By Rohit Shukla, Larta Institute, Los Angeles, CA.
Starting and sustaining
a business in the life sciences is not for the faint of heart. And in an
increasingly complex business environment, biotech entrepreneurs should look
for complementary partners and new business opportunities to effectively build
their companies. In 2004, the Larta Institute in Los Angeles was selected by the
National Institutes of Health (NIH) to run its
Commercialization Assistance Program (CAP), which is designed to introduce
companies receiving Small Business Innovation Research (SBIR) grants to the
realities of the marketplace. These companies are educated on the need to find
partners, raise money and navigate a complex web of interactions necessary to
ensure success. Companies in the CAP—all small businesses—are drawn from
multiple sectors: from biotech to specialty pharma and from diagnostics and
devices to healthcare solutions.
In my time as CEO of
Larta, I have had the opportunity to work with more than 400 entrepreneurs
under the CAP program over the past 4 years. And if there is one key take-home
message from this experience, it is that although the road to success and
sustainability, especially in the life sciences, is a long and unpredictable
one, the increasing ease of finding partners can make the trip easier than it
used to be.
Entrepreneurs:
nature or nurture?
Entrepreneurs are often
celebrated—and sometimes isolated—for possessing qualities that set them apart
from the communal experience: single-mindedness, persistence, aloneness. But it
is clear that entrepreneurs also have a capacity for optimism even in the
presence of contrary evidence.
Larta Institute, which I
founded in 1993, cut its teeth on the notion that entrepreneurship is an acquired
discipline: in other words, it can be taught. Through working with thousands of
scientist-entrepreneurs emerging from universities and labs, the Larta team has
decided that entrepreneurship, far from being a lonely endeavor, is a highly
social one that requires interacting far outside the entrepreneur's circle.
Furthermore, we also understand that the step-by-step approach to building a
business must be tempered to suit the dynamic environment in which those
businesses are being built.
Good advice for
entrepreneurs sounds like this: supplement your know-how with 'know-who'. An
invention may succeed, but it succeeds only to the extent that it brings others
into its fold to shape and form the details—and sometimes even the outlines—of
the original inspiration.
The
role of CAP
In the NIH-CAP,
there have been some remarkable examples of entrepreneurs who have aligned the
joy of research with the expansion of their companies' prospects into the world
beyond. One of the companies we are currently assisting in the 2007–2008 CAP is
Molecular Design International (MDI) in Memphis, TN. Its business model is
discovering small-molecule therapies and out-licensing them to larger companies
for development and commercialization. That approach allows MDI to create
innovative treatments for various conditions in a cost-effective manner while
also benefiting from commercialization through milestone and royalty-bearing
agreements. The company has drug candidates in the pipeline for obesity,
diabetes and wound healing, and in the past it has out-licensed products to
Johnson & Johnson, of New Brunswick, NJ; Eli Lilly in Indianapolis; and GlaxoSmithKline in London.
As an entrepreneur, your
first obligation is to understand the structure of the life sciences industry.
If you are going to be part of it, you need to know what makes your industry
tick. Beyond having a general understanding of the industry, it's important to know
who is doing what, how they are doing it and how well they are doing it in your
sector. Another responsibility is to know the life cycle of products and
services provided by that industry. How a product begins its journey in the
market, what current solution it displaces, who uses it, what are the risks of
its being displaced in turn, how that might happen—these are all questions and
considerations that allow you to anticipate issues and build them into your
strategy and your business model. Becoming knowledgeable about these issues
will allow you to plan your entrance better, but it will also allow you to
articulate this strategy to potential investors and help you align your
objectives with those of potential partners.
In the CAP, the Larta
team explores these issues in the Commercialization Training Workshop (CTW),
which launches the ten-month CAP in October each year. We start with the CTW in
order to align the entrepreneurs with the realities of their industry sector.
Through interactive panels comprising past CAP entrepreneurs, fireside chats
with industry figures and panel sessions on various topics of general interest
(regardless of sector), we tease out the issues facing businesses, because
these issues matter so much to the orientation of the entrepreneur. The
intention is for them to make the transition from working on a 'project' to
working on an 'enterprise'. Vivo Biosciences, of Birmingham, AL,
a past CAP company, had an SBIR grant
to develop their preclinical assay. In the course of the program, Vivo began to
focus on testing drug candidates for the platform while developing a pitch for
the commercial market. A venture capital firm associated with the program
showed some interest in the assay's prospects and invested; thus, the firm went
from a project to an enterprise in a few short months.
