Start-Up Companies, the University
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Start-Up Companies, the University






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    Start-Up Companies, the University Start-Up Companies, the University Presentation Transcript

    • From Innovation to Industry Hosted by: School of Biological Sciences Office of Technology Alliances GSM Center for Entrepreneurship & Innovation June 11, 2004
    • Thank You to Our Sponsors:
    • All Conference Attendees Will Receive this CD: Introduction Program Speakers Presentations Sponsors Resources for Start-Ups Hosted by : School of Biological Sciences Office of Technology Alliances Center for Entrepreneurship & Innovation Reports : Start-Up Companies Founded on UCI Technologies Faculty/Industry Partnerships Faculty Handbook UCI Technologies Available for Licensing
    • OPTIMISM FOR START-UPS #1 Venture investing is coming back
    • Biotechnology and Medical Device Venture Investing in 2003 * Data from the PricewaterhouseCoopers - Thomson Venture Economics – National Venture Capital Association Moneytree Study
    • OPTIMISM FOR START-UPS #2 Big Pharmas must fill their pipelines
    • Top Ten Selling Drugs in 2003
      • Total 2003 Sales - $ 40 Bn
      • Percent of Sales off Patent by 2010 – 82%
      2008 $ 2.6 Bn Wyeth Effexor 10 2007 $ 2.7 Bn Merck Fosamax 9 2006 $ 2.8 Bn BMS Pravachol 8 2013 $ 2.9 Bn J&J Procrit 7 2006 $ 3.0 Bn Pfizer Zoloft 6 2006 $ 3.5 Bn Glaxo Paxil 5 2011 $ 4.2 Bn Eli Lilly Zyprexa 4 2007 $ 4.2 Bn Pfizer Norvasc 3 2006 $ 4.9 Bn Merck Zocor 2 2010 $ 9.2 Bn Pfizer Lipitor 1 Year off Patent 2003 Sales Company Drug
    • Substantial Revenues at Risk Due to Patent Expiry 2009-2013 2003-2008 % % % % % %
    • OPTIMISM FOR START-UPS #3 The rewards for success can be great
    • Eyetech Pharmaceuticals: A Successful Deal with Pfizer
      • Since its inception in 2000, Eyetech Pharmaceuticals has:
        • Raised $150M of private equity
        • Completed IPO (ticker: EYET) raising $146M at $21/share
        • Employed over 150 people in 3 states (Boston home office)
        • Eyetech recently negotiated a landmark deal with Pfizer:
        • Develop & commercialize Macugen™ in all ophthalmic indications, including Age-elated Macular Degeneration and Diabetic Macular Edema. (Phase 3)
        • Entails US co-promotion, profit-sharing, R&D funding, ex-US royalties and equity investments of $770M
    • OPTIMISM FOR START-UPS #4 UCI has the experience and the capability to help start companies
    • UCI Start-Up Company Activity
      • 30 companies created, 23 still active
      • 242 jobs created, 202 of which are in Orange County and 240 are in California.
      • License/option agreements with active start-ups transferred rights to:
        • 40 issued patents
        • 84 patent applications
        • 10 copyrighted works
      • UCI Start-Ups have contributed over $30M to UCI :
        • $21M in research funding
        • $2.8M in patent costs to protect UC-owned inventions
        • $5.2M in royalties and fees
    • New Drug Discovery Center Under Early-Stage Development Mission is two-fold: 1. To promote transdisciplinary efforts in basic drug discovery research 2. To facilitate the validation, optimization and commercialization of potential new drugs discovered through these efforts Champion: Dr. Daniele Piomelli Department of Pharmacology
    • Start-Up Companies, the University & the Faculty Entrepreneur
      • An Overview Larry Cohn, Partner Stradling Yocca Carlson & Rauth
      • The University Perspective David Schetter, Assistant Vice Chancellor Research & Technology Alliances, UC Irvine
      • The Faculty Entrepreneur Perspective Gary Lynch, Ph.D., Professor Psychiatry & Human Behavior, College of Medicine, UC Irvine
      • What Technology is Suitable for a Start-Up?
      • Alternatives to Forming a Start-Up
      • Faculty Considerations: Why Commercialize? What Impacts?
      • Academics vs Biotech
      • Disclosing and Assigning Inventions
      • Starting and Developing the Company
      • Financing the Start-up
      • Operating the Start-up
      • Exits
    • What Technology is Suitable for a Start-Up?
      • A great invention does not necessarily make a successful business
      • Two classes of inventions
        • Incremental improvements
        • Breakthrough or a platform technology
      • Start-ups with multiple products/services are more likely to be successful
    • Alternatives to Forming a Start-Up
      • Publish and put in the public domain
      • Out-license through the Office of Technology Alliances
      • UCI releases invention – individual out-licenses to an entity
    • Faculty Considerations
      • Why commercialize your invention?
