Silva et al. nihms207296

Maturing Early-Stage Biomedical Research; Proof of Concept
Program Objectives, Decision Making and Preliminary
Performance at the University of Colorado
Rick Silva, PhD*, David N. Allen, PhD*, and Richard J. Traystman, PhD**
*CU Technology Transfer, UC Denver; CU Technology Transfer
**Office of the Vice Chancellor for Research, University of Colorado Denver
Section I. Introduction: Scope and Content
This manuscript focuses on organizational objectives, decision criteria and performance of
biomedical technology commercialization programs as a context for understanding
university technology maturation programs. The primary contention is that university
technology maturation programs are not different in kind from public and private technology
development programs, and the difference from these broader programs is primarily a
difference of degree related to aspects of the university research context.
The University of Colorado (CU) has developed three different programs within its overall
Proof of Concept (POC) funding process. Although the CU POC program relates to all areas
of university technology, for this manuscript data will be presented from three program
elements solely related to biomedical technologies (therapeutics, diagnostics, medical
devices and to a lesser extent, tools and materials). In order to understand the objectives,
decision criteria and performance of CU’s POC programs, it is important to understand how
the program developed and evolved. Conclusions are provided in the form of lessons
learned, and implications for university technology transfer practice. The main work on the
topic is descriptive and primarily derived from practitioner reports and promotional
literature (Johnson, 2005).
There has been a philosophical debate about whether it is the proper role of universities to
develop technology, spin companies out, and commercialize technology and how to resolve
the conflicts apparent in such activity. Faculty and administrators are divided, to various
degrees, on this issue at many institutions (Siegel et al, 2003). Economic development and
political leadership of many economic regions see their respective universities and public
assets with a broader role than just advancing the frontiers of science. Universities are seen
as economic engines, beyond the people they employ and educate. Many universities are
seen as an integral and critical component of the knowledge economy. The progression is as
follows: science leads to knowledge, which in turn leads to technology, which in turn leads
to products and services, which in turn lead to business creation and eventually sustained job
and wealth creation. The progression is not a consequence of happenstance; it must be
planned and skillfully executed (Vohora et al. 2004). The major gap in this economic
Corresponding Author: Richard J. Traystman, PhD, Professor, Vice Chancellor for Research, University of Colorado Denver,
Anschutz Medical Campus, M/S F520, P.O. Box 6508, Aurora, CO 80045, Tel: +1 303 724 8155, Fax: +1 303 724 8154,
richard.traystman@ucdenver.edu.
NIH Public Access
Author Manuscript
Med Innov Bus. Author manuscript; available in PMC 2010 July 22.
Published in final edited form as:
Med Innov Bus. 2009 April 1; 1(1): 52–66. doi:10.1097/01.MNB.0000357626.97020.e5.
NIH-PAAuthorManuscriptNIH-PAAuthorManuscriptNIH-PAAuthorManuscript

development system is generally agreed to be the transition from technology to product
(Gulbranson and Audretsch, 2008).
Section II. The problem and context for University Proof of Concept
programs
Most United States university intellectual property is derived from basic research. The
research component of faculty evaluation is focused on research productivity as defined by
the quality and quantity of peer reviewed publications. Essentially, biomedical investigators
are rewarded for advancing understanding about basic biological processes and/or human
health circumstances. The key point is that annual compensation, promotion and tenure is
not predicated on intellectual property (IP) outputs, such as inventions and patents, or
commercial outcomes, such as creations of therapeutics, diagnostics or medical devices.
University biomedical discoveries can be identified (via investigator disclosure) and
protected (via patenting), but due to the early nature of the biomedical technology, it is
difficult to find an adopter and champion willing to develop and commercialize the
discovery (Shane, 2002). Biomedical technologies generally involve greater development
and commercialization risks compared to other university technologies in the physical,
engineering, materials, and information sciences. Compared to other university technologies,
biomedical technology is even farther “over the horizon” due to longer patent prosecution
risk, human safety and efficacy risk, risk of capital continuation, and reimbursement risk. In
many cases, biological discoveries lack a clear definition of the product, lead market
application, and business/revenue model.
Because most discoveries and inventions made in the context of a research institution with
support from federal research grants, most of these inventions are typically immature when
disclosed to the institutional technology transfer office (Jensen and Thursby, 2001). Patent
applications, or even issued patents, are not normally stand alone, market-ready assets, nor
are they the core of a viable development program. Furthermore, uncertainty with respect to
technical feasibility, clinical feasibility, and market feasibility usually remain when an
invention is submitted to the institutional technology transfer office. Most technologies
disclosed to technology transfer enterprises are not the result of a market driven process and
thus not immediately ‘transferrable’ to a private sector. The discovery, invention, or
technology must evolve into a comprehensive development program to be conducive to
significant capital investment and thus transfer to private investors.
Public funding of these key validation steps is not within the mission of most federal
funding agencies. The obvious exception is the Small Business Innovation Research (SBIR)
program and its companion program the Small Business Technology Transfer program
(STTR). Although these two programs are widely perceived as successful contributors to
development of early stage technology, their budgets constitute less than three percent of an
agency’s extramural research budget. The vast majority of public research funds are
generally allocated to projects that advance the creation of new knowledge and scientific
principles, not validation of existing concepts. Preclincial drug development, prototype
development, assay development, and assay validation are usually (traditionally) not suitable
aims for federal grant funding.
