June 21, 2010
accelerator bioscience healthcare

Planning a Bioscience Incubator Program: Entrepreneurship and Economic Initiatives from Invention to Venture

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Carrie R. Ross and M. Patricia Beckmann, Class 12

Oregon is considered a “fly over state” by many venture capitalists as they migrate north from California to Washington State, particularly in the bioscience sector where only a few bioscience inventions have made it to commercial success1 in-state. Oregon’s technologies are often developed and then spirited away to other locales because venture capitalists prefer their start-ups closer to their portfolio managers. In a wise and collaborative innovation model, the state-funded Oregon Innovation Council (or Oregon InC) spawned three Signature Research Centers focusing on bioscience, nanotechnology, and green/sustainable technologies to help with commercialization of technologies in the state and development of the regional economy.

How can entrepreneurship be harnessed to stimulate economic growth? In this article, we2 approach this problem in a multifaceted manner, using our collective experiences and best practices from financial, business, and scientific environments to plan an incubator in which to establish and nurture vulnerable start-up biomedical companies.

In our vision, entrepreneurship is just an attitude or approach to a problem. It starts with an identified opportunity and then requires insight and personal style to mentor and mature the idea to a fruitful endeavor. The entrepreneurial spirit or “fail until you succeed” attitude is actually a way of managing change, and thus can be interpreted as a way of leading. The evolution of the functional (and successful) entrepreneur is the path we have lived, evaluated, and are facilitating into planning for an operational incubator program.

Incubating an Incubator Program: The Paths that Led Us Here

The approaches shared in this article are those we are working to implement in Oregon. Our understanding and suggestions are the result of our histories and past experiences—successes and failures—as biomedical researchers and project leaders in corporate research coupled with our frustrations with management, partners, or collaborators, our experience with capital acquisition, and our continual listening to and mentoring of entrepreneurs.

Patricia’s path to bioscience has been unusual. Her focus on bioscience began in childhood when she lost her mother to cancer, initiating a lifelong pursuit of medicine and healthcare. In college, Patricia’s scientific understanding and ability to think outside the box were nurtured through opportunity for unstructured use of scientific toys such as a scanning electron microscope. After graduation she was introduced to the politics of science and power while working as a technician in a well known medical school—the chairman of the department told Patricia she was supposed to be just “a pair of hands” and should not be concocting biological experiments of her own thinking. Though they became colleagues and collaborators in later years, that conversation both angered and motivated her to take control of her career; Patricia moved on to graduate school in biochemistry and pharmacology the next year. A Fulbright Postdoctoral Fellowship in Sweden opened her eyes to top-notch biomedical research at the Ludwig Institute, the Nobel awards and other great scientific endeavors, and international relations (a Chilean refugee family “adopted” her and her son and shared their community).

After two years as a postdoctoral fellow at the National Cancer Institute, Patricia followed her childhood dream of making a difference for cancer treatment in a new direction. She turned away from what promised to be a stellar academic career to the “dark side” of early biotechnology corporate R&D. Joining Immunex Corporation in Seattle at an early stage, she became an inventor on over 40 issued U.S. Patents and was awarded National Inventor of the Year in 2001 for her work discovering their block-buster drug, Enbrel®.3

Despite great success in the corporate environment, Patricia turned her attention to business as she recognized the impact of business decisions on scientific innovation. Many projects Patricia started had been sold out to other companies or cancelled even when there was great scientific promise. Patricia chose a small company that turned out to be in the throes of patent litigation, but even this was actually an opportunity—to experience how important solid patent protection is as a foundation for any biomedical company. Later Patricia rejoined Immunex, in the Law Department, to evaluate technologies and licensing opportunities and become fluent in the language of patent law.

Patricia’s attention turned next to finance, because her own start-up had failed for reasons of finance: although the technology was good and the team was able to do the proof-of-concept research, her business partners failed to find the right mechanism for fundraising. Amgen’s buyout of Immunex (ostensibly for access to potential Enbrel® sales) supported her conclusion that understanding business and finance was her next important step.

