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Yearly Archives: 2009

Here is a recent keynote I gave for the Delaware Valley Innovation Network. The group is working on coordinating the activities of community colleges — and other parties –  between the adjacent Delaware, Philadelphia, and New Jersey regions. My objective was to use case studies to show that drawing circles around regions to count combined assets (as is too frequently done) is not enough; it is also necessary to find ways to drive collaboration.

The slideshow is shown below:

I recently had the opportunity to conduct a brief interview with Jeff Parkins, Vice President of Clinical Development and Regulatory at Koronis on his company and the future of the biotechnology industry:

Can you tell me a little bit about Koronis and its mission?

Koronis Pharmaceuticals develops anti-viral therapeutics based on Viral Decay Acceleration TM (VDA), a novel drug mechanism that accelerates the accumulation of genetic mutations in a viral genome and causes a degradation of viral fitness.  Degrading fitness diminishes the viability of a viral population in a host and results in a decrease in viral replication.  In vitro experiments have demonstrated that this process leads to collapse of the viral population.

Koronis’ lead program is in phase 2a trials against human immunodeficiency virus (HIV); a second program against hepatitis C virus (HCV) is in preclinical development.

How long has Koronis been around?

Koronis was founded in 1999 to commercialize the research published by Drs. Larry Loeb and James Mullins at University of Washington, and Dr. John Essigmann at Massachusetts Institute of Technology in the Proceedings of the National Academy of Science in 1999.

Their research paralleled the earlier thinking of Nobel Laureate Manfred Eigen who coined the term “quasispecies” to describe an immensely large number of variant viral strains that result from a high replication rate in an error-prone virus.  Both HIV and HCV are excellent examples of such viruses.  Eigen hypothesized an “error threshold” that defines the population tipping point and leads to “error catastrophe” and a collapse of that viral population.

Serious commercial development began in 2000 when an investment syndicate was formed by Pacific Horizon Ventures. Pacific Horizon provides interim general management today.  The three founding scientists—Loeb, Mullins and Essigmann–continue their involvement as development collaborators and members of the Koronis’ Scientific Advisory Board.

Can you talk about your HIV lead, KP-1461?

KP-1461 is in phase 2 clinical development and since 2005 the drug has been administered to 61 HIV-infected patients—37 in a placebo-controlled, dose-escalating, 14-day dosing, phase 1b trial (KP-1461-102), and 24 in an open-label, 124-day dosing, phase 2a trial (KP-1461-201).  In each study the drug was found to be generally safe and well tolerated.

Human studies have shown evidence of anti-viral drug activity.  Today, further tests are being designed to confirm efficacy and define an optimal drug dose and formulation to support a pivotal trial design leading to product registration.

How is KP-1461 different from other treatments on the market?

If approved, KP-1461 would be the first HIV drug to utilize a non-inhibitory mechanism to control viral replication.  By avoiding direct suppression of viral replication, a VDA agent such as KP-1461 is expected to be better tolerated and more durable therapeutic against HIV.

All existing approved drugs suppress viral replication by inhibiting a critical enzymatic process or blocking viral entry to uninfected T-lymphocytes.  Each of these approved drugs exerts selective pressure on the virus as a consequence of suppressing replication.  It is selective pressure that leads to drug resistance and it is suppression of a particular enzymatic process that provokes the adverse side effects that characterize antiretroviral therapy today.

What is the biggest challenge facing Koronis right now?

Koronis’ biggest challenge is attracting the financial resources necessary to develop a novel drug mechanism for a disease that people mistakenly believe to be a well served chronic condition based on existing and derivative products utilizing current inhibitory mechanisms.

Koronis believes—as does the Center for Disease Control—that the HIV epidemic is far from over.  However, funding for HIV drug development has ebbed as the financial community has come to believe that the existing group of approved products is sufficient to address this epidemic.

What do you think is the biggest challenge facing the biotech industry as a whole?