The therapeutics business development model is unlike any other technology business
development model, to the extent that some claim to be a “broken” business model (Gilbert
et al., 2003). All this equates to greater business risk; however the risk is usually mitigated
by large markets associated with many unsolved medical problems, the potential for
significant clinical impact and possible immense financial success. At universities,
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technology commercialization success is highly associated with biomedical research
capacity producing one, but not many, human therapeutic royalty streams (AUTM, 2008).
The biomedical research enterprise and technology transfer experience at CU is consistent
with the phenomena described above.
University technology maturation programs are relatively new, so much so, that no
inferential empirical research is available. The main work on the topic is descriptive and
primarily derived from practitioner reports and promotional literature. Given there is no
inferential empirical research on the topic of POC funding and efficacy, for an empirical
foundation one has to turn to scholarly areas relevant to this topic. Scholarly research on
early-stage technology development addresses a wide array of topics. Various organizations
in the technology development value chain make decisions analogous to university POC
decisions. Within the context of a technology development organization, resource
allocations are made to advance organizational objectives such as capital attraction,
licensing transactions, revenue generation, clinical impact, and professional attribution. The
criteria for POC decisions slightly differ by the type of organization undertaking the
technology development activity (i.e. technology transfer office, venture organization,
clinical research institute). In that light, five different funding models relevant to early stage
technology development are used to examine objectives, decision criteria and performance
relevant to POC activity:
1. University entrepreneurship, in particular commercialization of university IP,
which is generally know as “technology transfer”,
2. Philanthropic early-stage university investing, in particular disease foundations,
3. Federal government early-stage university technology development programs, in
particular the SBIR/STTR programs;
4. Business and economic development intermediary organizations, in particular
biomedical business development organizations and biomedical business
incubators, but including local, state, and regional economic development agencies,
5. The early stage technology development firm, including institutional venture
capital and private individual (“business angel”) financing
Domain 1 - University Entrepreneurship
For the university entrepreneurship domain the primary objective is technology adoption.
Most university technology licensing managers report the mission of their office is to
advance commercialization of their university’s IP (Colyvas et al., 2002), and not revenue
creation (Collier, 2008). Other objectives may also apply such as regional economic
development, faculty retention, and clinical and societal impact (Gulbranson and Audretsch,
2007).
Most university technology transfer enterprises are built to protect and license intellectual
property generated within the research enterprise of the host institution. Most large public
university Technology Transfer Offices (TTOs) are lean and highly leveraged organizations,
meaning they receive a large number of invention disclosures relative to the staff, financial
resources, and breadth of expertise in house. TTOs tend to focus their time and money
where they think they can have an impact. Consequently, the decision process revolves
around which disclosures to commit resources and matching intellectual assets with partners
in the marketplace. Due to limited patent budgets, and the high cost of geographically broad
and sustained patent prosecution, many TTOs have to make difficult choices and prioritize
assets in the portfolio (proceed or abandon) as patent prosecution becomes incrementally
more expensive and time consuming at each step. As a result of the resource constraints,
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most TTOs act as a funnel or filter between the research enterprise and technology market.
TTOs focus their resources on two fundamental activities: 1) buying time through
methodical patent prosecution, and 2) gathering information about market viability of a
particular project or product. Alignment of the commercial drivers, research program, and
patent prosecution process is usually not under the strict control of the TTO, and in fact the
TTO rarely has meaningful influence on research direction outside of projects funded
directly by the TTO. This is an important point that will be revisited later.
A traditional funding model for nascent product development programs is a research funding
or collaborative partnership with an operating company, usually a pharma, biotech, medical
device or diagnostics company, whereby the company provides research funding, and
payment of patent costs, in exchange for IP rights to the subject project outcomes.
Generally, these arrangements result in traditional license transactions with the technology
transfer enterprise if the results look promising. It can, however be quite complicated to
involve a new licensee company (typically called an academic spinout or university start-up)
in this relationship between the research institution and the larger company. Usually, this is
because of the competitive implications the academic spinout might create for the larger
company. However, where rights can be divided by field, or other alignments of interest
between the three parties (research institution, academic spinout, and large operating
company) are feasible, corporate sponsored research deals can be catalytic to the
development of an IP portfolio and development roadmap for a startup. A small handful of
University of Colorado spinouts have achieved critical proof-of-concept threshold through
such creative partnerships with large companies and the University.
In summary, most TTOs act as an IP intermediary for more mature and market ready assets,
maintain and pursue IP protection, and to some extent help guide the commercialization
process in a logical direction. Funding for such applied research and influence of research
aims usually comes from non-Federal agencies and University sources.
Domain 2 - Philanthropic research funding and investing model
A recent trend in philanthropy has been to fund applied research that accelerates the
advancement of diagnostics, vaccines and therapeutics into clinical validation trials. Such
funding has benefited high risk, high reward ventures, where the most applied, but cutting
edge research tends to happen. The term applied to such funding is venture philanthropy
(Letts, Ryan and Grossman, 1997). The premise is that risk capital is provided to promising
teams and technologies at a stage where a financial return on investment (ROI) may not be
readily or easily achievable, but at the same time, the private sector is best positioned to
clinically advance the technology Although the investment goals of such philanthropic
organizations might not be ROI based per se, the organization retains a carried interest in the
venture and participates in financial upside or at least secures a return of their funding
downstream. Such funding sources are often slightly downstream of POC funding activity of
most technology transfer enterprises. Many foundations have historically been averse to
subsidizing private, for-profit entities, but some have seen the biomedical technology
development ecosystem more holistically and realize that some for-profit companies can be
capable and productive partners in the advancement of promising biomedical technologies.
