Bioentrepreneurship 101

By Mika Ono

Almost 100 postdocs, students, and faculty showed up at a panel discussion at the California campus of The Scripps Research Institute November 5 to learn more about "bioentrepreneurship." Questions addressed included: Why start your own company? What is required? How do you avoid the pitfalls? What are other options to commercialize your science?

"People have been asking for this event for years," said Research Associate Namandje Bumpus of the Society of Fellows in introducing the program. "We were finally able to get it done with a lot of help and support from the Office of Technology Development and the Office of Career and Postdoctoral Services."

The wide-ranging discussion—which was moderated by Donaldson Santos, senior technology development officer in Scripps Research Office of Technology Development, and interspersed with questions from the audience—drew on the diverse perspectives of the panelists. Fielding questions were: Raymond Stevens, Scripps Research professor and entrepreneur; Kristina Burow, partner with ARCH Venture Partners and founder and director of Sapphire Energy; and Scott Forrest, director of the Scripps Research Office of Technology Development.

From the Bench to the Board Room

Stevens shared some of his experiences as an academic research scientist who has successfully launched startups, including Syrrx, which was founded in 1999 and sold to the Japanese company Takeda in 2005, and, more recently, Receptos, which officially got off the ground early this year.

Stevens noted that one of his motivations for starting the companies was to see the full potential of his research realized.

"I love pure curiosity-driven basic science," he said. "I love understanding protein structure and function. But I also have this philosophy that if you really understand a biological macromolecule completely, you should be able to influence the system in some rational way, by making a small-molecule drug for example. A company allows you to really test your understanding and complete the potential. Why do we do biomedical research? Ultimately, we hope to be able to apply the knowledge and eventually make something that is beneficial to mankind."

While he called starting a company "a great journey," Stevens also cautioned that "you have to want it badly." He said the time and energy required for such an endeavor can't be underestimated.

As an example, he noted that Syrrx—the brainchild of Ned David, Stevens' first graduate student—was initially financed largely on David's credit cards and money from his grandmother. The team was later able to raise $5 million with the help of co-founder Scripps Research Professor Peter Schultz to cover laboratory space, robotics designed by engineers from the Genomics Institute of the Novartis Research Foundation (GNF), and licensing costs.

"Syrrx could have been killed a million times," said Stevens. "It takes belief and passion in what you are doing. It takes commitment."

In today's economic environment, Stevens emphasized, you can no longer start a company merely on the basis of an idea, like in the biotech heyday of the late 1990s. Today, your idea needs to have multiple business elements and be "very well thought out and pressure-tested." He noted that in the case of Receptos, even though the technology was based on two much-heralded Science papers, he incubated the G protein-coupled receptor (GPCR) technology in his lab for two years under the direction of postdoctoral fellow Michael Hanson. During this time, Stevens started working closely with Scripps Professors Hugh Rosen and Ed Roberts, while collecting more data, obtaining additional advice, and finding a great management team, before he began the arduous task of trying to raise money from the venture capital community.

"You can't do it alone," he said, advising potential entrepreneurs to collaborate with other scientists to get the data they need before embarking on the journey. "It's a team effort."

Looking for the Jackpot

As a partner in a venture capital fund—which pools money for investment from trusts, endowments, pension funds, and sometimes individual investors—Burow shared her perspective on how venture capital groups look for projects to fund.

Typically, she said, a venture capital fund will make an initial investment of $10 to $30 million dollars for 18 months to 3 years in exchange for 60 to 80 percent ownership of the company. The founders and employees (including future employees who will gain shares through an option pool) are typically left with 20 to 40 percent ownership of the stock, common or preferred.

"Expect a fair amount of dilution," she said.

The goal for the investors, of course, is to make money—a lot of money. Breaking even doesn't cut it. Doubling investor money over a 10-year period is considered insufficient. When a venture capital fund invests $50 million, said Burow, participants would like to see $200 million, or perhaps $500 million back, an increase of four- to ten-fold.