Exploit
today's economy, pharma's troubles
Inevitably, in any
sector of the industry, you will see concentrations along the chain: large
companies, often aggregators and integrators, with mass consumer businesses,
entrenched positions, strong internal inertia and long cycles from innovation
to product. These large companies are also marked by sales channels that are
highly developed, mostly 'vertically integrated' (meaning that they are
associated with specific sets of products) and embedded in the front line of
medicine: physicians and consumers. In addition, they have long histories, both
positive and negative, with regulatory and reimbursement regimes. For a small
company, this landscape looks daunting.
But think again. With
patent expirations, competition from generics, dwindling pipelines, long
development cycles and spectacular late-stage failures, there is growing
recognition from the pharma industry that innovations created outside a company
may prove to be as important as those created internally. One large company
that exemplifies this approach is Procter & Gamble (P&G) in Cincinnati; its pharma
division has declared 'open innovation' as its preferred path. The company has
partnered with Larta Institute through CAP to look at innovations being
proposed by emerging companies. The association is recent, so I can't yet gauge
how successful it will be, but it should be noted that P&G has considerable
interest in emerging innovation in its core areas of women's health and
musculoskeletal conditions, and in other areas such as incontinence and
fibromyalgia. CAP companies seeking alliances with the likes of P&G should
know the large pharma's areas of interest and be ready to provide a solution to
a specific problem and to provide clinical data. In the past two years,
early-stage companies in CAP are seeing greater interest from larger companies
in the pharma and device areas.
What this means for an
entrepreneur is that today, more than ever before, there are increasing
opportunities for partnering with big companies. And these larger firms can
provide vital experience in preclinical testing, navigating the regulatory
process, inserting new products into a pipeline, liaising with payors and
distributing the product to the market.
But before partnering,
you must get your ducks in a row. A competitive analysis of your space is
vital, because in order to be responsive to the new global 'connectedness', you
must understand what others are doing. In achieving this, however, many
entrepreneurs fall into a fatal trap of their own making: they inevitably
describe their companies or innovations with such specificity that it becomes
easy for them to dismiss competition as not being important because 'they don't
do what we do'. You will need to assess competition in the global marketplace
in terms of entities that are in the same area of interest even if they don't
have your approach. Also, indirect competition is guaranteed: what the
marketplace is doing, the current state of the art and just the inertia built
up in the market are all competition for your great new innovation. In other
words, the marketplace is not going to beat a path to your door; it deals with
what it has, and the current solutions have probably developed traction, are
certainly more entrenched than you are and have been adopted by users. Be
flexible, adaptive, aware and generous about the competitive landscape—your
instinctive dismissiveness may really just be defensiveness, and that is the
one sure way to turn off a potential partner (or an investor, for that matter).
Global
presence, right from the start
Today, the Internet
serves as the principal competitive research tool; its global reach and speed
ensures that it reflects developments in the entire world more thoroughly than
any other tool. Many programs and information feeds on the Internet can be
customized to your needs. Researchandmarkets.com is an excellent source and
programmer of biotech-related feeds. Also, competitive intelligence derived
from practical case studies in areas of considerable global interest is available
from Knowledge@Wharton and the Massachusetts Institute of Technology's
Opencourseware, which provides information on trends and developments in the
field. An Internet search will find you both of these sites.
The competitive analysis
you'll need should encompass far-ranging places such as Oulu, Finland, and Mumbai, India.
Going global helps create scale and reach by allowing you to partner with other
nimble entrepreneurial firms and find the push-pull points for each of you—that
is, determining your objectives and those of your partner (push) and finding
what each of you needs (pull). One of the most important things for young
companies to do is to become educated on the cultural context for the use of
certain products in foreign countries. They should also gain experience
interacting with local consumer and end-user culture and understand the use of
certain words (especially in the branding, naming and even descriptions of
products) because although they may be harmless in our culture, they could be
offensive or inappropriate in another. Being culturally sensitive and also
understanding the environment in other countries is part of the new complex of
global skills that you must cultivate.
The fact is that there
are many more options relating to partnerships and market penetration now than
there were in the past. It used to be that the dream of the life science
entrepreneur was to be acquired by a giant. Today, despite the increase in the
cost of compliance and regulation (especially in the pharma area), the world
truly is your oyster, because nearly every country has aspirations to become a
hub for the life sciences. Many have invested considerable sums in developing
their infrastructure (including investment programs, regulatory regimes,
incubators close to universities, wet labs and Class A facilities). Emerging
life sciences entrepreneurs need to look beyond their comfort zone and search
for those opportunities to collaborate with entrepreneurs from around the world
in virtual arrangements, without the need to dilute their stakes.
