Selling the Story of a Discovery

Magnus Höök, a professor at Texas A&M, worked for more than 20 years perfecting an antibody that attacks protein adhesins on bacterial surfaces. But when Höök and his colleagues sought to move their trademark proteins into the market, he says his "lack of knowledge" surprised him. "You start out thinking this is a cool idea, and it would be useful," Höök relates. Höök is a director at Inhibitex Inc., an Alpharetta, Ga.-based company that is now testing the effect of its proteins on Staphylococcus aureus and other bacteria. "But there are a lot of things you haven't thought about: How do you practically get investors interested in it?" Many scientists loathe any association with such commercial considerations Höök observes, and indeed, even Lita Nelson, director of the Technology Licensing Office of the Massachusetts Institute of Technology, takes pains to distance academic enterprise from pure entrepreneurship. "Most universities see technology transfer primarily as a way of getting very early stage technology invested in," she says. "They recognize the high risk. It is not primarily a money-making proposition for most universities, ... but instead a way of getting their funding for basic research into practical use by the public." Editor's Note: Parts 2 and 3 of Taking a Discovery to Market will appear in the Nov. 26 and Dec. 10 issues. But product development requires private finance. Before Höök could get development funds, he had to replace his focus on the basic research with an emphasis on the story, the market-based justification of investment in an innovation. That story can be a mystery to many scientists, but it's key to attracting investors, says Brian Oliver, a managing director at InteCap, a Chicago-based business advisory firm that assists companies in capitalizing on intellectual property. The story phase of development includes securing The Scientist's right to the technology, identifying "thought-leaders" to endorse the idea, and setting up the first meetings with potential financiers. If well-crafted, the story flows seamlessly from inception to capitalization-building investors' confidence and excitement as it displays the potential of the innovation. "It's a staged event or sequence of events that starts by a concisely worded or presented description of the opportunity from a market need or business orientation," Oliver says. "Once the excitement level is obvious, you unveil the plan of how you are going to realize that opportunity, including the science and technology questions." Höök got help in preparing his story and his business plan from the AM Fund, a venture firm created by an Austin, Texas, business consultant and a venture capitalist in 1994. AM Fund provided seed money and helped prepare Höök and his colleagues to negotiate with interested investors. Texas A&M university is a special limited partner of the fund, one of a handful of young investment funds that focuses on nascent technology and particularly on technologies that emerge from academic research. Such technologies play an increasingly important role in the North American economy. According to economic models designed by the Association of University Technology Managers, in fiscal year (FY) 1999 (June 30 1998 to July 1, 1999), the most recent year available, academic research licenses generated $40.1 billion in economic activity and supported 270,000 jobs, compared with $33.5 billion in economic activity and 280,000 jobs created in FY 1998. Acing the Introduction To develop such economic benefits from a product, scientists must first protect their intellectual property-beginning with their first concept, even if that means delaying publication in a journal,1 says Christopher Yochim, associate director of global discovery alliances for AstraZeneca Pharmaceuticals in Wilmington, Del., who seeks out promising innovations for development. "A Scientist's biggest fear is that they won't be able to publish," he says. "We might want to delay [publication]-restrict it. That's true. We want them to patent it." Investors also want to ensure that scientists adequately test their discoveries. "If it's a widget, something that you can actually touch, generally what happens is people pay to have the prototype made," observes Donald Masters, president and CEO of TechEx, a Quincy-Mass.-based online exchange between inventors and investors. "A lot of people mortgage their houses." Marty Stanton, president of a biotech startup called Archemix Inc. in Boston, says he and his colleagues at Brandeis University worked for six months to prove the efficacy of their discovery, a ribozyme that catalyzes molecules within cells for use in gene expression, proteomics, and diagnostic assays. "We spent a fair amount of time really trying to do our homework in advance of talking to anybody," he relates. "We wanted to make sure we felt confident in the technology." Termed "proof of principle," testing costs money, and universities often lack resources to do it. University technology transfer officers say, "We've done the basic research, we have a finding, we've patented and protected it, we are not going to undertake development, it's not our mission," explains Martha Connolly, senior vice president for licensing at Clairus Technologies Inc. in Rockville, Md. Connolly provided advice to scientists attending a Biotechnology Industry Organization (BIO) venture forum on Oct. 3. "Most universities have many more patents than they have licenses out," she adds in an interview. "Companies will look at [a discovery] and say it's just too 'early stage.'" Courtesy of Magnus Höök Magnus Höök Clairus is one of a growing number of technology development firms that purchase a technology license from the inventor, do the laboratory testing, define development and regulatory hurdles, and market the technology to a manufacturer or a pharmaceutical company. Such companies-along with "venture catalysts," firms that assist inventors in creating business structures-can either relieve the inventor of responsibility for management and marketing or place the inventor as CEO or chief scientific officer of a company. Höök, at Texas A&M, says he couldn't have commercialized his work without assistance from the AM Fund, which helped him develop the story of the product. The story document describes the market potential of an innovation-for example, a treatment for breast cancer would define the market as all women of childbearing age and older. It briefly defines the technology-omitting any proprietary information-and its market. Financiers favor platform technologies that can be developed into diagnostic tests and therapeutic drugs. The story should also compare the advantages of the innovation with products already on the market. "We oftentimes work with our clients to develop an initial opportunity memorandum-a two- to six-page document ... that describes the market or business opportunity," Oliver says. "A key test of that document ... is if there is no reference to the science behind what's happening. It is purely a marketing or business document." The First Date The story involves more than a document, however. Networking with "thought leaders" who can verify a technology and with potential financiers is critical, says Douglas MacDougall, a corporate consultant and the chief financial officer of Cetek Corp. a Marlborough, Mass., biotechnology company. "Build the third-party endorsement," MacDougall advises. "Build the good people around you by getting out there and networking. That's a big step." With endorsements in hand, The Scientists can prepare for the first meeting with potential investors. Oliver recommends that scientists narrow the list. "What we often see happen is the shotgun approach, as opposed to the rifle approach," he says. "The higher likelihood of success is driven by a focused approach. You look to the six to eight [investors] with the highest probability." Stanton and colleagues reduced their list of venture capitalists to two, Prospect Venture Partners in Palo Alto, Calif., and Atlas Venture in Boston. Atlas secured $8.25 million in financing. Such specifics would rarely arise during the first meeting, however. Nor would The Scientist introduce specifics of the technology, Oliver says. At the second meeting, both parties detail their positions. No proprietary information is exchanged. However, the investors should disclose their analysis of the market potential of a discovery as well as hearing The Scientists' stories. "It's a test of their interest in moving forward in any serious way" he says. Höök says the main Inhibitex investor, Alliance Technology Ventures, passed the interest test. "Alliance Technology very quickly realized what we were saying had enormous potential, was true, and bought into it," he adds. "When we talked to them, they immediately came up and said this is a good idea." Despite his initial inexperience, Höök says, his foray from pure science into the marketplace has been more than satisfying. "The company has a product in clinical trials ... to prevent Staphylococcus infections in prematurely born children." Paula Park can be contacted at ppark@the-scientist.com. Hal Cohen (hcohen@the-scientist.com) also contributed to this story. 1. P. Brickley, "Protecting Intellectual Property," The Scientist, 15[20]:30, Oct. 29, 2001.

Selling the Story of a Discovery

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