Koronis’ challenges are shared broadly by other companies in the biotech industry as economic conditions, regulatory considerations and attitudes toward risk combine to influence the allocation of financial resources to later-stage and derivative products.  If there are to be next-generation products for tomorrow’s healthcare needs, it is necessary for the industry to address the shortage of development stage financing.

What’s up next for Koronis?

As Koronis concludes the proof-of-concept for VDA in HIV, the next step is a development partnership to fund additional late-stage clinical development.  In addition, Koronis is seeking a development partner for the preclinical HCV program.

About Koronis:

Koronis Pharmaceuticals, a Redmond, Washington-based company, was one of the winners of the Biotechnology Industry Organization 2009 International Convention’s Be the Buzz of BIO contest.

These papers are from the 2009 final projects in the NIH Foundation for Advanced Education in the Sciences TECH 366 — Biotechnology Management. The students were asked to tell a story based on the course lectures, and to expand with general lessons biotechnology company management:

Financial opportunities for early stage biotech companies
Tamara Jones

The changing roles of CRO
Alex Bao

Discovering potential drug targets
Myung K. Kim

This is a student paper from the 2009 final projects in the NIH Foundation for Advanced Education in the Sciences’ TECH 366 — Biotechnology Management. The students were asked to tell a story based on the course lectures, and to expand with general lessons on biotechnology company management.

The changing roles of CRO

Alex Bao

Contract research organizations (CRO) have played significant roles in the research and development (R&D) of biotechnology industry ever since its first appearance in the late 1970s.  CRO provide important services in clinical trial management, safety monitoring, formulating and manufacturing, laboratory services, data management, NDA writing and filing as well as other regulatory affaire support, etc.   The CRO industry had shown stable and increasing revenue on the global scale in recent years despite the weak growth of global economy.  For instances, CRO shared $15 billions of global biotechnology R&D market in 2007 and $18 billions in 2008.  In the United States, approximately $9 billion, accountable for 15% of total of R&D funds flowed to CRO in 2007.  Even under the impact of global financial crisis, CRO revenue increased to approximately $10 billion when the total U.S. R&D increased to $65 billion in 2008 (Fig 1).

In recent years, the biotech industry has generated several lines of biomedical products that are sold over billion dollars each year, giving more room for CRO industry to grow.  In 2008, for instances, monoclonal antibodies sales reached $33 billion, TNT blockers reached $18 billion, and erythropoietin reached $9.5 billions.  The global sales of biotech drugs jumped from $75 billion in 2007 to $125 billion, almost 16% of global drug sales, in 2008.  This fast growth (Fig 1) of biotech revenue may encourage R&D expenditure in biotechnology and therefore expand the market size for CRO in the near future.

baofig1
Fig 1. Global sales by CRO and Biotech industries.  (data source: reference 1, 2, 3, 4.).

Today’s CROs may operate either as local niche services or on international scales.  Several CROs, such as Quintiles translational corporation, Covance Incorporated, Pharmaceutical product development, Charles river labs and MDS incorporated, have generated over billion dollar revenues each in 2008.  Out sourcing to CRO has become an attractive strategy for many biotech firms because CRO may provide services that are not available in-house for start-up firms.  In some other cases, CRO may provide services with more competitive quality and better-targeted milestones than in-house research department for some large biotech firms.  CROs are often used because their ability to reach out for regionalized patient populations and ability to efficiently manage international clinical studies.  In any cases, however, the conventional role of CRO is to merely act as the “extra capacity” to facilitate R&D projects of the sponsors.  By saving time, capital, labor, and/or space using specialized skills and/or research facilities of CRO, sponsors can focus more on the “core skills” and the growing regulatory demand that are relevant to their products.

