BioScience Biz

Experts talk about how to make the most of biotech clusters

Many cities and countries view the foundation of a biotech sector as desirable for a high-tech, intellectually driven economy. But a discussion by seasoned, international biotech management and investors suggests that attaining an environment with the right mix of money, management and innovation remains a difficult and long-term challenge.

Location is interwoven with the ability of biotech startups to prosper. Regions with nascent biotech sectors often find attracting the necessary financial and human resources to their area an uphill struggle, which can mean the difference between success or failure for a fledgling life science business. In the following article, a group of experienced biotech executives and investors from around the world discuss the pros and cons of building a business inside or outside a cluster. The article is an abridged transcript of a Bioentrepreneur roundtable discussion held at the Marriott Boston Copley Place.  The article was edited to address the major themes of that discussion and was originally published online in Bioentrepreneur.

The panelists included the following:

Fritz Bühler is Director of the European Center of Pharmaceutical Medicine, University Hospital, Basel, Switzerland, and a partner in Bear Stearns Health Innoventure;

C. Mark Tang is Managing Director and Chairman of World Technology Ventures, LLC, New York, New York;

Pratik Shah is a partner at Thomas, McNerney & Partners, San Francisco, California ;

Mark Leuchtenberger is President and CEO of Targanta Therapeutics, Cambridge, Massachusetts;

Ko-Chung Lin is Chairman and CEO PharmaEssentia, Taipei, Taiwan;

Pedro de Noronha Pissarra is CEO of Biotecnol SA, Oeiras, Portugal;

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How important is location in the success or failure of a biotech enterprise?

Pratik Shah: If I had any advice for an entrepreneur who's looking to start up a biotech not located in a cluster, it would be: "Move to the nearest biotech cluster." There has to be a really compelling reason not to do so. And it has to have something to do with a core competitive advantage that staying in the current location is giving them.

And for governments that are trying to create a nascent biotech sector in their region, the question I have for them is: What are you shooting for? Is the goal to draw sustainable research funding from the US National Institutes of Health [NIH] or the like? Or is it to build companies that are going to create products? If the answer is the former, then there are models that have recently emerged in the United States. For example, Florida has set up the Scripps Research Institute with a significant allocation of government funding to get it up and running, and I presume the goal there is to create sustainable research that will attract NIH dollars. But that's a little bit of a zero-sum game. If the objective is to create products, then there is a fundamental gap, because allocation of dollars is not enough. Without involvement of experienced, professional investors who know exactly what kind of things will get funded down the road, it's hard to create an organization that's really ready for that next level of funding without having an active collaboration or dialog or, in the ultimate sense, a very close partnership with the professional investors who are going to take those companies to the next level.

Pedro de Noronha Pissarra: With clusters, at Biotecnol we personally have a geographical problem. Nobody would invest in Portugal, where we are based. So for that reason, we set up a unit in Maryland, and we started doing our deal-making through the Maryland company, Biotecnol Inc., and the whole thing developed very nicely.

But we're still not quite in the cluster, and attracting top-tier management is a problem. It's not qualified people, because there are many qualified people around that went to Ivy League universities, or went to Oxford and Cambridge in the UK. But it's really hard to find the top-notch manager that will see us to the next stage. So I would say one thing: Don't start the company in a place that is not a cluster!

Portugal is a great place. I love it. I lived, worked, and studied abroad for many years and then went back because of the fantastic lifestyle. But, at the end of the day, you've got to be on a plane every month, going to biotech clusters, delivering your talks, convincing people that while we've got great wines and great food in Portugal, we also do great things in biotech. It was initially a very hard sell, but since we have grown and have created a recognized and successful buisness, perception about us has definitely changed. But we need more examples of success.

Mark Leuchtenberger: When I was recruited to Targanta [in the summer of 2006], they said they had a great drug with two positive phase 3 trials, and said the company is located in Indianapolis. I said, "Well, my geography is here, I've spent twenty years here, and I'm not moving." And they said, No, we're not expecting the CEO to move to Indianapolis. Essentially they were doing this search while acknowledging that Indianapolis might not be like Pedro's description of Portugal. It was going to be a place where you could do R&D, but you might set up a commercial or investment headquarters somewhere else—either San Francisco, or La Jolla, or Baltimore, or Boston, but not Indianapolis. You don't think biotech is regional, but, because of the companies and investors, it's intensely regional. People don't want to have to fly if they don't have to.

