Academic Entrepreneur—An Oxymoron?

Why Start a Biotech Company? (And Why Not To)

You will likely be disappointed if you believe that a new idea in biology—even a good idea—is a sure path to fame and fortune. Numerous opportunities for failure exist between the discovery phase and clinical trials. According to the Pharmaceutical Research and Manufacturers of America, the odds that a new drug will make it to the pharmacy shelf are approximately 1 in 10,000. Even more daunting, it takes ten to fifteen years and up to 500 million dollars to take a drug from discovery to clinical launch (2).

Nor should you regard the commercialization of your expertise as a means to fund basic laboratory research. Whenever I encounter this sort of motivation, I am quick to point out that there is a great government organization that provides support for cutting-edge, basic science projects—it's called the NIH. Although academic laboratories are the best places to establish proof of principle for novel technologies, they are, in most cases, inappropriate environments for a drug development program. If a clear path to commercialization of your technology is evident, seek out an environment where it can be developed efficiently. If you cannot map out such a path, then it is likely that your idea falls into the realm of basic research, where it should, for the time, remain. Simply put, the missions of basic research funding and venture capital are distinct, and funding mechanisms should not be confused.

The most common motivation that academics give for wishing to commercialize their work emanates from the moral high ground of using one's scientific ideas for the benefit of society. Although politically correct, such reasoning is generally specious. After all, the mission of most, if not all, universities is to improve society through education and research. Of course, academia may not be the quickest way to acquire that vacation home in the Hamptons or to buy the same Ferrari driven by colleagues who have successfully commercialized their ideas. But neither material acquisition nor the good of society will be able to motivate you for long in business.

The most successful motivation will arise from a passion for and belief in the validity and utility of your technology. You will be the most important proponent of your technology and you will be obligated to convince others of its utility. Typically, the initial period of serious contemplation and discussion serves as a “sanity check”, whereby you will be challenged to consider how robust your technology is in terms of likelihood of success and commercial potential.

How Do You Get Started?

Informed speculation is not enough: make sure that you have an idea that is scientifically sound. It is critical to have data that provide the proof of concept or, at the very least, that such proof can be determined with a modest amount of research support.

Next, establish whether your technology is potentially proprietary, and take the appropriate steps to inform your institution and file a patent. Share your idea with trusted colleagues. Without divulging proprietary information, approach leaders in the field who can be critical of your thoughts, and take this opportunity to scout out potential members for your scientific advisory board. Network with other people in science and business who have gone down the path of commercialization; if possible, identify a mentor to help you get started. You will have to find individuals with diverse talents (i.e., science and business) and a passion for your invention who can form the nucleus of your biotech company. Determine whether your academic institution has a technology transfer office with experience in commercializing faculty inventions; such offices can be a valuable resource in regard to networking.

Consider whether your technology broaches a major medical problem. Does your technology have the potential to dominate its intended market, and can it be brought to market expeditiously? Can you produce and sell your product at a competitive price? Your technology transfer office may have access to marketing expertise that can help you answer these important questions and assess the “value” of your technology. Ideally, your technology should be proprietary, conceptually a validated through preclinical models, and address a problem so as to dominate its market with large revenue potential. If you can assure yourself of these factors, you're ready to create your company, to license your technology from your institution, and write a business plan.

The Business Plan

First and foremost, your business plan is the document that details the steps by which you will transform your technology into commercially viable product. If effective, it is the instrument that will win over investors and raise the capital necessary to start your new enterprise. Great care should be exercised in its preparation—just as is done in grant preparation.

Unless you are beginning with a pill that's ready to be bottled or you have a new use for an existing drug, the most likely funding source will be venture capital. The quality of your venture capital support is essential to the success of your enterprise. You need sophisticated investors who understand the business of drug discovery and development, are well respected by their peers, have the financial resources and willingness to support your company through multiple rounds of financing, and are wise and experienced enough to help you nurture your company from startup to IPO (initial public offering).