Compared to other types of biotech firms, CROs have much better success rate as business entities either as small privately owned companies or as large international corporations.  One of the important reasons is that CROs are less dependent on external funds such as VC than other biotech firms.  CROs may survive on the service fees when external funds are not available for expansion.  However, CROs usually do not request for the right of the potential intellectual property (IP) that may be generated from the services it provides. The matter of fact is that, most often, the part of the R&D project that CROs are involved are unlikely to generate any IP.  The fact that the CRO is unable to claim for the right of the IP that may be generated through their own activities is probably the most obvious “downside” of the CRO business, especially when IP rights after Bay-dole act are usually claimed by research organizations even if the research might had been sponsored by the other parties.  Therefore, CROs may be characterized as “low risk, low return” type of business and may be less attractive to investors who are looking for high return opportunities.

The global financial crisis may have created an opportunity for CROs to break the “low risk, low return” formula and enter the arena to compete for IP titles.  As the financial support for start-up and early stage biotech companies quickly reduce to the very minimum, the so-called “valley of death” would become more “deadly” .  As the result, new IPs are unlikely be developed to relatively maturation stages where the large and well-funded firms can see promising products and to invest further R&D efforts.  Soon will see a shortage of relatively mature biotech drug candidates to supplement the inheritably insufficient in-house R&D of the established biotech firms.  Having the infrastructures and funding in place for research and development, the profiting CRO may invest in early stage biotechnologies and seek for higher returns. CROs may not necessary become the replacement of small biotech firms, but an extra funding mechanisms for the desperate industry that is not on the “bail-out” list of the government.

Initiatives should be launched to invite CROs to invest in early biotechnologies.  It is a risky idea for CROs to invest in early stage biotechnology.  But the potential benefit of this initiative is not for CROs alone if “we” are seriously considering the challenges caused by lack of funds for early and small biotech firms.  Here, I define “we” as the local government and established biotech firms because the pressure won’t be on the small and vanishing biotech firms’ shoulders alone if “we” are not going to do anything about the development pipelines that will soon be more broken in the “valley of death”.

Then the question comes to how to invite CRO to the IP hunting arena.  The Maryland technology development corporation (TEDCO) had provided a good model by collaborating with Johnson & Johnson (J&J) to establish a co-managed funding agreement in 2005.  This funding awards seed biotech companies with funds to develop technologies that are potentially of interest for J&J.  TEDCO matches the J&J funds.  J&J has opportunity for equity investment as the technologies mature (reference 5).

To invite CROs to joint collaborative research agreement, funding should be established by pooling money from government and sponsor companies to fund part (eg. 2/3) of a specific R&D project.  CROs will identify and license the IP of interest and provide the rest (eg.1/3) of projected cost.  Collaborations of the like will significantly increase the pipeline portfolio of early stage technologies for the sponsor with reduced risks without significant increase in R&D costs.  CROs will obtain opportunities for generating IP assets without exhausting the profits earned from the contract works.

Local government, especially the state government, should take the initiative to invite CROs invest in early biotechnologies, not just to benefit CROs, but to stimulate the biotech industry and the economy of the state.  Historical data showed that states that paid more attention to the biotech R&D received more returns from the industry.  When the relative efforts in biotech R&D by states (national ranking of state expenditure in 2006) were plotted against the relative benefit received by states (national raking in patent number, VC investment, and NIH funding received), a clear positive correlation was seen between the state’s effort in R&D and the benefit the state received in a long run (Fig 2).  For instance, California invested $6.5 billions (13.6% of total U.S. investment) in biotech R&D, ranking number one in the U.S. in 2006, indicating the involvement and focus of the state government.  At the mean while, California received 24,293 patents between 2002-07 (nearly 20% of the national total), $20.7 Billion CV investment between 2002-07 (40.5% of national total), and $3.2 billion of NIH funding in 2007 (15% of national total), all ranked in number one on the national list.