There are also
opportunities to make your expertise available to countries in which the
pursuit of excellence is every bit as compelling as the traditional biotech
markets. (Think Singapore, Finland, India, Brazil, mainland China and Hong Kong.)
You may decide to locate or start, with the help of friendly universities and
life sciences organizations, an operation that allows you to tap into some
fundamentally important skills and other attributes, such as market access,
that are present in those countries. What is more, many of them believe in the
power of smaller companies and have fervently embraced policies to grow their
small- and medium-sized enterprises. For a budding entrepreneur in the life
sciences, doing market research does not involve researching possible paths to
success only in the limited geography of the country in which you are located.
Time
to take the plunge
Consider the following:
if you were set on a path to build your business in a typical linear fashion,
you would first identify the 'sweet spot' in the industry, where there is as
close to a perfect fit for your business as is possible. Then you would
assemble the team and build it out gradually, staying consistent with the
milestones you have set, the money you can raise, the trials you can perform
and the successes you can achieve.
Instead, I suggest that
you should first understand the core intellectual assets you have—this will
translate later into intellectual property (IP). In a time when there is
continuing convergence both in the sciences and between separate life science
sectors, your innovation may have an impact that is broader than you could have
imagined. This is not to encourage you to embark on a path of wishful thinking,
but just to ensure that you are thinking globally. Next, investigate all the
potential applications that are already being developed and glean, both by
intuition and by scanning such sites as freshpatent.com, what IP has been filed
in this area. This will give you a good place to position yourself. By now, you
should have already sketched out a team of folks drawn from various areas of
expertise (functional as well as technological). There are a number of things
here to be looked at, too involved to get into in this article, but suffice it
to say that your process of 'socialization' has begun.
Conclusions
So what do you do, armed
with this knowledge? First, you need to be relatively clear on answering
certain questions that every entrepreneur needs to consider: what do you intend
to produce? How do you intend to market it? Do you think you can go it alone,
based on the information you have gathered about the industry? The answer to
that last question is increasingly 'no', unless you have a product that is
highly disruptive and distinct from anything the current incumbents are
familiar with or is outside their interest area. Whatever the answer, though,
you will have to understand and focus on your IP, on the implications of your
innovation on both regulatory and reimbursement issues, on a realistic
evaluation of your markets and on your exit options (what is the 'end game' for
your company?).
Think through the
implications of your answers. If, as I am wont to suggest, you should consider
partnerships (remember the exhortation to socialize your invention to others so
that you can get it out to the world), find answers for the following
questions: what can partners do for you, apart from having deep pockets (which
they are loathe to reach into)? What can you do for them that they cannot achieve
themselves? What is the current state of the art that frames current practice
in your chosen sector? How would you change that game? Do you fit into a
potential partner's 'sweet spot'? What is that company currently doing in those
areas? What initiatives does it have internally? What products has it launched?
What are the known results? Is your product or service merely an add-on, easily
achieved by them internally, or is this truly a new product?
When you approach a
potential partner, develop a pitch that is oriented to its business, and have a
scientific presentation available as well (the company will do a full-court
technical diligence once the business case is better established). Attempt to
find an internal champion for your proposition, keeping an eye out for
personnel turnover. Know also that you are not likely to be a significant
priority among the numerous internal and external issues the company faces, so
establish clear milestones and timelines and revisit them often with the
nominated team.
The fact is that the
disruption of standard supply and value chains by the new 'connectedness' has
created multiple paths to the market for emerging life sciences entrepreneurs.
We are discovering this in the CAP itself. The normal process of building a business
for the purpose of being a stand-alone company, and struggling through a mature
and difficult marketplace, is no longer the only path to success. The new
realities allow companies to choose multiple paths for multiple
purposes—licensing, forming partnerships, marketing, selling—depending on the
breadth of their innovation and on leveraging ('arbitraging') the differences
now clearly visible in many parts of the world. Considering your innovation as
less narrow (even though it drives many market pundits, investors and others
crazy because 'focus' is the name of the game), but choosing to extend it out
in many ways, and choosing to do only one thing yourself, is a more responsive
strategy for the age in which we live.
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Originally published 2/26/08 in bioentrepreneur
When CaP is detected, usually surgery
or radiation is used first to reduce the size of the cancer (step 1 in the
figure). At this stage, cancer growth depends
on androgens, or male hormones produced in the testes; therefore, after surgery
or radiation, men are often chemically castrated in order to retard the re-growth
of any remaining cancer cells (step 2 in the figure). Despite this treatment, the cancer invariably
returns and slowly progresses to a more aggressive malignancy. 
