Biotech Blog: Startup, Finance, & Innovation

New Biotech Startup Community – BiotechStart.org

jtaylor — Mon, 06 Feb 2012 17:12:05 +0000

I would like to introduce you to a new biotechnology Startup community I’ve started with some colleagues: BiotechStart.org.

BiotechStart was created in the fall of 2011 to encourage the discussion of new startup models for the biotech world and to disseminate startup-centric information. Our thesis is that the biotech community lags other industries (tech, clean-tech, etc.) in its startup culture and believe it is missing a cohesive resource for learning and discussing about startup methods. We aim to connect entrepreneurs, potential entrepreneurs, mentors, mentees and everyone active in the biotech community.

Please check out BiotechStart and sign up (here). Myself and other like-minded folks are using it as a platform to discuss biotech startup ideas and are posting a lot of great content (BiotechStart RSS feed). I am aiming to still post and cross-post on Persistent Change, but you should also see all the great content on BiotechStart.

Cheers!

Required Reading – Lots about VCs and Startup CEOs

jtaylor — Thu, 17 Nov 2011 15:35:14 +0000

Quit being a wimp about the state of Live Science Venture Capital (link)
Corporate VCs fill the growing life science VC gap (link)
VCs should first be Start-up CEO’s (link)
Will a VC bring in a pro-CEO once the round is closed? (link)

PhD to Business – Lessons Learned

jtaylor — Fri, 11 Nov 2011 23:52:36 +0000

This post was originally posted on the Nature Biotech Trade Secrets blog.

The folks at Nature Biotech asked us authors for a description of how we’ve navigated our careers from bench to business. My story is still a work in progress, but as a recent Ph.D. I do have some lessons learned of things you can do to prepare yourself for a career beyond research and into entrepreneurism. First here’s a brief bio to give insight into my perspectives and biases:

I completed an Engineering Physics undergraduate degree at the University of British Columbia, with a focus on wireless and photonics. During this time, I worked at my first startups as an engineer, which ultimately sewed the entrepreneurial seeds. Following, I decided to pivot and apply my engineering skills to health and completed a Ph.D. in Genetics at the Institute for Systems Biology (ISB). My decision to conduct a Ph.D. was driven by my interest in the commercialization of advanced technologies and the ISB was a fantastically entrepreneurial organization to pursue this goal. Concurrent with my Ph.D., I was fortunate to work as a venture capital fellow at the ISB-affiliated venture capital firm, the Accelerator Corp. This was a tremendously valuable experience and during my three year tenure, the Accelerator team started 7 biotech companies. After my Ph.D., I started looking for my next startup opportunity and met my co-founding team while working at an innovative technology transfer group, the Centre for Drug Research and Development. Approximately, 1.5 years ago I jumped ship to be a co-founder and CEO of Precision NanoSystems, where we are developing technology at the convergence of drug delivery, nanotechnology and genomics.

During my tenure as a Ph.D. student I often contemplated how to best use the degree to achieve my business goals and as you are likely realizing, the path from bench to business is not always clear. Here are some lessons I learned during my degree that may be helpful for those wanting to pursue an entrepreneurial or business career:

Experience more than you Ph.D. offers.

Graduate or postgraduate studies are designed as a scientific training ground for a career as a scientist or professor. The knowledge gained is narrow and the skills learned are specific. For anyone serious about transitioning off the bench, you will need to actively pursue additional experiences and skills outside of your research work. There are many ways to do this during your degree, and I found that volunteering at an organization in an area of interest is one of the best ways to get your feet wet. My time at the Accelerator Corp. (which I initiated through a volunteer position) was one of the best experiences of my Ph.D. There I learned a tremendous amount about biotech, startups, and venture capital. I was very fortunate to have a Ph.D. supervisor supportive of my entrepreneurial interests and was able to dedicate half of a day to a full day a week to the experience (in addition to most of my evenings and weekends). If you are less fortunate, you may receive push-back from your supervisor, who may not recommend taking the time away from your thesis or papers. However I strongly disagree. Ph.D. and Post-doc work is highly repetitive and obtaining orthogonal experiences will greatly enrich your time as a student. Further, your supervisor will benefit from his or her student’s success, be it in academia or industry, and should be supportive of those that demonstrate such ambitions.

Do not be wedded to a given technology.

During a Ph.D. or Post-Doc you spend a tremendous amount of time on a specific topic. At the outset you may feel completely invested in your corner of the technology world and that you should pursue a career involving that technology. However, this can be very limiting and greatly reduce your opportunities for success. Technology trends change constantly and what you picked 6 years prior may not be your best opportunity moving forward. Once you publish your papers or submit your thesis, take this unique transition period to adjust what technologies or business area you want to spend the next 5-10 years. Compare each potential area of interest as though you are making an investment (your career), and be prepared to defend your choice to your future self a few years out.