State involvement and policy in biotech development play no doubt the most critical roles nurturing the growth of local biotech industry, including the CRO industry.  Investing $1.7 billion in biotech R&D, North Carolina ranked in number eight on the national list in 2006, and now hosts two of the world-top-10 public-traded CRO companies, Quintiles transnational corporation and Pharmaceutical product development, making $3.57 billion of revenue in 2008.  The state attracted capital investment from several internationally operating pharma/biotech companies.  Recently, Novartis announced to build a $267.5 million vaccine manufacturing and Merk announced a $100 million expansion on its vaccine facility in the state.  Constella Group, a private CRO company in Durham North Carolina grow from a statistical consulting service to a $200 million revenue-making bioinformatics firm in 2007 by assisting life-science clients.

In conclusion, encouraged and appropriately guided by the local government, CROs may deliver great value to the local economy.  It’s important to recognize that the value of a CRO does not only exist in the revenue it generating, but also exists in its readiness to help the biotech industry overcome the current financial challenges.

baofig2
Fig 2. The correlation between the state R&D expenditure and the returns (number of patents, VC investment, and NIH funding to the state). The colored trend lines are regression lines corresponding to the data points of the same color. The Y-axis is the national ranking of the state with smaller numbers indicating the top states. (data source: reference 6)

1. US Pharmaceutical Industry Report, 2008-2009: www.reportlinker.com/p0118600/US-Pharmaceutical-Industry-Report-
2. Business insights: www.globalbusinessinsights.com/content/rbcr0001m.pdf
3. Global market review: http://knol.google.com/k/krishan-maggon/global-biotechnology-market-review/3fy5eowy8suq3/16#
4. IMS health: http://www.imshealth.com/portal/site/imshealth/
5. Maryland TEDCO: http://www.marylandtedco.org/tedcoprograms/ fundingopportunities.cfm
6. Biotechnology Industry Organization: http://www.bio.org/speeches/pubs/er/statistics.asp

This is a student paper from the 2009 final projects in the NIH Foundation for Advanced Education in the Sciences’ TECH 366 — Biotechnology Management. The students were asked to tell a story based on the course lectures, and to expand with general lessons on biotechnology company management.

Discovering potential drug targets

Myung K. Kim

At the NIH, I am focusing on discovering potential drug targets in diseases associated with obesity and aging, and developing orally available, small molecule drugs against these targets with the potential to treat metabolic disorders such as obesity, type II diabetes and various aging-related disorders. The Tech 366 course helps to identify business/science issues for the future development of the compounds of our study.

Obesity is a major risk factor for developing Type 2 diabetes, heart disease, stroke, certain types of cancers and neurodegenerative conditions such as Alzheimer’s disease. The FDA now recognizes obesity as a disease. While there are many aging-associated diseases, aging per se is not considered a disease and one cannot get an FDA approval and validation for a treatment of a non-disease.

Exercise and calorie restriction (CR) produce many health benefits for the treatment and prevention of aging- and obesity-related illnesses, but most people do not exercise regularly and consume an excess of calories. Our drug candidates are thought to mimic certain beneficial health effects of exercise and CR at a low concentration, without requiring a change in exercise or eating habits, by activation of the kinase that we believe may control rate-limiting steps in the key pathways of the processes associated with aging and obesity.

Increased calorie intake and sedentary lifestyle have fueled the obesity epidemic in developed nations. Since 1980, the number of obese adults has doubled, and the number of obese children has tripled in the United States. Approximately 65% of Americans are now overweight or obese. One in three children born in the year 2000 will develop diabetes as a result of obesity. Another factor that affects obesity is age; an average American gains 1 lb per year starting from the second decade of life and the number of people 65 or older is rapidly rising throughout developed countries. The Centers for Disease Control and Prevention (CDC) estimate that by the year 2030, there will be 70 million elderly Americans, more than twice the current number. Additionally, the United Nations recently estimated that the world’s population over the age of 65 will reach two billion within 50 years. The aging and obesity in America and the rest of the world mean an increased demand for better compounds to combat those diseases and indications specific to the elderly or obese people.