Fritz Bühler: I'd like to come back to this two-site company setting. We have never actually been able to work out a company in development with two sites. At some point, you have to move everything to one place. So I think that you may have a problem with Marylan and with Portugal and you'll have to make up your mind.

PNP: We've been asking this question to ourselves for awhile now. What are we going to do now? Are we going to spin-off the products completely to the Maryland subsidiary and Biotecnol Portugal is a shareholder, are we going to raise funds and hire local teams so it actually ends up being a spin-off of the company? I see your point; it's very valid. And it's already creating a lot of questions, so people are saying, "We are investing where? Where are the shareholders, where is the management?"

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Beyond easy access to venture capital and infrastructure, why are clusters so important?

ML: Take the Boston area. I think in the past five or six years or so, Novartis [Basel], Pfizer [New York], Merck [Whitehouse Station, New Jersey], Wyeth [Madison, New Jersey] and Bristol-Myers [Princeton, New Jersey], most recently, have all voted with their feet to come here. I think of it sort of as a casino: the house always wins. By that I mean the house is the resident group of knowledgeable, able managers and scientists. Projects come and go, and sometimes you are out of work for months, but usually you just keep participating and don't have to uproot your family. A lot of people switch jobs in Cambridge and don't even change their commute except for the last 200 feet. There are 50 companies over there!

I think that this is what people are betting their careers on now: serial entrepreneurship, over and over again. I've been doing that for the past five years—some of it works out pretty well and some of it works out pretty badly, but here's the bottom line: you're probably staying in the same location, you're accruing a group of people you trust who you can work with, and hopefully you're accruing the trust of the venture capitalists so that when another good idea comes up, they think of you and hopefully you can participate.

PS: I need you to talk to the CEOs of my companies that have only one product. They're always trying to in-license something for job security, and I say, "Hey you're in a cluster. You're going to be fine."

C. Mark Tang: One thing I would like to mention is the strength and existence of academic institutions that are always related to bioentrepreneurship, because the intellectual property and intellectuals are coming from this area. So I think that's a large part of the reason why big pharma and biotech are here in Boston—because of Harvard, the Massachusetts Institute of Technology, etc.

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In what ways are countries with nascent sectors attempting to foster biotech?

CMT: I'll just explain China as an example of Asia. Typically what China has is the government funding. For example, Ministry of Science and Technology, among other agencies, has grants it can fund research and development of startups with, and the city usually has some fund, and then certain banks do too. The government-owned high tech parks at times provide biotech the incubator space perhaps for free or at a discount for a couple of years and perhaps some seed/grant money for free as well. But there are not many, if any, Western style venture capital [VC] firms or groups for biotech. I once invited a well-known VC firm from the US to China to speak at a conference I organized. The VCs were very excited about the prospect of the industry after seeing a high tech park and want to open an office perhaps in five years. But still, biotech is very new.

PS: I'm curious, are there more examples of countries like Singapore who've said that they're taking a very long-term view and allocating a billion-plus dollars in capital toward biotech? And fundamentally from an infrastructure standpoint, is there really a logical reason that biotech should be there as opposed to some other Asian region? That is a positive example of a government making a long-term financial commitment to try to create a cluster.

CMT: I've been to Singapore a few times and I know a couple of managers of the biomedical fund as well. I think the strategy of Singapore is good. They want to form a biotech cluster. Mainly the money they invested in the beginning had a few strings attached, such as giving them first rights of refusal in Asia. So essentially what they were doing was investing money in technology and products overseas and buying Asian rights, and, in turn they're going to sell those products to the Malaysians, to the Indians and to China.

What's happening in Asia, I believe, is that Singapore is a role model because they have managed to set this up in very powerful way, put the right funds behind it and attract, even buy, top people even a Nobel Prize Laureate, from around the world to work and live there. But in China, as well as other Asian nations, I'm worried whether there are funds available now to do this similar (approach) to Singapore? Of the main Chinese biotech centers, Beijing, Shanghai are very good. The next group is TianJing and Shenzhen. One should not forget that the Western Hemisphere, led by the United State, has an enormous advantage and is ahead by 20 years compared with Asia. I don't think one has to reinvent the wheel. Just take the best from what we have learned in developing biotech regions in the United States and Europe, and then insert that in an orchestrated way in Asia, taking advantages of lost-cost, high quality human resources and emerging large local market there.

