Biotech Needs Charity, and Profit Motive, To Flourish

5/11/09

(Page 3 of 3)

for diseases that have a hard time attracting venture capital. They want to create a product that can save human lives. With some new, creative approaches, the non-profit research institutions in Seattle are in a unique position to do much more than just provide research for biotechs to develop. They could develop the drugs themselves.

Stewart Lyman described a method to support drug development outside of the traditional venture-backed for-profit model. He proposed the creation of a non-profit institution by the state that acts like a biotech company. It operates as an NRDO, concentrating on drug development, not research but remains a non-profit. Stewart’s suggestion could focus getting drugs into people, drugs that might not turn the profit needed to sustain a commercial entity.

But there are some possible difficulties with such a non-profit, especially if the state sponsors it. My suggestion would be that instead of asking the state government to directly finance such a research charity, we push for Washington to approve a new business structure that has recently come on the scene – the low-profit limited liability corporation (L3C).

These novel organizations allow a non-profit to invest in a societal problem, such as global health, while incorporating many of the trappings of a for-profit company. Support of the L3C by charities, foundations, corporations and venture capital firms is greatly simplified. The L3C can attract capital from both private and philanthropic institutions. It can distribute profits in ways that benefit both non-profit and for-profit institutions. In essence, the ability to include support from non-profit sources allows venture capital to receive higher returns with reduced risk.

The need for a return on investment, required for other corporate entities, is substantially altered, allowing long-term support for research and development that directly affect social ills, such as human health. This hybrid structure, which has been approved in several states so far, would permit the creation of novel research institutions that could investigate innovative drugs and develop new therapies while attracting capital investment from both for-profit and non-profit sources.

Seattle is poised, as few other cities are, to take advantage of the research dynamo that our non-profit research institutions represent. With a little tweaking by our state government, new avenues for development of this research into innovative therapies could take place with capital investment from a variety of new sources.

My answer to the initial question posed, then, is to modify a phrase coined by the 19th century newspaper publisher Horace Greeley: “Go to non-profits, young scientist.”

Richard Gayle is the founder and president of SpreadingScience. Follow @

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  • http://www.linkedin.com/groups?gid=1904794 Mark Minie

    Rich,

    Thanks for this informative, insightful, and provocative article…

    A few questions come to mind…

    1) Is all non-profit activity in biology focused in biomedicine? (especially in Seattle…)

    2) Can these L3C type organizations fill Seattle’s need for so-called “Small Good Life Sciences Businesses” (SGLSB’s) that are an important part of the “ecosystem” in the acknowledged 1st tier bioresearch regions in the US (BosWas, SF and SD)?

    3) Is there a significant role for high level (PhD) biologists in the support of these types of organizations other than as “bench” researchers?

  • http://www.spreadingscience.com/ Richard Gayle

    Mark,

    Great questions. I focused on biomedicine as most of the statistics I used focused on that. It is a pretty generous umbrella term.

    An L3C appears to be a good fit for many socially responsible investors and non-profit organizations. They have a flexibility that could permit them to be used in several parts of the ‘ecosystem’, including SGLSBs.

    Their advantage comes from the ability to support corporations whose possible return on investment is much, much lower than current efforts. Entire areas of investment become possible.

    An L3C could be organized very much like a for-profit biotech corporation, with the same requirements for experienced PhDs as any other biotech.

    But it could also be organized in a novel fashion to reflect the dual nature of its focus – social good followed by profits.

    In either case, experienced scientists will serve a very important purpose at such an organization, just as they do at the non-profits today.

    The hope is that an L3C, or similar, enlarges the ‘ecosystem.’