This is perhaps most true in therapeutics, where large scale clinical trials are almost always
financed by the private sector. The retained interest through royalty stream and/or equity
interest allow such funding initiatives to be “evergreen” or self replenishing. Examples of
this approach are evident in the activities of the Juvenile Diabetes Research Foundation and
Puretech Ventures:, Cystic Fibrosis Foundation Therapeutics, Inc., BIO Ventures for Global
Health, FastCures, the MS Socienty, and the Michael J Fox Foundation. This blending of
philanthropic funding with capitalist incentive models and venture investment discipline, has
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come into favor among some successful tech entrepreneurs and investors, turned
philanthropist, such as Bill Gates, Warren Buffet, Michael Milken and others.
Domain 3 – US Government Small Business Innovation Research (SBIR) and Small
Business Technology Transfer Research (STTR) programs
Historically federal research agencies such as the National Institutes of Health funded basic
research and not development. With the creation of the SBIR (in 1982) and later the STTR
program (in 1992), federal research agencies directed some attention to technology
development. Recently, SBIR business development follow-on funding has become
available for successful Phase I and Phase II awardees through the NIH and the National
Cancer Institute’s Rapid Access to Interventional Development programs (RAID) and other
similar clinical development grants.
At a national level, the objective is increased technological innovation for sectors identified
as important priorities by federal agencies and federal political leadership. Some political
jurisdictions, particularly states, have pursued SBIR/STTR assistance programs directed
toward increasing applications and funding success for companies residing within the
political jurisdiction under the guide of a more comprehensive economic development
strategy, targeting high technology companies. Entrepreneurial inventors take it upon
themselves to seek and secure funding through the SBIR and or STTR mechanisms. Phase I
grants, generally in the $100–150,000 range, can be a scientific validation of a research
program and a catalyst for some sources of POC funding. Some state and regional economic
development programs, and technology transfer and incubation organizations also provide
assistance and proactively drive the pursuit of SBIR/STTR funds on behalf of client
companies. Examples of this are: the State of Kentucky, Pittsburgh Life Sciences
Greenhouse, the Illinois Innovation Challenge Program and the Wyoming Phase 0 program.
A few states provide or have provided matching funds for SBIR/STTR awards, such as
Kentucky, Colorado, Texas, Arizona, Oregon, North Carolina, Michigan and Oklahoma.
Relatively few pieces of the commercial roadmap must be in place to secure Phase I SBIR
funds. Phase II funding, generally in the range of $750,000 to $1.5M, requires many aspects
of a commercial plan, but does deeply delve into key intellectual property questions, market
viability issues, and a strategic and sustainable funding model. A phase II award might
address critical precommercial milestones, but such an award does not generally convert an
academic venture into an investor ready venture.
Domain 4 – Business development intermediary organizations, in particular biomedical
business development organizations and biomedical business incubators
Technology oriented business incubators and public business development programs
emerged in the mid 1980’s (Allen and Levine 1986), with biomedical specific programs
emerging soon thereafter. Public business development organizations, which are typically
non-profit organizations organized at local/regional/state levels, are driven by economic
development objectives, specifically job creation and economic diversification. Business
incubators, a subset of this larger category, are driven by various objectives, with the general
objective of public incubators being economic development, specifically job creation (Phan
et al., 2005). Bioscience incubators are typically closely affiliated with research universities
and in a much small number of cases, venture capital firms. As part of their service offerings
technology incubators typically provide business development and investor networking
function. For example, four academic sites of the University of Colorado (Aurora, Boulder,
Colorado Springs and downtown Denver) are independent entities, but each have an
affiliation with the CU Campus in that vicinity. Each campus works with a distinct and
regionally based business development and incubation organization (Fitzsimons
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BioBusiness Partners, Boulder Innovation Center, and Colorado Springs Technology
Incubator and the Bard Center for Entrepreneurship, respectively).
Economic Development Model—Bioscience companies can be scalable, attract large
amount of capital to a region, state, or municipality, and thus result in the creation of high
paying, high skill jobs. Some economic development (ED) agencies are becoming savvy
about programs to assist nascent biomedical companies reach a viable threshold and secure
venture financing (vs. bricks-and-mortar infrastructure investments). It is common for urban
ED organizations, particularly ones with affiliations with academic medical centers, to have
programs directed to the critical need for early stage, patient, risk tolerant capital necessary
to get biomedical ventures to their first professional financing round. Most ED support
programs require some commitment to the region, which can limit company mobility and
attractiveness for an investor out of the region. ED program evaluative criteria can range
from financial ROI measures (such as loan repayment, royalty revenue and equity
ownership) to measures of job creation success. Despite potential complications associated
with funding from an ED agency, such funds can be an important component to the pre-
venture capital financing plan for a nascent biomedical company.
Typically program investment diligence is not as extensive as would be undertaken by
venture capital investors. The process for making funding decisions shares some of the
attributes of peer-reviewed basic research (review by relatively homogenous peers) with
additional criteria directed to technology development. The basic economic development
objectives of these public organizations leads to a set of decision criteria biased toward job
creation and near term impact. Consequently, the most scalable ventures, those developing
new therapeutics, can be disadvantaged if criteria for support are biased toward requiring or
rewarding near term outcomes.
