Starting A Biotech Company Ken Bost, Ph. D Starting A Biotech Company Ken Bost, Ph.D. UNCC Belk Professor of Biology Chief Scientific Officer, SoyMeds, Inc.

Is a good idea enough?

Transgenic soybean seeds as a protein expression system1 Kenneth L. Bost Kenneth J. Piller UNC-Charlotte & SoyMeds, Inc. 1Bost KL, Piller KJ. Protein Expression Systems: Why Soybean Seeds? In: Sudaric A, ed. Soybean-Molecular Aspects of Breeding: InTech; 2011, pp. 3-18. http://www.intechopen.com/articles/show/title/protein-expression-systems-why-soybean-seeds-

Expressing Proteins in Transgenic Soybean Seeds Harvest transgenic seeds containing proteins Synthesize genes to express proteins Regenerate transgenic soybean plants which express proteins Formulate seeds into therapies or purify the protein Splice genes into soybean host DNA

Recombinant Protein Production using Mammalian Cell Culture: Transformation & Selection Wurm, Nat. Biotech. 22:1394, 2004

Recombinant Protein Production using Transgenic Soybean Seeds: Transformation & Selection Gene transfer Screen & Harvest T1 lines T2 lines Select Harvest Screen Harvest T1 seeds T3 seeds T0 lines Minimum 18 months

Why Soybean Seeds? 40 % protein in each seed Millions of doses per greenhouse acre (containment, cost) No cold chain with long term storage capability Purification of protein not necessarily required (safety) Ease of purification from seeds when required (cost, speed) Separation of production & purification in manufacturing Oral delivery (safety, needleless) Cost (less than 0.001 cents per dose)

Transgenic Soybean Seeds: Which proteins to target? Large proteins difficult to express (e.g. Thyroglobulin) Proteins needed in large quantity to be effective (e.g. tolerogens) Proteins coming off patent (e.g. erythropoietin) Proteins rarely needed (e.g. bioterrorism vaccines) Proteins used in routine diagnostic assays Proteins which are currently being isolated from tissues Proteins for use in third world (e.g. no cold chain) Cheap proteins for agricultural or environmental use

Formulating Soybean-derived Oral Tolerogen

Recombinant Protein Manufacturing The Process is the Product !

Starting A Biotech Company WHAT? WHY? WHO? WHEN? WHERE? HOW?

The WHAT: Is a good idea enough? Amgen Values “First, Be Science Based: Our success depends on superior scientific innovation, integrity, and continuous improvement in all aspects of business through the application of the scientific method.” Binder, Science Lessons, 2008

The WHY: Why Start a Biotech Company? “Businessmen and financiers will tell you the correct answer is: To Make Money……..” “The challenge arises when you realize that one of those tangents is worth pursuing for a longer, straighter direction than the others, and you realize that your university, medical center, or foundation can only take you so far……” “In the world of biotechnology entrepreneurship, you have got to be able to convince yourself and others that there is a pot of gold at the end of this particular rainbow.” Biotechnology Entrepreneurship by Michael Salgaller, Logos Press, 2010

Expressing Proteins in Transgenic Soybean Seeds Why did we start SoyMeds ? Harvest transgenic seeds containing proteins Synthesize genes to express proteins Regenerate transgenic soybean plants which express proteins Formulate seeds into therapies or purify the protein Splice genes into soybean host DNA

The WHO: Your Role in a Biotech Start-up Stay at present position part-time with company Go full time in company CEO, CSO, etc. License technology to another company Serve on Board of Directors Serve on Board of Scientific Advisors Consultant

The WHEN & WHERE: When and where did you have your idea? When you had your great idea, where were you employed? Ownership often lies with your employer, including universities and companies. So…if have an idea for starting a biotech company, you may already have a partner. owns my brain !!!