Want a job, create a company.

Lastly, the best way to gather vast business, management, and leadership skills is to start your own venture. Being a first time entrepreneur is akin to drinking from a firehose and this time will greatly accelerate your experience and perspectives on our industry. Starting a company may seem like a daunting endeavor, but considering the potential career upside, it is actually a pretty reasonable proposition. Even if you fail, you will learn a tremendous amount, meet a community of like-minded folks, and become comfortable with taking career altering risks. I suggest spending at least an extra 6 months at your institution to find an idea with legs and try to get it off the ground. Don’t do any bench work at this time, but use the period to find and test the commercial viability of potential new ventures. Be bold – talk to your tech transfer office to see if any technology is looking for a founder, ask professors to fund you from existing grants while you examine the commercial viability of a technology, join entrepreneur communities, attend founder speed-dating events, etc. And if you’re your venture doesn’t fly, this time is a drop in a bucket compared with the 6 years just spent padding your academic CV.

Required Reading – Rusnano, Breakout Labs, VC, Burrill Report, etc.

jtaylor — Sun, 30 Oct 2011 17:55:31 +0000

Nanotech firms BIND and Selecta raise funds from Rusnano (here)
Peter Thiel founds Biotech incubator Breakout labs (here)
The ongoing plight of the VC industry (here)
Podcast of Brad Feld of Foundry Group (here)
The November 2011 Burrill Report (here)

Share the Risk not the Channel and Sell, Sell, Sell

eramsay — Mon, 24 Oct 2011 04:14:39 +0000

Traditionally, companies that supply equipment to scientific researchers have used direct sales to drive adoption and growth. For start-ups this would typically require a partnership with an established entity. But recently a new strategy has emerged where the web is used both to create buzz about a product, and as a channel to convert interest to sales. A great example is Helixis, which in April 2010 was acquired by Illumina for $105M less than three years after the company was founded.

Helixis, led by CEO Alex Dickinson, emerged from the laboratories of Nobel Laureate David Baltimoreand Prof. Alex Scherer at Caltech. Financed with a $10M Series A round funded by Domain Associates, Advanced Technology Ventures and Okapi Venture Capital, Helixis sought to democratize DNA analysis by introducing a low-cost, better, faster PCR machine (known as the Pixo and after acquisition as Eco Real-Time PCR). By pricing their instrument at $13,900 compared to the $50,000 cost of the market incumbents, Helixis believed that the centralized PCR machine shared by an average of 10 researchers represented the past, with their product shaping the future – a PCR on every researcher’s bench. Helixis drove sales using an internet-based channel in the US, combined with 22 distribution partners worldwide. Less than 3 years later, and with a total investment of $17.3M, Helixis was acquired by Illumina ($70M upfront + $35M milestone-dependent).

This is a great story. The dream of every entrepreneur and investor. Indeed, this acquisition represented the first exit for Okapi Venture Partners, generating a 6 X ROI in less than 3 years. Clearly, the Eco Real-Time PCR was a disruptive technology in a rapidly growing marketplace. Further, the co-founders were exceptional, and were supported by a stellar board including Illumina CEO Jay Flatley. But what I found most interesting was the sales and marketing strategy.

Helixis adopted a novel sales and marketing strategy validated by NanoDrop, manufacturers of low-volume spectrophotometers, who were acquired by Thermo Fisher Scientific in 2007. NanoDrop used the web as a platform to create awareness and buzz around their product. This strategy drove traffic to their website where potential customers were offered a risk-free 7-day trial, with the company covering the shipping costs within North America.

The concept of try-before-you-buy is not new in the laboratory equipment market. Sales reps often arrange for potential customers to test equipment in situ, with the cost of any necessary consumables covered by the customer. By cutting out the direct sales, NanoDrop controlled the sales and marketing of its product and did not rely on a third-party who may, or may not be motivated to promote and sell their product.

The growth and expansion of social media enabled Helixis to refine NanoDrop’s strategy of web advertising, webinars, blogs and customer discussion forums. In 2009, they brought on advisors to help with the product launch, including Lynne Kielhorn a co-founder of NanoDrop. Xconomy reported in January 2010 that Helixis had more than 150 orders for its product, which was due to ship the following April, the same month that the company was acquired by Ilumina.

I would love to know the conversion rate of trials to sales for the NanoDrop and Helixis, and how it compares to the traditional model. Clearly if you have a disruptive product, web-based sales and marketing works as evidenced by the acquisition of NanoDrop and Helixis.

