Supplement: The Launch and the Exit

THE LAUNCH AND THE EXIT By Susan Brown There's an art to creating - and selling - a life science company. Pick an invention that solves a problem and then think the enterprise through to the end so you will attract the needed investors to launch a life science company. That is the advice of Gary Kurtzman who has helped to start dozens of companies over the past 16 years. Kurtzman picks winning ventures for a living as vice president for the life sciences group at Safeguard Scientifics, a holding company based in Wayne, Pa., that provides capital to growth-stage companies. The projects that get noticed has as much to do with the messenger as the technology, according to Kurtzman. "I like the people who have the passion. I often can't disentangle the project from the people." RELATED ARTICLES Successful Strategies Margaret Foti: Devoted to cancer research Entrepreneurs Boldly Break New Ground Mark Tykocinski: Open doors lead a scientist to his calling Shire Pharmaceuticals: A Study in Exponential Growth Many Happy Returns: Cephalon celebrates its 20th year Creative Collaboration Before joining Safeguard in early 2006, Kurtzman helped to start BioAdvance, a state-funded initiative that provided seed money for 21 biotech companies in the four years he was there. Those companies have gone on to raise more than $200 million in capital, he says. Kurtzman has also worked for four biotech companies in their earliest stages in both the Greater Philadelphia region and the San Francisco Bay area. Winning innovations address specific needs, Kurtzman says. Successful pitches will identify the problem that the proposed technology will solve and also how that solution, or product, will fit into the future marketplace. Investors will also want to know the cost of developing the product. The most important question to ask is: Who will pay for the product in the end? If no one is willing to pay for the cost of the end product, "then you're stuck with creating a market," Kurtzman says. "That is very hard to do." Schemes likely to flourish will be forward thinking, Kurtzman says. "It is an idea that is going to solve a problem, not only a problem that's perceived today, but a problem that is going to exist when the product gets launched." Successful pitches will identify the problem that the proposed technology will solve and also how that solution, or product, will fit into the future marketplace. Kurtzman has identified several looming problems in need of multiple solutions. For example, the rising cost of health care is creating a demand for technologies that address a health concern for less money than current therapies. People are living longer, so diseases associated with later life will become more prevalent. Although developing new drugs has become expensive, Kurtzman notes that technologies that lower the cost of screening or testing potential drugs should find a ready market. As an investor, Kurtzman is impressed with inventors who have thought through the venture and how it will play out to a successful end. "Oftentimes a sole entrepreneur can't do that," he says, so he or she should not proceed alone. Individuals who lack experience in a particular area of business should seek the advice of people with the needed expertise, or they might even be persuaded to join the effort as potential board members or employees, Kurtzman says. "If they've attracted some of those folks around the table," he adds, "that's even better." The Exit The key to a happy ending is to recognize that there is more than one way out and to keep the paths clear to each potential exit. So says David King, a serial entrepreneur who successfully sold his latest venture, Biorexis Pharmaceutical in King of Prussia, Pa., to Pfizer in February 2007. Biorexis is the third company King has sold. In 2000 he left a thriving practice in venture capital and emerging business law to head Principia Pharmaceutical, which Human Genome Sciences purchased a few months later. In 2001 he became president of Delsys Pharmaceutical, a drug delivery company that Elan bought later that year. King has also served as a director of Cephalon, 3-Dimensional Pharmaceuticals, and Morphotek. The market for biotechnology has changed in the last half-dozen years, King says. Public appetite for risky enterprise has waned along with financial analysts' enthusiasm for biotechnology. Entrepreneurs might need to forgo a public offering of stock in favor of a sale to a pharmaceutical company. In the current financial environment, entrepreneurs must keep every option open, King says, including the possibility of selling earlier than founders might initially have planned. "The benefit of being acquired is that it's money on the table," he says, but that comes at a cost. "You give up the opportunity to develop the business yourself," which can be a personal as well as a financial goal, he notes. Founders are unlikely to be free to make the choice. If managers have built the company with venture capital, investors will participate in decisions about when and whether to sell. To preserve all options, be sure each action you take will potentially help and not hinder your ability to sell the company, King advises. Decisions such as licensing technologies should be made with the goal of keeping the ownership of intellectual property clear and attractive to potential buyers. "You need to carefully analyze and develop a strategy around whether you want to license out your technologies and products and how to do so," he says. "Ultimately, are you building something that will have significant interest from a number of pharmaceutical companies?" When King was CEO of Biorexis, for example, he hired outside legal counsel to evaluate such agreements from the viewpoint of a future potential buyer. Such decisions can be "fiendishly complicated," King says, so you will want to seek expert guidance. "I think it's important for biotech companies to align themselves with truly fine advisors," he says, and the best source for finding them is through other biotech entrepreneurs. Ongoing networking will help with finding a favorable exit as well. King recommends building relationships with potential buyers from a very early stage and developing those over a long period of time. "Identify the people you will want to deal with, and keep them in the loop," he says, so they will get to know you and see your progress. When he headed Biorexis, King courted several different pharmaceutical companies. Belief that "these big gorilla pharmaceutical companies are out there to squash little biotech companies and steal their technologies for a song" has made some entrepreneurs wary of early engagement, he says. But his experience has been wholly positive. "Every single one of them treated us with respect."

Supplement: The Launch and the Exit

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