One of the reasons for the lack of exercise in the elderly and obese people is that the capacity for exercise diminishes as age and obesity increase. Aging causes loss of mitochondria in skeletal muscles in lean and healthy individuals, the organelle that burns fat and produces energy, and loss of mitochondria increases abdominal fat accumulation and decreases physical stamina. As skeletal muscle loses mitochondrial function, the capacity to oxidize fat and generate energy during physical activity decreases, resulting in accumulation of fat, particularly abdominal fat. Therefore, a majority of people in developed countries is caught in a vicious cycle that is difficult to break; obesity and aging lead to a decline in physical fitness, which leads to physical inactivity, which further increases obesity. CR (calorie restriction), on the other hand, increases mitochondrial biogenesis and reverses many aging- and obesity-associated declines.

One of the hallmarks of aging is increased oxidative damage, including double-stranded breaks of nuclear DNA. We have found that the mitochondrial decline is driven, in part, by an enzyme that senses DNA-breaks. Our study proposes that this DNA-break sensing enzyme is responsible for aging and obesity in mammals, and that when used at a low concentration, the enzyme inhibitors reproduce many beneficial effects of exercise and CR such as induction of mitochondrial biogenesis in skeletal muscle and increase in insulin sensitivity in skeletal muscle and fat. The enzyme inhibitors also lower blood pressure and blood glucose level, reduce inflammatory signaling, improve memory and cognitive abilities and decrease anxiety/depression in mice. Overall, the enzyme inhibitors showed a reversal of obesity- and aging-associated loss of capacity in mice.

Because increased mitochondrial content could lead to increased oxidative damage, it is possible that repeated exercise may damage muscle and decrease endurance. This potential concern may not be a problem, because both the genetically modified mice deficient in this DNA-break sensing enzyme or mice treated with the enzyme inhibitors showed reduced serum lactate levels and increased endurance even after many days of repeated exercise, indicating that these muscles were not prone to damage by repeated exercise. Our work demonstrates that modulating this enzyme in muscle and fat could represent a novel strategy to increase exercise capacity and to reduce obesity-aging-related diseases.

With two-thirds of Americans said to be obese or overweight, a successful obesity drug could have huge sales. There is a need for better drugs because the existing ones are hampered by serious side effects. Anti-obesity drugs in the market operate through one or more of the following mechanisms; suppression of the appetite, increase of the body’s metabolism, or interference with the body’s ability to absorb specific nutrients in food. Some anti-obesity drugs have severe and often life-threatening side effects. These compounds carry a risk of severe psychiatric problems, high blood pressure, tachycardia, heart palpitations, closed-angle glaucoma, drug addiction, restlessness, agitation and insomnia. One of the drug targets for obesity is a serotonin-receptor affecting appetite. However, since eating and reproducing are absolute priorities in life, it is difficult to alter these pathways without causing serious side effects. Because of the safety concerns, developing a successful obesity drug appears to be a treacherous task. For example, Sanofi-Aventis, Merck and Pfizer all discontinued work on experimental obesity drugs last year because of concerns that the drugs, which all worked by similar mechanisms focusing on a serotonin-receptor, could contribute to depression and suicidal thinking.

The enzyme inhibitors in our study work by a different mechanism to induce weight loss and decrease anxiety/depression in mice showing no sign of psychiatric side effects. Also, there was no sign that the drug damages heart valves in mice. Mice treated with the compound ate more than the control group indicating that the compound would not induce a simple nausea which leads to weight loss.

Our initial goal is to get FDA approval of the enzyme inhibitors for the treatment of metabolic symptoms and abdominal obesity in overweight type II diabetics. If we take this out into the broad obese or overweight population which includes both pre-diabetics and diabetics as an anti-obesity drug, safety could become a problem once millions take this drug. We think that it would be better to start treating (abdominal) obesity and diabetes in overweight diabetics initially, which just about all type II diabetics are, to target a narrow segment of the population. This is based on our data that the enzyme inhibitors of our study improved all metabolic parameters in mice 1) by inducing weight loss; and 2) by directly increasing insulin signaling in skeletal muscle and fat.