The advent of social media is a boon to suppliers of laboratory equipment. Scientists by definition develop new techniques and share new knowledge with their peers. Similarly, they rely on their peers to develop and validate new techniques and equipment. Using social media channels to create awareness and also to generate reviews accelerates the buzz around your product. Coupled with web-mediated decreases in the cycle-time from submission to publication of scientific articles in peer-reviewed journals, this offers start-ups in these markets new opportunities to promote their products. As interest drives traffic to the product website, sharing risk with potential customers through fixed-time trials of equipment, or alternatively offering to analyze samples using the equipment, a tactic used by Vancouver-based Boreal Genomics, is a proven mechanism to secure sales independent of traditional distributions channels that cut into revenue. Just ask the founders and investors of NanoDrop and Helixis.

Have used a web-based sales and marketing strategy? Or are you a rep involved in direct sales? Please join the discussion by leaving a comment below.

This article was originally posted ar scideation.org

Required Reading – Industrial Biology, DNAnexus, VC Barbells, etc.

jtaylor — Wed, 19 Oct 2011 14:02:40 +0000

California’s industrial biotechnology sector sees rapid growth (here)
Google invests in DNAnexus for cloud based sequence data (here)
The increasingly barbell nature of the VC industry (here)
Corning’s surprisingly awesome video about glass (here)

Is There Value in Debt for Early-Stage Technology Ventures?

eramsay — Thu, 13 Oct 2011 14:38:28 +0000

Debt may be a valuable step to conversion from a non-dilutive funding model to an equity financed start-up

Consider this scenario. You are an entrepreneur with an early-stage venture. Emerging from stealth mode, you make it your mission to speak to as many of the great and the good in the community to lay the groundwork for a future Series A financing. (Un)expectedly, someone immediately recognizes that after implementation of your technology – the world will never be the same.

They want in. And they want in now.

If you take the money now what will you offer in return?

Providing equity in return for seed financing necessitates valuation of the company. Issue stock now at the current valuation and dilution could be exacerbated in a future Series A financing. This provides a dilemma for entrepreneurs of early-stage technology companies, particularly when a significant value bump is anticipated upon completion of defined short-term milestones. Enter an alternative financing option: convertible debt.

Convertible debt (often referred to as convertible notes or loans), is where the company borrows the money with the intention of converting the loan to stock at a later pre-determined time. This option avoids company valuation and is often associated with lower legal fees – good news for early-stage companies.

Where’s the value for investors?

For investors, debt is most likely considered in the above scenario where the desire to invest in the company is balanced with the realization that the company is unlikely to accept the money at the current valuation. The investor is compensated for accepting convertible notes by the provision of discounts, or a warrant.

Discounts enable the debt to be converted to stock at a pre-determined discount at the next financing round. For example, in our scenario, if the seed investor agreed a convertible loan with a discount of 20%, and the Series A stock is valued at $1.00 per share, the debt will be converted to stock at a cost of $0.80 per share. If the loan was for $100,000, the seed investor would be issued 125,000 shares ($100,000 divided by $0.80) representing a value of $125,000.

A warrant is often referred to as a warrant coverage percentage. In contrast to a discount, the compensation percentage is applied to the value of the loan, not to determine the cost of a share. For example, a warrant coverage of 20% on a $100,000 loan would entitle the holder of the convertible notes to receive an additional $20,000 of securities at the next financing representing a total value of $120,000.

Learn more about convertible debt

For a more educated description of discounts, warrants, conversion caps and all things convertible debt, I would direct the reader to the excellent posts here, here and here. Fred Wilson describes why as a VC investor he generally does not favor taking debt in early-stage companies, and also provides an example where convertible debt proved valuable for a late-stage entity.

Debt an option for early-stage biotechnology companies?

For early-stage biotech companies operating capital-efficient models to develop proof-of-principle data and create value, such as the “leverage start-up“, seed financing as convertible debt offers a bridge between non-dilutive funding and Series A financing. This is particularly valuable when covering activities that are not eligible grant expenses, but have an impact on short-term milestones that will significantly increase company valuation.

Have you used convertible debt to finance your early-stage venture? If so, I would love to hear your experience. Please comment below.

This article was originally posted on scideation.org

Rough Few Months for DNA Sequencing Companies

jtaylor — Tue, 11 Oct 2011 07:03:53 +0000

It’s been a pretty rough ride for many of the life science tools companies, particularly for those involved in DNA sequencing.

