Neurobiology: Science Entrepreneurs' New Wave

New Wave Eager venture capitalists and the tools of genetic engineering are opening up medicine’s final frontier: the brain Survey the landscape of recent science startups, and you would notice a trend: Small neurobiology companies are sprouting up on both coasts—an estimated 15 companies have been founded in the past three years. Then stake out the nerve centers of the large pharmaceutical corporations, and you’d find that, one way or another, most of them are pumping big bucks into neuroscience as well (see story, page 7).So, as they say in the business, what’s the stimulus effecting this response? For the first time, medicine’s final frontier—the brain—can be broached. Advances in molecular techniques that have sprung from the biotechnology revolution are enabling neurologists to glimpse areas and functions of the central nervous system never before accessible. Molecules capable of getting into the brain and diagnosing—or even treating—such disorders as Alzheimer’s and Parkinson’s disease are no longer the sole property of science fiction novelists. “We have molecules that should allow us to develop the first therapeutic to alter the course of a central nervous system disease,” says Frank Baldino, president of startup Cephalon Inc. And, as the aging population expands the potential markets for such products, the venture capitalists are betting big money on these fledgling companies. Says Baldino, “I could raise $10 million with a phone call.” The brain has long presented scientists with an enigma. With only rudimentary tools such as histochemistry available to study the brain, neurologists traditionally have had to rely on observation, pathology and serendipity to infer the mechanisms at work in the progression of diseases of the nervous system. A complicating factor has been the blood-brain barrier, which blocks most exploratory, diagnostic, and therapeutic molecules from gaining access to the brain. But advances in molecular biology are enabling scientists to broach this barrier and ask questions only dreamed of twenty years ago. Thus, with a symmetry that would please the hardest capitalist heart, it is the biotech startups of the 1970s that are spawning this decade’s bundle of entrepreneurs. “Before molecular biology, neubiologists had to mush up the whole brain to look at proteins, and use antibodies to identify them. Now you can use molecular techniques to look at the genetic code itself,” says Baldino, his eyes lighting up. “For the first time we are cloning genes related to central nervous system disease. For example, we know the mutation in Huntington chorea. That’s a phenomenal advance.” The result of such advances is enormous scientific excitement— reminiscent of the days when the first glimmering of the possible applications of recombinant genetics hit the science community. But this time there’s an interesting difference. Whereas the gene-makers immediately saw the multi-million dollar potential of their new technology, and had to spend hours educating the venture capitalists, this time around the financiers saw gold almost before the scientists did. As a result, they have been luring some of the best and the brightest in neuroscience away from the major corporations—and even other startups—to found their new companies. Take Frank Baldino’s case. Seven months ago he was working for DuPont and1 far from looking for a change, he was living in a scientist’s nirvana. Working at the company’s Experimental Station Laboratory, Baldino found that virtually any tool he or his researchers could need was at their fingertips. Baldino calls his former employer a “temple of technology,” and says, “You’re like a child in a candy shop when you work at DuPont. If you can’t succeed there, then there’s something wrong with your imagination, because that’s your only limiting factor.” Not only that, but his area of research was sexy: his team of scientists were charged with finding techniques to detect altered gene expression in the brain. Such work has obvious applications for Alzheimer’s and Parkinson’s because there is mounting evidence that many neural disorders might be predictable—long before symptoms appear—if only their genetic markers could be recognized. So, if he and the team could make some breakthroughs, there would be numerous rewards. But then one day Baldino got a phone call from venture capitalists Burr, Egan, Deleage & Co. and Hambrecht & Quist Life Science Ventures, who offered him the opportunity to found Cephalon. As Baldino recalls the conversation, “They said, ‘We’ve been looking for people to put a company together. We don’t know exactly what should be done with neuroscience, we just know it’s an area that we’ve targeted, that marketing and our new technology people have said is ready to be taken advantage of.’ My initial response was: ‘I’m not so sure [the field] is ready.’ But after looking into the opportunity further, Baldino was excited by the technologies and molecules other companies were willing to license out. And he found that he yearned for “the opportunity to build a company from just a desk and a phone to a full-fledged pharmaceutical [concern].” This venture capital lure is working all across the country. Kevin J. Kinsella, managing partner of Avalon Ventures was the financial pioneer behind San Carlos startup Athena Neurosciences, Inc. He explains that with current market estimates for Alzheimer’s alone at $100 million for a diagnostic and $1 billion for a therapeutic, venture capitalists “are falling all over themselves to get into the neuroscience field.” And although most of the startups they are spawning are using the same general strategies— molecular techniques applied to the analysis of brain structure and function—most money-men like Kinsella agree that the field is big enough to allow each company its own specialized niche. In fact, no one seems to be concerned with market share. What they do see as important is that the companies they birth are created “strategically,” with an eye to the general goal of understanding—and, therefore, eventually being able to diagnose and treat—neural disorders. But this is an unusually long-term strategy for startups, and one which some analysts—and scientists—view as risky. “You could argue that more work needs to be done in academia in characterizing the brain and the diseases of the brain” before corporate ventures are warranted, admits John Groom, president of Athens. But Groom, who is former president of SmithKline & French Laboratories International, doesn’t worry about this much; in fact, he thinks that the 1988 crop of startups may be too late. Bill Kinnier, a program director for Nova Pharmaceuticals, agrees. “If you wait until everyone is on the bandwagon, you’re going to miss it,” he quips. Frank Baldino was one neurobiologist who didn’t wait. Last November, Baldino deserted Dupont to erect his very own temple of technology. Today he is president and research director of Cephalon, Inc. He has a lab, a small animal facility, and a sparsely furnished office—all of which are leased. He and his staff of 13 scientists have budgeted their $5.3 million seed capital to last them three-and-a-half years, if necessary. And he doesn’t even have time to work in the lab. “I miss the technology at Dupont,” Baldino admits. “They have things that I could only dream about here.” But he’s having fun and especially enjoys his new-found freedom from corporate bureaucracy. “If I were doing this at Dupont, I would have to justify it 14 different ways; what I’m doing here for $2 million would cost them $10 million, and we can do it quicker.” Baldino’s hackers are counting on this: they see the bandwagon as heavily laden; they recognize the path to market may be long and winding but they are betting that Baldino is one of the neurobiologists who will go the distance.

Neurobiology: Science Entrepreneurs' New Wave

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