Ko-Chung Lin: When I deal with Asian companies, I tell them, "You know, if you want to get money from the US you've got to register yourself in the US." I work with people who are actually registered here, but in reality it's virtual—no one is really based here, everyone is in China. But it appears to be a global company, and this makes US investors feel comfortable. Especially in New York, where there are large funds and they have a percentage that they have to invest internationally, so they're very active in looking overseas. Of course, the key part is you've got to have a good story. You know biotech: you don't have to be making money.

PS: I guess the real question is how many venture dollars are flowing into those regions, and if the answer is not a lot, then I think the writing is on the wall. Because although many countries are vying for life science-oriented venture funds, is biotech really for every region? Is there really a fundamental reason why biotech should be in a particular geography where it already isn't? I would take a really cold, hard look at what the facts are.

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What types of business models and exits can biotechs around the world offer investors?

CMT: Like the US, there are four or five business models in China: reagent, equipment and services; generic drugs; technology platform; R & D products and hybrid of technology and products. Right now, service companies, such as contract research organizations, and generic companies are hot in China. Several of them have raised money through IPOs in US stock exchanges.

FB: Valuations have changed enormously over the past ten years. Obviously once you have an asset you want to let it grow as much as possible, so probably the best point at which to sell or partner is after a proof of concept, and it seems possible to develop any compound up to proof of concept. So I think the time is over for any garden-variety investor; it's now smart money. I believe that the funds have changed greatly in the sense that they are now run by people from the pharmaceutical industry who bring not only the dollars, but smart dollars to the table.

The initial public offering [IPO] situation is another major problem, but one well solved in the United States with the NASDAQ exchange, and poorly solved in Europe or in other parts of the world. There are plenty of stock exchanges, but none really have the right flow or a big enough float, and the situation is so scattered in Europe that it's really difficult to go through a successful IPO. It does still happen, despite this scattering, and one wishes that there would be more concentrated IPOs, but nationalism is a huge problem. Why should you, as a Viennese, invest in Zurich? Or a UK person invest in someplace besides London?

PS: I recently looked at the number of companies that were venture backed that had liquidity events driven by IPOs versus mergers and acquisitions [M&A] in the past three years, with a cut-off of $300 million exit value or greater in biotech, pharmaceuticals and medical devices. The numbers suggested that the two paths led to roughly equal numbers of exit opportunities. So, yes there has been a lot of buzz about M&A because of the recent flurry of activity, but I still think that the other path exists; it's certainly nowhere near the valuations that it used to be and therefore has really created a situation in which the amount of the capital and the pre-money valuations that private investors have to make work is much more constrained. I think the two paths still exist.

FB: I'm not sure that the IPO window is totally closed. There's still some happening, particularly in Europe, although the M&A pathway is the one that is now favored. There again, one should caution the biotech/pharma small companies not to merge or be acquired too early, but really grow their value. Unfortunately, that doesn't always happen because of the enormous pressure being exerted by the pharma world, which is short of good ideas and compounds. There's also an innovation gap and a development gap—so pharma really gets its arms around everything it can find.

PNP: The hybrid model should help with valuations, but it's a very hard sell. To say, Okay, we have excellent development capabilities, we may have worked with Schering-Plough [Kenilworth, New Jersey], with Sanofi-Aventis [Paris] or whomever, but still it doesn't sell because the model is capped. The service company will always be the less attractive thing for the investor. I know Pratik has a service company in his portfolio, but he's one of the very few venture capitalists that I know that has that. So you've got to separate the businesses completely. And this puzzles me because it's a perfect meeting of the two worlds; you can mitigate the risk, you even have nice revenues, you've got granted patents on valuable products and technologies, among great know-how, but when you put the two models together, people don't generally like to invest in such structure. Why? I am not certain, but I am convinced that since we favored a product development oriented strategy we certainly have created a great deal of interest in the investment community.

KCL: I can explain this to you. The problem has two parts. The service guy says, I don't want to do drug development because I'm always losing money; the drug development guy says, I want a high-risk return, and I don't like service. So, when you put them together, very few people want to do it. Another problem is working with partners. Because you are working with big pharma, they give you projects to do services on, and they're scared that you're passing these things on to your idea unit or going around them. So pharma says, Listen, if you want to do drug development, you're not going to get our contract. If you shut down your drug development, then we'll give it to you. Because this product is so important to us, you know we've spent hundreds of millions of dollars, we're not going to give it to you if you have an idea unit.

