Nature Bioentrepreneur | Trade Secrets

The ‘Leverage’ Start-Up Model

Leverage Startup2.png

Entrepreneurial professors, recent graduates, or students in the life sciences who would like to translate their research into a biotech start-up have the potential to de-risk nascent technology and provide the foundation for a company by using a capital-efficient, non-dilutive operating model we term the “leverage” start-up. This model was developed in response to an economic climate in which early-stage investment capital for biotech is scarce and prohibitively expensive. By leverage of existing infrastructure and resources in universities and other organizations, and by judicious use of non-dilutive financing, an entrepreneur with a laptop and access to some lab space can incubate early-stage academic discoveries, develop proof of concept, generate value and establish a biotech start-up.

Biotech represents an expensive, high risk, long-term investment. Translating a discovery in a research lab to a new medicine approved for human use requires extensive research and development infrastructure, expertise and resources at an estimated average cost of $1.5 billion, and a product development cycle in the decades. Compare this with information technology, where the ability to create, test and develop a start-up has never been easier. A company can literally be funded on a credit card and new business concepts can be rapidly tested and iterated. A significant driver of this advancement has been a reduction of costs for technical infrastructure and an increased ability to rapidly test ideas in the marketplace. The convergence of these advantages has created tremendous innovation and investment in information technology companies over the past few years. In contrast, it remains exceedingly difficult to bring nascent academic biotech research to a stage attractive to investors. The Burrill & Company 2011 Annual Report on the Life Sciences Industry noted that “the funding woes biotechs face…represent[s] a structural change to the finance landscape for the life sciences.” The Leverage Start-up model represents a response to this change in the finance landscape for early-stage technologies.

The Leverage Start-up – a new model for building biotechs

The Leverage Start-up model (image at top of post) is a vehicle for developing technology through its earliest and riskiest stage. We believe that this model is repeatable and scalable because the Leverage Start-up:

  • Leverages R&D infrastructure, such as specialized facilities and equipment that exists in academic organizations, thereby minimizing the cost of establishing and equipping research facilities. This accelerates the R&D and product development program of the start-up
  • Leverages technical expertise from world-class academic institutions, building collaborations and obtaining insight into your proposed solution from recognized opinion leaders. These contacts serve as an (in)formal Scientific Advisory Board (SAB) ;
  • Leverages resources that support the commercialization of academic innovation, such as technology transfer offices, incubator organizations and industry support organizations. This access to business intelligence supports activities such as patent filing and business strategy ; and
  • Leverages non-dilutive funding from public, charitable and private sources to finance R&D programs to de-risk technology and generate value. This financing fills the gap left by shrinking investment dollars available to early-stage biotech start-ups and provides funding to help de-risk early venture concepts.

The “leverage” start-up is a mechanism to generate proof-of-concept data for promising early-stage academic discoveries in the life sciences. It is designed to advance technologies in a biotech start-up to the stage where investors would contemplate an investment, and the cost of that investment to the founders was not prohibitive. In future posts we will discuss each of the four components of the “leverage” start-up model in more detail.

Have you used a similar approach to launch a biotech start-up? Or do you believe that this model would work in your academic environment? We would love to hear your input. Please leave comments below.

James Taylor and Euan Ramsey


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    Michael Koeris said:

    I applaud the thinking behind the leverage model and I agree. Biotech is severely lagging behind IT (and most other industries) in the Lean Start-Up methodology. This needs to change in order to adjust the biotech business model for these – more risk averse – times in the VC and even Governmental granting space.

    However, there are two main caveats I see with the leverage model that need to be addressed. 1) There is a non-trivial cost associated with even trying to get benchspace (I am talking about a single or even half bench) at a major research university. These costs are upwards of $50K – $75K, plus overhead. Overhead itself can range from the low 30% to 99% at some institutions, again a significant burden to a lean startup. 2) Intellectual property. Biotech companies have benefited from IP protection for a long time, and since Bayh-Doyle, academic institutions have too. That means that research carried out at the institution using the institutions resources is always considered co-invented at the institution, unless a separate arrangement is made, such as a sponsored research agreement. Those SRO’s however are also not cheap.

    In all, I believe some significant movement needs to be made by academic institutions and other incubator-like facilities to allow for leaner, faster innovation.

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    Jamie Taylor said:

     Hi Michael,

    Thanks for the comments, I agree with the issue you outline and believe that entrepreneurs, academic institutions and governments have a responsibility to identify solutions that allow biotechnology innovation to be more easily translated.  In regards to your specific points:

    1) It is also my understanding that different institutions have different costs structures for allowing startups to use lab space.  In some cases this is prohibitively expensive.  I suspect some of the costing differences between institutions has to do with the different philosophies regarding public-private relationships and some have to do with a lack of appreciation of importance and difficulty of creating successful biotechnology companies.  We are hoping to gather some of this information with the aim of identifying which institutions are most progressive on this issue.

    2) I agree that the structure of the IP agreement between the academic institution and startup has to be carefully considered.  Work being done using University facilities will likely be consider a co-invention with the University, unless a SRA is used to specifically assign all new IP to the sponsoring company.  In regards to a University led startup, the startup will likely need to secure IP from the University.  This is often done through an exclusive license to the NewCo, where the University retains ownership of the IP.  Under this structure it is possible for the license to include the current technology and future improvements, creating the possibility for a unique and collaborative relationship between the University and the NewCo.  In future posts we will articulate how this structure can help the University and NewCo efficiently commercialize technology that has a large R&D component.

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    Geoff Lawton said:

    Agree with the necessity for a leverage model to address the ‘valley of death’ problem for life science start-ups – especially those aimed at new therapeutics.

    INMedD proposes a social enterprise vehicle to facilitate this leverage.

    Mechanisms have to be found to harness traditional investment (requiring a financial return) with social investment whose goal is social impact on global health and/or on local economies. Increasing engagement of social capital from governments, NGOs, charities, venture philanthropy and crowd funding in organisations such as CRT, MRCT, NCATS, Academic Drug Discovery Centres and other social enterprises provides one route to the evolution of the new sustainable ecosystem. 

    Many academic institutions are attempting to ‘mature’ assets to the point at which they are fundable, so connecting these assets with the hard-nosed business world in a productive way is increasingly important. In life sciences, the simple translation of academic idea into venture-funded company is rare in today’s climate of risk-aversion.

    It is not the primary purpose of the University to apply the knowledge created and, with few exceptions, there is significant cultural impediment to entrepreneurial development within the academic institution.

    Independent social enterprises seem to present an effective alternative.

    Geoff Lawton

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    Karen Malone said:

    Some communities are addressing the challenges addressed in this article and comments by investing in their own laboratory facilities peripheral to the university system, alleviating a lot of the hassles. Realizing there is no bio in biotech without lab space, cities in the Phoenix valley are building for-rent, specialized lab facilities as part of a larger plan to grow the biotech sector in Arizona. One such facility is already up and running in Chandler. and another is slated to be opened in Phoenix early next year.

    With regards to IP, depending on your technology and the status of its development, I have taken the approach to draft provisional patent applications concurrently with the business plan. That way, as the project nears execution the provisional patent is ready to be submitted in short period of time, allowing you to strengthen your position when dealing with partners such as a university. Beware though, while a provisional patent is cheaper and easier, allowing you one year to investigate the capitolization potential, you need to be prepared to submit the actual patent within that timeframe or risk losing patent rights. That’s why I would keep it in your pocket until the project is really picking up steam.