        • Professional recognition
        • Doing good for mankind
        • Part of the University’s mission as a public research institution
        • Financial rewards New area of intellectual pursuit – business
    • Faculty Considerations: (continued)
      • Impacts on the individual inventors and founders
        • Do you want to be a professor or an entrepreneur?
        • Inventor’s role in company
          • Technology founder - equity interest
          • Consultant
          • Scientific Advisory Board member
          • Management – full-time or part-time
          • Board of Directors – member or Chair
    • Faculty Considerations: (continued)
      • Impacts on the individual inventors and founders (continued)
        • Significant drain on time for:
          • Research and teaching
          • Family and friends
          • University and department administration
        • Interferes with academic relationships
        • Financial interest in the start-up creates conflicts of interest and conflicts of commitment
    • Cost
      • Time and lots of it companies eat up as much time as is available….
      • ATAD Airline travel addiction disorder (ATAD) is the number one psychiatric disorder in contemporary US corporations. Incidence in white, male executives over age 45 is nearly 100%. Victims are characterized by an irresistible urge to take a flight when they have been home for more than 2 weeks. This leads to a constant nagging to go on useless trips. This will not be a problem for any of the growing number of academics who already suffer from ATAD. But if this does not include you, then remember that ATAD, at best a nuisance, is contagious and at present untreatable.
    • Academics v Biotech
      • No evident reason that research productivity should suffer.
        • more outside activity but gain in collaboration and point of view
        • new standards for evaluating work can be healthy
        • large increase in the amount of money being spent on the project generally results in much greater progress than otherwise would be possible.
    • Academics v Biotech
      • The major balance problem arises from having two lifestyles.
        • Many, perhaps most, founders coming from universities find themselves slowly distancing themselves from their old lives or slowly returning to it.
    • Disclosing and Assigning Inventions
      • Signing Patent Acknowledgement is a condition of UC employment
      • Disclosure of all patentable inventions is required as is assignment of those within scope of employment or when UCI resources are involved
      • Administered at UCI by the Office of Technology Alliances
      • University may release rights back to the inventor (or to federal government if federally funded) if not commercializable
    • Disclosing and Assigning Inventions (Continued)
      • University will seek to commercialize inventions while protecting the University’s rights
      • Competing interests: Fairness of Opportunity vs. Economic Development.
      • UCI announces opportunity via publications and Web-avoid “Pipelining”
      • Inventor(s) share in proceeds of University out-licensing
    • Starting and Developing the Company
    • Shaping and Selling the Idea “…. Truth! What is truth ? ….” P. Pilate ( 0030 AD)
      • Change your mindset
      • You have been trained to present things in NIH language
      • The NIH et al process is weird; e.g., no performance review; degree of expected exaggeration
      • To the world at large, your current way of shaping and presenting ideas is bound to seem odd.
      • The above probably has more to do with the failure of academic scientists to communicate with entrepreneurs than anything to do with the complexity of the material being presented.
    • Who is to be involved?
      • Academic colleagues do not always make the best business partners
      • Business consultants – the world is full of new business “consultants” who would like to assist you. Proceed with caution.
      • Professional advisors – attorneys, accountants, FDA regulatory professionals
    • The Leonardo Principle
      • Common Business solution: hire a few da Vinci’s
      • Tech solution: buy a statue. there is only one da Vinci….don’t waste your money on cheap imitations
      • On the other hand, the blimp sized Ego commonly found in academic science can throw a start-up completely out of balance.
      Many tech problems do not have a business solution e.g., Need a Mona Lisa for the new palazzo
    • The Business Plan
      • Technology hurdles
      • Regulatory hurdles
      • Competitive landscape
      • Market realities – cost of products/service
    • Securing Intellectual Property Rights
      • In life sciences, patent rights are essential.
      • Inventions disclosed to and patents prosecuted by the University.
      • Start-up needs to secure rights from the University, through OTA
      • Stage 1: Option to acquire license – useful to “lock-up” rights while organizing and seeking financing
        • Term of option approximately one year
        • Low up-front cost
        • Must cover patent prosecution costs during option period
      Acquiring property rights – A two-stage process…
      • Stage 2: After organizing and concurrently with seeking initial financing, finalize license from the university
        • The entire business may live or die with this license agreement.
        • Inventor/entrepreneur’s conflict of interest in the license relationship
        • University will require diligent commercialization
        • Payments to the University.
          • Cash – patent expenses, upfront fees, milestones, royalties
          • Equity (stock) in start-up company
          • University sharing with inventor – cash/stock.