ML: I've got a Biogen [Cambridge, Massachusetts] analogy from the early nineties. We were going along, scraping by, but we signed this deal, got a little bit of money in, and then all of a sudden the hepatitis B and alpha interferon royalties started to kick in and our royalty revenue went from $60 million to $70 million in 1991 to $135 million in 1992. Suddenly we had money to fund all our own development. Did the investment stock market like it? No, they hated it! It was like it was a service business. It was pure royalty; it was pure profit, but they looked and they said, What are you doing with it? You have boring royalties that are only going to increase a certain amount, and until then you're nothing more than a royalty trust and a boutique and a bunch of airheads walking around talking about things.

PS: But that's actually not as irrational a financial decision as it sounds. Look at Biogen versus Amgen [Thousand Oaks, California]; they were started at roughly the same time, and, if you look at those companies' market caps from when they were started or when they went public to today, you see that there's a long period when Biogen's market cap is basically flat, whereas Amgen was favored by Wall Street. Why is that? Well you could call it brilliance or you could call it just luck. But if you have a specialty product where you can develop a sales force, you're going to make a lot higher margin on a lot lower sales line than a royalty model. That's why the market caps diverged. I think that the fundamental issue of market appreciation comes down to, how much are you really going to be able to derive from the pipeline?

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Biotechs and pharma companies need to embrace a new model

In new drug development, the “valley of death” is the period when the research funding is running out and venture funding has yet to materialize.  Both small biotech and large pharma companies increasingly are turning to a business outsource model that G. Steven Burrill labels the "virtually integrated company".  Big pharma has found it easier to spin off pieces of their operations to small biotechs that are eager to find an income stream to get them through this lean period.  Small biotechs that are already set up for a particular technology that the big pharma needs can respond more quickly and the big pharma does not have to divert resources from one profitable project to another.  This win-win model seems to be an emerging trend.  Read the full article here.

Biotech business development--pitfalls to avoid

Biotech business development teams are tasked with finding a partner—usually a large pharmaceutical or biotech company—that will in-license intellectual property. To do this properly, the team members must understand their asset's potential value, attract partners, effectively communicate the asset's value to these partners and eventually close an out-licensing deal on mutually beneficial terms.  By using the most effective methods in business development, teams will be able to present their product effectively to potential investors and partners, paving the way to success in the biotech market. Avoiding the seven deadly sins of business development will raise your company to a level of professionalism that pharmaceutical companies and investors expect from experienced partners. The seven deadly sins are just that—deadly. Avoiding them can bring your business development to life.

A thoughtful article recently written by Jeffrey J. Stewart and Ben Bonifant describes seven pitfalls to avoid when you search for a partner with which to further develop you budding biotech business.  They are a consultant and vice president, respectively, in the business development practice at the specialized management consulting firm Campbell Alliance in Raleigh, North Carolina.  During their years in the pharmaceutical and biotech sectors, they have worked with business development teams of dozens of life science companies.  So, they should know about biotech business development. Read their full article in Bioentrepreneur.

A cancer vaccine is approved in Russia and investors are happy even if the FDA is not

Cancer vaccines have been very hard to come by. So when a New York-based biotech company, Antigenics, saw the results of its recent trial testing a vaccine for kidney cancer (Oncophage), enthusiasm was high. Even though the vaccine did not meet the primary end point of the trial, it did seem to work in a subset of the patients. But, the FDA, in its disputable wisdom, did not accept the finding and required the company to design and conduct a new Phase III trial. The company’s response? Get approval for the vaccine in Russia.

Could this be a new strategy for small biotechs?  Read the article below for more details.  

By Alla Katsnelson, April 9, 2008 on TheScientists.com NewsBlog

A New York-based biotech company announced today (April 8) that it has received approval for the first therapeutic cancer vaccine -- in Russia.  It is the first approval by a regulatory body of a cancer immunotherapy.

The therapy's approval in Russia won't in itself boost its chances for approval in the US or the EU, or improve the prospects of other cancer vaccines that are in the biotech pipeline, Ren Benjamin, senior biotech analyst at the New York investment firm Rodman and Renshaw told The Scientist. But Russia is "novel ground" for small biotech, he said: Seeking first approval in a country outside of the US and EU is a bold move, and both biotech companies and investors will be closely watching to see how lucrative a market Russia turns out to be.

The antibody-based therapy, Oncophage, received a registration certificate from the Russian Ministry of Public Health to treat a subset of kidney cancer patients who are at intermediate risk for disease recurrence, the company, Antigenics, said in a press release The treatment, made from patients' tumor cells, increased recurrence-free survival by 1.7 years according to the results of a phase III clinical trial, the release said.

