The University Research Track, now in its third year at the Michigan Growth Capital Symposium, showcased promising research projects and spinout companies emerging from seven leading Midwestern research universities. This year’s cohort included three newcomers ─ Medical College of Wisconsin, Purdue Research Foundation and Wayne State University ─ along with four returning schools ─ Notre Dame, University of Minnesota, Michigan State University and the University of Michigan.
Technology-transfer and commercialization officials from each participating university outlined the research facilities, spending and sector focus at their respective institutions. They also highlighted innovative spinouts that have licensed intellectual property originating at their schools. “There are real bargains in the Midwest,” remarked Dan Hasler, president of the Purdue Research Foundation. He said corporations and venture capitalists visit Purdue’s Discovery Park, a 40-acre interdisciplinary and multidisciplinary research park located in the West Lafayette campus, to scope out research for commercialization and investment.
“Smart money invests in our innovations,” stated Kalpa Vithalani, licensing manager at Medical College of Wisconsin. “We have promising early-stage companies and success stories.” As an example, Gen-Probe (Nasdaq: GPRO) acquired Medical College spinout company Prodesse Inc., a leader in molecular testing for influenza and other infectious diseases, for approximately $60 million in cash in October 2009. In January last year, Roche disclosed it was paying up to $625 million for non-invasive prenatal testing firm Ariosa Diagnostics, another Wisconsin spinout. “Our goal is to advance community health through innovation,” Vithalani added. “We want to turn IP into useful products.”
Gaylene Anderson, senior innovations officer at Notre Dame, predicted nanomedicine will be the next hot biotech market, with sales expected to triple in five years. “We use a service-based business model,” she explained. “Our go-to-market strategy is to target a big pharma with toxicity issues or patent expirations.” For example, Notre Dame spinout Certus, which offers a nanoparticle drug delivery platform known as Lypos, will do the bioengineering and give formulations to another company to take to market.
The University of Michigan spun out 19 startups in 2015 and is on track to do 12 this year, reported Jack Miner, director of the U-M Venture Center. Among the standouts are RPNI, a team developing nerve interface to give amputees fine motor control of prosthetic upper limbs, and Xondas, which is developing a way to charge batteries remotely in implantable devices.
Strategic Investors Speaking at MGCS Panel on Healthcare VC
A decade ago, corporate venture capitalists were the odd men out in healthcare venture investment circles. Now they are playing a leading role in the financing, growth and development of healthcare startups, said a panel of strategic investors at the Michigan Growth Capital Symposium on May 18.
“Previously, there was a perception that corporate investors were not welcome into investment syndicates, and there was opportunity hoarding (by private investors),” said David Neustaedter, vice president of Medtronic Ventures. “Since 2008, the tide has turned. Strategic investors now are welcome at the table, and more are involved in syndicates.”
A pullback by private VCs seeking better returns elsewhere coupled with budget cuts at the National Institutes of Health has curtailed critical funding for many healthcare startups, according to Scott Button, managing director of Venture Investors. “There are tremendous needs and opportunities in healthcare innovation that require funding,” he remarked. “Finding seed and early-stage dollars is challenging. Huge gaps are not being filled by the venture industry.”
As a result, strategic venture capital investors from large pharmaceutical, medical-device and healthcare IT corporations have stepped in to fill the financing void, and corporate venturing has doubled in the last few years. But it’s not just about the dollars, the panelists insisted. There is tremendous value-added investment by corporate VCs who take equity stakes early in the life cycle of healthcare startups. The advantages strategic investors bring include:
“We want to give science the right opportunity, so we put in adequate reserves,” said Bob Smith, senior vice president of business development for Worldwide Research and Development at Pfizer.
“It’s up to us to keep the ecosystem alive and full of potential,” remarked V. Kadir Kadhiresan, vice president of venture investments at Johnson & Johnson Innovation. “It’s naïve to think we can grow organically.”
Investment Opportunities in Healthcare Look Much Improved, Says MGCS Keynote Speaker James Flynn
Healthcare is going to reinvent itself over the next decade in terms of the therapeutic options available and how health care is delivered, predicted James Flynn, managing partner at Deerfield Management Company, during his keynote remarks on May 18 at the Michigan Growth Capital Symposium. That’s good news for healthcare investors seeking opportunities in the sector.
Historically, returns on investment in life science have disappointed venture capital investors, Flynn said. Between 1998 and 2008, the average rate of return was 2.7%. The successful sequencing of the human genome in 2003 rekindled investor interest. Big pharma, biotech and venture capital poured millions of dollars into the development of promising new drugs, hoping to reap big returns. However, medical researchers did not fully understand the underlying diseases they were trying to treat, and the drug-development process was far from perfect. “We ended up with 1,600 drugs approved that either didn’t work or didn’t work so well,” Flynn explained. “Off-target effects (side effects) were another problem in drug development.”
Since then, things have changed dramatically. “We now have a fundamental grasp of the biological mechanisms and pathways of many diseases,” Flynn reported. “In parallel, tools have been developed to try to target that biology more exactly.” The Internet also has come into play, he added. “Now a lot of academic institutions are putting their research online immediately, so people all over the world who are studying the same thing can gain access to it. That has led to an eight-fold increase in the generation of knowledge.”
The regulatory landscape, which historically has been challenging for the life science industry, also has changed significantly. “During the 1990s and 2000s, the FDA was a watchdog agency,” Flynn said. “The FDA removed drugs from the market because of their side effects, and required long, intensive, extensive clinical trials.” Greater understanding of diseases and targeted biological pathways has recalibrated the regulatory process. As a consequence, the FDA has developed four approaches to expedite the development and review of drugs that treat serious diseases.