Expressing Proteins in Transgenic Soybean Seeds Conflict of Interest: UNCC & SoyMeds ? Harvest transgenic seeds containing proteins Synthesize genes to express proteins Regenerate transgenic soybean plants which express proteins Formulate seeds into therapies or purify the protein Splice genes into soybean host DNA

The HOW: Business before Science “Scientists have a reputation for failing to appreciate the difference between a science, a technology, a product, and a company...” “To be true entrepreneurs, scientists must learn to put business ahead of science when developing a commercialization strategy.” Kolchinsky, The Entrepreneur’s Guide to a Biotech Startup

Starting A Biotech Company: "the first month" Do you have what it takes? Management? Who will be your first employee? Incorporating the company Issue Stock? Agreements? Board of Directors

Do you have what it takes. What makes a biotech start-up entrepreneur Do you have what it takes? What makes a biotech start-up entrepreneur? "creating an economic organization under conditions of risk" "a person that understands marketing, financial, business, tech & science" Confidence Perseverance Able to wear multiple hats Stand tall in the face of criticism, yet be humble Decisiveness Able to advertise yourself and product Be able to leave your “comfort zone”; Adaptability Be able to manage risk at many levels Be a problem solver and negotiator at many levels Good Communication skills (Listening skills) Evaluate the advice you receive

Do you have what it takes. What makes a biotech start-up entrepreneur Do you have what it takes? What makes a biotech start-up entrepreneur? "creating an economic organization under conditions of risk" "a person that understands marketing, financial, business, tech & science"

Expressing Proteins in Transgenic Soybean Seeds Do the “two Kens” have what it takes to be entrepreneurs? Harvest transgenic seeds containing proteins Synthesize genes to express proteins Regenerate transgenic soybean plants which express proteins Formulate seeds into therapies or purify the protein Splice genes into soybean host DNA

Self-tests for being an Entrepreneur I don't like being told what to do by people who are less capable than I am. I like challenging myself. I like to win. I like being my own boss. I always look for new and better ways to do things. I like to question conventional wisdom. I like to get people together in order to get things done. People get excited by my ideas. I am rarely satisfied or complacent. I can't sit still. I can usually work my way out of a difficult situation. I would rather fail at my own thing than succeed at someone else's. Whenever there is a problem, I am ready to jump right in. I think old dogs can learn — even invent — new tricks. Members of my family run their own businesses. I have friends who run their own businesses. I worked after school and during vacations when I was growing up. I get an adrenaline rush from selling things. I am exhilarated by achieving results. (Traits not on the list: I like to take risks. I want to get rich. )

Do you have what it takes?

Company Management: Possible Biotech Management Positions CEO: Chief Executive Officer Final authority; reports to board COO: Chief Operating Officer Operations CFO: Chief Financial Officer Finance CMO: Chief Marketing Officer Marketing, Sales, Business Development CTO: Chief Technical Officer Often in engineering Chief Scientific Officer Often in biotech

Company Management: Possible Biotech Management Positions Must haves: CEO or COO to head company CSO or CTO to direct science or technology Board of Directors Necessary haves: Financial or Business person part-time or full time (CFO) Scientific Advisory Board (at some point) Nobel, Teaching a Lean Start-up, 2010

Who will be your first employeee Who will be your first employeee? Find a good Attroney (s) “The first hire” Corporate Law Business law practice specializing in start-up biotech, taxes Patent Law Intellectual property (IP), patent filings, patent litigation Securities Law Raising capital, complying with security laws Regulatory Law e.g. FDA-knowledgeable attorney

Who will be your second employee Who will be your second employee? Find a good accountant (s) “The second hire” Government Specialist Government does accounting in their own way Angel, VC Specialist May be suggested by your investors

Expressing Proteins in Transgenic Soybean Seeds SoyMeds Corporate Structure ? Harvest transgenic seeds containing proteins Synthesize genes to express proteins Regenerate transgenic soybean plants which express proteins Formulate seeds into therapies or purify the protein Splice genes into soybean host DNA