Patricia joined the biotech venture team at Vulcan Capital, and was then recruited as the founding Chief Scientific Officer of Homestead Clinical Corporation (now part of Integrated Diagnostics), a biomarker company at the venture-backed incubator, Accelerator Corporation. Three years of participation in the fusion of resources at Accelerator (business, finance, operations, scientific guidance) along with participation in the Kauffman Fellows program inspired a plan to consider similar opportunity development in other settings.

Our paths converged at the bioscience Signature Research Center known as The Oregon Translational Research and Drug Development Institute (OTRADI). Patricia joined as President and Executive Director of OTRADI to establish the entity as a research institute and to facilitate bioscience sector growth in Oregon, including establishment of a bioscience incubator. Carrie was finishing her Master’s degree in Biotechnology when she joined OTRADI, where she has continued under Patricia’s mentorship. After obtaining an undergraduate degree in Biochemistry, Carrie had spent over twenty years working in the environmental engineering/ consulting field. Because of Carrie’s analytical skills, Patricia recruited her to the task of identifying the range of incubator programs in operation throughout the United States and collecting the best practices among them, to aid in developing a model incubator program for Oregon.

Patricia’s career turns have taken her through biology, biotechnology, business, law, and finance—a background that positions her to understand biotechnology business incubators from many perspectives. Carrie brings essential analytical skills, a business consulting background, and a fresh perspective to the task. The rest of this article shares the results of our investigation and analysis, the capstone of which is our plan for an Oregon bioscience incubator, a model program designed to improve the process by which entrepreneurial start-ups are nurtured.

The Bioscience Industry: Potential for Economic Development

Public-private partnerships are critical to the U.S. economy. University technology transfer has evolved to provide an effective and crucial link between the missions of universities and industry that results in both social and economic benefits. Commercializing innovative intellectual property through coupling public research with private industry has had significant positive economic impact, and that impact is expected to continue to grow.

The bioscience industry sector4 is expected to grow faster than any other U.S. private sector over the next several years, resulting in significantly greater employment expansion than the average growth rate for overall U.S. employment.5 Because of its expected growth, the bioscience sector is part of the economic development strategy for many U.S. states.

Bioscience commercialization in particular stands to have a vast effect on economic development, but some regions remain skeptical of “jumping on the bioscience/biotechnology bandwagon.” While some regions maintain established bioscience clusters that attract large shares of funding and several states have managed to develop successful bioscience sectors “from scratch,” other regions are jockeying to identify the most effective approach to develop their bioscience sector to leverage for economic development. Some regions remain resistant to developing a regional bioscience sector and have refuted the potential role of successful bioscience commercialization in regional economic development.

This article presents a summary of the results of our investigation of state and regional bioscience initiatives, particularly incubator programs. First, we describe some of the initiatives that have been most effective throughout the United States. We then examine different models of incubator programs and the evolution of incubator best practices for generating viable businesses. Finally, we describe how those practices can be incorporated using the example of our plan for the Oregon Bioscience Accelerator and Entrepreneur Center (OBAEC), which we offer here as a potential model for successful bioscience commercialization and economic development.

Bioscience Initiatives: Looking Outside the Traditional Hot-Spots

Policies and programs have been instituted at state, regional, or local levels to enhance bioscience sector growth through support of the commercialization of bioscience technology and products. These policies and programs may encourage any or all of the phases in the commercialization process, from supporting innovative researchers and proof-of-concept/translational work, to technology transfer, to development of startup/emerging companies and the overall workforce. The following innovative initiatives have been effective in fueling the bioscience sectors in their respective regions—outside of the “established” bioscience clusters of San Francisco, Boston, and Silicon Valley.

In the early 1980s, the University of Washington (UW) technology transfer office, in partnership with the private Washington Research Foundation, began commercializing its research. UW has recently instituted the Entrepreneur-in-Residence program, which connects UW researchers who have developed technology with commercialization potential to entrepreneurial and business experts. The Washington State Legislature has also created the Life Sciences Discovery Fund, which utilizes $350 million of tobacco-settlement income to invest in life science research and industry development.6 The aim of the initiative is to draw matching private investment to the state for development of the Life Science sectors.