Although there are many diabetes drugs on the market, there is no drug that can target both obesity and diabetes effectively. Weight loss is essential for the treatment of type II diabetes. Given that, the enzyme inhibitors of this study which can target both obesity and insulin resistance could provide an attractive treatment option. All diabetes drugs operate according to one of the following three mechanisms: stimulating insulin secretion from pancreatic beta cells, reducing glucose production in liver, or reducing insulin resistance in insulin-sensitive tissues (i.e., skeletal muscle, fat, liver). Among these, TZD  type drugs (rosiglitazone, pioglitazone), the insulin sensitizers, are known to induce a significant weight gain, because these drugs activate a transcription factor called PPARg that promotes fat cell formation. It is dangerous for diabetics to gain weight. Furthermore, when concerns were raised about the safety of rosiglitazone (Avandia, GlaxoSmithKline) in May 2007, many patients and doctors made the decision to discontinue use of the TZD type drugs. Rosiglitazone discontinuation left many diabetic patients without good control for their insulin resistance. For these reasons, we think that the enzyme inhibitors of our study can claim a distinct position even in the crowded diabetes drug market.

The trend in drug development suggests that one can sell something which does not cure a disease if one has a good enough argument that it can prevent a disease. For example, high cholesterol is not a disease, but six billion dollars is spent each year on cholesterol-lowering drugs. Obesity in general, abdominal obesity, in particular, is a major risk factor for many diseases such as type 2 diabetes, cancer and Alzheimer disease. Our hope is that we may be able to expand our trials to a broad obese population that includes pre-diabetics, based on the efficacy and toxicity data in the overweight type II diabetics. With an ever-increasing obese population, a successful obesity drug could have huge sales.

With these goals in mind, we are currently engaged in IND-oriented preclinical trials for the first-in-human studies. We are also treating animal models for Duchenne muscular dystrophy, which is an orphan disease, and are planning preclinical trials in various age-related diseases.

This is a student paper from the 2009 final projects in the NIH Foundation for Advanced Education in the Sciences’ TECH 366 — Biotechnology Management. The students were asked to tell a story based on the course lectures, and to expand with general lessons on biotechnology company management.

Financial opportunities for early stage biotech companies

Tammy Jones

One of the aspects of entrepreneurship that interests me is the process of early stage financing.  What are the options of financial backing and the advantages and disadvantages of these opportunities? There is a wide variety of financial support for early start-up companies.  The entrepreneur can obtain money through friends and family and him or herself.  Support is also available through Angel investors, incubators, Venture capital, federal and state funding. These investors are considered high risk investors because of their early stage involvement.  The company is high risk because the technology is in the development stage and there are no more academic resources this is also known as the “Valley of death”.   The investors fill in that financial gap so the company can remain productive in getting the product to market. The funding is allocated at different phases of the project. The money is not guaranteed from one phase to another.  To get to the next phase of funding, the company must show progress in the form of reports and also proof of concept.

Self and friends and family are the least recommended form of funding.  Because a return or a profitable return is not likely and a loss is guaranteed, friends and family are not a good alternative.  But sometimes it is the only alternative when your company does not interest other investors.  An example of this is Bonnie Robeson, founder of Spectrum Bioscience.  She used her own money and friends and family to partially fund her venture because her company did not have the appeal for big investors.

Incubators are programs that provide start-up companies with support in the way of resources, services and contacts.  Start-up companies that participate and complete the program are more likely to stay in business for the long term.  The incubator can provide space for very little rent.  They can also provide equipment, support staff and group rate for insurance which would help the company’s budget.  The amount of time the space is available is not indefinite, it usually is about 3 years and when the milestones are met for graduation.