Incorporating the Company (in Delware!) C-Corporation (C-corp) Most biotech’s will end up this way because VC funding will require it, but don’t necessarily need to start this way Exit strategies require C-corp Taxed on profits and taxed on dividends S-Corporation (S-corp) No income tax at the entity level Limited Liability Corporation (LLC)

Other initial tasks Issue stock immediately Agreements Common stock, Preferred stock, Founders stock, etc. Agreements Founder’s agreement Non-disclosure agreement Invention assignment agreement Non-compete agreement Employment agreement Directors & Officers Insurance Establish a Board of Directors Set up a Scientific Advisory Board (at some point) Set up a Clinical Advisory Board (at some point)

Starting A Biotech Company: "the first month" Do you have what it takes? Management? Who will be your first employee? Incorporating the company Issue Stock? Agreements? Board of Directors Congratulations!! You have a “Virtual Company!!”

Starting A Biotech Company: Congratulations Starting A Biotech Company: Congratulations!! You have a “Virtual Company!!” Our first meeting will come to order! Do I hear a motion to increase our salaries? "How do you become a REAL company?"

Starting A Biotech Company: "How do you become a REAL company" What do you have to sell? What is the product? Is there IP protection? (Freedom to Operate) Is there a market? Is there a Business Model for generating profit? Does management have the skills to implement the business plan? How to finance?

Starting A Biotech Company: 1) What do you have to sell? Pharmaceuticals Small molecule drugs Biologics Gene Therapy Diagnostics Analyte Specific Reagents Kits, Assays, & Tests Devices & Instruments Bioinformatics Genomics & Proteomics Personalized Medicine Laboratory Services

Expressing Proteins in Transgenic Soybean Seeds What does SoyMeds have to sell ? Harvest transgenic seeds containing proteins Synthesize genes to express proteins Regenerate transgenic soybean plants which express proteins Formulate seeds into therapies or purify the protein Splice genes into soybean host DNA

Starting a Biotech Company: 2) Is there IP (Intellectual Property) protection? The cumulative know-how to making a product Patents 20 years from date of filing Trade Secrets known by only certain individuals Trademarks Identifies and distinguishes the product of one party from another

Starting A Biotech Company: 2) Is there IP protection? Novelty New Not previously disclosed No prior art Non-obviousness Not obvious to someone skilled in the art Utility Has some useful purpose Enablement Some proof that it works

Who will be your first employeee? Find a good Attroney (s) Corporate Law Business law practice specializing in start-up biotech, taxes Patent Law Intellectual property (IP), patent filings, patent litigation Securities Law Raising capital, complying with security laws Regulatory Law e.g. FDA-knowledgeable attorney

Prior Art (Novelty) Are there prior patents which describe (mention) part of your invention? Are their publications that describe part of your invention? Did you disclose any aspect of your invention in a manuscript, grant application, talk , poster session, etc. before filing your patent application?

Types of Patents? Regular (Non-provisional) Provisional International Submission of all required information supporting the novelty, etc. First office action: non-final rejection of the patent Provisional Remains pending for 12 months, then regular patent must be filed Protection one year earlier; 20 years starts with regular patent filing Have 12 more months to provide additional data Cheaper to file than regular patent International Protection of product outside home country filing Patent Cooperation Treaty (PCT) filing, then file with individual countries

U.S. Patent Office

Patent Searches: Search Issued Patents Search Patent Applications A good place to start Search Issued Patents Search Patent Applications Websites: USPTO patent search Google patent search Free Patents Online

2) Is there IP (Intellectual Property) protection?

Starting a Biotech Company: 2) Is there IP (Intellectual Property) protection? Non-obviousness cannot be a logical extension of others’ work that someone “skilled in the art” would deem obvious. Enablement some proof that it works data precisely described method prototype

The WHEN & WHERE: When and where did you have your idea? When you had your great idea, where were you employed? Ownership often lies with your employer, including universities and companies. So…if have an idea for starting a biotech company, you may already have a partner. owns my brain !!!