Illumina recently saw its share price tumble as sales plummeted in the third quarter (Reuters article). Illumina stated that the drop in sales was primarily due to uncertainty in the future levels of US and Europe government research, as well as over capacity of sequencing capability (Illumina statement).

Pacific Biosciences recently let go of 28% of staff (130 folks) due to slower than expected adoption of their technology (PacBio statement).

Complete Genomics stock tumbled following lower than expected 2nd quarter earnings (Complete Genomics statement). This was largely due to orders being filled slower from its largest customer, the Institute for Systems Biology, and downward price pressures due to the decreasing costs of sequencing.

The tight and uncertain economy has (finally) taken it’s toll on these companies as reduced US and Europe Government R&D budgets are putting downward pressure on sales. However, it should be noted that there have been bright spots. As highlighted by Xconomy, Ion Torrent‘s low cost sequencing platform is (potentially) seeing rapid adoption in spite of this challenging environment. It will be very interesting to watch Ion Torrent’s longer term trends – maybe the current economic pressures will be a boon to its low-cost business model.

I’m still very bullish that these companies will continue to innovate their way to large markets. The weak economy has been a frustrating fact of life for all companies and the life science tools sector is no exception. However, if Jonathan Rothberg is right and sequencing creates a $100 billion technology market, the best tools companies will be well placed for long term success.

Required Reading – FDA, Corporate VC, Getting Rich, Steve Jobs

jtaylor — Thu, 06 Oct 2011 07:01:43 +0000

The FDA (finally) incorporating innovation into their policy (here)
Debunking corporate venture capital in biotech (here)
The most patriotic thing you can do (here)
Steve Jobs: How to live before you die (here)

WSGR Fall 2011 Life Science Report

jtaylor — Mon, 03 Oct 2011 05:30:06 +0000

Wilson Sonsini Goodrich & Rosati (WSGR) recently released their semi-annual report on the Life Sciences (here). Although a bit of an advert, the report is a worthwhile read with interesting insight and analysis on the industry. Three articles in the report are particularly interesting:

1) Analysis of the recently legislated US Patent Reform, the “America Invents Act”. As highlighted by WSGR and others, an important outcome of this act is that the US patent system will change from a first-to-invent standard to a first-to-file standard. The implications of this are significant and will impact how and when companies patent their inventions. Taken from the WSGR report:

“The change from a first-to-invent standard to a first-to-file standard represents a major shift in the patent system. Under the current system, an inventor who files a patent application after another party may challenge the previously filed patent application using what is known as an interference proceeding. During the interference, the later inventor still may prove that he or she is the actual inventor by demonstrating an invention date earlier than the filing date of the first patent application. Changing to a first-to-file system eliminates this option and harmonizes the U.S. system with most other patent jurisdictions in the world. While the proposed new system provides a more clear-cut test for inventorship, critics say that it disadvantages independent inventors and small businesses that may lack the resources to file patent applications as early as organizations with better funding.”

As highlighted in the report, there is significant debate around this change and its impact on small firms and individual inventors. It will be very interesting to see the actual impact this will have to the US system over the coming years.

2) The report gives a comparison of financing deals involving WSGR during the first half of 2011 to those in the second half of 2010. Although only a sample size of all deals and biased to WSGR clients, it is a pretty decent representation and the results are interesting. Here are some highlights:

Total venture financing increased in the 1H 2011 as compared to 2H 2010, although fewer deals were completed. For WSGR clients: for 2H 2010 83 closings raised $431.3 million; for 1H 2011 77 closings gave $653.5 million
Series A financing took a larger share of the financing pie: financings increased from 22.2% in 2010 to 31.4% in 1H 2011. This is obviously good news for early stage companies.
The number of “up rounds” (financings where the pre-money valuations are greater than their post-money valuations from the prior round) has increased from 46.9% to 60.9%.
Median pre-money valuations for Series A equity financings increased from $4.5 million in 2010 to $6.06 in 1H 2011. Also, good for early stage companies.

If this data is interesting to you, also see the recent analysis by Bruce Booth on the state of early stage financing [here].

3) Lastly, the report has a great article on issues to consider when negotiating corporate strategic investments. This is a must read (also recommended by Jay Caplan) and covers the following 10 issues (read the report for the actual advice):

Rights of First Refusal, Negotiation, Exclusivity, and/or Notice
Distribution Rights
Licensing Rights
Protection of Intellectual Property, Confidential Information, and Strategy
Financial Statements, Information, and Inspection Rights
Voting Blocks over Fundamental Transactions
Board Membership or Observer Rights
Pre-negotiated Acquisitions
Obligations to Deliver without Funding
Publicity/Confidentiality