Domain 5 – The early stage technology firm
For this domain the primary POC objective is return on investment (ROI). The institutional
venture capital industry (VC) and the angel capital industry best represent this domain and
have been called the “essence of capitalism”. As the VC industry has grown over the past six
decades, it has gradually moved away from its seed capital origins to more later-stage, larger
investments. During 2007, the seed venture capital investments constituted about 4% of the
total $29.4B VC investments. Life sciences constituted 31% of the total VC investments in
2007 (PWC MoneyTree, 2007).
Business Angel financing is thought to be as large as institutional venture capital, but angel
investments are primarily small size (approximately $100,000 per investor with three to ten
individuals composing most angel investor syndicates). Accordingly, angel investing is
many times larger than the institutional seed capital industry. However, angel investing in
biomedical start-ups is about as frequent as VC seed investing, given relatively few angels
have biomedical experience and feel comfortable with the risks posed by biomedical
investing. Within the university context, a few seed capital funds and business angel
networks have been created, including the Baylor Angel Network, MIT Angels, Harvard
Angels, and Tech Coast Angels.
The Integrated Ecosystem—The University of Colorado has evolved toward an
integrated venture development process that coordinates all of the sources of precommercial
funding, coupled with the entrepreneurial and operational advisors and drivers critical to
building a viable start-up company. A coordinated commercial plan and development
roadmap from the very beginning can ensure impactful use of each source of funds, within
the inherent limitations each source of funding might impose. In a perfect world, a venture
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financing would present the fewest limitations and require the least effort and cost to
manage. In reality, most nascent academic ventures have to bootstrap themselves to
financial viability (i.e. develop a credible development and business plan and secure a first
“smart angel money” commitment) by reducing the fundamental types of early risk that
preclude ROI-based venture investment such as technical viability, some preclinical
feasibility, early financing, intellectual property and market acceptance risks Elements of a
viable and investment quality venture are usually:
• an experienced and credible entrepreneurial driver or team with relevant operating
and fundraising track record;
• viable patent estate with issuable and enforceable patent claims and freedom to
operate in the specified field;
• proof of technical concept package, with some clarity of regulatory barriers; and
• readily evident business and revenue model
Getting a good handle on these early risks, allows venture investors to focus on risks they
are more comfortable assessing and managing such as execution and business model risks,
systemic financial market risks (capital availability when capital is needed), clinical and
regulatory risks and market risks. The aforementioned sources of maturation funding can be
helpful in compiling the complete package (and risk reduction) necessary to attract venture
financing. In fact, a rule of thumb used by some professional venture investors requires that
they commit more than five to ten times the amount of capital previously committed to
venture, ostensibly to ensure a sense that the team and technology have a solid foundation
(and track record) upon which to build value. The elimination of compound risks certainly
improved the odds of success and degree of confidence investors has in their ability to
successfully grow a business and obtain a return on investment. To the extent this rule of
thumb holds true, POC funding is not only a catalyst for venture financing, but perhaps the
rate limiting step and catalyst in many cases.
The inherent development, regulatory, and financing risks of early stage biomedical
technology, coupled with biomedical technology investors (financial and strategic) trending
toward risk-aversion (Fishback et al., 2007), lower valuations, and generally higher hurdles
to investment, means many TTOs find themselves in the technology maturation business.
POC programs can be a catalyst for downstream capital investment, and facilitate transfer of
the technology, if the POC investment programs are designed to lower the activation energy
of that downstream investment.
Section III: Other University POC Maturation Funding Models
General technology transfer enterprise (POC) funding model
Many large research universities have one or more proof of concept or seed funding models,
with varying objectives and funding uses (reviewed by Johnson, 2005). Some are based on
an ROI model such as Baylor College of Medicine Ventures, early stages of ARCH Venture
Partners, Illinois Ventures, and the Boston University VC fund. Others are catalyst or pre-
seed funds with a primary objective of facilitating downstream capital attraction such as the
Despande Center at MIT. Funds can be segregated based upon intended use of funds, with
uses including: scientific validation, business and regulatory planning, product prototyping
and development, and clinical development. Generally, early stage aims like scientific
validation and planning fit the risk profile of catalyst funds, where ROI funds tend to
support later stage objectives such as regulatory and business development and clinical
validation.
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Many, but not all, catalyst POC funds require some form of repayment or carried interest:
ROI funds will certainly have such provisions. Repayment can be in the form of cash or
stock, and can be at a set time or deferred until financing or revenue generation. Most funds
strive to be sustainable or evergreen by recovering capital from successful projects for later
redeployment, whether at nominal value or a multiple of the original amount. Whatever the
payback provisions and stage of deployments, most POC funds share a common goal:
advancement of technologies stuck in the technology gap between research funding and
private investment.
Section IV: The University of Colorado POC Maturation Funding Programs
The University of Colorado proof of concept funding program involves three distinct types
of awards: 1) Proof of Concept grants (POCg), 2) Proof of concept investments (POCi), 3)
State of Colorado matching grants (POCsb).
The POCg program is a seeding program offering grants to faculty inventors of $10,000 to
$25,000 to generate key preliminary data for downstream grants. The funding roadmap for a
POCg project usually leads through SBIR/STTR, federal funding or POCsb funding. The
key milestone is usually technical proof of principle in a simple and cheap experimental
model system. POCg awards are usually given with the intent of either licensing or spinning
technology out in a new venture. The decisions are largely made internally, with the input of
external advisors of an ad hoc basis. This program requires the University to tolerate the
most risk, but given the small capital commitments, this program has the most potential to
lead to high leverage in the form of larger boluses of capital inflow downstream. These are
grants and are not repaid.