Starting A Biotech Company: 2) Is there IP protection Starting A Biotech Company: 2) Is there IP protection? Freedom to Operate? Freedom to operate (FTO) opinion costs can be quite high ($$$ tens of thousands ) In addition to Patents, such an analysis demonstrates there are no unforeseen risks or prior art. Are you willing to defend your patents?

Starting A Biotech Company: 2) Is there IP protection? Novelty Non-obviousness Utility Enablement “New Patenting Rules” America Invents Act 2011 “First to File” versus “First to Invent” Method for determining priority of patent apps

Expressing Proteins in Transgenic Soybean Seeds SoyMeds patenting experiences ! Harvest transgenic seeds containing proteins Synthesize genes to express proteins Regenerate transgenic soybean plants which express proteins Formulate seeds into therapies or purify the protein Splice genes into soybean host DNA

Starting A Biotech Company Ken Bost, Ph. D Starting A Biotech Company Ken Bost, Ph.D. UNCC Belk Professor of Biology Chief Scientific Officer, SoyMeds, Inc. QUESTIONS ? BREAK!

Starting A Biotech Company: 3) Is there a market? (Market share) What do real customers want? Total annual sales for a market, factoring in: Competition Market Share Price of product Comparables Sales force Growth rate of market Switching frequency (customer loyalty)

Starting A Biotech Company: 4) Is there a clear Business Model for generating profit? Matching business with product & company Market Demand Market pull vs push Management Leadership Scientific Team Estimation of Risks Regulatory hurdles

The Business Model: Does business model match product The Business Model: Does business model match product? “A goal without a plan is a Wish” Fully Integrated Pharmaceutical Company We do it all. R&D to product positioning & Marketing e.g. bio-based drugs Drug Repositioning Model e.g. moving a “shelved” drug forward Molecular Testing Model with Platform Instruments e.g. Diagnostics Virtual Company (outsource almost everything) Limit what is done in house & farm everything else out Contract Services Perform tasks on a fee-for-service basis

Product Development Stages THERAPEUTIC Research & Development In vitro Testing Lead/Process optimization Pre-clinical testing (animals) Clinical Testing (Phase I,II,III) Regulatory review Scale-up Manufacturing Marketing & Growth DIAGNOSTICS/DEVICE Research & Development Proof of concept Prototype Development Clinical Validation Regulatory Review Scale-up Manufacturing Marketing & Growth 3 - 5 years 10- 15 years

Drug Development Timeline 10- 15 years Research Early Development Full Development Life Cycle Management Discovery Phase Candidate Profiling Phase Pre- clinical Phase Clinical Trials Phase 1 Phase IIa Phase IIb Phase III Phase IV CSP sPoC DDP FDP 3CP SDP Proof of Concept Selected for Development Point Full Selection Point Candidate Development Decision Point Decision Point Submission Checkpoint Phase III IND – Investigational New Drug NDA – New Drug Application

In Vitro Diagnostic (IVD) Development Timeline 3 - 5 years 7% Annual Growth

Expressing Proteins in Transgenic Soybean Seeds SoyMeds Business Models: Diagnostics & Therapeutics Harvest transgenic seeds containing proteins Synthesize genes to express proteins Regenerate transgenic soybean plants which express proteins Formulate seeds into therapies or purify the protein Splice genes into soybean host DNA

The Business Model: Managing Risks “One definition for building a biotech company” Market Demand, Positioning, Barriers to Entry Management Leadership, Capability, Past Success Technology Robustness, Applicability, Scientific Team Regulatory Hurdles Financial Sustainability

The Business Model: Market Demand, Positioning, Barriers to Entry What is the proof of market demand? Is the marketing strategy sound and/or optimal? Will size of market sustain product commercialization? Who are competitors? Moving toward or away? How much of the market will be captured? What is the planned distribution channel?

The Business Model: Management, Board of Directors, Scientific Advisory Board Does the structure of the Leadership team fit the Business Model? Does the Board of Directors support the needs of the Business Model? Will the Scientific Advisory Board contribute to the goals of the Business Model?

