Can Cambridge Be Cloned?
Despite the fact that bioinnovation has flourished in Massachusetts and California, other parts of the country continue to
struggle. This raises the question: can their success be replicated? To provide an answer, we examine how various engagement
strategies play out among each of the four stakeholders that nurture biopharma innovation.
» Educating AMCs. Researchers, clinician-investigators and administrators are the source of all university-based innovation. Understanding
this fundamental concept is the first step toward change; in fact, it begins with mobilizing the strength of this "grassroots"
network. One way to do it is to encourage researchers to learn more about basic operational realities involved in translational
research, including cost, timelines, and regulatory considerations; the process of due diligence to determine the value of
an invention or business concept; intellectual property; and sources of funding. Educating this group toward a basic level
of business acumen is critically important, but this is seldom done in most AMCs.
Investigators should be aware of where funding in today's environment is coming from, and to the extent possible, align their
research interests with funders' goals and interests. They should get external business advice as "quality control" for their
strategy, starting with the real world value of their innovation. Most importantly, researchers must be their own advocates:
they must talk often and openly with other stakeholders to monitor the process and identify improvements.
One priority often overlooked is to detect and eliminate barriers to cooperation. Often, these exist to protect IP or to promote
ethical behavior. This requires a revisit of long-standing policies like IP ownership, equity ownership by founders, reach-through
rights and conflicts of interest. An extension of this point is developing rigorous standards for fiscal responsibility while
being reasonable and creative in negotiating terms with licensees, start-ups and industry collaborators. Too often these institutions
insist upon prohibitive financial terms and structures that are non-starters for a partnership. Institutions with traditional,
non-entrepreneurial cultures should look at peer institutions that have established bioinnovation-enabling policies without
compromising their academic missions; examples include MIT, University of California at San Francisco, Duke University, Stanford
and the Cleveland Clinic.
Faculty should be recognized and rewarded for achievements related to entrepreneurship, in the same way that they are for
securing grants or publishing in peer-reviewed journals. Equally important is striking a balance between basic research and
translational work—do not forsake the former for the latter. Finally, AMCs and universities must provide resources for their
entrepreneurs, including infrastructure to support basic and clinical research, regulatory and business support, and funding
in the form of grants or, more interestingly, venture funding in exchange for an equity position.
» Pharma, biotech and other industrial partners. Private industry is increasingly interested in working with other stakeholders. More than 350 life sciences academic-industry
deals/partnerships were agreed in 2012, predominantly in cancer (15%), infectious disease (14%), diagnostics (15%) and neurology
(12%). The top academic institutions in terms of deal flow included Harvard and the University of Texas, with seven each;
University College of London and University of California system, with six apiece; and Broad Institute (MIT and Harvard),
with four. Nearly all of these deals were discovery-stage, platform-based collaborations.
Pharma and biotech companies also engaged in a substantial amount of M&A activity, with 27 acquisitions in 2012. Only six
of the acquired companies were at the preclinical stage, four in Phase I and the remainder in Phase II or higher. Similarly,
total licensing deals continue to decline from 2010 levels, with the vast majority in the discovery or post-Phase II space.
This leaves a gap in partnership activity and corporate funding for innovative technologies in the critical pre-proof-of-concept
area. It reflects the increasingly low-risk tolerance of potential partners. Very early stage deals are cheap and large payments
are back-ended, thus allowing partners exclusive access to a potentially valuable platform for very little upfront investment.
Post-Phase II deals are sufficiently de-risked and provide an opportunity to add a near-term clinical asset to often dwindling
pipelines. Everything in between is too risky and too expensive. In addition, the most active therapeutic areas in terms of
deal volume—oncology and infectious disease—represent areas where regulatory reforms, such as breakthrough designation, make
the development timelines more attractive than in other areas.
In parallel, VC arms of pharma and biotech companies are becoming more active in earlier-stage investments that often fall
outside the scope of the parent company's interest and mandate. In fact, of the 14 most active VC firms in life sciences in
2012, five were venture arms of pharmaceutical companies: Novo Nordisk, Novartis, Pfizer, SR One and Shire, which together
represent a total of more than $1.1 billion in potential investment dollars.
While it is difficult to imagine pharma and biotech companies altering their risk-tolerance profiles on new deals given shareholder
pressures, a reasonable avenue to maintain early-stage investment for start-ups and access for their partners would be for
pharma and biotech companies to shift a portion of their substantial cash reserves into venture investment vehicles. These
investments are most typically part of a syndicate of other VCs that further reduces risk but preserves potential ROI and
access to early-stage, truly innovative technologies.
» Local and state government agencies. Many analyses indicate that to be competitive in the bioinnovation landscape, governments must build infrastructure, offer
tax incentives for businesses to relocate and add jobs, and fund grants and other direct investments in research. Yet with
slow recovery from the 2008 financial crisis continuing, local and state government leaders are under considerable pressure
to maintain budget neutrality.
Given the Massachusetts example, creative government intervention is a powerful tool. Moreover, public support goes a long
way to bridge the gap between discovery and proof-of-concept that is currently hobbling much of the true innovation in the
» VC funding. The final piece of the life sciences ecosystem puzzle is equity financing, provided typically by a robust VC community. At
least three important trends have emerged over the past five years. First, VCs and their investments are highly regional (see
Figure 2). Second, with a few important exceptions, such as Third Rock Ventures, VCs are not investing in the translational
research phase, but rather the peri-proof-of-concept phase. Third, relatively few new start-ups are being funded; the bulk
of VC investments are going to follow-on rounds in existing portfolio companies.
Figure 2: Regional trends in VC investment 2003-2012
Moreover, in 2012, the amount of VC investment in young, innovative life sciences companies fell to its lowest level in nearly
10 years. This holds true both in the United States, where funding was 4% lower than 2011, and in Europe, which saw a substantial
drop of 31%. In addition, this cash is spread over fewer deals, 156 in 2011 in the United States, and highly concentrated
into a handful of biotech hubs. This reflects the zero-risk tolerance of many VCs and their limited partners, the overall
downturn of the investment markets since 2008, a paucity of quality management teams for start-ups, and, until very recently,
inability to access public markets for exit. With biotech IPOs at their highest level in years, strong data supporting ROI,
and the overall stock market at an all-time high, perhaps we will see greater risk tolerance among VCs and a return to their
roots of funding novel research and new innovation. If so, this will be vital to extending the locus of a strong bioinnovation