The POCi program is the University of Colorado’s most focused and specialized funding
mechanism. Up to $100,000 of funding is provided to a University spinout in the form of a
nonrecourse convertible loan. Conversion is usually triggered by a qualified financing of a
predetermined amount. The key milestone is usually one that would enable venture or angel
financing, but sometimes enable an SBIR or STTR award. A POCi award requires a
commercial driver or champion, often in the CEO role, to lead fundraising efforts and
manage the early business development activities of the nascent venture. Funding decisions
are recommended by a venture capital advisory panel, based upon their assessment of the
products and concepts most likely to attract venture funding into a stand alone startup
company.
The POCsb program is largely subject to the legislative mandate and restrictions in the state
bill that allocates the matching funds. Grants up to $200,000 are provided to university
inventors for promising technologies that are likely to support Colorado-based venture
backed start-up companies. The funding decisions are recommended by a panel of venture
capitals and biomedical operating executives. Key milestones are variable, but must clearly
lead to a logical, likely, and appropriate funding source. This program is most flexible in
staging, but very focused on advancing technologies and concepts that can support stand-
alone, scalable ventures given the economic development mandate of the legislation
enabling the program.
The strategic goals of the University of Colorado POC program, in the context of the
biomedical development environment are represented schematically in Figure 1. There are
two parallel and fundamental development tracks, business and technical, for any nascent
biomedical product originating from a research institution. The University of Colorado POC
programs are designed to address gaps in both elements of the development continuum by
funding both technical and business development.
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Section V: Overview of Outcomes and Lessons Learned from the CU POC
programs
The University of Colorado has experienced some early success since its launch of the POCi
program in 2004, the POCg program in 2005, and the POCsb program in 2006. Overall,
roughly half of the projects receiving POC funds have been licensed to commercial entities.
However, a more meaningful measure of validation and success of these programs are the
capital commitments occurring downstream of those licenses Table 2. The program has
averaged a 20X amplification of initial capital investment based upon slightly more than $5
million of POC investments through the University of Colorado (Table 2 and Table 3).
Follow-on grant and angel funding was distributed across technology categories similar to
POC allocation, but venture funding was heavily focused on therapeutics (Figure 3). Not
surprisingly, therapeutics projects resulted in the greatest amplification of CU investment at
nearly 30 X. In fact, while slightly more than half of POC projects funded were therapeutics
projects, those projects accounted for 94% of the downstream capital attracted.
When looking at POC and follow-on funding distribution across the various CU POC
programs, the most mature program, POCi, tends to have the most amplification. In the
same vein, the least mature program, POCsb, shows the least amplification because most of
the capital commitment under that program has been recent and follow-on funding has not
fully materialized. That program was launched in 2006, and projects are just beginning to
mature into viable and investment quality programs. A note about methodology is in order.
If a single project received multiple POC awards, the follow-on funding is attributed to the
program in which the last or largest award was issued, to minimize bias in the methodology
for measuring leverage for a first, smaller investment or grant.
Case studies
Taligen Therapeutics was the first recipient of a POCi award from the University of
Colorado TTO in 2004. Taligen was founded to develop antibody therapeutics targeting the
complement system, thus the potential to address a broad array of clinical unmet needs.
Preliminary in vivo characterization of proof of concept antibody therapies was funded
through POCi. Data from POCi studies were leveraged to attract SBIR awards in 2005 and a
seed investment by a state of Colorado sponsored venture capital program. In 2006 Taligen
closed on a $3.8 M series A financing led by a California venture capital firm. After hitting
key milestones with Series A funding, Taligen was able to secure a $65 M commitment and
closed a Series B financing in January 2008.
Keys to Taligen’s success were:
• Clearly defined milestones and path to the next round of funding
• Committed commercial driver to step in as CEO and move the company forward
• Resolution of IP licensing and ownership issued under the POCi and through TTO,
in support of financing diligence
Serendipitously, Taligen was the first and most leveraged POCi investment in the University
portfolio. With such an example to learn from, minor refinements have made the POCi
program highly successful, both in the proportion of projects that receive downstream
commercial support and the aggregate dollars those projects have attracted. While it is
virtuous to learn from failure, it is fortuitous to learn from success.
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Sierra Neuropharmaceuticals
Sierra Neuropharmaceuticals Inc. (Sierra) was founded in 2005 to develop proprietary
formulations of nonproprietary psychotropic drugs of known safety and efficacy. Sierra’s
technology and IP platform takes advantage of intrathecal delivery of psychotropic drugs
that have pharmacologic profiles rendering them suboptimal for systemic delivery. Original
proof of concept work was enabled through a $25,000 POCg award in the spring of 2006.
Preliminary data on a novel formulation of clozapine were leveraged to get a POCsb award
of $190,000 to support formulation and regulatory development for other drugs. Venture
capital firms were keenly interested in addressing the unmet need for neurocognitive
diseases and the potential for Sierra’ s platform to provide entry into that lucrative market. A
local entrepreneurial group, who had experience raising $400 million in financing and
exiting a prior University of Colorado start-up licensee therapeutics company, provided
guidance and assistance to the scientific clinical founder of Sierra. The team assembled a
viable and credible business plan and was able to close a $21.5 million series A financing in
2008, led by two local venture capital firms and a third Boston firm.
Sierra is an unusual University spinout in two respects: the scientific founder was at the
forefront of fundraising activity and continues (successfully) to be the CEO of the company,
and a therapeutics company going from inception to series A in less than three years. Market
conditions and prudent use of early capital allowed the founders of Sierra to slip into the
window of opportunity in a hot market area.