The Kansas Bioscience Authority (KBA) recently awarded $50 million in grants to eight venture capital firms for reinvestment, along with matching funds, back into “high growth potential bioscience companies in Kansas … to gain full-scale commercialization.”7 The Lawrence Regional Life Sciences Incubator, also funded by the KBA, is expected to be operational at the Kansas University (KU) West Campus in 2010. The incubator program will serve to support startup companies using KU research.8

Likely the most impressive bioscience sector development has occurred in Arizona where the road for bioscience expansion was strategically mapped beginning in 2002. Amid the U.S. economic decline of 2008 and 2009, Arizona “achieved notable gains in implementing its long-term plan to develop a thriving bioscience sector” according to a Battelle Technology Partnership Practice report released in January 2010. Bioscience industry employment in Arizona grew by 5.8% in 2008 (latest available statistics) as compared to an overall private sector loss of 3.2%. The initiatives instituted in Arizona included initiation of several bioscience incubator programs, establishment of the Translational Genomics Research Institute (TGen), building a second medical school, creation of AZ BIO5 (UA’s commercialization arm), development of enhanced science and technology educational programs, and creation of a “fund of funds” that will raise and manage up to $200 million for private venture capital investments in early-stage bioscience and technology firms in Arizona.9

Thus, locales outside of the traditionally strong academic bioscience clusters and hubs of deep-seeded venture capital (such as Boston, Silicon Valley, San Francisco, etc.) are having enormous impacts on the growth of the industry nationwide. A creative and resourceful approach to the bioscience start-up economy can have long-reaching economic impacts.

Best Practices Emerging from the Evolution of Business Incubators

As the examples above illustrate, the creation of business “incubator” or “accelerator” programs is a common approach for bioscience sector development; these programs are designed to accelerate the successful development of entrepreneurial companies. Investment in business incubator programs has been shown by the U.S. Department of Commerce’s Economic Development Administration (EDA) to be the most effective among infrastructure projects for overall economic impact and creating jobs in the U.S.10 The data indicate that incubators introduce 20 times more jobs than community infrastructure projects like water and sewer projects, at a cost of $144 to $216 per job (compared with $2,920 to $6,872 for the latter). The approximate investment cost for establishing these jobs ranges from 71% less to 98% less than the cost for “classic” infrastructure development jobs. Therefore, the jobs generated by companies started within an incubation program are long-term, sustainable jobs based on development of human infrastructure and a knowledge economy.

The American Recovery and Reinvestment Act is full of tax cuts and funds for alternative energy and public infrastructure projects; however, the economic stimulus package designed to create or save millions of jobs in our country overlooks business incubators. A critical component of the nation’s entrepreneurial support infrastructure and proven to be significant generators of new jobs, incubators should be at the forefront of discussions about how to jumpstart the economy.

Although most states have instituted initiatives for incubator programs, to date there has been no proven model for success. Elements of earlier models continue to be incorporated into programs in an attempt to optimize the commercialization process. However, some best practices have begun to emerge from the collage of trial-and-error approaches and are described below.

Shared Services

Business incubator programs, originating from the 1950s through the 1980s, historically focused on reducing costs to startup businesses by offering low-rent office space and, as they evolved, shared support services. These basic programs are still in use for up to 90% of incubator programs currently in operation. The “classic” non-profit incubators are often 501(c)(3) registered; funding is achieved via endowments, federal or state grants, donations, universities, and state or local budgets for economic development. A portion of the incubator operating expenses can be acquired by fees to client companies for incubator space or generated by a small equity stake (generally 2-5%) in the client companies.