The Business Model: Technology, Applicability, Scientific Team How innovative is the technology? What do others in the field have to say? Does the company have top scientific leaders? Acceptance of the technology? Papers? Grants? Intellectual property? Freedom to operate opinion? What are the potential products? Core technologies?

The Business Model: Regulatory Hurdles Can the team define the time for regulatory approval? What are the risks for this type of product? Has the company had direct contact with agency? Are regulations for this type of product laid out? Are there undefined impending regulations? Does the company have expertise & a regulatory strategy?

The Business Model: Business Plan Content Mission Statement Opportunity: Can you succeed? The Technology Business Model Competition? Intellectual Property Exit Strategies Company people Financials (revenue, etc.) Executive summary (you have two pages!)

The Business Model: Managing Risks “One definition for building a biotech company” Market Demand, Positioning, Barriers to Entry Management Leadership, Capability, Past Success Technology Robustness, Applicability, Scientific Team Regulatory Hurdles Financial Sustainability

Starting A Biotech Company: 5) Does Management have skills to implement plan? Is CEO experienced? How seasoned is the team? Who has previous experience? Are there gaps in the management team? Can the management team execute the business plan?

Expressing Proteins in Transgenic Soybean Seeds SoyMeds Management Evaulation Harvest transgenic seeds containing proteins Synthesize genes to express proteins Regenerate transgenic soybean plants which express proteins Formulate seeds into therapies or purify the protein Splice genes into soybean host DNA

Starting A Biotech Company: 6) How to finance a start-up company? Getting Started Money Incorporation, etc. Money for R&D Burn rate? Employees? Money for administration, record keeping, software, etc. Attorney Fees Patent, Corporate, etc. Boards (B of D, SAB) Regulatory Agencies Travel

Funding a Biotech Start-up Dumb Money Founders, Family, Friends, (Fool’s) Smart Money (dilutive capital) Individual Angels or Angel Funds Seed Stage Venture Capitalists (VCs), Full VCs, or VC Groups Private Equity (e.g. Banks) Public Equity (e.g. Initial Public Offering, IPO) Partnerships Smart Money(Non-dilutive capital) SBIR or STTR grants Not for Profit Foundations (e.g. Gates, Cystic Fibrosis Fnd) State Funding or Matching

Funding a Biotech Start-up Dumb Money: Founders, Family, Friends (Fools) (F3) Founder Financing Investing your own money in your company does not necessarily mean much to future investors However, it might be necessary for you to put a little money upfront to form the company, get the corporate documents, etc. “Never take F3 monies that you cannot afford to lose.”

Funding a Biotech Start-up Smart Money: Angels and Angel Funds High net worth individuals or groups of these persons Early stage investments R&D Feasibility, Prototype Preclinical (animal studies) $25,000 to $5,000,000 Want a percentage of the company, though not as much as VCs How do you find Angels? Networking!!

Funding a Biotech Start-up Smart Money: SBIR and STTR grants Government grants State Grants e.g. NCBC Not-For-Profit Grants Gates, WHO, NMSS, etc. Non-dilutive capital Early stage funding R&D Feasibility, Prototype Preclinical (animal studies) $50,000 to $1,500,000

Funding a Biotech Start-up Smart Money: SBIR and STTR grants Non-Dilutive & Bayh-Dole Act SMALL BUSINESS INNOVATION RESEARCH (SBIR) PROGRAM (R43 & R44) 2.5% set aside Allows partners: up to 33% Phase I & 50% Phase II PI must have >50% employment with company SMALL BUSINESS TECHNOLOGY TRANSFER (STTR) PROGRAM (R41 & R42) 0.3% set aside Requires University partner: at least 30% PI can be employed by partner or small business

