Innovative Fund Sourcing In Biotech

Biotech startups developing new technologies are taking a creative approach to attracting the funding needed to develop and test new therapies. An example of innovative fund sourcing is from the oncology drug discovery company Oncoceutics.

Innovative Fund Sourcing Biotech

Oncoceutics is a Pennsylvania-based oncology biopharmaceutical firm that started operations in 2009. Its launch was based on research done by Wafik El-Deiry, MD, PhD, of the University of Pennsylvania, who identified compounds that could repair mutated p53 proteins (a body’s natural tumor suppressors), which are present in the majority of all types of cancer. The company has worked to develop therapies based on this research, and is currently in the clinical trial stage.

What is unique about Oncoceutics is the startup funding model it represented. Characteristically, venture-backed biotech startups require significant investments – for lab space, equipment, and chemicals, and a variety of separate administrative functions – reaching upwards of $20 million, with a staff of up to 15. According to Dan Schell of Life Science Leader, such a company would evidence an annual burn rate of over $10 million. Oncoceutics took a different approach to bring its exciting discovery to market, however, with a focus on making the transition in a more cost-effective manner. Joining Dr. El-Deiry in this venture were Wolfgang Oster, MD, PhD (the CEO of the company) and Lee Schalop, MD (its chief business officer), both seasoned investors and executives in the life science industry.

The team has been successful in its venture through leveraging grants and academic partnerships, with just a small amount of equity. Through careful crafting, Oncoceutics was awarded more than 75% of the grants for which it applied, many of which were significant; for example, the firm was awarded a $1.4 million CURE grant from the Pennsylvania Department of Health and a $1.7 million Fast-Track Small Business Innovation Research grant from the National Cancer Institute. With his background in academic medicine, Dr. Oster was able to foster collaborations with academic medical centers (including Fox Chase Cancer Center, Rutgers Cancer Institute of New Jersey, Dana-Farber Cancer Institute, and MD Anderson Cancer Center) for lab work, a benefit as these organizations are geared toward publishing rather than profit. This has allowed the annual corporate overhead of the biotech startup to remain at less than $2 million, despite having multiple Phase 2 trials currently ongoing. An example of how one of these collaborative relationships works – MD Anderson shares the risk and potential of Oncoceutics’s cancer drug, and will receive sales royalties in place of a standard clinical trial fee. Although the extra layer of MD Anderson’s Institutional Review Board added to the complexity of the arrangement, it provided Oncoceutics with valuable external substantiation of its trials. When Oncoceutics was in the safety-testing phase for its drug, the firm partnered with local Calvert Laboratories, which accepted equity in the startup as partial payment for its toxicology studies.

In addition to securing grants and partnerships, Oncoceutics broke the mold in terms of its own spending. During the first two years of its operation, the company was “virtual,” without office or proprietary lab space, and had just four employees, all of whom wore many hats and were frugal with company resources. This led to a burn rate of less than $1 million per year for the biotech startup. The following year, moving into clinical trials, Oncoceutics leased a small incubator office in Philadelphia’s University City Service Center, and company salaries were based on stock rather than cash.

Oncoceutics is not the only biotech startup looking for creative financing options in an age of dwindling venture capital. Amyris Biotechnologies in California, which produced an antimalarial drug, benefitted from a five-year, $12.5 million grant from the Bill and Melinda Gates Foundation, and Taligen Therapeutics in Colorado began its journey with seed money from the University of Colorado Technology Transfer Office, creating a drug for Marchiafava-Michele syndrome. Support has also come from local and state governments; the Missouri Science and Innovation Reinvestment Act has provided “a predictable, stable source of funding for building the entrepreneurial infrastructure necessary to support the growth of science and innovation companies in Missouri,” according to Donn Rubin, executive director of The Coalition for Plant and Life Sciences, and BioSTL in St. Louis brings together local organizations, such as Washington University in St. Louis, BJC HealthCare, and the St. Louis Life Sciences Project, to help fund the development of local innovations into biotechnology companies.

Recognizing not only a dearth of available venture capital funds, but also some of the limitations that come along with those funds, the opportunities to biotech startups in taking advantage of creative funding, such as grants, partnerships, and government development programs, with a small amount of equity, are likely to be increasingly important into the future.

Contributed by Patricia “Patti” Hall, Managing Partner at Quick Leonard Kieffer


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