Angel investors are another form of financing.  They are individuals that invest their own money and usually like to remain anonymous.  The funding usually ranges from $150,000 to $1.5 million. Angel investments are about $20 billion to $50 billion compared to $3-5 billion of venture capital investments per year in the U.S.  Angels expect a return in 5-10 years. The advantages of an angel investor are that it is easier to persuade an angel to invest in your company, due diligence is less involved and a lower rate of return is expected (smallbusinessnotes.com).  Our guest speaker, Ajoy Chakrabarti, senior director of Emergent Biosolutions, is an advocate for angel investors. He spoke about Angel groups which are individuals that pool their resources for investments.  They form groups in a certain specialized area.  This is good for a company in that specialized arena but it also means there will be more people to convince to buy in to your idea. Some feel angel groups are ad hoc VCs, because of the VC like behavior when dealing with entrepreneurial companies and they also have formed alliances of angel groups such as The Angel Capital Association and the Mid-Atlantic Investment Network were they exchange ideas and information.

Angels, as with other investors, expect certain things in return for their money and that ranges from a board position, weekly or quarterly reports, 5%-25% stake in the business.  They also request stock.  Some want the company’s convertible debt or redeemable preferred stock.  This is advantageous to the angel but not to the company because the company would have to repay the investment plus interest.  Angels may also request to be the first to opt out of the next round of financing and that the business can’t make certain decisions without approval of the Angel investor.  All of these requests are in part to protect their investment (smallbusinessnotes.com).

Technology Development Corporation (TEDCO) and the Center for Innovative Technology (CIT) are economic development organizations that provide state and federal funding to start-up companies.  TEDCO and CIT usually finance the company between phase I and II of the SBIR funding or when the SBIR ends completely and while the company is awaiting Angel or Venture capital resources.  TEDCO requires that the start-up have fewer than 16 employees and 50% of them must be employed in Maryland and the start-up is a university spin-off that is in business for less than 5 years and before the company sees a profit or it receives funding from other resources.    It awards up to $75,000 for early stage technology development.  The company is required to repay in the way of 3% of its revenue or 40% of the award over five years. Again, if there is a downturn in the economy, the repayment can be a problem.  The start-up company keeps the intellectual property and the commercialization rights of the technology when dealing with TEDCO (marylandtedco.org).  CIT offers business acquisition, commercial real estate financing, franchise financing, construction loans and business succession financing.  The amount of the loan is from $350,000-$10 million, financing up to 85%-90% and with terms up to 10-25 years (cit.com).

Federal funding is another avenue for a start-up company to obtain money. Government grant funding is given by way of the Small Business Administration through Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. SBIR and STTR programs are given through federal agencies with over $100 million and over $1 billion, respectively, in their extramural research and development budgets. Both programs require that the for profit business have 500 or fewer employees, be at least 51% individually owned and controlled in the United States.  The differences are that the SBIR requires the principle investigator be employed at the company at the time of the award and the duration of the project.  The principle investigator may be employed by the research institution or the company for the STTR award.  Also the STTR requires that there be a CRADA between the company and the research institution where 40% of the work is performed at the company and 30% of the work is performed at the research institution (sbir.gov). Both programs are very good for small business.  The programs award money for phase I and II.  The funding amount in phase I, which is dedicated just to research, is between $70,000-$150,000 for 6 months from SBIR and 12 months from STTR. Phase II is focused on research and development and the funding ranges from $750,000-$800,000 and in some instances $1 million.  Phase II bridge provides funding of $1 million/yr for 3 years and this is to fill in the financial gap between phase II to product commercialization.  The downside is that other aspects of the company such as the protecting and growing the company’s intellectual property are neglected.