Endoshape Inc.
Endoshape is a biomedical engineering platform company founded in 2005 to develop novel
biocompatible shape memory polymer materials for endovascular and intraluminal clinical
applications. Endoshape’s scientific founder was the beneficiary of a $10,000 POCg grant
award in September of 2005 and a second $20,000 proof of concept grant in January 2006.
Funding was used to optimize polymer materials for application in vascular stents and
characterize materials properties in ex vivo and benchtop proof of concept studies. Those
projects were encouraging, a commercial champion was engaged, and a $100,000 POCi
proposal was awarded to perform in vivo performance and biocompatibility studies. These
POC awards led to over $1.2 million in nondilutive SBIR funding to date.
Endoshape represents the third company the faculty founder funded based on CU IP, with
minimal dilutive capital. Endoshape is an interesting case study, though still a developing
success, in that they have used to POC funds to validate a materials platform and get
downstream grant funding, then effectively utilized State of Colorado matching funds to
mature IP diligence and hone market strategy and prioritize product development
opportunities prior to seeking any venture capital funding. Venture capital financing and exit
multiple remain to be determined, but the company has successfully reached early stage
milestones without dilutive financing, and continues to plot a course forward with minimal
stalls and pitfalls.
Summary of case studies
A common theme emerges as driving fundraising success of these spinout companies:
• a strong and compelling scientific founder who is persistent and coachable
• the importance of an involved entrepreneurial team or champion, early
• seed capital to validate the deal and nucleate the team
A POC program that can direct resources to the right opportunities and people, can create
significant impact for an institution and a bioscience industry cluster.
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Section VI: Challenges
POC funding in a research institution creates some tensions between two major constituents
in the technology development ecosystem: the faculty inventors (the sell side) and the
venture and entrepreneurial community (the buy side). These tensions are result of well
known cultural and value differences among the two constituents (DeFrancesco, 2008;
Sparey and Gliubich; 2008). It is critical for both participant to understand the context and
objectives of POC funded research.
Faculty inventors often apply the same principles of merit and objective to POC proposals,
as they would a grant application to a federal funding agency. The goal of the latter type of
funding mechanism involves advancing the frontiers of knowledge, often through the use of
the most cutting edge analytic methods, and elegant experimental designs. The goals of the
typical POC project are derived from questions posed by the venture and entrepreneurial
community or industry advisors. These questions rarely involve the most elegant lines of
inquiry, and consequently are not viewed by inventors and faculty entrepreneurs as
scientifically valuable and publishable in top tier journals. The goals of POC projects are to
address questions of technical, clinical, and market feasibility, which usually do not advance
the frontiers of science. Managing expectations of faculty inventors early in the POC
process is critical to establishing a credible investment process in which faculty are willing
and motivated participants.
Most effective POC programs utilize advisors or panels from the entrepreneurial community
and industry. These industry and entrepreneurial participants usually have valuable market
and/or clinical domain expertise and have experience in evaluating new technologies for
investment by the organizations to which they are/were affiliated. Thus, these advisors come
to the process with criteria suited for major venture or development program investments
these advisors are accustomed to evaluating. Advisors and panelists must be aware of, and
share consensus about, the investment objectives for the POC program. The investment
objective is usually a milestone corresponding to the next round of capital which would be a
seed, Series A, or capital commitment from a licensing partner. It is critical that the
evaluation process not be established with exactly the same criteria one would expect a
financial investor to use for Series A venture investment or a licensee or strategic investor to
use for capitalization of a biomedical development program. In reality, the scope of most
POC investments is an order of magnitude smaller and an order of magnitude more risky
than investments advisors are accustomed to evaluating. While a few similar investment
principles and disciplines may be applicable, the risk profile for a POC project will almost
always be preclusive of such a sizable capital commitment. The advisory process should
reflect the practicalities of the high risk but small investment paradigm. The critical “smart
money” investment milestone (not near term ROI, per se) must always be at the forefront of
any POC investment decision, Furthermore, the advisory group must always be cognizant of
their role in defining that milestone for the TTO and faculty inventor, rather than deciding
whether the project is ready for Series A or a corporate investment.
While the benefit of a robust POC process is iterative refinement of a technology
development program that might be “too early” for POC investment, it is critical that
entrepreneurial advisors or potential investors do not perceive the unsuccessful proposal/
program as damaged goods, whereby there is a negative validation effect when a project is
not funded. One of the most common mistakes technology transfer enterprises can make is
providing ambiguous feedback to an applicant, such as: “…the project is too early”. The
damaged goods issue is partially mitigated through clear communication of why a project
was not funded and what an applicant can do to position the project more competitively in
the next round of applications. A clear, candid roadmap of pitfalls and milestones can put a

projects true merits and challenges in an objective and proper perspective. This kind of
candor is especially difficult when the proposal simply does not involve the right people or
skills, or worse, involves the wrong people. Projects that are truly too early and lack merit
for larger POC investments might be candidates for smaller programs in the $10–50,000
range if there is a clear milestone.
Institutional politics might also come into play in how programs are administered and
potentially impact relative distributions of funds among departments, colleges, or other
institutional business units. The most effective programs will externalize the decision
process by substantially involving industry advisors in the funding decisions. Some see
merit in having a scientific and/or clinical capacity in advisory panels. This is often easily
accomplished through industry advisors and venture capitalists who have a solid technical
background.
