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New Biotech Biz Models (and the Tested Bob Langer-Terry McGuire Approach) Emerge at Xconomy Forum

Xconomy Boston — 

We could have called it the “New Biotech Business Model Expo.” Xconomy’s forum—How to Build a Life Sciences Company—attracted venture capitalists and entrepreneurs from around the Boston area (and a few from across the country) to the Novartis Institutes for Biomedical Research in Cambridge on Tuesday morning to showcase the strategies they’ve used to form and fund startups in today’s challenging economic climate. Then a packed house of life sciences executives (and a few of us media types) listened to two living legends in the business, Bob Langer, institute professor at MIT, and Terry McGuire, managing general partner at Polaris Venture Partners, discuss how they have collaborated to launch 14-odd life sciences startups.

The biotech business itself is a startup relative to more established industries, and VCs and life sciences executives are still experimenting with strategies to make early-stage companies successful. It’s too early to tell whether, say, biotech startup Fate Therapeutics has improved its chances to bring a drug to market by uniting authorities in adult stem cell biology from around the country to serve as scientific founders and advisors. And the most proven business scheme among those presented—essentially, to “back science discovered in Langer’s lab at MIT”—may be difficult to replicate.

Many of the business models explored at the Xconomy Forum are likely relevant to other industries such as clean technology and semiconductors, both of which, like life sciences, depend on innovative technologies and funding strategies to prosper. For the benefit of all our readers, regardless of their industry focus, we thought it would be valuable to compile a list the strategies presented at the forum:

The Ensemble Scientific Cast Model:

For sure, dealmakers typically seek out the finest of advisors and executives to lead their young companies. However, Seattle-based Arch Venture Partners and Polaris, of Waltham, MA, took this approach to another level in forming Fate, a startup focused on the development of drugs to control the destiny of cells to treat diseases.

Fate co-founders Amir Nashat, a general partner at Polaris, and Alex Rives, an associate at Arch, presented their case at the Xconomy Forum for bringing together an ensemble cast of adult stem cell authorities—Philip Beachy, a professor of biology at Stanford University; Sheng Ding, an associate professor of chemistry and cell biology at Scripps Research Institute; Randall Moon, a professor of pharmacology at the University of Washington School of Medicine; David Scadden, a professor of medicine at Harvard University; and Leonard Zon, a professor of pediatric medicine at Harvard Medical School—to contribute their scientific discoveries and expertise to the startup. (Bob called this band of stem cell leaders “a scientific dream team” in this April story about Fate.) “We actually forced them to string their science together—that’s very important,” Nashat told the crowd, adding that the task was made easier because some of the scientific founders of Fate already had research collaborations with each other before the company launched last year.

The Nobel Laureate Model:

It never hurts to have a founder with a Nobel Prize for the area of research on which their company is focused. But it’s a dream when the Prize is awarded while you’re on the road pitching for funding. Tod Woolf, CEO of RXi Pharmaceuticals (NASDAQ:RXII), a developer of RNA-interference (RNAi) drugs designed to switch off genes linked to diseases, told the forum that the company was in the midst of its first fundraising effort in 2006 when co-founder and University of Massachusetts Professor Craig Mello learned that he would share a Nobel Prize in medicine with Stanford professor Andrew Fire for their discovery of RNAi. “This is a very good way to start a biotech company,” Woolf quipped.

The Big Pharma Checkbook Model:

Biotech firms practice this business scheme when founders manage to induce major pharmaceutical firms to commit funds at the inception of their startup to support the development of a broad array of platform technologies, which will later be spun out into individual startups. Sound farfetched? David Steinberg, a senior principal of PureTech Ventures in Boston, would likely tell you it’s not so. Steinberg, the first presenter at the forum, serves as CEO of Enlight Biosciences, of Boston, which is pioneering the Big Pharma Checkbook Model.

Enlight debuted this summer with funding commitments of $39 million from drug giants Eli Lilly, Merck, and Pfizer. Why would Big Pharmas open the checkbook for such a venture? All the projects pursued by Enlight involve “pre-competitive” platform technologies that could improve efficiency for all three Pharmas but don’t give a special edge to any—and which may otherwise go undeveloped due to gaps in financing available for nascent technologies, Steinberg explained. (For more on Enlight, here’s Luke’s recent post about the startup.)