Cancer immunotherapy has long been a field riddled with scientific challenges, and as we reported in 2006, Antigenics' vaccine was no exception. The company's phase III study in patients with nonmetastatic kidney cancer did not meet its primary endpoint, the company reported last year. Further analysis revealed that the treatment did seem to work for a subgroup of patients who had a lesser risk of recurrence. But such post-hoc analysis isn't enough for the FDA, which has already said that Antigenics needs to conduct a new trial looking explicitly at this patient group.

"I think that other (cancer vaccine) companies in the past -- main one being Dendreon -- have gotten phase III trial results that have shown promise in a subset of patients," said Benjamin. "However, no one has been entrepreneurial enough to seek registration in a country like Russia."

According to recent reports, he noted, the pharma market there is growing astronomically. "This will really be a landmark analysis -- not only to see whether small biotechs can do it alone in these other countries, but also, are these other countries worth pursuing," he said.

Meanwhile, Christopher Wood, a cancer researcher at MD Anderson Cancer Center who led the Oncophage trial, told CNBC that the company had assured him they plan to use proceeds from Russian sales to fund a study for FDA approval. Wood also noted that the data has been submitted for publication. (Wood wasn't available to comment by the time I posted this blog.)

Antigenics is also looking into approval in the European Union based on its current data.
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Further comments on the FDA’s response to Antigenics’ vaccine trial can be found on BiotechBlitz (April 10, 2008).
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© 2008 Steven S. Clark, PhD. All Rights Reserved.

Disclaimer: The authors used their best efforts in collecting and preparing the information published herein. However, neither Steven S. Clark, nor other authors,  assume, and hereby disclaim, any and all liability for any loss or damage caused by errors or omissions, whether such errors or omissions resulted from negligence, accident, or other causes.

Articles contained herein, are meant to be distributed freely to interested parties. However, any excerpts from any article must credit BioScience Biz.

Predicting success in emerging biotechnology, Part 2. By Steve Clark

An investor recently asked me to compare the technology behind two early-stage biotech companies he was thinking of investing in. Both companies had novel therapeutic products at similar stages of development and the investor wanted to know which company’s product had the greater chance of success.

In an earlier article on this topic, I cautioned that predicting success of a technology is impossible. Therefore, in my analyses, I look for scientific limitations that might portend failure of a new technology.

Here, I illustrate another way to evaluate emerging biotechnology—science-focused market analysis. I contend that one needs to assess the market, not only from a business perspective, but also with a scientifically critical eye in order to fully appraise the risks of a new technology. Let me use a real example to illustrate how this works.

Two companies, A and B, are at similar stages of developing novel therapies for treating cancer of the prostate (CaP). Prostate cancer is very difficult to treat successfully; hence, enormous efforts are underway to develop better therapeutic options. The competition is stiff.

In order to fully appreciate the market potential for these products, we first need to understand the biology and treatment of CaP.

Treatment options are limited for CaP 

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.

CaP progression obviously means that androgen depletion no longer prevents the tumor from growing. The first indication of cancer progression is increasing blood levels of PSA (prostate specific antigen), a protein which is secreted by prostate cells. At this stage in the disease, there is no therapeutic option and one simply waits (“watchful-waiting”, step 3 in the figure) until the slowly re-growing cancer develops into end-stage carcinoma (step 4). Increasingly, patients with end-stage CaP are treated with chemotherapy, but this offers minimal, if any, results.

Experimental therapies of the two companies

Because CaP is so difficult to treat, many experimental therapies are in various stages of development and mostly target the end-stage metastatic disease. It is in this milieu that companies A and B are working to develop new therapies.

Company A is developing a naturally occurring biological product that enters cells and kills them by preventing gene expression. For unknown reasons, the product selectively kills advanced-stage cancer cells and not normal cells. Therefore, this product is targeted for potential treatment of end-stage CaP.

This experimental product has stiff competition from the plethora of other experimental cancer therapies under development. Nevertheless, it is likely that multiple therapies that have different mechanisms of action will be needed to successfully treat end-stage CaP. This means that the uniqueness of Company A’s product is a significant advantage; however, the stiff competition also means that, in order to marketable, this product will need to show as good or better efficacy and side-effects than other current and emerging therapies.