Venture Capital (VC) provides funding to early stage biotechnology companies in late phase II and early phase III. Venture capital usually comes from institutional investors and high net worth individuals pooled together by investment firms such as Toucan Capital. The return usually comes in the form of IPO or sale of the company in 2-3 years.  This is seen as a disadvantage and quite stressful to some entrepreneurs who feel rushed into going public or selling their company.  Another disadvantage is the entrepreneur will no longer have 100% ownership of the company, the VC takes a percentage.  In order for a company to get the attention of a VC, the firm must believe that the company will operate in a billion dollar market and have potential to make $100 million in sales in five years and be sold for $400 million, the exit, (allbusiness.com).  Because of such high standards, many good start-up companies can’t get VC funding such as Spectrum Bioscience. It is a service company providing a much needed service and it doesn’t meet the criteria of a VC. Once the company has VC funding, an advantage of the funding is that it allows the business to expand and not be pigeonholed into just research and development.  The company also can get management support to guide the product to market.  Another is that it is not a loan that needs to be repaid.

Depending on the entrepreneur’s objective for the company, venture capital and federal funding are both good ways to get start-up money but because of the criteria to receive federal funding it is impossible to receive both simultaneously. If the company is 51% or more owned by VCs, then the company can’t qualify for federal funding, SBIR. Venture Capital has been at odds with the SBA for years because of the restrictions placed upon the grantee.  Venture Capital firms think this restriction is foolish and it adversely hurts the government and the tax payers because VCs are funding the more promising start-ups and the less promising start-ups are getting SBIR money.  This is perceived as such a problem by venture capital firms that the National Venture Capital Association and the Biotechnology Industry Organization got the House and Senate involved to change the restrictions (bostonvcbolg.typepad.com). As it stands currently, the house supports the VCs and the Senate favors some restrictions to VC owned companies (bizjournals.com).  An informal poll taken showed that about 80% of small companies were opposed to large VCs owning and controlling small businesses competing for SBIR funding (zyn.com). If this movement is successful, the question that comes the mind of many early stage companies seeking financial backing is will there be enough SBIR money available for non-VC funded start-up companies?  Jonathan Cohen, CEO of 20/20 Gene Systems, a guest speaker, is opposed to the elimination of the restrictions because VC funded companies would have an unfair advantage over early start-up companies. VC companies are more established and more likely to succeed and a company just starting out hasn’t had the opportunity to establish themselves and the SBIR funding is for that purpose.

The entrepreneur must know the criteria when dealing with these various finance opportunities. The entrepreneur/founder must know when and how much control they want to relinquish, as in running the company or the company going public when dealing with Venture Capital firms. Federal funding and Venture capital provide money that does not have to be repaid but the trade off is that the 51% requirement of both entities makes it difficult for the entrepreneur, leading to the SBIR, VC controversy.    Angel investors seem to be the more persuasive and lenient, even though they do have expectations, but as the economy tightens so does the angel investors’ money as well as the other investors.  The company must leave the Incubator after graduation or maybe before if the benchmarks are not achieved but the company has longevity after leaving. With TEDCO and CIT, the company has to repay the money but it can keep IP rights and ownership. The opportunities of early stage financing have its pros and cons attributed to them.  The entrepreneur must find what is appropriate for them.

In this video Jeremy Abbate, director of global media at Scientific American, and I discuss the worldVIEW project, where we profiled the biotechnology innovation climate around the world on a country-by-country basis. More details on the project are in my previous post, and the video is below.

Where are the biotechnology protesters?

Where are the biotechnology protesters?

Where are the biotechnology protesters?

I’ve enjoyed the conversations I’ve had with biotechnology protest organizers in the past. They are noticably absent from this year’s Biotechnology Industry Organization conference in Atlanta. One must ask the question: Have they lost their interest in representing their views at the conference, or is there a connection to the economic crisis?

After months of preparation, the Scientific American worldVIEW project has launched.

I had the pleasure of serving as lead editorial consultant of this project, and my mission was to cut through the marketing messages and develop a coherent measure of biotechnology innovation on a country-by-country basis. You can hear me talk about the project and some of the findings here, and you visit the worldVIEW site here, and you can see the innovation scorecard here. My perspective on why, and how, biotechnology blossomed in the United States is here.

Update: You can see Jeremy Abbate, director of global media at Scientific American, and I discussing the project here.