Shared services may include:

Since the earlier years of real estate-focused programs, incubators progressed to become more professional service-intensive in an effort to streamline daily operations such that the entrepreneurs could focus on building their fledgling companies. These programs now also provide access (often free-of-charge or discounted) to a network of service providers and/or mentors for:

Over time, incubator best practices came to include a focus on business-development services to assist with building the business skills of the entrepreneur clients. These programs range from non-profit business experts (university or local volunteers) coaching or mentoring the entrepreneur clients to full hands-on management of the emergent company, often by investors or other stakeholders. The development services often include:

Business consultants, usually sector-specific, are available to advise the clients in these areas either by dividing time among the incubator’s clients or potentially on a one-on-one basis. These advisors are sometimes students or faculty from the business program at the affiliated university or graduated incubator clients that previously committed to provide mentoring in exchange for incubator services. For venture capital or angel investment-backed incubators, where the risk of capital is directly at stake, the angels or venture capitalists are likely to be involved in direct management of the companies and therefore provide all of the business development services under one roof.

Association with Higher Education or Research Institutions

Most current incubator programs are associated with higher education or research institutions for a source of intellectual property or entrepreneurial talent from which startup companies emerge. Such incubators have been developed by almost every state for the purpose of transferring technology from specific public and private universities. In addition, many higher education and research institutions have established their own incubator programs to teach and facilitate entrepreneurship to their business and technical students. The main focus for institutions is to support their own research and maintain a degree of control of university-developed intellectual property by facilitating startup companies among their own students and faculty. Alternatively, state and local economic development entities have established incubator programs associated with public universities with the goal of creating jobs or diversifying the economy. “For-profit” incubators, on the other hand, (such as those operated by venture capital firms) may seek “deal flow”—investment opportunities—from one or several institutions or even internationally, depending on their affiliations.

The for-profit model presents the most effective relationship between the incubator program and the institutions because of the recognized mutual benefit: the institutional IP is commercialized for the common good, including the economy—without having to utilize public funding—while investors are compensated through potential return-on-investment for their expertise and effort in the commercialization process.

Funding

The greatest variability among incubator programs is likely in the funding mechanisms provided to the client companies. Funding for bioscience startups can be substantial and likely includes capital for: employee salaries; market analysis; lengthy product development; clinical trials, etc. At the simplest end of the spectrum are programs focused on the provision of facilities without any involvement in funding. The most intricate programs, on the other hand, involve direct capital financing and management of the startup companies in exchange for equity in the company. In between is a range of programs from assistance with grant or loan applications to direct grants for seed funding. Other incubators provide access to venture capitalists or other investors by presenting the startups to ad hoc groups of investors such as at meet-and-greet forums. Access to investors may also be arranged among a group of firms with which the incubator regularly networks. The main goal of most non-profit incubators is to add value to the startups, making them attractive for follow-on financing (see Figure 1).

Figure 1. Bioscience Startup Company Growth Stages and Funding Requirements.
Figure 1. Bioscience Startup Company Growth Stages and Funding Requirements.
Battelle Technology Partnership Practice, Technology, Talent and Capital.
 

Direct funding of companies in a venture-capital-backed incubator provides the greatest chance of success for the emerging companies. Again, the for-profit model presents a mutual benefit—recognized by the institutional IP sources, the emergent companies, and the investors—where IP is most effectively commercialized by experts in the production and management of new businesses with little or no outlay of public funds.

Client Acceptance Criteria

Another critical difference between the non-profit and venture-capital-funded incubator models is in the client screening/acceptance criteria. While a non-profit may be compelled to accept entrepreneurial endeavors based on a need for their assistance, the venture-capital-funded incubators are market-driven and therefore naturally inclined to select only those companies possessing the merits for successful commercialization. That is, candidate companies will need to possess potential for high growth, a strong market position, and a sustainable advantage.

Biotechnology Industry Organization Best Practices

This analysis of bioscience incubator program best practices shows that dedicated venture capital funding, intellectual property, and talent sources are critical for the generation of viable businesses. Additionally, the Biotechnology Industry Organization has stated the following complementary best practices for sector development.11

Affiliated universities:

Funding mechanisms:

Talent pool:

Specialized facilities and equipment:

Critical mass of bioscience firms built over many years.