Company B has two novel therapies in development. The first therapy is derived from a natural dietary product that surprisingly blocks the androgen receptor. This drug is targeted toward prostate cancer patients who have undergone androgen deprivation therapy, but show rising PSA levels without having yet developed androgen-independent metastatic cancer. Currently, “watchful waiting” (step 3) is the only clinical option available for these patients. So, this product is designed to throw another punch at the slowly growing cancer before it achieves full blown androgen-independence.

The second product that Company B is developing is based on careful understanding of the cell biochemistry that drives CaP progression. When androgen binds to its cellular receptor, many things happen in addition to stimulating growth of prostate cells. It is believed that a specific “side-activity” of androgen stimulation is responsible for turning normal prostate cells into cancer cells. Furthermore, this side-activity also likely drives the progression of CaP from a slow growing tumor to end-stage cancer.

Company B’s second product blocks this cancer-inducing side-activity without affecting any other activity of androgen stimulation. For this reason, the drug is targeted for patients who have not yet undergone androgen depletion therapy. The goal is to retard early tumor progression and avoid the androgen depletion regimen which comes with considerable side-effects.

Which technology do you invest in?

All things being equal (or at least as much as possible between two different early-stage biotech companies), the decision comes down to predicting which technology has a better chance at success, or as I wrote previously, the least chance of failure. Here, science-focused market analysis tells you that the product under development by Company A, while unique and with good potential, nevertheless will compete with current therapies as well as with the many new experimental therapies in development.

In contrast, the products being developed by Company B specifically target stages in CaP where there is no good therapeutic option currently available. The competition for these products is negligible, which means that even if they are marginally effective or have side effects, there likely will be a significant market for them.

The unique biomedical niche targeted by company B’s products means that the significant risk factors company A faces due to competition are not likely to be a problem for Company B. Hence, market analysis through a scientific lens favors investing in company B over company A.

The example described here provides a good illustration of how scientific understanding of emerging biotechnology can add significantly to your market analysis. So, don’t forget to include your technical advisor when doing market research.

This article was first published in part in the Wisconsin Tecnology Network News
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© 2008 Steven S. Clark, PhD. All Rights Reserved.

Disclaimer: The authors used their best efforts in collecting and preparing the information published herein. However, neither Steven S. Clark, nor other authors,  assume, and hereby disclaim, any and all liability for any loss or damage caused by errors or omissions, whether such errors or omissions resulted from negligence, accident, or other causes.

Articles contained herein, are meant to be distributed freely to interested parties. However, any excerpts from any article must credit BioScience Biz.

 

Paths to entrepreneurship in the life sciences

A thoughtful article by Shreefal Mehta identifies and describes two types of life science entrepreneurs. The first type, called the "technopreneur", is familiar to most of us. This is a university based scientist who has a potentially marketable idea/product, has it patented, assumes the license from his university, finds collaborators and investors and works to launch the venture. However, this traditional entrepreneurial path is not the exclusive route to life science venture creation. 

Mehta, who is from the Lally School of Management and Technology at the Rensselaer Polytechnic Institute, points out the value of social networks that fuel serendipitous associations that can lead to the development of new businesses via unconventional routes. In other words, it is not always technical savvy that drives bioscience ventures, but sometime it is your chance associations and insights into market needs. Mehta uses several short examples to illustrate alternative paths to venture creation in the life sciences by people he calls, “market perceivers”. 

He concludes that, “A technopreneur might have difficulty in taking on all of the positive aspects of a market perceiver's aptitude, skills and mental processes, just as a market perceiver might find it difficult to evaluate and determine technical milestones, capabilities and limitations.”

Read the full article here.

Burrill: Plenty of capital, not enough connections

 Madison, WI-  Greater Madison biotechnology executives should stop worrying too much about raising capital and focus on mastering a new biotech business model, according to life science venture investor G. Steven Burrill.

Burrill, founder of Burrill & Co. in San Francisco, is considered a pioneer in the world of biotechnology investing. The Madison native returned to his alma mater Thursday to deliver a lecture in the Microbial Science Building on the University of Wisconsin-Madison campus.

His subject was the global transformation now taking place in areas like biotech and biofuels, but his best advice may have been aimed locally. Burrill spoke of a bio business model that is transitioning from vertical integration for research, manufacturing, clinical and regulatory steps, and sales and distribution to more of a virtual integration model with partnerships for all of these functions.

Burrill, who publishes an annual report on the biotechnology industry, said the changing model means it will be far less important to be in San Francisco and more important to be virtually integrated. “To succeed in Madison, you don't have to get me here,” Burrill said. “You have to be linked.”