  • http://www.lymanbiopharma.com Stewart Lyman

    Nice job, Rich, covering the various job options available to young scientists. Times certainly have changed in the biotech world. I was unfamiliar with L3C organizations; this format may represent an excellent approach for setting up new biotechnology-based groups around town. FYI for readers who are interested, I maintain a hyperlinked list of Seattle biotech non-profits (in addition to Seattle biotechs) on my Website at http://www.lymanbiopharma.com/seattlebionon-profits.html

  • http://www.spreadingscience.com Richard Gayle

    Stewart,

    Thanks for the link. I had meant to provide it in my discussion. Your list had been helpful in my hunt for numbers. Its absence was an oversight.

  • CMCguy

    Richard I too think this article brings up a viable option for researchers to consider at not-for-profits although from practical view I do wonder how many such positions are really available. I may be Generalizing yet in many cases the lab research components seem relatively small staffed, sometimes highly specialized and have little turn over (which can be positives) so can have limited opportunities and/or be highly selective. Also these organizations do not always recruit directly in publications and have connections to groups/collaborators that they source from or work with Recruiters to find candidates.

    I do argue that biotechs are “geared more towards development” than research oriented however could be semantics plus the vast amount of Development that occurs between discovery and approval/commercial products (that is not always as recognized in some circles). The majority of biotechs still are heavy into the “R” side, albeit very directed/goal driven verses academia, and frequently can stumble when try to shift to “D”. The industry has migrated more to the later types but in reality they must go hand in hand. Unfortunately neither type seems highly capable to attract the funding to support vibrant activity in current times.

  • http://www.spreadingscience.com Richard Gayle

    CMCGuy

    All good points. I’m not certain that this approach would necessarily replace the current situation as much as provide a new outlet for innovation. Something like an L3C allows for the creation of a novel institution that could access money for R&D programs that are not profitable enough right now.

    There might be a multi-tiered set of organizations. One, similar to the current situation,works on therapeutics with near-term, high profit potential. The next works on those with a longer term, modest profit potential while the non-profits continue to work on things that, as of yet, have little or very,very long term profit potential.

    The addition of the middle tier could only increase the universe of research positions, as well as all the support personnel.

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  • CMCguy

    Richard I was not discounting the value of such organizations as merely suggesting there many not be a large quantity of employment opportunities from such (which was part of your story). In fact I do see they can often fill gaps that are less emphasized in most academia, biotech or large pharma whether are from finance considerations or maybe the difficulty of the challenge that makes “unattractive”. These type of organizations can be highly focused and goal driven to particular mission while having more latitude and flexibility in time-lines and collaborations than in typical industry situation. With appropriate leadership, capital and perseverance sounds like a feasible approach for promoting innovation to me.

  • http://www.spreadingscience.com Richard Gayle

    CMCGuy,

    I appreciate your comments. I only found out about L3Cs a few weeks ago myself so the feedback lets me know how viable the idea is.

    Just how many positions could be created by a novel approach such as an L3C is really unknown. Getting some real-world experience would be very useful.

    But, I’m hopeful that this might be a productive avenue, particularly with the unique position the non-profit research institutions occupy in the Seattle area.

  • SPACAdvisor

    This is an interesting article, but I agree with CMCguy that there aren’t enough research-based PhD-level jobs in non-profits to make this advice a truly viable option for the majority of PhD-level scientists in the Seattle region, unless one wants to be a perennial postdoc or change careers. Some scientists who want to stay in Seattle ultimately choose to go into a field where they don’t do research, but they still use their scientific training. Examples include teaching, science writing/editing, fundraising, tech transfer, and administration.

  • http://www.spreadingscience.com/ Richard Gayle

    SPACAdvisor,

    I certainly agree that it is very tough for any PhD level scientist. We can have a discussion at another time about the possibility of an overabundance of scientists in the Puget Sound or US and what to do about that.

    But I chose to concentrate on the choices _IF_ the scientist wanted to focus on research in Seattle. The non-profits seem poised for expansion in ways that other possibilities are not.

    Will they be able to soak up all the scientists out there who want to concentrate on research? Probably not. But I think sources of additional jobs are always good. Perhaps this is a way to overcome some of the advantages Boston and San Diego have so that more researchers can stay here rather than move elsewhere.

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