Taxes At Work: The Federal Government Gives A Boost To Life Science Start-ups
By Wayne Koberstein, Executive Editor, Life Science Leader
Follow Me On Twitter @WayneKoberstein
An Interview with Michael Weingarten, Head of the NCI SBIR Development Center, and Lean Launchpad’s Steve Blank, NIH Business Mentor.
Yes, Virginia, the life sciences/biopharma industry doesn’t just pay relatively high taxes in the United States — compared to say, Holland — but it also receives extraordinary benefits in return. In just one example of the U.S. government’s historically unique partnership with the industry, the NIH extensively funds and trains scientists-turned-entrepreneurs on how to build and validate a successful business model around their life sciences technology. This program, the I-Corps @NIH, launched October 6 with 19 teams in diagnostics, therapeutics, and medical devices. I had the opportunity recently to speak with the leaders implementing the program.
Michael Weingarten is the director of the National Cancer Institute’s Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) awards. Start-up expert Steve Blank, developer of the Lean LaunchPad entrepreneurship curriculum on which the program is based, is the architect of the I-Corps @ NIH, a collaboration of the NIH and the National Science Foundation (NSF). Andrew Kurtz, Ph.D., program director and team leader at the NCI SBIR Development Center, also joined our conversation.
WHAT IS SBIR?
WEINGARTEN: SBIR is a government-funded program, receiving a percentage of the NIH budget every year. It is the primary vehicle at the NIH, and at the NCI specifically, for funding early-stage companies to do research and technology development in the cancer space. Our annual budget right now is about $120 million. At any given time we’re funding about 350 different projects from very early stage to projects in the clinic. An early-stage project is a Phase I SBIR — not equivalent to a clinical trial Phase 1, but a feasibility study, with an average grant size of about $250,000. The ideal Phase I project in the area of drug development is one at the lead optimization stage. If successful, the company can return to apply for a Phase II SBIR grant for up to $2 million. Phase II SBIRs are typically two- to three-year projects for a drug in preclinical development. Therapeutics represent about a third of our portfolio; devices, particularly imaging, about 20 to 25 percent; diagnostics, 25 percent; and research tools, 10 to 20 percent.
HOW DO YOU HELP COMPANIES?
In addition to our normal funding mechanisms, we have also launched a range of programs to support our companies from the early stages of entering the program, to graduating from it. When companies first come to us, we spend a lot of our time advising them on key tips for developing stronger grant applications because all of our grants are peer-reviewed. We also launched a new program five years ago called the Phase II Bridge Award to help our companies raise private capital. Companies that have completed SBIR Phase I and II awards can compete for up $3 million in additional NCI SBIR funding if they can raise matching funds from private investors. The program accelerates commercialization by incentivizing partnerships with third-party investors and strategic partners earlier in the development process.
WHAT IS THE LATEST NEWS FROM THE BRIDGE PROGRAM?
KURTZ: We are getting about a two-to-one leverage with the Bridge Award: for every dollar we put in, companies raise about two dollars in private capital. Of the 16 projects currently funded under the Bridge Award, a number of them are now in the clinic. And we put on an investor forum for outstanding companies that participate in the program. Of the 350 projects that we fund, we pick the top 15 or 20, and we mentor and prepare them to present their stories to investors.
BEYOND FUNDING, WHAT HELP AND SUPPORT DO YOU GIVE COMPANIES?
We mentor them, at all stages and in many ways. Most recently, we launched the I-Corps program. Steve Blank created the curriculum, and the NIH is offering it to our small businesses. It has been offered at the National Science Foundation for about three years now, and more than 300 teams have gone through the program there, and so we are starting to offer it now to companies at the NIH. If you look at the typical startup that comes to the NCI and applies for funding, many are academics with a strong scientific background, but quite often they have almost no business background. I-Corps schools them in entrepreneurship over a nine-week period. We put out the call to companies to apply to participate in the pilot cohort, and we have selected the most promising of those companies for the program in technology areas covering four different NIH institutes, including the National Cancer Institute; National Institute of Neurological Disorders and Stroke; National Heart, Lung, and Blood Institute; and National Center for Advancing Translational Sciences.
