Big pharma, investors to academia: Our doors are open
Historically, the J.P. Morgan Healthcare Conference (JPM) wasn't exactly viewed as the ideal networking event for academic researchers still toiling in labs on discoveries that might, in the distant future, have therapeutic implications. Aspiring newcos rarely had the manpower or resources to compete with established companies for spots on a big biopharma dance card. Even if they did, most couldn't provide enough data to answer the inevitable questions about the differentiated nature of their technology, let alone its therapeutic potential.
That's changing, thanks to research models that accelerate the pace of early stage discovery along with a growing bent toward entrepreneurship among young scientists, a more proactive attitude among university technology transfer organizations and a transformation of JPM itself – or at least of San Francisco's Union Square milieu. The 35th annual JPM conference attracted at least a half-dozen sideline biopharma events, some directly targeting translational medicine. (See BioWorld Today, Jan. 17, 2017.)
How to cross the so-called Valley of Death remains a topic very much on the minds of the life science community, but options are growing. Startups nestled within or recently spun out of academia are getting looks from big pharma, which "gutted its R&D" over the past decade, observed Bernard Rudnick, founder and managing partner of Capgenic Advisors LLC, chief business officer of Novobiopharma and a founder of Mid-Atlantic Bio, during a panel at the Redefining Early Stage Investments (RESI) conference held in conjunction with JPM. (See BioWorld Today, Jan. 11, 2017.)
Big pharma has made no secret of its need to get closer to the ground floor of discovery. Consider the push for external innovation by Johnson & Johnson (J&J) Innovation/JLABS, a "no-strings-attached" arrangement that provides operational management while allowing resident startups – mostly spun out of academic labs – to remain entrepreneurial as they advance their technologies. JLABS has opened sites in California, Texas, Massachusetts and, most recently, New York.
In Europe, J&J Innovation has JLINX, a similarly structured initiative to identify and incubate early stage life science companies. Located on the Janssen Campus in Beerse, Belgium, J&J Innovation/JLINX also seeks to foster an entrepreneurial culture and support researchers without taking preferential rights to companies or products that come through their pipelines. (See BioWorld Today, March 17, 2016.)
Startups 'can move cheaper, better and faster'
In fact, the San Francisco RESI conference was co-sponsored by J&J Innovation/JLABS.
Tatyana Beldock, senior director of new ventures for J&J Innovation, told RESI participants that the company's external innovation arm seeks to "source, catalyze and invest in areas of strategic interest," now encompassing some 300 early stage deals across the globe. In addition to JLABS and JLINX, the company is participating in translational medicine as a strategic investor and through traditional business development, "so we engage with startups in different ways at different stages," Beldock said.
Carolyne Zimmermann, senior director of transactions at the J&J Innovation Center, observed during a RESI panel on big pharma's approach to early stage therapeutic innovation that smaller companies "can move cheaper, better and faster." J&J Innovation/JLABS is simply a more efficient model to put those relationships "under one roof," she said. Early research doesn't always generate enough data to prove a scientific hypothesis, but J&J Innovation/JLABS wants "to keep nurturing ideas that we find strategic," Zimmermann noted, adding that no opportunity is ever finished "until it's partnered."
Big pharma also has come to recognize that scientific founders are deeply invested in their discoveries and often are in the best position to move the technology into the clinic. J&J Innovation/JLABS offers a mechanism to provide startup teams with advice and connect them with other external resources, which sometimes serves as a better option than a traditional licensing deal. That said, pharmas look for elegant approaches to challenging problems rather than me-too technology, even at the non-confidential disclosure stage. Data from preclinical and animal models help to frame a startup's tactics and "rule you in rather than rule you out," Zimmermann said.
'A smaller, more nimble space' for innovation
Christopher Haskell, head of the West Coast Innovation Center for Bayer Corp., a unit of Bayer AG, also was in San Francisco during JPM but eschewed the company presentations at the Westin St. Francis in favor of partnering meetings with early stage companies. RESI conferences – sponsored by Life Science Nation and held at locations throughout North America each year – attract not only academic researchers but also more "sophisticated" startups still flying under the radar, including some that are preparing to make their first foray into the clinic, according to Haskell, who participated on a RESI panel of early stage therapeutics investors.
Like J&J, Bayer runs a number of innovation centers around the world. The Mission Bay site, which Haskell heads up, includes a research group and scientifically trained partnering professionals who evaluate emerging innovation.
"We help to develop structured partnerships, evaluate the science and do alliance management for successful projects," Haskell told BioWorld Insight. While most of the company's internal research is conducted in Germany, near Bayer's Leverkusen headquarters, each innovation center has a regional focus that incorporates local strengths.
"The activities that we do in Beijing are different than what we do here in San Francisco," Haskell said. "The mandate, for us, is to be in these regions and find ways to bring the early innovators and Bayer together."
One example of the model in action was the formation of Casebia Therapeutics, a 50/50 joint venture forged in late 2015 between Bayer and Crispr Therapeutics AG, of Basel, Switzerland, as a freestanding operation to discover and develop CRISPR/Cas9-based therapeutics. (See BioWorld Today, Jan. 26, 2017.)