In summary, most of the inherent challenges in a POC program can be somewhat mitigated
through implementation of the following best practices:
1. Clear statement of POC program objectives (i.e. down stream capital commitment
to a project after achieving a critical technical milestone)
2. Clear statement of investment discipline for advisors
3. Management of inventor expectations around acceptable project aims
4. Distinguishing objectives of POC funding from traditional research funding
5. Clear statement of milestones that represent a value inflection for a recipient
6. Clear homework assignments and interim milestones for unsuccessful applicants
A robust and objective evaluation process should flesh out the critical risks and milestones
inherent in the roadmap of any technology maturation project and build a long-term track
record of success that lends credibility to the POC program and the TTO administering the
program.
When recently speaking at a faculty seminar at CU, a tenured colleague faculty member
from the University of Wisconsin - Madison asked if the several hundred million dollars of
down stream capital investment in technologies from a university really is a measure of
success, in light of some of the struggles and failures a biopharma partner of venture firm
might experience with a university originated development program. A fair question given
withering drug pipelines in big pharma and losses experienced by many biotech companies
who have licensed or acquired early-stage product development programs from research
institutions. Given a research institution’s limited and appropriate role in the technology
development ecosystem, the next round of investment is an appropriate measure of success
for both a POC program and the technology transfer enterprise running it. It is the goal of
financial investors to exit at a high multiple, and the goal of strategic investors to acquire
market share through their deals. Research institutions are generally best suited to mature
assets to a transferrable stage of development and hand them off to partners with the
appropriate capabilities and resources. Downstream capital investment (in a diverse array of
projects) is arguably one of the best measures of the effectiveness of a TTO. The University
of Colorado has sought to build capacity and focus resources to optimize and not maximize
the degree of vertical integration.
Section VII. Implications for University Technology Transfer Offices
The core competencies of top performing technology transfer enterprises are:

1. credible and positive relationships with the primary customer - faculty inventors
2. ability to identify and articulate inventions within disclosures
3. following, and perhaps sometimes nudging the research toward enablement and
establishment of an optimum IP portfolio
4. execution of fair and timely license agreements
The foundation for a successful technology transfer enterprise is an integrated system with
capabilities in asset identification, articulation, development, maturation, and the business
development and capital allocation activity necessary to elicit investment and derive value
from the technology pipeline.
Two emerging capabilities common to these more effective and elite technology transfer
enterprises are:
1. business development activity with key participants in technology development and
investment value chains
2. mapping commercial and market drivers for a given technology and guiding
relatively modest POC investments to align the risk profile of a technology
development program with the profile of a viable investment for a biomedical
development project
The additional business development and investment activity of university TTOs has the
effect of nucleating entrepreneurial teams and drivers to move nascent technology toward
the profile of an investable opportunity. POC investment gives a program or project the
credibility necessary, the critical mass, to attract necessary entrepreneurial management,
technical talent, and downstream resources necessary to get a program through a key
viability milestone. Viability milestones for a novel, first in class therapeutic is often a
validated target and IND enabling data package; for a diagnostic, retrospective validation of
a formatted assay on an FDA- acceptable analytic platform in a relevant clinical cohort; for a
therapeutic medical device, demonstration of proof-of-principle in an animal disease model.
Arguably, such success in reaching validation milestones should be the primary objective of
an academic TTO and proper place for transfer to another more capable participant in the
technology development value chain.
Institutional research administration will face policy and fiscal implications when projects
are funded through TTOs. These intrainstitutional funding activities have the added benefit
of being highly leveraged sources of research funding in that they can be augmented with
economic development funds, federal matching funds, donor funding, or even private
matching funds. The case is usually compelling for reduced facilities and administrative
overhead for projects funded through the intrainstitutional transfer from a technology
transfer enterprise. However, the matching funds and source of that match can present a
quandary for research administrators trying to maintain a reasonable degree of fiscal parity
(and baseline F&A rate expectations) among various research funding sources.
Most POC funds, especially those operated by public universities, have an economic
development objective, which generally puts a successful POC program and the projects it
funds, on a trajectory toward a fast-growing, well capitalized start-up company. The faculty
inventor is often a key contributor to the financing and growth of the company, which
presents many potential inherent conflicts of interest and conflicts of commitment.
Consequently, robust POC programs should go hand in hand with a robust institutional
conflict of interest policy and best practices.

In summary, an effective POC program can be an extension of the research enterprise of its
host institution, and augment the clinical impact of such institutions, through advancement
of fundamental and applied research into novel biomedical technologies and on into the
clinic. Leveraged POC funding has the potential to amplify the impact of traditional federal
grants and intrainstitutional funding many fold. Coordination of POC funding with
downstream investors and market drivers can provide the best results if success is
downstream investment. However, the process for funding decisions, nature of research
aims, and fiscal administration require different practices by administrators and fresh
perspective among faculty participants. It is critical for the university TTO to effectively
work with all business community and institutional stakeholders and build institutional
consensus about the value and management of all aspects of the POC program to ensure the
program is credible and effective, inside and outside the host institution.
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Figure 1.
Schematic diagram of the Colorado Biomedical Venture Development model employed by
the University of Colorado. There are two parallel development thrusts represented by the
upper and lower half of the diagram, Technical Development and Venture Development,
respectively.
Technical Development is largely funded through federal research funding and done
primarily within the University of Colorado through traditional academic research grants
through the NIH and other federal agencies, SBIR/STTR subawards, POCg, and POCi
funding from the Technology Transfer Office.
