Creating a pharmaceutical or biotechnology startup

Taffy Williams

Colonial Technology Development Co.

Creating a biotechnology or pharmaceutical company is always a dream of the entrepreneurs that work in the space. The landscape and exit strategies in this space have changed dramatically over the last 10 years, but this has not deterred the creation of new companies. Innovation parks have been created in a wide range of geographic areas and encouragement is provided to help with the new Startup Companies. The primary purpose being that one of the best ways to create jobs in a region is by creating new companies. The following may be useful for entrepreneurs in general and especially those competing in these events in coming years.

For entrepreneurs wishing to create a new technology or biotechnology company, a critical step has been reached in the process, i.e., taking action to create a company. The process varies with the individual, but these are some of the critical steps and a little about how to accomplish them.

Pick a technology area

The technology area may be something you are currently working on or an area you follow. If you do not have a favorite yet, a good place to start is an area you have passion for, or at least can develop the passion. It may be cancer, cardiovascular problems, diabetes, Alzheimer’s or some orphan disease. At least be excited about the area because you will be living with it for quite a while. Expect some very difficult times ahead so try not to work with a technology you hate it only makes the difficulty worse. After all, growing a business is not for the “faint of heart”. Your excitement really needs to carry through in seeking to raise capital and developing a successful business. Also, it will fuel your drive to learn all you can about the topic of your business and become the expert in the space.

"...a good place to start is an area you have passion for..."

Intellectual property and licenses

Find intellectual property (IP) in the forms of patents or pending applications. You may have your own ideas and patents, but it is possible to seek technology from other sources. Searching for technology is not difficult, but it does take a lot of work. Universities are often the best place to start. Most universities have a Technology Transfer Office that will manage IP and handle licensing of patents generated at that Institution.

A view of technology transfer from a university prospective and from an entrepreneur prospective may be helpful. The Association of Technology Managers (AUTM) has some resources and connections to universities and in the near future is expected to have a consolidated database to search. Often by developing a relationship, the technology transfer office will notify the entrepreneur of new inventions in the area desired. Applications may have not been filed yet and an alert of a pending application can be helpful to getting an early start to negotiations.

If you have a favorite scientist, request info about technology available by that scientist or discuss with the scientist how to gain access to the IP through their University. Be careful, in nearly all cases, the scientist (professor) does not own the rights to their inventions, the university does. Make sure you deal with the correct person or entity that owns the IP.

Obtaining a license or patent will cost money. The patent process alone is expensive and the license adds to that expense. Be prepared to spend money or at least negotiate to pay in the future for the rights to the technology. It is recommended that entrepreneurs do not borrow against their house or other assets for payments, placing those assets at risk should the business fail.

IP is essential because it protects the company from any competitor that may want to sell the same product(s), the IP helps develop a “real monopoly” for a product. The IP also addresses a question of “what makes the business special.” This will be a question in diligence reviews by investors.

"At least be excited about the area because you will be living with it for quite a while."

It is common that many new entrepreneurs license IP only to discover the IP does not adequately cover enough of the field, or that the patents exist in a field so cluttered that there is no real room to operate. The “Freedom to Operate” issue is a true concern. Most inventors do not realize that having a patent gives the ability to prevent someone from selling a product, it does not give permission to sell a product. Always fully examine the IP landscape to make sure the product is free and clear of blocking patents, a patent that prevents a step in the process or covers a related area.

It is possible to save a bit of money by searching on www.uspto.gov/ for IP. Issued patents and some applications are listed and searchable. You may even decide to seek patents to license via searches. It is a useful site and worth taking the time to learn how to use it. There is a similar site for foreign IP but is a bit more complicated to cover all locals.

Suffice to say, the new company MUST have knowledge and ownership which can allow you to have an ability to commercialize something with minimal or no competition. Otherwise, it will be much more difficult to obtain the required funding, this is especially true in the biotech space. It is not recommended to use competitive product pricing or cost of goods as the only distinguishing characteristics for the company. You are much better off telling investors the company has a monopoly in the area based on IP.

Business plan and slide deck

Organize your thoughts and develop a solid business plan. More detail on a business plan for biotechnology and pharmaceutical companies can be found in this article. It can take a while to prepare and will require significant supplemental research to make sure it can withstand scrutiny. This is the first real document that will be seen by potential investors. A good executive summary is often a great introductory piece to send to an investor, but the full business plan will be something investors will want to see.

Next in the company development process is to generate an investor pitch slide deck and a good “Elevator Pitch”. An Elevator Pitch is a 20–30 sec description of the business that helps an investor quickly decide whether they are willing to take a follow up meeting.

The Slide Deck is a description of the company, management, technology, product, and value proposition for an investor or company. Two versions are worthy of preparation, one which is around 20 min and one around 40 min in length. The 20 min version is most often used. With questions the presentations can run to 1.5 hr, but try to keep it to under an hour. Also practice a short version presentation to be delivered in around 5 min. Sometimes, investors get busy and can only give a small amount of time. Always be courteous of the investor’s time in your delivery and help them keep their schedule.

"...in nearly all cases, the scientist (professor) does not own the rights to their inventions, the university does."

Funding

Funding can come from Friends and Family, Angel Investors, Venture Capital, Partners, and other sources. You can find some specific suggestions and more detail on sources in this article. Be prepared for the long haul, there may be a significant time before funds come to the company. Do not expect to draw a salary for several months and possibly longer.

In the early years when the startup has no funds yet, pay particular attention to grants and government funding sources. There are a wide variety of grants which are possible to obtain, but it takes time and they are not guaranteed.

Summary

The key take-home points to remember:

1. Pick a medical area and technology you find exciting

2. Develop a “Moat around the Field” with “IP and Know How”, generate a true legal monopoly.

3. Develop a stellar business plan and a presentation to match. Be prepared to convince people to invest in the company. And show, you really understand the space.

4. Get MONEY. It is very hard to run a company with no funds. It takes time to get investors.

5. It is important not to get discouraged, to KEEP TRYING, persistence is essential.

About the author:

Taffy Williams, Ph.D., President and Chief Executive Officer of Colonial Technology Development Co. and the Company founder. He also serves as Chairman of the Board of Directors of Life Sciences Research Organization a not-for-profit company affiliated with the American Nutritional Society. Prior to Colonial, Dr. Williams served as president and Chief Executive Officer of Photogen Technologies Inc., IMCOR Pharmaceutical Co. and he was president and founder of InKine Pharmaceutical Company. Prior to that, he was president, CEO and Chairman of Panax. Dr. Williams has raised more than $100 million. In addition to executive management skills, the ability to grow companies and new business development experience, Dr. Williams is the author of eight patents, one invention registration, seven patent applications and 53 published articles. He also has been the recipient of several prestigious awards, including a postdoctoral fellowship from the National Institutes of Health, “Most Significant Scientific Publication'” awards from the Naval Medical Research Institute in 1985 and 1986, and the Civil Service Special Achievement Award for restructuring research activities in 1986. Dr. Williams holds a bachelor's degree in chemistry from the University of Notre Dame, a Ph.D. in biochemistry from the University of South Carolina, and did postdoctoral training at the University of South Carolina and the University of Michigan.

You can follow Taffy Williams on Twitter by @twilli2861 and you can email him with questions at twilli2861@aol.com and his company website or photo website. You can also find him in the group Startup Group on Linkedin. Other articles can be found in the Charlotte, NC- small business section of Examiner.com.

What are your top tips for setting up a pharma or biotech startup company?