CAMBRIDGE, Mass. — Members of the academic, biotech, and venture capital communities gathered here this week to discuss the inherent problems and innovative strategies that exist in funding biotech startups and bridging the gap between academic research and early-stage investment.
Gathering at the Biotechnology Industry Organization’s first annual National Venture Conference, the luncheon panel covered topics such as funds associated with specific research institutions, including the private venture fund formed to support the commercialization of research within the Boston-based Partners HealthCare System; tapping into venture funds at large pharmaceutical companies and disease foundations; unique approaches by VC firms to provide seed funding; and various forms of anti-dilutive funding options such as convertible debt.
The panel discussion highlighted the first day of the new BIO event, which BIO CEO James Greenwood said will now be held annually in Boston to bring together members of the investment community, companies, academic institutions, and life sciences entrepreneurs.
Introducing the panel, Greenwood also said that BIO formed a new working group with the National Venture Capital Association to kick off the conference, which attracted some 140 venture capitalists from 90 VC firms in 16 states, as well as representatives from 61 companies from 13 states and two countries outside the US.
Maggie Flanagan LeFlore, managing director of MedImmune Ventures, moderated the panel discussion, and described how entrepreneurs and academic institutions could tap funds at her company, which invests in early- to late-stage, public or private biotechnology companies focused on discovering and developing human therapeutics, primarily in areas of interest to MedImmune, which include infectious diseases, cancer, and inflammatory diseases.
MedImmune Ventures was founded in 2002 as a wholly owned venture capital subsidiary of MedImmune to leverage the biotech firm's research and development expertise and its financial resources. When AstraZeneca acquired MedImmune last year, MedImmune Venture remained a separate entity, but “now represents the therapeutic interests of both companies,” LeFlore said.
MedImmune Ventures was seeded with an initial $100 million and now has approximately $300 million under management with four full-time employees. It invests up to $20 million per company with an average investment of about $7 million, and currently has 20 companies in its portfolio.
To date it has invested in 26 companies including Applied Genetic Technologies; Critical Therapeutics; Elusys Therapeutics; Inotek Pharmaceuticals; Iomai; Kémia; Metastatix; Micromet AG; Rib-X Pharmaceuticals; Sequoia Pharmaceuticals; Tercica; VaxInnate Corp; VLST Corporation; and Xencor.
Another funding avenue was presented by Robert Creeden, managing director of the Center for Innovative Ventures at Partners Healthcare, which helps create and launch new ventures generated from research discoveries by institutions within the Partners system, anchored by Brigham and Women’s and Massachusetts General Hospital.
The year-old initiative has approximately $35 million in its coffers, to be split evenly by the two main Partners institutions, and has funded eight companies since starting operations, Creeden said.
Creeden cited two main challenges in attracting financing for technologies derived from academic or research institutions. The first, he said, was that well-known, or “top-level,” researchers “have never had trouble finding dollars. But there is a whole level below that … where there is good science and good opportunities, but there is no name recognition, so the science might languish in the lab. That’s where groups like” the CIV come into play, he said.
“We have transitioned recently more to disease foundations. They know your disease areas, they have the thought leaders, and they have access to patients. That’s invaluable to a small company.”
Creeden also said that it is very difficult to find what he called “adult supervision” for entrepreneurial scientists, what he said refers to people with the necessary management and business experience to help a scientist commercialize an idea.
Partners is “lucky to have brilliant scientists,” Creeden said. “But we just did a deal involving a company that is developing stem-cell markers for malignant melanoma, and finding someone that the founding scientist felt comfortable with was very challenging because it is such a narrow field. We need help to jump that commercialization gap” which is another service CIV can provide because its employees have a strong business resume, he added.
Leo Liu, president, and CEO of Cambria Pharmaceuticals, said that an innovation fund such as CIV may have been helpful when he founded Cambria in 1999 while a physician/scientist at Harvard University. He referred to his inclusion on the panel as representing a test case of sorts because his company attempted to secure funding from many different sources for the first several years of its existence.
“You would ask for money from a VC to get from point A to point B, and they would say, ‘Come back when you reach point B,’” Liu said. “After a while you start to realize that as an entrepreneur you have to start thinking like a VC.”
He added that he came to the realization that “if I can take the first seven years [of development] from the equation, that makes it much easier for the VCs to approach.”
Liu said that government grants are a good option for young companies because they pay overhead and are “free of any strings attached,” but added that “the process is maddening because it takes a year or so” from the time one files a grant application before they see a dime in funding.
“We have transitioned recently more to disease foundations, which is definitely something” that life sciences startups should consider, Liu said. “They know your disease areas, they have the thought leaders, and they have access to patients. That’s invaluable to a small company.”
A pair of VCs — one traditional and one not so traditional — also shared their perspectives on the problems that sometimes plague early-stage biotechs in their quest to secure funding, and how they might alleviate those problems.
Daphne Zohar, founder and managing partner of PureTech Ventures, said her company tries to take the perspective of both the entrepreneur and venture capitalist in its seed-stage deals. Based in Boston, PureTech specializes in building companies “in reverse” Zohar said. “We seek a market need, and assemble the appropriate technologies and research around it” to form a venture.
PureTech reviews approximately 800 academic projects each year and selects the most interesting of those to form companies around.
Zohar said that in her experience, even the leading researchers from top laboratories have interesting projects sitting on the shelf that lack funding. “The funding gap is a gap in the infrastructure that has traditionally funded academic innovation,” Zohar said. “Angels and seed investors that used to come in early” no longer do so because VCs and pharmaceutical companies have moved farther downstream away from early innovation. “It’s a weeding out of the food chain,” she said. “The quality of the deal flow has been reduced because that infrastructure has been damaged.”
Nina Kjellson, a partner with more traditional investment firm Interwest Partners, said that the funding gap “depends on how you look at it.” To be sure, a straw poll of the audience — which in a similarly informal poll revealed itself to be composed mostly of VCs — revealed a fairly even split between those who felt that a funding gap did exist for early-stage companies and those who felt that there was a “Darwinian” effect occurring in which only the best companies that truly deserved funding were getting it.
For its part, Menlo Park, Calif.-based Interwest, which Kjellson said is on its ninth fund and makes about two-thirds of its investments in the life sciences, has worked frequently with Stanford University initiatives such as its Biodesign Institute and internal SPARK funding, both of which are designed to further biomedical entrepreneurship at the school to a stage where it can more readily nab VC cash.
Another initiative that Interwest is “experimenting with,” Kjellson said, is when it finds some intellectual property that is interesting and commercially viable at a research institution, but is “not quite ready for funding,” Interwest will offer it to one of its current portfolio companies to try and secure the “adult supervision” that CIV’s Creeden referred to.
Under this type of deal, Interwest would pay indirect costs related to the project, offer the portfolio company some equity in a possible startup, and ask it to shepherd the project ahead, perhaps to an investigational new drug application in the case of a therapeutic.
Despite her company’s track record with Stanford, Kjellson noted that tech-transfer offices at universities also have a role to play in closing the funding gap, but sometimes fall short.
“Sometimes we want to blame the tech-transfer offices for taking so long” to complete a licensing agreement and other necessary paperwork, or to develop a technology enough, Kjellson said.
This in turn can throw up a significant roadblock in a funding deal, “although this is a little unfair because they don’t always have the resources available to develop a technology the little bit more it needs to be developed,” she added.