To make that kind of money, venture capital funds are looking to fund companies with the potential to make a big impact. On a practical level, this means investing in ventures with a robust platform and novel science (although novelty, like beauty, is somewhat in the eye of the beholder, Burow and Forrest noted, and can refer to the target, mechanism, or sometimes even intellectual property status).

"The question is: if the company is successful, how big will it be?" she said.

Interestingly, because venture capital firms are charged with investing all of their capital, $400 million for example, in a relatively short period of time, they are often pass on smaller deals requiring "only" $10 million over the lifetime of the company, Burow noted.

For financing smaller deals, scientists often have to look to other sources of capital—grandmothers, credit cards, loans, grants (for example from Small Business Innovation Research (SBIR)) and "angel financers" (high net worth individuals looking to bankroll deals of that magnitude), Forrest added. In these cases, he said, "leverage all you can"—try to lease space on the cheap, pursue discounts on legal work, and take advantage of free sources of advice.

Partnering with an established company is another option for entrepreneurs.

Helping It Happen

Forrest also spoke to some of the issues involved for scientist-entrepreneurs in working with their institution, in this case Scripps Research.

He clarified that work done at Scripps Research is the intellectual property of the institute. To start a company, a scientist's company first needs to license the technology. For practical reasons, the start-up venture often licenses it from Scripps Research in exchange for a small percentage of the company's ownership.

"That arrangement puts us on the same side," noted Forrest.

Forrest also confirmed that Scripps Research has an agreement with Pfizer that gives that company an option to commercialize the institute's science. Forrest noted, however, that the agreement still leaves many opportunities for scientists to pursue; Pfizer has its own strategic goals that do not necessarily conflict with what the institute's researchers identify as start-up opportunities.

The Scripps Research Office of Technology Development is starting to take a more proactive role in encouraging spin-offs, Forrest noted. Depending on what the company needs, this support could include helping to match the new businesses with potential investors and/or assisting in the development of a business plan.

"The process of writing a business plan is as valuable as the document it produces," Forrest observed. "It gives a company's founders the chance to address key questions and to see the strengths and weaknesses of their approach."

Key topics to be addressed in a business plan include the size of the market, the competitive landscape, and the budget needed to meet key milestones (for example, to obtain results from a clinical trial).

According to Forrest, the most common mistake scientists make in dealing with their institution boils down to a lack of communication.

"Communicate early and often," he said. "Otherwise, expectations often don't align."

In their closing remarks, both Stevens and Burow emphasized how much they enjoyed the teamwork of starting a company.

"You're working with smart, well-educated people, and you're all pulling on the same rope," said Burow.

Forrest ended with this advice for potential entrepreneurs.

"Have a healthy dose of realism," he said. "There are a lot of great ideas out there and only a few of them get funded. At the same time, have a thick skin. If someone pokes holes in your plan, that can help make you stronger."

New Internship Opportunity

As audience members filed out of the auditorium, Santos encouraged people who were interested to take a flyer on the Office of Technology Development's new internship program.

The eight-month position of approximately eight to 12 hours per week is available for a graduate student and/or postdoctoral fellow who wants to learn more about intellectual property and technology commercialization. Interns will participate in a formal training series on the basics of technology transfer, conduct market assessments, direct marketing efforts for select technologies, and gain exposure to ongoing negotiations between the Office of Technology Development and industry partners. The office typically handles about 200 novel technologies yearly, generating more than 140 patent filings, 46 license agreements, and three to five startup companies. For more information on the internship opportunity, contact Santos at dgarcias@scripps.edu or (858) 784-8721.

For more information on the commercialization of science at Scripps Research, contact Forrest at sforrest@scripps.edu or (858) 784-9388.

Send comments to: mikaono[at]scripps.edu

Sharing their insights into the process of starting a company were (left to right) Scott Forrest, director of the Scripps Research Office of Technology Development; Raymond Stevens, Scripps Research professor and entrepreneur; and Kristina Burow, partner with ARCH Venture Partners and founder and director of Sapphire Energy.