The value of integration, he said, is evident in the RCA example. RCA invented the color television set, but could not sell color TVs initially because none of the national television networks broadcast in color. The company's solution was to acquire the NBC television network and make it the first network to broadcast in color. The rest is history.

In contrast, healthcare still is one of the few industries in which important pieces - buyer, payer, and practitioner - are delinked, he noted. The industry will need a greater degree of integration, he said, as it helps deal with issues like pandemic disease and regulatory harmonization.

Burrill & Co. is a life sciences merchant bank that concentrates on companies involved in biotechnology, pharmaceuticals, diagnostics, and other health-related industries. The firm, which primarily raises money from large companies, has more than $950 million under management worldwide and is increasingly raising money globally. Following his visit to Madison, Burrill was off to Dubai in the Middle East, where a surge in petroleum revenues is creating vast sums of wealth.

During his apperance in Madison, Burrill said something that would surprise those who are working to raise Wisconsin's profile to outside investors - there really is no shortage of venture capital. “I would put every dime in Madison if the best deals were here,” he said.

World in transition

The new bio business model will continue to emerge as it becomes more difficult, thanks in part to the Vioxx scare, to get new products approved, as researchers increasingly turn to the private sector for grants, as Congress attempts to give Medicare more power to negotiate what it pays for drugs, and as the pharmaceutical industry is increasingly seen as the bad guy when it is, in fact, part of the solution. These are all challenges that Burrill said would accompany the opportunities that await biotech.

New business models are only part of a transformation that is changing the scientific world from one dominated by chemistry to one ruled by biochemistry, from one-size-fits-all to personalized medicine, and from the mindset that says aging “just happens” to an era in which aging is optional.

The longer life spans that result will raise healthcare costs from the current $2 trillion, or 18 percent of the Gross Domestic Product, to $4 trillion, or double its current percentage of GDP by 2015. Medicare, he added, is on track to spend more than it takes in by 2013.

Some, including HIMSS chairman John Wade, don't believe this slice of GDP is sustainable and view greater adoption of healthcare information technology as a mitigating factor. Burrill, however, believes it's inevitable. He cited the combination of greater longevity made possible by new drugs for AIDS and cancer, and the aging population they create. None of the presidential candidates, he added, will be able to stop it.

While many believe the bulk of healthcare costs are linked to drugs, 75 percent of healthcare dollars actually are spent on chronic care. “What has happened is we've taken all these things that used to kill us - a dead patient is a cheap patient - and by keeping people alive through chronic care therapy, it's costing us money,” Burrill said.
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By Joe Vanden Plas • Published 02/21/08 in WTN Newsletter

Alternative Financing for Early-Stage Biotech

The public markets aren't what they used to be and venture capitalists are seeking investments with shorter timelines. But the good news is several new sources of financing are becoming available.
Although levels of financing going into the biotech sector overall may be increasing, the number of companies receiving seed investment is down. Almost half of funding from venture capitalists (VCs) goes to companies with drug candidates in the clinic, and angel funding continues to retreat. All of which means it's getting harder for young companies to get up and running. At BIO-Europe in Hamburg, Germany, on November 11 a panel of experts gathered to discuss the financing and partnering landscape, with an eye to the future. The roundtable has been edited to reflect the main themes of that discussion.
Read the full article here.

Predicting Success of Early Stage Biotechnology--Part 1, by Steve Clark

After a session at the recent Wisconsin Early Stage Symposium, I was talking with an investor from Indiana and explained to him that I analyze biotechnology. He then asked me the $64,000 question every investor would like to know--how do I determine if an early stage biotechnology will be successful?

It is a great question but, I submit, the wrong one to ask because there are no unambiguous or concrete criteria one can use to determine if a promising technology will succeed scientifically. On the other hand, one can look for warning flags that provide a measure of the risk of failure of that technology. Therefore, a better question to ask is this: are there reasons that a particular technology might not succeed. By asking the question this way, you avoid the impossible task of trying to predict success, and instead you look to reduce risk, thereby, increasing your chance of success by investing in technologies with lower chance of failure.

Invariably, when considering a promising technology at this early stage of development, the investor is presented with very exciting laboratory and maybe animal studies. Also, the inventor invariably claims that his product has tremendous market potential and there may be a lot of press hype around this (remember interferon?).