      Acquiring property rights – A two-stage process…
    • The Start-up Landscape Early Stage Company License Rights Up Fronts, Milestones, Royalties Invention Information Financial Split Consulting Consulting Fees Academic Inventor Technology Transfer Office Family Colleagues Department Public/Media University Admin. Competitors, Investors Corporate Partners
    • The Inherent Tensions
      • Create and propagate knowledge for the public good
      • Narrow Scope of License
      • Revenue
      • Academic Freedom
      • Control of Intellectual Property
      • Diligent Development
      • START-UP
      • Financial return to investors, founders and employees using knowledge
      • License
      • Expense
      • Confidentiality
      • Control of Intellectual Property
      • Commercial Flexibility and Uncertainty
    • UCI/Start-Up Collaborative Research
      • Implemented through a research contract
      • High leverage for the start-up (use of labs, equipment, instrumentation)
      • Payment of full overhead required
      • Conflicts of interest need to be disclosed and managed
      • Provides access to improvement inventions & new inventions in the field
      • Fulfills early-stage diligence requirements
    • A”Win-Win-Win” Strategy for Industry/UC Partnering & Overhead - Royalty Shares UNIVERSITY PRINCIPAL INVESTIGATOR SPONSOR/ LICENSEE OFFICE OF TECHNOLOGY ALLIANCES Direct Cost Revenue Revenue from Fees, Royalties Salary/Facilities Intellectual Property New Knowledge/Diligence Commercial Rights
    • Finding Initial Backers
      • ACTIONS
      • PATENTS…. shape the idea before bringing it to the university let alone to initial backers.
      • PUBLICATIONS…. play a much larger role than is generally recognized.
      • PRESS…. let the university press office open the doors.
    • Economist articles >> Defense companies >> VCs >> Meno Corp >> Synaptics The Press Is a Whimsical But Sometimes Useful Creature 5 July Two successive but unrelated articles in a major magazine prompt a startup 16 August
    • New York Press Really Counts Because That’s Where the Money Is The New York Times Prompts the Formation of a Second Company The New York Times >> New York Investment Bank >> Cortex >> IPO 2 years later One year later….
    • But Be Careful: The Press can Turn On You In a Flash The LA Times several years later.
    • Finding Initial Backers
      • Be warned: Raising money is probabilistic …….chance and historical accident play a huge role.
      • The law for finding initial backers: “Use a big N to compensate for a low p“.
    • Financing the Start-up
      • Develop the business model and reflect it in a well drafted business plan
      • Be realistic in financing needs
        • Development always takes longer and costs more than planned
        • Do not develop a Maybach when a Toyota is what will sell
    • Financing the Start-up: Financing Sources
      • Boot-strap with personal internal resources
        • Maximum control
        • High personal financial risk
        • Limited funds may slow development
      • Friends and family financing
        • Give up less control
        • Relationship issues
        • Limited funds may slow development
        • No “deep pocket”
      • Government grants
        • Give up little control
        • Spend a lot of time writing grant proposals
        • Slow funding
        • Limited funds may slow development
      • Business angels
        • Give up more control
        • Often a hit-or-miss proposition
        • May or may not find “deep pocket”
        • Investors may have unrealistic expectations
      Financing the Start-up: Financing Sources
    • Financing the Start-up: Financing Sources
      • Incubators
        • Short-term solution only
        • Expensive early stage assistance
      • Venture capital
        • Ultimately you will likely relinquish control
        • Will press hardest on valuation – expensive funding
        • Bring hands-on expertise
        • Bring wide network of industry and financial contacts
        • If company is progressing, additional funds are available
    • Financing the Start-up: Financing Sources
      • Corporate venture capital/strategic alliance
        • Wide variety of forms – for example:
          • Up-front cash for distribution right when product is developed
          • Straight equity investment
          • Collaborative development with funded R&D costs.
        • Beware of entangling alliances which restrict future operations or exits
    • Setting Up the Company
      • 1st strategy: build the company and the products will follow
        • IPO about 2 years after starting the company
        • Second round financing (15MM) about 4 years later Large building, full scale laboratories, senior scientists, senior business people
      The law of irresistible consumption : if you have it, you will probably spend it.
    • Setting Up the Company
      • 2nd strategy: build the product (1 or 2) and the company will follow
        • Series A for $3.5MM. Build and test a system for classifying human brain waves. Secure IP for an in vitro model of human brain aging.
        • Series B for $4MM. Multi-center testing. Launch 1st product 2002. First partnership. No sunk costs, university partners, minimal staff.
      The law of irresistible consumption : if you have it, you will probably spend it.
    • Setting up and Operating the Start-up
      • Academic or professional management.
      • Relationships with Management and the Board of Directors
      • Protecting intellectual property
      • Segregating duties as a consultant/officer from those of a professor – avoiding conflicts of interest.
      • Incentives – Returns to the Founder-Scientist
    • Exits
      • Acquisition
        • Role of the faculty entrepreneur in selling the company
          • Risk allocation between founders and investors
          • Post-closing consulting, non-competition.
        • Structures
          • Tax consequences
          • Liquidity
      • IPO
        • Risks of being officer or director of a public company