As Big Pharma Flocks to Science Exchange, Norwest Leads $28M Funding
Some biology PhD’s become entrepreneurs because there are only so many posts around for university professors. But Elizabeth Iorns had scored one of those coveted entry-level academic jobs, so there was a lot at stake in 2011, when she was deciding whether to give it up to launch a startup.
Six years later, Iorns says she’s pretty happy with her choice to co-found Science Exchange, an online marketplace where researchers can arrange to outsource some of their experiments to contract service providers that have the equipment or expertise they need.
Palo Alto, CA -based Science Exchange just scored $28 million in a Series C funding round led by new investor Norwest Venture Partners. Union Square Ventures, Maverick Capital, and Collaborative Fund also invested. The company has now raised $58 million in total.
The research marketplace, which began by handling transactions averaging $3,000 to $5,000, today acts as middleman for many more deals, with an average value of $25,000, and some worth more than $1 million. Science Exchange charges a fee of about 5 percent per transaction. And its customer base of large drug companies is growing, Iorns says.
“At the beginning, the idea of outsourcing was very new,” in biological research, Iorns (pictured) says.
She first conceived of the marketplace after seeing academic researchers struggling to carry out all their experiments themselves by learning a variety of techniques. At the same time, some U.S. universities maintained expensive labs where sophisticated scientific instruments and their expert operators were underutilized.
Iorns started by using Science Exchange to connect those parties so researchers could outsource some of their work. But university researchers and lab facilities now make up a small fraction of the transactions on her marketplace. A large majority of the business comes from pharmaceutical companies that are sold on the advantages of outsourcing, Iorns says. Big enterprises, including drug firms, now account for 80 percent of Science Exchange’s revenues.
“How we predicted the market would change, has now happened,” Iorns says. About 40 percent of the money spent on drug company R&D now goes to outsourced projects, she says.
Science Exchange counts major drug and biotechnology companies among its clients, including Merck, Amgen, Gilead, and Genentech, Iorns says. The number of projects handled through the marketplace increased by 350 percent last year—mainly due to the growth of enrollments by large enterprises, she says. As a gauge of the total potential market for outsourcing, Iorns says, spending on R&D outsourcing by the 50 top pharmaceutical companies is more than $50 billion a year.
Drug companies are gung-ho on outsourcing because they don’t have to hire staff and invest in labs and equipment, Iorns says. The second major reason is that drug development has changed, becoming more complex and specialized, she says. Thirty years ago, drug companies created medicines mainly from small molecules, whereas now they develop therapies from biological compounds such as antibodies and genetically engineered proteins. “They need a network of experts,” Iorns says.
While Science Exchange has “significant revenues” (not disclosed) and is approaching profitability, Iorns says, the company is bent on scaling up rapidly to establish dominance as an end-to-end service where researchers can find contractors, put in orders, and manage their projects. The outsourced services now range from the initial hunt for drug candidates, to clinical trials that could lead to regulatory approval, to contract manufacturing of the approved medicine.
“It’s very obvious that this is a winner-takes-all market,” Iorns says. The company’s closest competitor is the smaller firm Scientist.com, based in Solana Beach, CA (formerly named Assay Depot), she says.
In Iorns’ view, the go-to R&D marketplace should remove all the hassles and friction points in outsourcing procurement and management, so that clients don’t need to jump to another website.
To that end, Science Exchange has adopted many tech company features, such as single sign-on, unified billing, and dashboards where clients can compare all their options when they pick a contract research organization. They can check the performance history of each outfit and view ratings from prior clients.
Science Exchange also maintains its own data security protections for clients, provides secure channels for transferring data, and locks in confidentiality agreements with outside research service providers.
With its new capital, Science Exchange will bring its staff of 60 up to about 80, support the creation of new features by its engineering team, continue to seek new clients, and otherwise improve operations such as screening and quality control of contract R&D providers, Iorns says.
The company is also gaining a new board member, Norwest general partner Casper de Clercq.
Science Exchange has been expanding its scope to areas of research other than drug development, recently signing on partners involved in research on medical devices and cosmetics. Iorns says she now has her eye on other industries, including aerospace, agriculture, animal health, industrial chemicals, and pharmaceutical packaging.
Providers using new means of research, such as artificial intelligence tools, are also being added, and can be integrated rapidly thanks in part to Science Exchange’s network effect, Iorns says. Research organizations that discover new contractor organizations share the information with Science Exchange, which vets and displays them to all its clients, she says.
“Any new category can be added to Science Exchange very quickly,” Iorns says.