Initiatives and Best Practices Applied to Planning the Oregon Bioscience Accelerator and Entrepreneur Center (OBAEC)

The main goal of any incubator program, regardless of mission (university-based generating technology, organizational economic development, or for-profit) is to maximize the success of emerging companies. The incubator itself must undergo continuous improvement of its incubation process. Best practices have been established over the approximately 30 years since the inception of these programs in technology commercialization and are summarized above.

In this section, we present an overview of our plan for creating a bioscience incubator for Oregon. While this concept was originally part of the OTRADI business plan for state funding in 2007, the analysis we have done suggests OBAEC should be a for-profit entity distinct from OTRADI, which is a non-profit research institute. The most effective incubator programs possess a direct source of venture capital funding in addition to sources of technology and talent. Even naysayers in the utilization of bioscience sector development for economic development agree that “policies to stimulate venture capital and to encourage local entrepreneurship are the most important steps they can take to develop a local cluster.”12 This is precisely what the OBAEC aims to accomplish.

The best practices have been applied to plans for the OBAEC, which is poised to take advantage of infrastructure improvements currently underway in Oregon. A nearly 300,000 square foot interdisciplinary Life Sciences Collaborative Complex is currently being planned for Portland by the Oregon University System (OUS, encompassing Oregon State University, University of Oregon, and Portland State University) and The Oregon Health and Science University (OHSU). This facility, when completed in 2012, will house an expanded OHSU Medical School and allied health programs, as well as interdisciplinary teaching programs for OUS universities for programs such as pharmacy, chemistry, and biochemistry. Collaborative space for multi-department (or multi-university) research projects will also be incorporated along with technology transfer and university commercialization entities. Also incorporated into the building plan is space for OTRADI, the Oregon Clinical Translational Research Institute, and other core shared facilities. The OBAEC, encompassing up to 20,000 square feet for commercial bioscience operations, will be located within this facility.

A solid infrastructure of shared research and teaching enterprises, core laboratories, and offices for start-up companies in close proximity to academic and medical researchers additionally functions as a networking resource for the organizations, allowing the important exchange of ideas for business growth through scientific collaboration. The ability to walk down the hall to discuss a research problem with faculty collaborators or discuss data with technical staff in core research facilities such as OTRADI solidifies the importance of locating a bioscience incubator close to appropriate university resources.

However, research and laboratory infrastructure for bioscience start-up companies is not sufficient to ensure sector growth; therefore, plans for the OBAEC will also offer a dedicated capital source for its start-up bioscience company clients. Additionally, a conceptual management enterprise will assist with financial, operational and project planning for companies within the OBAEC. With a shared management structure, companies can focus their main efforts on de-risking scientific aspects of their technologies, providing proof of concept prototypes, and hitting milestones including moving from pre-clinical assessment to clinical trial planning. With many of these components under one roof, creative discussions will allow economy of resources and expedited planning through collaboration.

Conclusion: Implications of the OBAEC Model for Bioscience Cluster Development

Where venture invests, economic growth and development will ultimately follow. Although the proposed OBAEC model focuses on bioscience business development, the model is also applicable to the technology sector in general or alternative business sectors as well. We anticipate that this model can be used in place of the outdated or “trial and error” programs that exist in many other regions of the United States, creating a streamlined approach that will most effectively and efficiently generate new businesses.

Venture capitalists are loath to make investments for economic development reasons, as ROI is ultimately the key to fund success. Our analysis shows, however, that a collaborative effort (such as the OBAEC) that involves universities, economic development entities, and private venture capital funding will fuel innovation by efficiently and effectively generating successful companies. The development of a successful model for bioscience commercialization has the potential to yield a system with a circular benefit for the universities/institutions, investors/managers, and the regional economy.

