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ASU's Biodesign Institute Launches 'Impact Accelerator' to Incubate Nascent Life-Sci Ventures

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By Ben Butkus

This article was originally posted on Aug. 11.

Arizona State University's Biodesign Institute last week announced a new initiative designed to increase the number and success rate of life sciences spinout companies from the institute.

The initiative, called the Impact Accelerator, will create startup companies based on promising Biodesign Institute discoveries and incubate those companies on campus, allowing free access to university intellectual property and use of the institute's research facilities.

The institute then hopes that the startup can progress its technology to the point where an existing company becomes interested in acquiring the entire enterprise for one price, with the financial returns supporting future Impact Accelerator companies and research at ASU.

The Impact Accelerator plans to start by nurturing companies, and the institute and ASU are currently corralling some $5 million in philanthropic gifts to provide initial funding for those ventures, officials from ASU and the Biodesign Institute told BTW this week.

Those officials also said that they believe the Accelerator represents a unique model in university tech transfer and venture formation.

"We've been really great at getting grants, but spinning out companies has been difficult," Kimberly Ovitt, communications director at the Biodesign Institute, said. "Venture capitalists are risk-averse, they want to see proof of concept, and that a technology is scalable, and universities traditionally work at a much earlier stage than that."

Ovitt said that the concept for the Impact Accelerator began to take shape when new director Alan Nelson joined the institute in March.

According to Ovitt, Nelson, who has founded and led several biotech startups and held academic appointments at the University of Washington, Harvard, and the Massachusetts Institute of Technology, saw an opportunity to implement the new model at the Biodesign Institute, which already focuses on translational research in areas such as personalized diagnostics, infectious disease and vaccines, and bioenergy.

Innovations made at the Biodesign Institute are normally disclosed to Arizona Technology Enterprises, or AzTE, the tech-transfer company of ASU. "AzTE would shop it around and do the more traditional tech-transfer work — seeking patent protection, marketing, and licensing. This is a fairly long-term process," Ovitt said. "The other way to transfer technology is to be able to spin out companies, but it is a challenge to find investors.

"Our idea is to mature those companies here at the Biodesign Institute," Ovitt added. "We still have to treat them like physical companies and make sure they are operating in an independent fashion. We think we can do that for a couple of years," and then the institute would seek an exit through a liquidity event such as an acquisition by an existing company, she said.

To be sure, universities everywhere have been exploring new models to increase the number and success rate of spinout companies based on technologies developed in their laboratories.

These models include gambits such as internal proof-of-concept funding; university- and state-supported investment funds; and providing entrepreneurial education and resources.

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And many universities have affiliated incubators on or near campus to support nascent startups and allow them access to local and regional scientific and entrepreneurial networks. Some universities, such as upstate New York's Cornell, are providing dedicated wet-lab space on their campuses for startup companies to use for POC studies (see BTW, 5/14/2008).

But in almost all of these cases, the startup company must still negotiate a license for the technology from the university, and pay for that IP with money from early investors or by granting the school an equity stake in the venture.

In the case of the Impact Accelerator, the Biodesign Institute and ASU will essentially be taking on all the risk from the very start, Augustine Cheng, managing director and chief legal office of AzTE, told BTW.

"It's not just a scientist working alone in a laboratory with other scientists," Cheng said. "It's going to be very value driven with a management team supplied by the institute. The IP license that will be granted to companies will be royalty- and cash-free, so if the time comes where another company wants to acquire [the startup], they will have to pay one price."

That price will vary depending on what the technology is and how much the startup is able to develop it, but Cheng said that the university anticipates an acquisition range of between $10 million and $80 million. "This is completely reasonable if you think about life sciences companies," Cheng said. That money would then return to the Biodesign Institute to support additional startups, and to the institute and ASU to fund additional research as in traditional tech transfer.

"This will take time, but we are trying to get the Accelerator in a self-sustaining cycle," Cheng said. "Some years down the road we'll aim to have one company exit the program each year."

Currently, the Accelerator has collected some 30 applications for new ventures from internal research teams, but plans to initially select just five companies with the most promising commercial prospects. "All of these technologies have moved from the research stage to the developmental stage, but they all have at least three to five more years in risk reduction before some company might be interested in acquiring them," Cheng said.

An advisory board comprising ASU, AzTE, and Biodesign Institute officials, as well as prominent local investors and businesspeople, will select which ventures are appropriate for the program.

"Then we will put together a multi-disciplinary management team" that will contain at least one ASU official and will "really be focused on milestones," Cheng said. "In the case of a therapeutic, for instance, we'd be trying to get it to phase I clinical trials. We will try to add value internally."

In the meantime, ASU and the Biodesign Institute need cash to get the program up and running. Ovitt and Cheng said that the Accelerator hopes to amass an initial war chest of about $5 million through philanthropic donors. "We do not yet have these funds secured, but are … optimistic we will be able to do so," Ovitt said.

Cheng said that the Accelerator will then need additional funding on top of that — basically enough to sustain the program until it sees its first return, which could be a few years. After philanthropy, ASU and the Biodesign Institute plan to turn to private and institutional investors, and even corporate investment arms, which would reap the benefit of having an early glimpse at how promising technologies are developing.

If the Accelerator is unable to find buyers for its startup companies, its contingency plan is to try and nab private investors to create a self-sufficient company. As such, "before the Accelerator allows a company to enter the program, they really have to have a business plan, and need to identify potential acquirers," Cheng said. "The project might hit all milestones and not have an acquirer, and then we would consider spinning it out."

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