughly forty thousand Americans, which meant the usual commercial model was not available: the patient population was too small, the commercial interest too weak. The coordinating role that shared infrastructure usually plays in drug development was not going to emerge on its own. The Foundation stepped in, bringing together the clinical knowledge, development resources, and capital the market would not have assembled by itself. Capital, development strategy, and execution all mattered, but they were downstream of a more basic decision. Someone had to decide it was their job to make this happen, whether or not the market agreed it should.
Three teams, working in unrelated clinical domains with resources that aren’t comparable, each found a different way to supply what the standard model could not. That work can be lean when asset discipline is in place and the market is contained enough to reach. It can expand to the level of the broader clinical problem when no single product can bear the economics alone. It can be supplied by a stakeholder organization willing to act as coordinator of last resort.
Novonate worked because a particular team stayed disciplined and found a natural home in Laborie’s portfolio, a company organized around urology and gastroenterology workflows and built to acquire and commercialize exactly this kind of asset. Maverix works because Rohlen had the track record and the capital relationships to focus on an entire clinical domain. The CF Foundation worked because a disease community had both the motivation and the organizational capacity to take on the role the market had walked away from. None of these examples produced a replicable system. Each depended on people who saw the gap and had the means to do something about it.
Virtual pharma is an accidental demonstration of what happens when transaction costs fall far enough: you stop needing discrete companies and start needing coordination that the market won’t supply on its own. Healthtech keeps building companies around inventions not because companies are the right answer, but because no other credible model exists. Similar, improvised solutions keep appearing elsewhere, but only as one-offs. A repeatable alternative only becomes possible when you stop organizing around the company and start organizing around the output.
For the inventions this series has been describing — too small for venture, too useful to abandon, too numerous to keep treating as exceptions — that’s the problem. The pieces exist in healthtech. What’s missing is an organization whose job is to assemble them.
Endnotes
[1] Ryan Avent, quoted in Tim O’Reilly, WTF? What’s the Future and Why It’s Up to Us (2017). Avent was describing The Economist’s print operation. The drug development parallel holds well, with one difference: Avent’s concern was about how embedded processes resist change.
[2] The term “virtual pharma” dates to the biotechnology boom of the 1970s and 1980s. Genentech operated as a virtual company from its inception in 1976 until one of its founders established an in-house lab two years later. The model is older than it looks and more standard than it sounds.
[3] The medtech equivalent of this cadre exists, but lightly. There are experienced operators who have built and sold device and diagnostic companies and could in principle bring that knowledge to bear on a portfolio of programs. The problem is throughput. Drug development runs enough simultaneous programs to generate a continuous pipeline of people who have done it before. Medtech doesn’t, at least not at the same density. You can’t build a professional culture around a model that hasn’t been practiced enough to have practitioners. The virtual pharma model also creates an unusual entry point for faculty inventors, who can take advisory or part-time roles in programs built around their work without leaving their academic positions. In short, a meaningful stake in the outcome without a full career transition. That flexibility is structurally absent in most healthtech domains, where commercialization has historically required someone to go all-in.
[4] Sexton ZA, Perl JR, Saul HR, et al. “Time From Authorization by the US Food and Drug Administration to Medicare Coverage for Novel Technologies.” JAMA Health Forum. 2023;4(8):e232260. The study examined 64 novel technologies authorized through premarket approval and de novo pathways between 2016 and 2019 for which no Medicare reimbursement route already existed. FDA clearance isn’t the finish line, just the start of another, different race.
[5] Stanford’s Biodesign program describes the Novonate team working through dozens of design iterations before spinning out. Eric Chehab and James Wall quotes are from “Innovating for Niche Populations,” Medtech Talk podcast, July 29, 2025. Wall served as advisor and board member to Novonate and is currently at Intuitive Surgical.
[6] Maverix Medical was announced November 30, 2023; see “KKR, Hologic and Ajax Health Create New Platform to Accelerate Medical Device Innovation,” Business Wire, November 30, 2023. Cirrus Bio acquisition announced March 29, 2024; see PR Newswire, “Maverix Medical Closes Acquisition of Cirrus Bio as Foundation for Diagnostics Platform in Lung Cancer.” For Rohlen’s account of the underlying model, see transcript of “The Middle Path to Innovation,” Duke Rohlen keynote with Mano Iyer, LSI Europe ‘24.
[7] Robert Beall quotes are from Nature Medicine, “Straight Talk with… Robert Beall,” March 2012, interview by Elie Dolgin.