Funding a Biotech Start-up Smart Money: SBIR and STTR grants DOD SBIR/STTR $1.31 HHS SBIR/STTR $0.72 NASA SBIR/STTR $0.14 DOE SBIR/STTR $0.16 NSF SBIR/STTR $0.12 DHS SBIR $0.02 USDA SBIR $0.02 DOC SBIR $0.01 ED SBIR $0.01 EPA SBIR $0.01 DOT SBIR $0.01 TOTAL (2009) $2.4 Billion

Funding a Biotech Start-up Smart Money: SBIR and STTR grants $100,000- $300,000 0.5 - 2 years Valley of Death $300,000 – $1,500,000 1-3 years Mt. “FDA” ??????? Phase I SBIR/STTR Phase II SBIR/STTR (Phase IIB) Commercialization

Expressing Proteins in Transgenic Soybean Seeds SoyMeds Company Financing Harvest transgenic seeds containing proteins Synthesize genes to express proteins Regenerate transgenic soybean plants which express proteins Formulate seeds into therapies or purify the protein Splice genes into soybean host DNA

Funding a Biotech Start-up Smart Money: SBIR and STTR grants R41-R42 and R43-R44 Standard STTR and SBIR grants New Funding Mechanisms RC3 (RFA-OD-09-008) SBIRs masquerading as RO1s (RFA AI-11-014) Collaborations between USDA & NIH (PAR-10-276) X01 (PAR-12-092) NIH Translational Res. Ctr. (NCATS) http://ncats.nih.gov/

Funding a Biotech Start-up Smart Money: VCs and VC Funds Investment on behalf of others; Managed Later staged investments Clinical Trials (Phase I, II, III) Take to Market Finalize manufacturing Want 1) a percentage of the company, usually significant; 2) to be involved VCs should be a partner How do you find VCs? Networking!!

Funding a Biotech Start-up Smart Money: Private Equity, Investment Banking Difficult to distinguish from VC and VC funds Investment on behalf of others; Managed Later staged investments Want 1) a percentage of the company, usually significant; 2) to be involved Should be a partner

Financing Sustainability What is the potential for continued funding? Is business a good candidate for VC funding? What is the exit strategy for the company? Public offering (IPO) Merger or Acquisition How much cash on hand and how long will it last? (burn rate) Who has invested (Angel, VC, Founders, etc.)? What is total amount of money needed to reach the market?

Starting A Biotech Company WHAT? WHY? WHO? WHEN? WHERE? HOW?

Starting A Biotech Company: "the first month" Do you have what it takes? Management? Who will be your first employee? Incorporating the company Issue Stock? Agreements? Board of Directors Congratulations!! You have a “Virtual Company!!”

Starting A Biotech Company: "How do you become a REAL company" What do you have to sell? What is the product? Is there IP protection? (Freedom to Operate) Is there a market? Is there a Business Model for generating profit? Does management have the skills to implement the business plan? How to finance?

“A goal without a plan is a wish” Starting A Biotech Company Ken Bost, Ph.D. UNCC Belk Professor of Biology Chief Scientific Officer, SoyMeds, Inc. “A goal without a plan is a wish” “The goal is achievable, but without planning and preparation, it might never be realized. One of your first goals is to learn more about the business of biotechnology entrepreneurship.” Biotechnology Entrepreneurship, Michael Salgaller, 2010, Logos Press.

Starting A Biotech Company Ken Bost, Ph. D Starting A Biotech Company Ken Bost, Ph.D. UNCC Belk Professor of Biology Chief Scientific Officer, SoyMeds, Inc. Resources: The Business of Bioscience, Craig Shimasaki, Springer, 2009 ISBN: 978-1-4419-0063-0 Biotechnology Entrepreneurship, Michael Salgaller, Logos Press, 2010 ISBN: 978-1-934899-14-4 Science Lessons, Gordon Binder, Harvard Business Press, 2008 ISBN: 978-1-59139-861-5

Starting A Biotech Company Ken Bost, Ph. D Starting A Biotech Company Ken Bost, Ph.D. UNCC Belk Professor of Biology Chief Scientific Officer, SoyMeds, Inc. QUESTIONS ?