"It's sometimes difficult within your structured research approach to experiment with really disruptive technologies," Haskell pointed out, noting that joint ventures such as Casebia create "a smaller, more nimble space" for innovation.
'We're trying to be very flexible to all partners'
Casebia came together with an impressive dowry – $300 million, to be exact. A second joint venture, with Versant Ventures, created Bluerock Therapeutics, a regenerative medicine firm that was launched with a $225 million commitment. Therapeutic startups rarely warrant that kind of investment, Haskell cautioned, but other types of support also can help researchers to advance their technologies from lab to clinic.
"We're very excited about some of these emerging technologies but also recognize that you have to give them the right structure and space to develop," Haskell said. By housing startups in its innovation centers, Bayer can provide the young companies with direct access to its own researchers, although there's no template for the partnerships. Sometimes they emerge from a collaborative experiment. In cases where the technology is more advanced, Bayer may spend up to a year conducting due diligence to determine whether and how to form a relationship.
"We're bringing in top-level scientists to help found these companies," Haskell said. "We want them to develop where the science takes them. In the end, Bayer could benefit from the knowledge built in these therapeutic areas and maybe go on to advance the programs. But the freedom you give to these companies is also important. We're trying to be very flexible to all partners."
One trait that pharmas seek from life science entrepreneurs before making early stage investments is the ability to listen and accept feedback. Scientific innovators must be willing to talk with stakeholders and challenge their own assumptions, Haskell said. When Bayer meets with entrepreneurs whose technologies may address areas of therapeutic interest to the company, Bayer scientists often offer detailed advice on what pharmacology data are needed to move forward with investment or partnering discussions. Startups that take such comments to heart "can pick the right experiments to prove out" their thesis, Haskell said, helping "to de-risk the program in a way that's meaningful and efficient."
Roche Holding AG also "has done a lot of thinking" about how best to build relationships in the translational medicine space, "and we found that we're actually doing a lot of that," said Sophie Kornowski-Bonnet, head of Roche Partnering.
Unlike J&J and Bayer, Roche hasn't formalized an approach to seek out ground-floor innovation. However, the Basel, Switzerland-based company keeps an ear to the ground at academic institutions by providing researchers with assays, models and "bench conversations," Kornowski-Bonnet said, noting that the Basel, Switzerland-based company is involved in "a large number" of such interactions at research institutes around the world. On the partnering side, Roche also has been active with leading research institutions, such as Harvard University – the company's collaborations there have led to more than 50 publications – the Massachusetts Institute of Technology and ETH Zurich. "Every now and then," the company also forms collaborations with university spin-outs, she added.
'Find investors who know the space'
Angels, VCs and venture philanthropy organizations such as the Michael J. Fox Foundation also lined up at RESI to offer advice and business cards. Lest translational medicine spin-outs suppose they can take short-cuts to the financing fast track, panelists were quick to point out that challenges remain. Linda Judge, an intellectual property attorney and member of Sand Hill Angels, set the tone for a panel of angel investors by asserting the desire to find companies to "coach to success." As an angel investor for more than a decade, Judge acknowledged that "you get really tough about picking and assessing" high-quality teams.
Angel groups have an appetite for high-quality startups, agreed Robert Tucci, managing director of the Texas Halo Fund and life sciences director of the Houston Angels Network. But competition is fierce. His group places about $15 million in startup or follow-on investments annually across 50 to 60 firms. Typically, his board reviews about 15 deals at any given meeting, picking the top three or four to present to the larger investment group. Prospects that don't meet the cut often fall by the wayside, although RESI panelists encouraged startups to seek coaches or mentors, take the advice they receive to heart and keep trying.
"What's true today might not be true tomorrow," J&J's Zimmermann agreed. "Portfolios can change over a year."
Karl Handelsman, a member of Life Science Angels, observed that startups applying for angel funding often don't even know how much money they need. Sorting through the weeds can be a challenge for those investors – many of them individuals who come together in a single legal document but have diverse careers and interests. Although most angel organizations designate certain individuals to evaluate applications from firms in their area of expertise, Handelsman advised startups and university spin-outs to find a champion in the group who is willing to advocate for the financing and to commit his or her own money. Some angel organizations won't move forward on an application without initial support from one or more investors in the group, panelists said.
When moving across the bridge to seek venture funding, "what's most important – at the top of list – is to identify investors with whom you have a fit," advised Peter Savas, a big pharma alum and chairman and CEO of Likeminds, which is developing an imaging platform to improve the management of degenerative brain diseases. All investors, at every stage, want to make money, Savas said, "so find investors who know the space and have the motivation to invest other than making money."
Often, that interest comes from a personal connections, such as a family member or friend who's been touched by a disease that a startup is targeting.
Savas also reminded young companies that "you're not the only company they're looking at. You have to be pretty deliberate about moving up in the queue so you get time and attention you need."
Finally, Savas suggested that startups look strategically "at who has done deals with the company you think would most want to own your asset." If a certain pharma or big biotech is a likely buyer down the road, seek to ally with a venture fund in that company's network.
Venture investors "are not just sitting around waiting for you to show up," he pointed out. "They have to maintain relationships with their limited partners, and lots of people are competing for their time and attention. The more work you do ahead of time to save them effort, the better."
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