August 2010

Starting Up a Startup

 

Leslie W. Chinn talks with Stephen Cary about starting up a biotech company and some of the resources available to fledgling start-ups. (Titled "From Aha! to Entrepreneur" in print version.)

 

Startups
Stephen Cary and Jamie Romero of Omniox in the QB3 Garage. Credit: Robin Hindery, UCSF.

For Stephen Cary, the most important realization of his graduate school career came when it nearly was all over. Late one night, he was working on his dissertation when he had his “aha!” moment.

Cary’s graduate work, conducted in Michael Marletta’s lab at the University of California, Berkeley, had focused on molecules that modulate nitric oxide signaling. An example is hemoglobin, which binds oxygen and carbon monoxide, as well as NO, through its heme group. Several decades ago, a number of government institutes and companies had attempted to develop hemoglobin-based oxygen carriers, or HBOCs, as substitutes for blood and for other therapeutic purposes. These attempts had failed for a variety of reasons, including toxicities that were likely related to the HBOCs’ interference with physiological NO signaling.

But Cary and his lab mates had been working on a novel oxygen-binding protein family— one that did not scavenge nitric oxide. This, Cary realized that night, was a technological breakthrough. “Our new protein family could be the answer for millions of patients that could benefit from novel therapeutic oxygen carriers,” Cary recalls.

The Lone Entrepreneur

Cary gathered his thoughts and presented them to Marletta and two postdoctoral fellows in Marletta’s lab— Elizabeth Boon and Jonathan Winger. The four ultimately would become the founders of Omniox, a company created to commercialize novel oxygen delivery technology based on their research at Berkeley. “Though we were four co-inventors, I was the lone entrepreneur,” says Cary. So, he shifted his focus from science to the intricacies of starting a business.

With the support from UC Berkeley’s Office of Technology Licensing and Stanford Research Institute International (whose PharmaSTART program helps academic researchers advance promising compounds past the discovery phase), Cary began to gain an understanding of, as he calls it, the “landscape of drug development.” The most important step, he realized, is to define one’s intellectual property, or IP. “In biotech, you live and die by the strengths of your IP agreement,” said Cary.

Cary selected an attorney to handle the IP aspects of Omniox, and he also chose a corporate attorney to assist with the technical aspects of starting a business. Both attorneys accepted deferred payment, receiving their fees once Omniox had raised enough venture funding. It was important to Cary that both attorneys were the best in their fields, as this gave credibility and a sense of permanence to Cary’s fledgling company.

Startups---OmnioxThe Valley of Death

Omniox was now in a transitional phase, during which, in general, the financial support is weakest. Up to that point, their studies had been funded by traditional research grants, but the science was not yet mature enough to convince venture capitalists to provide commercial funding. This tenuous period is often referred to as the “Valley of Death” for young companies.

However, Omniox was fortunate. The company received a two-year Rogers Family Foundation “Bridging the Gap” award for translational research, allowing research to continue during the year in which Cary was meeting with lawyers and recruiting scientists to Omniox’s advisory board.

A number of other factors also worked in Omniox’s favor. One, ironically, was the economic downturn: biotechnology companies, young and old, were struggling to survive, sometimes without success. Omniox was able to acquire used lab equipment at bargain basement prices— a million dollars’ worth purchased for $25,000, Cary estimates. Another helpful factor was Omniox’s location in the San Francisco Bay Area, where prominent law firms were more willing to take chances on biotech start-ups. What’s more, Omniox was able to take advantage of a new institute at the University of California called QB3.

The Incubator

The California Institute for Quantitative Biosciences (QB3) is a consortium formed by three UC campuses: Berkeley, San Francisco and Santa Cruz. One of its goals is to “speed the movement of innovation from the laboratory into peoples’ daily lives,” according to the 2001 Governor’s Budget Summary, in which the foundation of QB3 was established.

Startups---Crawford
California Institute for Quantitative Biosciences Associate Director Douglas Crawford

In the institute’s early days, Associate Director Douglas Crawford and Director Regis Kelly sifted through case studies of UC faculty members, postdocs and graduate students who were interested in starting businesses. But, “the cost of a start-up is prohibitive,” explains Crawford, and all they found was frustration. Crawford and Kelly wondered how they could leverage UC resources to help scientist-entrepreneurs, with the ultimate goal of increasing societal impact. Soon, the QB3 Incubator Network was born.

The Incubator Network rents small office and lab spaces – in some cases, as little as 120 square feet— to young companies, thereby minimizing the cash demands on start-ups. Most of the spaces, called “Garages” in recognition of the innovators such as Bill Hewlett, Dave Packard and Steve Jobs who founded companies out of their own garages, are at the UCSF Mission Bay campus; a smaller amount of space became available at UC Berkeley in May of this year.

QB3 also provides funding for work that is, as Crawford says, “too applied for the National Institutes of Health,” but not developed enough for venture capitalists – for example, the validation work that follows up on promising compounds generated by high-throughput screening experiments. “The NIH will fund screening for therapeutic hits,” notes Crawford, “but from there to clinical [trials] is a gap of $20-40 million” for further work on chemistry, toxicity and other research that might be considered less scientifically interesting. Through grants such as the Rogers award, QB3 assists companies like Omniox in their early years.

Companies housed in the QB3 Garages also have access to what Crawford calls the “intellectual vitality at the university.” There are countless seminars on both science and entrepreneurship, and QB3 provides a valuable shared experience between nascent companies.

Casting a Wide Net

As one might expect, there’s a huge demand for the resources available through QB3. Crawford estimates he receives between two and four inquiries a week from companies (the majority of which have some UC connection) who want to join the network. Currently, there still is space available in the QB3 Garages, but competition is fierce.

For more information

Small Business Innovation Research Program, National Cancer Institute.

QB3 Incubator Network

• Omniox Inc.

• Report from the Ewing Marion Kauffman Foundation: “Accelerating the Commercialization of University Innovation

• Center for Integration of Medicine and Innovative Technology. 

Initially, when the UCSF Garage first opened in 2006, QB3 performed rigorous reviews to evaluate the scientific and commercial merits of each start-up. Since then, they’ve come to the conclusion that there’s a better way of doing it. “We really want to have a very wide net on the science,” says Crawford. Instead of focusing on a specific scientific area or therapeutic need, they look for people who are passionate and have demonstrated the initiative to guide a start-up through the challenges of the so-called Valley of Death. “Biotechs are where the really innovative stuff happens,” Crawford explains. They adapt, depending on how the science goes and what the market wants. The best start-ups aren’t sidetracked by failure. Instead, they find success on another path, which is why Crawford thinks passionate people make exceptional entrepreneurs.

This strategy seems to be working: of the six companies first housed in the UCSF Garage, four secured venture funding and a fifth was acquired by Affymetrix. There currently are 25 companies in the Incubator Network, and Crawford expects to expand to 30 in the next year. As the economy recovers, other opportunities for biotech start-ups are bound to increase as well. Crawford’s advice for budding entrepreneurs? Just do it. “It will be one of the most stimulating things you’ll ever do,” he says.

Cary might agree: his company is halfway through a two-year term in the UCSF garage. “QB3 has supported Omniox from its very early stages,” he says. His company recently received half a million dollars through a Bridge Award from a Small Business Innovation Research Program financed by the National Cancer Institute. Omniox’s funding finally is falling into place; at the same time, its science is moving forward constantly— proof that, as Cary says, “you don’t have to be at a university to do good science.”

Leslie W. Chinn (leslie.chinn@gmail.com) is a postdoctoral fellow at the National Cancer Institute.


 


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