The David (or Five Davids) Model:

Basically, this business model is a variation of the oft-practiced, fund-past-winners strategy. Nicholas Naclerio, chairman and CEO of Quanterix, a startup focused on developing highly accurate, single-molecule analyzers, explains that his scientific founder David Walt was a selling point to investors. Walt, a professor of chemistry at Tufts University, previously founded, and invented genetic analysis technology for, San Diego-based Illumina, which completed an initial public offering of just north of $100 million in 2000.

Based in part on Walt’s reputation, Naclerio explains, Quanterix managed to quickly raise an initial tranche of a Series A round of venture capital last year. The firm’s VC backers—Flagship Ventures, of Cambridge, Arch, and Boston-based Bain Capital Ventures—completed the $15 million round this summer. Here’s our recent story about Quanterix. (Also notable is the fact that 5 of the 6 members of Quanterix’s leadership team are named “David.” This is perhaps a less practical strategy for the typical startup, but in this environment we’d be remiss in not mentioning a potentially valuable tip.)

The Non-Profit Startup Model:

One of the most interesting case studies at the forum was Diagnostics For All (DFA), a nonprofit developing inexpensive paper-based diagnostics for the developing world. It now operates with a $200,000 donation from founder and renown Harvard chemistry professor (and Xconomist) George Whitesides and $500,000 from director and Xconomy Forum presenter Myer Berlow. Berlow, whose day job is CEO and vice chairman of Cambridge nano-materials startup Nano-Terra, says that the reason for DFA’s nonprofit status and initial reliance on philanthropic donations is to ensure that the cost of its diagnostics remains low enough to save the lives of the poorest people in places like Africa. Xconomist Carmichael Roberts, a DFA co-founder now of North Bridge Venture Partners, wrote in our forum about the decision to create DFA as a non-profit. Roberts also moderated a fascinating panel—New Strategies for Getting Off the Ground—that brought together all five of the morning’s case study presenters and dove into greater detail about their strategies.

The Venture Philanthropy Model:

Though certainly a for-profit enterprise, Cambria Pharmaceuticals of Woburn, MA, has received some $5 million in grant awards from diseases foundations to develop a treatment for neurodegenerative disorders such as ALS (amyotrophic lateral sclerosis). Cambria CEO Leo Liu, who presented his firm as a case study, said that disease foundations are ideal financing partners because they represent leading researchers, patients, and the market for the experimental drugs they support—and they don’t take equity.

The Incubator Model:

This business model is typically built around sharing resources among life sciences startups in the form of lab equipment and space, administrative support, and service providers. Xconomy national biotech editor Luke Timmerman moderated a panel of incubator enthusiasts focused on life sciences. David Schubert, chief business officer of Accelerator Corp., a novel type of life sciences incubator in Xconomy Boston’s sister city of Seattle, explained that the pool of traditional venture capitalists willing to place bets on the young firms in his incubator continues to grow smaller and smaller. Accelerator provides initial investments in life sciences startups in its incubator to help them gain the validation of their technology needed to attract further investments from VC firms. Meanwhile, Novartis’ Chuck Wilson, vice president of strategic alliances, informed our audience that his company has an incubator with a twist: instead of incubating companies, Novartis incubates projects by issuing stock options to employees with novel ideas outside the scope of the company’s normal research and development programs.

The Bob and Terry Model:

There are quite a few VC-academic duos in the life sciences industry that have rallied more than once to launch startups. Take Ram Sasisekharan, a professor of biomedical engineering at MIT, and Polaris venture partner Alan Crane, who worked together to form Cambridge biotech startup Tempo Pharmaceuticals and Parasol Therapeutics in Waltham.

But perhaps no tandem has been as prolific as Bob Langer and Terry McGuire, who have together formed some 14 biotechs, including early hit Advanced Inhalation Research (AIR), a Cambridge, MA-based developer of inhaled drug formulas that was sold in 1999 to Alkermes (NASDAQ:ALKS) in a stock deal valued at more than $100 million. And McGuire made it clear that he believes the only way to replicate the success he and Langer have enjoyed since they began collaborating to form life sciences startups in the mid-1990s would be to find another Langer (who by the way has some 630 patents and more than 1,000 scientific papers to his credit). Of course, McGuire followed up, there is only one Bob Langer. (Look for an upcoming video of Langer and McGuire’s chat at the Xconomy Forum.)