Through this model, universities fulfill their educational mission in research and potential for application of the research for the public good; further, universities receive licensing and royalty payments for reinvestment in research and education. Further engagement with universities could include students as interns within the entrepreneur center (e.g., business schools providing students to work with the incubator or start-up companies) gaining important analytical and operational business experiences, or scientific and medical students gaining crucial understanding of translational research and clinical and regulatory aspects of new medical and healthcare advances. Institutional investors receive a potential return on investment and the opportunity to pass on their sector-specific business knowledge while continuously developing more effective processes. The regional economy benefits via diversification and development of the workforce, creation of jobs, human capital and a knowledge economy. In turn, a diversified workforce and new knowledge economy will look to the university system for continued education and development of the human infrastructure—the talent pool—required to sustain the new system.

Implementing variations on this model nationwide (structured to local economic and technological needs) could serve to optimally commercialize technology for the common good while also benefitting local economies. We believe that the great medical breakthroughs of the future, maybe even the cure for cancer, will be developed more rapidly and cost-efficiently through incubators such as this.

Carrie R. Ross

Carrie recently completed a Master’s degree in Biotechnology with a business focus. Although she possessed an undergraduate degree in Biochemistry, she had spent over twenty years working in the environmental engineering/consulting field and the shift to Biotechnology has marked a career change. Carrie is currently providing consulting services to OTRADI and intends to pursue a career in biopharmaceutical regulatory affairs.

M. Patricia BeckmannM. Patricia Beckmann

Current President and Executive Director of OTRADI, Patricia brings an early-stage biotechnology background, both as a scientist and a venture capitalist. Previous firms include Accelerator Corp., Northwest Technology Ventures, Homestead Clinical Corporation, and Vulcan Capital, the investment vehicle for Microsoft cofounder Paul Allen. Patricia spent the majority of her career at Immunex Corp. (now Amgen) in research, administration, and law. She has over 50 scientific publications and more than 35 issued U.S. patents. Patricia holds a BA from The Evergreen State College and a PhD from the University of Arizona.


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1 We have seen some outstanding successes—such as research performed by Dr. Brian Druker, the recent Lasker Award winner at Oregon Health and Science University, who identified Gleevec® (marketed by Novartis for chronic myeloid leukemia and some gastrointestinal tumors).

2 C. R. Ross is an intern at the Oregon Translational Research and Drug Development Institute (OTRADI). M. P. Beckmann is the President and Executive Director of OTRADI and was a Kauffman Fellow in Class 12.

3 For her collaborative role in characterizing tumor necrosis factor receptors and creating a drug now marketed for rheumatoid arthritis, psoriasis, and other indications: Enbrel®, the leading biologic therapeutic in 2009, now sold by Amgen Corporation with annual sales of $7.6B in 2009.

4 Bioscience subsectors by employment composition are 35% research, testing, and medical laboratories; 33% medical devices and equipment; 24% drugs and pharmaceuticals; and 8% agricultural feedstock and chemicals. All sector data from Battelle Technology Partnership Practice, Technology Talent and Capital: State Bioscience Initiatives 2008 (Battelle Memorial Institute, 2008).

5 Battelle Technology Partnership Practice and SSTI, Growing the Nation’s Bioscience Sector: State Bioscience Initiatives 2006 (Battelle Memorial Institute, 2006).

6 Battelle Technology Partnership Practice and SSTI, Growing the Nation’s Bioscience Sector.

7 Maureen Martino, “Kansas Looks to Boost VC with $50M in Funding,” Fierce Biotech (2009, October 9).

8 Chad Lawhorn, “Bioscience Incubator Generates Interest,” Lawrence Journal-World (2008, June 18).

9 Flinn Foundation, “Arizona’s Bioscience Industry Furthers Growth, Progress during Global Recession,” January 12, 2010).

10 Grant Thornton, Construction Grants Program Impact Assessment Report, Volume 1: Report on Investigation and Results (U.S. Department of Commerce, Economic Development Administration, 2008).

11 Battelle Technology Partnership Practice and SSTI, Growing the Nation’s Bioscience Sector.

12 Joseph Cortright and Heike Mayer, Signs of Life: The Growth of Biotechnology Centers in the U.S. (Washington, DC: The Brookings Institution Center on Urban and Metropolitan Policy, 2002).

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