The quality of your science is of course paramount, but your business plan must also convince investors that your technology can make money. Venture capitalists are not necessarily science aficionados, but they are interested in supporting good science that is directly profitable. The bottom line: Investors are interested in making as much money as quickly as possible from your invention. If that bothers you, then you should seriously consider letting your institution license your technology to others who will develop it for you.

You can either write the business plan yourself or hire professionals who have written these plans for similar types of companies. View the writing of your plan as the occasion to bond together those individuals who will be critical to the success of your business. The talents that will be brought to bear on the plan will range from science to finance. A good business plan should be an instrument that attracts not only investors, but also a management team. Most important, it should honestly and accurately highlight the advantages of your technology over the competition. If written well, it will provide you with a strong investor base, a capable scientific/management team, and a design for developing your business.

Postpartum Blues (Misery Loves “Company”)

Congratulations! You have successfully funded and given birth to your company. The enormity of the task before you will now become a sobering reality. But cheer up—the scientific/management team that you have been gearing up to assemble from your business plan will be there to help you. Choose them wisely. Your good technology can survive a bad scientific/management team, but it may have to survive without you. There are numerous examples, including my own, of companies sold at bargain prices by founders who had not recruited the skills and strategic wherewithal to properly develop and commercialize good technology. When the acquiring company goes on to successfully develop and commercialize your technology, it only adds insult to your injury. You can avoid this trap by hiring the right people.

One of the first persons who you should hire is your CEO. If possible, find an individual who has gone through the process of building a startup company and has also had some big pharmaceutical company experience as well. You'll need a “general practitioner” who can comfortably do multiple tasks, especially with regard to building teams and motivating people. Such CEOs are now easier to find than was the case in the mid to late 1980s, when the talent pool consisted mainly of middle managers from large pharmaceutical companies whose overriding vision was to build smaller versions of their former companies. Once your CEO is on board, depend on his or her advice in hiring a team with proven records of success at doing what needs to be done—people who are smarter than you and with complementary talents. Define precisely who is to do what and by when. Limit your operational objectives to a few key milestones. Be prepared to dismiss people who do not consistently meet their objectives. The right people at the right time can make the difference between success and failure.

Should You Stay or Should You Go?

You may find it hard to decide whether to leave your academic position and immerse yourself in your new company or stay in academia and play a supportive role in the business. The choice can be even more difficult if you have tenure. The relative merits of these choices as they relate to the success of startup biotech companies have been reviewed (3).

If you choose to stay in your academic position while you help develop your invention, be prepared for a schizoid existence. You will struggle between the need to do thorough science on one hand versus expedient science to please investor demands on the other—and between the need for secrecy due to intellectual property issues and your academic mission to publish freely. Above all, disclose to your institution everything that you are doing with your company. Full disclosure is the best way to effectively manage conflicts of interest. In the end, your institution, as the patent holder, and you, as the primary champion of your invention, will need to work as partners. And of course, neither disclosure nor partnership will work if you engage in the exploitation of graduate students and postdoctoral fellows or practice other such unsavory behavior for the benefit of your company.

Often, the decision to leave academia will be the path of least resistance, because you will be unencumbered by conflicting issues. Furthermore, your investors and company employees may be happier if you devote all of your professional energy to the company. For them, your departure from academia represents your “commitment” to the enterprise. I must add, however, that I have encountered certain instances where true entrepreneurial commitment would have probably been better served if the founder had stayed in academia.

Where Do You Go From Here?

Your options are limited only by your imagination and the willingness of you and your investors to adopt a common vision. More importantly, the survival of your company will require that you be flexible and responsive to changes in technology and the marketplace. Your technology may be the foundation for starting your company, but if you remain flexible and alert, you may ultimately commercialize technology that you could not have imagined or foreseen at startup. If you can adapt to the ever-changing technological landscape, you will not only survive, you will thrive. And therein lies the appeal of creating companies for the entrepreneurial scientist, academic or otherwise, because a company provides a breadth of opportunity for the practice and dissemination of those talents and proclivities that brought you to science in the first place.