1:04 PM
Apr 25, 2019
 |  BC Innovations  |  Finance

The academic founders' conundrum

How academics connect with industry to build companies

First-time academic entrepreneurs face a circular problem: while they’re continually sought after by VCs and pharmas seeking the next “big thing”, they also face an arduous path to establish their bona fides - not for their scientific prowess, but for their ability to turn their findings into products for patients.

The situation builds up a self-fulfilling circle of haves and have-nots, leaving much high value innovation untapped.

Industry continues to lean heavily on academia for innovations to fuel company and VC portfolios.

BioCentury’s analysis of early stage company formation finds that preclinical and Phase I biotechs that raised a seed or series A round in 2018 skewed heavily toward academia: three quarters of the 138 companies were spun out of an academic institution or built in part from academic IP.

But the six entrepreneurs who spoke with BioCentury said it’s largely an insider’s game. Breaking into biotech is an uphill battle, they said, without the right connections to start with.

More and more, VCs are looking for a network of industry veterans who can guide the company formation process and help founders create and execute a viable business plan -- skills that academics themselves don't bring.

“At the end of the day, starting pharmaceutical companies or biotechs for drug discovery or major advancements require executives that know what they’re doing. So if you’re going to get venture capital money, I would suggest don’t do it yourself,” said Tony Kouzarides, a professor of cell biology at the University of Cambridge and a co-founder of RNA epigenetics company Storm Therapeutics Ltd., antibody reagent company Abcam plc and cancer play Chroma Therapeutics Ltd.

“If you're going to get venture capital money, I would suggest don't do it yourself.”

Tony Kouzarides, University of Cambridge

The result is a cycle that continues to reinforce innovation coming out of the top universities and the two dominant biotech hubs - Boston and the San Francisco Bay Area. Cambridge, U.K. is making a play to be the next major hub, but innovators in other locations face a much harder road.

“The farther they are from Boston and San Francisco, the bigger disadvantage they’re at,” said Barbara Weber, a venture partner at Third Rock. “There are academics out there who probably don’t think of starting a company because they don’t know anyone who’s done it, and they don’t have the right network or ecosystem.”

VCs that can break beyond this thinking can clean up outside of the big hubs.

An analysis of 911 items published in 2018 in BioCentury Innovations' Distillery, a weekly summary of top academic research with translational potential, shows that 86% of the papers originated in academic institutions outside of Massachusetts, northern California and Cambridge, U.K.

Geographic breakdown

Of the top 12 company-producing institutions in 2018, eight were located outside of the Bay Area or the Boston hub.

Harvard University was the most prolific source of foundational IP, contributing to seven companies from the class of 2018, followed by Johns Hopkins University, Stanford University and the University of Cambridge (see Table: “Top Institutions for Start-ups”).

Table: Top institutions for start-ups

A survey of the origins of 2018 start-ups, assessed by preclinical and Phase I companies raising seed or series A rounds, shows 12 universities and research institutions accounted for nearly half of companies spun out of academia. Three of those institutions were outside the U.S.: the University of Cambridge and the University of Oxford in the U.K. and the National University of Singapore. University of Pennsylvania spinouts led in fundraising, with the three companies -- all of which are focusing on cell therapies -- showing an average raise of $75.3 million, about 35% higher than UPenn’s closest competitor, the Broad Institute of MIT and Harvard, and a total raise of $226 million, just $18.8 million shy of the amount raised by seven companies from Harvard University. Source: BCIQ: BioCentury Online...

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