Sticking it to the VC Man: Johnny Stine Builds Biotech Startup on a Shoestring
The lone entrepreneur in a garage, driven to change the world, is one of the most powerful archetypical characters of American capitalism. It may still work today in isolated cases for iPhone apps or Internet software, but in biotech, it’s a laughable idea. This is an industry where it takes a decade of sustained work, and hundreds of millions of dollars in capital to make a new FDA-approved drug. Only the biggest boys of venture capital can make it happen, conventional wisdom says.
But there’s Johnny Stine, all by himself, cranking up the AC/DC hard rock anthems in a leaky warehouse in Seattle’s Wallingford neighborhood. Xconomy has learned that Stine, a former scientist at Bothell, WA-based Icos and founder of Seattle-based Spaltudaq, has scored a string of three partnerships to make rabbit-based antibody drugs for biotech and pharma companies that could pay him as much as $200 million, plus royalties, if he can create drugs that successfully reach the market. Sure, that hardly happens in biotech, but these deals mean that Stine has been able to set up his company, North Coast Biologics, while keeping 100 percent ownership to himself, and without taking a dollar of venture capital.
“This company is in business now as long as I can run,” Stine says. “It solidifies my company now for 10, 15, maybe 20 years.”
Stine, 44, has signed agreements to keep the names of his clients confidential, and he’s not disclosing how much cash he’s actually getting upfront, so this story may have to be taken with more than a shake of salt. But I was able to pump some details out of him earlier this week. One company has signed a 10-year agreement with North Coast which provides upfront payments, and milestones worth as much as $150 million if Stine can deliver as many as 50 new, improved rabbit-derived antibody drugs. These drugs will be made to block protein targets on cells that are largely established as disease culprits, Stine says. Another client is based in Canada, and a third customer is a local biotech. Those two have contracted with North Coast on developing as many as 11 new antibodies designed to block newly discovered protein targets on cells, Stine says. The backloaded, milestone-driven contracts follow industry standard dealmaking templates, except Stine offers his services at lower rates because he has such low overhead, he says.
Like a lot of people in Seattle biotech, I wondered last summer, when Stine first told me his story, whether this was all too pie-in-the-sky. He sounded like a charismatic scientific character soured by a brush with The Man, but probably naïve, facing economic forces he probably didn’t understand very well. I agreed to listen after Accelerator’s Carl Weissman, who backed Stine’s previous company, said, “I wouldn’t bet against him.”
But how is this possible? The way Stine tells the story, it’s all about being creative, and “lowering your tastes.” He found a chemical fume hood “dirt cheap” from Bothell, WA-based MDRNA, as that company has had to slash costs. He found consumable chemicals off eBay that are far less expensive than from the fancy vendors. He got a sophisticated robot for handling liquids in experiments for $2,000, even though it was easily worth $100,000. “The guy who had it didn’t know what it was,” Stine says. Most importantly, he got an Applied Biosystems FMAT 8200 machine for studying protein-protein interactions for $120,000, less than half of retail price. “It’s probably the best piece of equipment ABI ever made. And then they discontinued it,” Stine says.
And the kicker is that he didn’t front any of the money for that expensive instrument. He got a collaborator to pay half of the bill in exchange for some antibodies from Stine in the future, and the rest from an IP lawyer in town who fronted that money for the right to a piece of some of the milestone payments in the future if Stine hits gold, as well as future legal fees.
Then there’s the lab space. “I walked in to this place, and said, ‘This is horrible,’” Stine relates. When he proposed a $1,000-a-month lease for 1,000 square feet of space, the deal was done. Stine and a friend, Greg Hjelm, then poured in the sweat equity, painted the place themselves, put in new drywall, installed new electrical wiring, laid down the carpet, put in shelves, and rolled in all the lab equipment. He still heads up the road occasionally to the R&R Rabbitry 40 miles north of Seattle to get the rabbit blood samples he needs as raw material to run his antibody drug experiments.
All told, Stine has spent about $20,000 of his own money before he was able to start spending company money on company expenses, Stine says. He’s now in a position to think about hiring two or three people to help him over the next four months, he says.
North Coast, Stine insists, is just getting started. Stine’s talking with Leroy Hood of the Institute for Systems Biology about making a bunch of new antibodies that Hood’s team can use for experiments that enable his vision of P4 medicine—personalized, predictive, preventive, and participatory. “Lee’s dream is pretty awesome, and I’m all over it, I want to help,” Stine says.
Yet as Hood once told me, “There are lots of great talkers, and not nearly as many great doers” in the biotech business. Stine has already shown he can get a company started that goes on to raise more than $30 million in traditional venture capital for drug development.
If Stine can really prove it’s sustainable to build a “garage” biotech company, owned and operated by a sole scientist, this would certainly qualify as a big idea. Some of this might be seen as traditional contract labor, which isn’t really novel, but if he can discover drugs and keep a sizable piece of equity in them while a big company develops them, it just might get others thinking about other various end-runs around the VC power structure.