The bottom line is that the investment prospects for healthcare investors in therapeutics, particularly drug development, look much improved, according to Flynn. “By knowing the biological pathways, you have a higher probability of success. By targeting the drug better, you have a lower probability of side effects. If the drug treats something with significant unmet need and you have a biomarker, the regulatory pathway is quicker and less expensive.
“That all adds up to a much more favorable equation than I have seen in any period over the last 20 years,” Flynn concluded.
MGCS Panel of Startup CEOs and Venture Investors Discusses Commercializing University Research
The research labs, entrepreneurial programs, venture incubators and startup accelerators on university campuses across the country provide fertile ground for originating, road-testing and commercializing new discoveries in science, medicine, engineering and other fields that have the potential to change the world. But the process of turning great ideas into great startups with great investment potential can be as challenging at times as it is rewarding.
A discussion group of entrepreneurs who have licensed university technologies and venture investors who have taken stakes in university spinouts presented their perspectives on research commercialization during the Nurturing the University Start-up panel on Tuesday, May 17, at the 2016 Michigan Growth Capital Symposium.
David Wentzloff, co-CTO of PsiKick, advised university faculty to validate their research ideas in the lab first and then to disclose patentable discoveries to their respective university’s technology transfer or commercialization office. Wentzloff, who is a professor of electrical engineering and computer science at the University of Michigan, co-founded PsiKick with a collaborator at the University of Virginia in 2012. The startup is developing battery-less systems for highly disruptive Internet of Things and industrial Internet applications.
“Learn quickly and from good people,” Wentzloff remarked. “Gain all the knowledge you can about the entrepreneurial process and put your feelers out for people with entrepreneurial experience who can help you.” Other advice he offered included:
Matt Bell, a principal at Cultivian Sandbox Venture Partners, injected a venture investor’s viewpoint on licensing, technology transfer and spinout companies to the panel discussion. “Do your homework before you sign a license agreement and make sure you understand why the university is requiring it,” he advised researchers and faculty. “Ask questions about intellectual property ownership, because various universities have different policies on IP.” Intellectual property arising from federal government-funded research requires compliance with certain formalities stipulated by the Bayh-Dole Act.
The timing for launching a spinout can vary from “do it now” to “maybe do it never,” Bell conceded. However, he urged principal investigators and inventors to develop and leverage an ecosystem of entrepreneurial experts to help guide them through the formation, launch, operation and financing of their company.
The 2010 Affordable Care Act is unlikely to be repealed, agreed healthcare venture capital investors who spoke on the Healthcare 2.0 panel at the Michigan Growth Capital Symposium on Tuesday, May 17. During the hour-long discussion, the geographically diverse set of panelists drilled down on the ramifications of Obamacare for healthcare providers, investors and startup companies in their regions.
“The ACA is absolutely changing the paradigm,” said Tom Shehab, M.D., a principal at Arboretum Ventures in Ann Arbor. “Hospital executives feel a little like wagon makers. They must adapt and evolve.” Robert Crutchfield, a general partner at Harbert Venture Partners in Birmingham, Alabama, remarked: “As investors, the challenge is to pick winners.”
Several key drivers are behind the emerging new healthcare landscape. Patients are now more involved in decision-making and paying for their care. The use of information technology, including telemedicine and social media, is rising. The industry is undergoing rapid consolidation. Both the delivery of and payment for healthcare are being revamped in the transition from volume-based to value-based care.
The panelists identified several promising investment areas over the next five years. These include:
They also flagged several stumbling blocks that are creating challenges for venture capital investors and their portfolio companies. Among these are:
The panelists shared various investment approaches designed to increase the odds their portfolio companies will survive and thrive in the current healthcare market:
David J. Brophy was recognized for 35 Years of Visionary Leadership at MGCS 2016
University of Michigan Finance Professor David Brophy, the founder and director of the Michigan Growth Capital Symposium, received the Leaders and Best Award today in recognition of the visionary leadership he has brought to the symposium for more than three decades.
“Dave has been the guiding light of this event for 35 years,” said Ken Nisbet, executive director of U-M Tech Transfer, who presented the coveted award during a ceremony on the second day of the 2016 MGCS. “He also has been a wonderful teacher, adviser, mentor and friend to all of us, and has launched countless students into careers in venture capital and private equity finance and investment. In addition, Dave has been an active participant and supporter of economic development in Ann Arbor and the state of Michigan.”
In accepting the award, which he characterized as the equivalent of the Nobel Prize, Brophy said: “This is the love of my life. When (venture capital investor) Ian Bund, (business leader and philanthropist) Ted Doan and others began to talk about launching the first venture fair, it seemed like a good idea and a short-term solution to the economic situation in Michigan.” The University’s Institute for Social Research sponsored the event for a number of years. Later, the Center for Venture Capital and Private Equity Finance, which Brophy founded in 1994, and the Zell Lurie Institute, launched in 1999, lent their support to the symposium.
Brophy extended special thanks to Mary Nickson, manager of the symposium, for her tireless efforts to expand the reach, scope and quality of the event. This year, 450 individuals, including in-state and out-state venture investors, entrepreneurs, startup company CEOs, university commercialization experts and others drawn from the entrepreneurial ecosystem, both locally and nationally, attended the symposium.
“Looking forward, we want to expand and deepen the symposium and improve its quality every year,” Brophy said. “It’s been my pleasure to be here with you, and I hope we can continue what we started so many years ago.”