Venture Development generally occurs outside the University of Colorado, within startup
companies, often with support from the entrepreneurial community, and is financial
supported through State of Colorado matching fund grants for business development.
Preclinical stage development work often falls into both technical and venture development
classifications and has been funded through essentially every funding program, depending
upon the needs and sources of funding for a specific project or company. Rarely is venture
capital or pharma partnering a major component of the preclinical funding model. The
Colorado venture development process is focused on the advancement to clinical stage.
Clinical stage development work is almost exclusively from partnering and venture sources,
given the large capital requirements.

Figure 2.

Panel 1: Relative number of projects receiving University of Colorado Proof-of-Concept
(POC) awards by technology type.
Panel 2: Relative funding distribution of primary POC investments and grants into projects
by technology type.
Panel 3: Amount of follow-on external Grants in POC awardee projects, by technology type.
Panel 4: Amount of follow-on external Angel and Seed Investment in POC awardee projects,
by technology type.
Panel 5: Amount of follow-on external Venture Investment in POC awardee projects, by
technology type.
Panel 6: Amount of follow-on external TOTAL Capital in POC awardee projects, by
technology type.

Figure 3.
Panel 1: Relative funding distribution of primary POC investments and grants into projects
by POC program.
Panel 2: Amount of follow-on external Grants by POC awardee projects, in POC program.

Panel 3: Amount of follow-on external Angel and Seed Investment in POC awardee projects,
by POC program.
Panel 4: Amount of follow-on external Venture Investment in POC awardee projects, by
POC program.
Panel 5: Amount of follow-on external TOTAL Capital in POC awardee projects, by POC
program.

Table 1
Summary of University of Colorado Proof of Concept funding programs, scope, aims and funding objectives.
Program Form Scope and Criteria Example endpoints
Proof of Concept grant (POCg) $10,000 to $25,000
Grant to faculty laboratory
IP expansion, concept validation,
enable NIH and Foundation grants
for translational projects
Study proof-of concept molecule
in vitro; format an assay for
clincially relevant biomarker; build
device prototypes
Proof of Concept investment
(POCi)
Up to $100,000
Loan (uncollateralized) to CU
startup company, with IP from
CU, convertible to stock
Clinical or commercial proof of
principle; "investable endpoints"
In vivo efficacy of proprietary
therapeutics; prospective
validation of a diagnostic; in vivo
evaluation or performace testing
of a device
Proof of Concept State Bill
POCsb)
Up to $200,000
Grant to faculty laboratory
Broader aims from POCg to
commercial; should augment
venture quality projects
Preclincial or clinical evaluation;
pre-regulatory work; projects
defined as investment-contingent
by venture investors

Table 2
Summary of projects funded under University of Colorado POC programs and relative success if licensing and
leverage multiple, for the four primary technology categories representing POC investments. Number
Funded represents number of projects allocated POC funds. Number licensed represents number of funded
projects in which an exclusive option or license agreement, requiring a capital commitment, has been
executed. Leverage multiple represents POC dollar commitments divided by capital commitments (grant or
investment) to that project downstream of the exclusive license or option agreement.
Technology Type
Number
funded
Number
licensed
% transfer
success
Leverage
Multiple1
Materials and Tools 2 1 50% 0.00
Device 20 9 45% 4.49
Diagnostic 10 5 50% 2.54
Therapeutic 37 17 46% 30.96
69 32 46% 21.00

Table3
SummaryofProof-of-Concept(POC)investmentsandgrantsattheUniversityofColoradobytechnologytype.Columnsrepresentvarioussourcesof
primaryfunding(POCAwardAmount)andfollow-onfundingbysourceandinTOTAL.LeveragerepresentsPOCAwardAmountdividedbyTOTAL
follow-onfundingforthatcategoryandisaprimarymeasureofPOCprogramefficacy.
NumberofPOCAwardAdditional
ProjectsTechnologyTypeAmountGrantFundingAngelInvestmentVentureInvestmentTOTALLeverageMultiple1
2MaterialsandTools$75,000.00$-$-$-$-0.00
20Device$1,087,402.00$1,550,000.00$1,300,000.00$3,081,057.00$5,931,057.005.45
10Diagnostic$756,169.00$2,106,557.00$-$750,000.00$2,856,557.003.78
37Therapeutic$3,358,449.00$2,506,706.00$3,693,105.00$99,150,000.00$105,349,811.0031.37
69$5,277,020.00$6,163,263.00$4,993,105.00$102,981,057.00$114,137,425.0021.63

Table4
SummaryofProof-of-Concept(POC)investmentsandgrantsattheUniversityofColoradobyPOCProgram.Columnsrepresentvarioussourcesof
primaryfunding(POCAwardAmount)andfollow-onfundingbysourceandinTOTAL.LeveragerepresentsPOCAwardAmountdividedbyTOTAL
follow-onfundingforthatcategoryandisaprimarymeasureofPOCprogramefficacy.
Follow-on
ProgramPOCAwardAmountGrantFundingAngelInvestmentVentureInvestmentTOTALLeverageMultiple1
POCi$1,000,000.00$2,656,706.00$1,500,000.00$73,481,057.00$77,637,763.0077.64
POCg$730,627.00$2,574,260.00$1,400,000.00$8,000,000.00$11,974,260.0016.39
POCsb$3,546,393.00$932,297.00$2,093,105.00$21,500,000.00$24,525,402.006.92
$5,277,020.00$6,163,263.00$4,993,105.00$102,981,057.00$114,137,425.0021.63

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