BLANK: This would be the equivalent of driver’s ed. We were giving away cars, but surprised that they kept on crashing. For decades, not just the NIH, but also every federal research organization was mandated by Congress to fund commercialization, yet Congress never said you should teach companies how to commercialize their science. They got grants for commercialization without having any formal process. It wasn’t the failure of the program; it was a failure of knowledge. We really didn’t know how to teach scientists how to do that, and the real insight is, we now teach them to do in business what they already do today inside the lab — hypothesis testing.
YOU CONDUCT A LAB-LIKE EXPERIMENT?
We apply the scientific method by getting out of the building and talking to customers and partners. Whenever you set up a hypothesis, you design an experiment. You collect some data, analyze it and get some insight, and then modify the hypothesis. It’s exactly what they do in the lab, and so teaching it to scientists is pretty intuitive. We are not teaching them how to be accountants or get an MBA; we’re just teaching them to take something they know from their scientific training and apply it to an audience they’re normally not exposed to. It has to be they’re going to learn something that will make their companies better, and almost always it does. I would tell your readers they ought to be looking for graduates of the I-Corps program, because these are people who will actually know how to partner, how to talk about customers, and how to talk about business relationships in a way that previous teams may have been somewhat lacking.
WEINGARTEN: We meet virtually with company executives and teams every week as they’re going through the program. Based on the customer interviews they’ve had that week, teams report on their progress. A great example from a previous cohort is a company called Magnamosis, which encapsulates the benefits very well. Magnamosis is developing a new, minimally invasive anastomosis [surgical connection between two structures] device. For example, a patient with colon cancer must have part of their colon removed, and the anastomosis device could connect the two remaining pieces together. The current technology for doing that is essentially sutures or staples.
When the company first came into the I-Corps class, they thought the product’s selling point and value proposition was that it was better, cheaper, and faster. So surgeons would be able to do more surgeries and it would be a high revenue generator for the surgeon. But over the course of the nine-week class, the company found out surgeons were not interested so much in the device as superior technology increasing turnover; they were interested in its potential to reduce leakage rates, which is a real problem with the current state of the art. So the company changed the value proposition from better, cheaper, faster, to reducing leakage rates. That’s how they will be selling the technology and generating revenues.
IS YOUR NEW I-CORPS PROGRAM ONLY IN CANCER?
This is a pilot program, so we’re doing a test drive initially, and the four institutes at the NIH currently participating are the NCI; the National Heart, Lung and Blood Institute (NHLBI), the National Institute for Neurological Disorders and Stroke (NINDS), and the National Center for Advancing Translational Sciences (NCATS). A total of 19 companies that are SBIR funded through those Institutes are participating in the pilot program. It is a rigorous program for the participating companies. Each team is required to do 15 to 25 hours of work a week.
I-CORPS IN CLASS
The following is an excerpt from the NIH announcement of its new I-Corps business-training program for small life science companies, describing the program’s services and course curriculum:
The I-Corps program is designed to support training that will help project teams at NIH-funded small businesses overcome key obstacles along the path of innovation and commercialization.
The I-Corps at NIH pilot program is modeled after the successful NSF I-Corps program and will be leveraged for the first time to support biomedical innovation and translation, with the goal of accelerating the development of new and emerging technologies for the detection, diagnosis, treatment, and prevention of disease.
Curriculum for the I-Corps at NIH:
- Is a nine-week training program.
- Introduces the concept of a “Business Model Canvas,” which provides the framework for pursuing a hypothesis-driven validation approach to customer discovery.
- Is taught by experienced, business-savvy instructors who work closely with project teams to help them explore potential markets for their Federally funded innovations. Instructors teaching this pilot program are selected based on their specific domain expertise in the major product areas that comprise the biomedical industry.
QUICK LINKS TO NCI/SBIR, I-CORPS, & STEVE BANK