Biotech Entrepreneurship, Start-Ups and Hollywood

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By Robert Foldes

I recently saw the movie Extreme Measures starring Brendan Fraser and Harrison Ford.

The movie was released earlier this year but like many of you, I stayed away initially, daunted by the usual negative Hollywood stereotype of scientists and/or the pharma/biotech industry (eg. The Constant Gardener, Deep Blue Sea, etc.). Extreme Measures was inspired by the true story of the development of a treatment for Pompé Disease. Key players in this movie were based on John Crowley (current CEO of Amicus Pharmaceuticals), Dr. William Canfield, their start-up company Novazyme, and Genzyme (the acquirer). My reasons for watching the movie were not inspired – it was free and there was nothing else on. I had some trepidation but the movie was not as bad as I feared. Don’t get me wrong – I still don’t understand why Hollywood screenwriters can’t access better advisors to help with more accurate content and dialogue. One scene involving the acquisition negotiation was particularly bizarre. Nevertheless, there were some portrayals (and lessons) that were reasonable (given the limitations of a two hour movie). This motivated me to extrapolate and offer my thoughts on current realities facing biotech entrepreneurship and start-ups.

Entrepreneurship in biotechnology frequently results from the partnership between at least one scientist and at least one businessperson. The recipe for success includes a well-published scientist associated with a leading research institution and contributing to solid intellectual property. Ideally the businessperson has significant industry and capital-raising experience. Both are equally important during the start-up phase and each role will evolve over time. When risk capital is scarce, the bar on the founders’ credentials and track-record is inevitably raised.
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ons of university technology transfer offices (TTO) are less clear. Essentially this was absent in the movie and the university was generally negatively portrayed as not supporting and not appreciating the work of the scientist. Is real life much different? I have watched TTO’s evolve over the last 15 years and can offer some generalizations and perhaps some suggestions. Some TTO’s are more entrepreneur-friendly than others. Not surprisingly, this may be inversely-correlated to their internal resources. Many TTO’s are bureaucratic and process-oriented and more focused on avoiding liabilities rather than assuming risk and promoting commercialization. The latter two are usually linked. Much of the TTO culture is derived from the background and mandate of the university’s vice president of Research (generally a sub-optimal reporting structure). The “centralization” versus “decentralization” argument amongst stakeholders in commercializing academic research is moot. The key issue is one of leveraging internal and external resources to offer outstanding service to inventors, entrepreneurs and industry with a sense of urgency.

The “one-stop-shop” rationale used by centralized TTO advocates is also off-target. Any company that has an active in-licensing program has dedicated experts finding technologies. World-wide patent or licensing opportunity databases are the real “one-stop-shops.” From local research institutions, industry mostly seeks timeliness and involvement of key decision makers in negotiations. Adding more layers to obscure decision makers and lengthening negotiations does not facilitate commercialization.

The most important role of the TTO by far is to ensure the broadest protection of the university’s intellectual property. This does include education to ensure that public disclosure does not jeopardize this mandate.

Unfortunately, most TTOs that I know do not have sufficient resources to deliver on this mandate and therefore their role is compromised (also discussed by Robert Ford et al. in the September issue of Biotechnology Focus). Yet, universities need to recognize that they have an important role to play in local economic development.

Rather than abandoning patents due to lack of resources, one approach would be to rapidly assemble an entrepreneurial team to ensure that proper financing, partnerships and development resources are secured to protect and advance the innovation. A properly structured entrepreneur-in-residence program is consistent with this approach. Some universities (eg. University of Saskatchewan) have recently announced such programs, however, current implementation is by no means ubiquitous or optimal. When risk capital is scarce, the required support from universities and their TTO’s is greater. The alternative involves a drying up of start-up companies and potential licensees, a gap in product innovation pipelines, reduced return on government investment in academic research and diminished incentives for academic researchers to participate in the commercialization ecosystem.

Early-stage risk capital is mostly addressed by the entrepreneurs themselves (and their networks), angel investors and venture capital (VC). Extreme Measures portrayal of venture capitalists was close to realistic, focusing on hurdles rather than opportunities and being quick to bail, rather than a long term supporter of corporate growth. Nevertheless for any company that will require tens of millions of dollars for product development that will take more than two to three years to generate revenues, access to venture capital is critical. I have identified approximately 115 VCs in Canada, the U.S. and Europe that may consider start-up life science company investments. I would estimate that there were 25 per cent more of these VCs some 5-10 years ago. Of the 12 such VCs headquartered in Canada, only five invest inside their province. The deficiency in VC in Canada is not so much a result of the number of potential investors but more attributable to the amount of capital that is targeted to early stage life science opportunities.

In Ontario there is one small dedicated fund managing some $36 million and investing across multiple sectors. In comparison, Nova Scotia, with 1/6 the population of Ontario has dedicated more than $61 million to invest in local companies. I am not aware of a single Canadian biotech CEO that feels that they can build a sustainable company without accessing foreign capital. In many cases, access to foreign VC involves relocation. This continues to have dire consequences for the Canadian economy and can only be reversed by large and sustained investment at all stages of a biotech company lifecycle (including proper resourcing of TTOs). Simply not enough is being done (still).

From the Canadian biotech entrepreneur’s viewpoint, an international financing strategy is now de rigueur. Older paradigms that required local VCs to lead a financing round are no longer rules. In fact, many international VCs prefer to lead the financing round and assemble their own investor syndicate. In some cases, pre-existing investors (especially those that are not able to follow-on) become an obstacle to attracting international VCs.

The key message is that, as in chess, the entrepreneur needs to balance the end game with the first move. Getting the right advice and strategic support is critical.

Novazyme was founded in 1999 and acquired by Genzyme in 2001 for shares worth $137.5 million. The founders went on to pursue other entrepreneurial ventures. Amplified by hundreds of similar stories in the U.S., this example is representative of an effective biotech ecosystem.