The savvy investor does his due diligence and makes his own assessment of the market potential, the business plan, company structure, etc. All of these are certainly important considerations, but even with the best structure, financing and business plan in place, the whole enterprise ultimately rests on the success of the technology, which, at this stage, is not fully tested.   

Let me turn to a case study to illustrate the technological pitfalls that can derail even the most promising science.

A case study of an anti-cancer therapy

Several years ago, a colleague published very exciting results showing that a simple plant oil—the oil that makes oranges taste “orangey”--could both, prevent and cure, advanced breast cancer in rats. Better yet, the compound, perillyl alcohol, or POH, showed no toxicity in the animals. POH already was approved for human consumption as a food flavoring, was cheap to produce and readily available, so there was high hope that POH would become the first cancer chemotherapy and chemoprevention agent devoid of side effects.

Laboratory studies showed that POH stops cancer cells from growing and causes them to self-destruct. Studies in the rat breast cancer model confirmed this and further revealed that normal tissues were not affected. Other research suggested that POH interfered with a biochemical pathway that often is abnormal in human breast cancer. All of these pieces of evidence fit into a convincingly coherent picture of an exciting and novel anti-cancer agent. Based on these findings, clinical trials began.

The early phase I trial revealed that in humans, POH is metabolized precisely as it was in rats and also confirmed that POH was non-toxic in humans. These results added to the enthusiasm for the product.

Phase II trials were then undertaken in attempt to treat human breast cancer. In these trials, POH showed no anti-cancer effect at all and it was removed from the experimental therapeutic pipeline. What went wrong?

What are the lessons to be learned?

The first lesson from the POH failure is this: It always is risky to extrapolate experimental results from rodents to humans. Simply because a rodent malignancy occurs in the same tissue as human cancer does not mean that it is the same type of cancer in both species. Rodent cancer models, like the one employed in the POH experiments, use genetically homogeneous inbred animals and the experimental cancer arises from a single, artificial genetic cause. In contrast, human cancers occur in a genetically diverse population and are initiated by many different genetic events. Thus, there is significant risk of failure when human trials are based on the results of a single animal disease model.

Second, the mechanism of action of POH was insufficiently established before the clinical trials were initiated. The data were not adequately repeated and were weak to begin with. In fact, while the clinical trials were underway, another lab found that POH actually affects a completely different biochemical mechanism than originally believed—the original results were wrong. Importantly, the correct mechanism of POH anti-cancer activity may only be relevant for a small subset of human breast cancers and more important in other malignancies.

Since the proper mechanism of action of POH was not accurately established and the rat cancer model was inadequate to generalize to human breast cancer, the human trials were not targeted for the appropriate malignancy and, thus, doomed to fail.

Yet, the risks of failure were discernable before the POH clinical trials began—critical laboratory data were weak, the rat cancer model was too narrowly focused and untested, and the clinical trials were initiated too early. These warning flags could have been picked up by an objective reviewer who understood the science.

I sometimes am called upon to evaluate the science behind products and technologies at a similar stage of development as POH was when it entered clinical trials—that is, the technology shows great promise based on lab and animal studies, but no one knows if it will work in humans. This is a high-risk, make-or-break juncture in the long process of taking a science idea to market. 

The difficulty in identifying the warning flags at this critical stage of development is that each technology will have its own unique warning flags that portend possible failure.  Furthermore, there likely are as many or more different types of warning flags as there are technologies to be developed. 

Therefore, the first, and obvious, requirement in any technology analysis is to seek the input from a professional who has good knowledge of the science. But, doesn’t this beg the question, who has better understanding of the technology than the scientists who developed it and aren’t they already telling you it is sound?

This brings me to the second, and equally important requirement for any technology analysis—it must be objective. 

An objective, informed opinion is critical for thorough due diligence and I submit this is almost impossible to do by a non-scientist, or even by a scientist who is invested in the success of the technology. It is as hard to realistically see flaws in one’s pet project as in one’s own children.

Therefore, for thorough due diligence, make sure to obtain technical analysis from a knowledgeable scientist who has no ties to the technology or the company. And be sure to ask that objective expert to evaluate the risk of failure, rather than the chance for success.

This article was originally published in the Wisconsin Technology Network Newsletter

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Steven S. Clark, Ph.D., a former professor and medical researcher at the University of Wisconsin School of Medicine provides consulting services for investors and biotechnology companies.  He encourages contributions to this page.  Email him with story pitches.
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© 2008 Steven S. Clark, PhD. All Rights Reserved.

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