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Are Universities Creating Too Many Biotech Startups?

Opinion

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biotech hubs are hubs for reasons.

Discussing factors correlated with success or failure in drug development in Does size matter in R&D productivity? If not, what does?, Michael Ringel of The Boston Consulting Group and colleagues noted, “There was also a significant correlation with success when the company has a major R&D facility present in a science hub—a factor that we believe improves scientific acumen by providing better access to internal talent and to networks for collaboration.”

“Recruiting talented senior management is strongly linked to the success of biotechnology companies,” stated a 2003 paper by Monica Higgins and Ranjay Gulati.

“University spin-offs that receive venture capital funding have a 20% to 26% higher likelihood of commercialization compared with spin-offs that do not,” according to a paper by Christopher Hayter.

As reported in The A-List: The Trend-Shaping Series A Financings Of 2013, the average size of a biopharma Series A was $18 million per company.  How many of the 2012 university biotech startups outside the major hubs will get close to that Series A dollar figure?  If they aren’t getting to that level, are they behind the curve?  Is everyone competing for investment from Jonathan Behr and Phil Murray’s In search of dry powder list?  Alternatively, can university biotech startups outside the major hubs make it with angels and/or other funding sources such as federal Small Business Innovation Research (SBIR) awards? Or are they just at too great of a disadvantage in raising money and recruiting people?

Are universities creating too many life science startups?  Perhaps.

All of which, in my opinion, advocates for a version of Atlas Venture’s seed-led model at universities; de-risk, then scale your winners.  But maybe—probably—consider scaling them in an appropriate hub where it can get the money and the people it needs to grow.

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Andrew Steen is the vice president of business development for Metacyte Business Lab, a for-profit unit of the University of Louisville Foundation that seeks to stimulate life science startup activity. Follow @steen1969

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4 responses to “Are Universities Creating Too Many Biotech Startups?”

  1. scientre says:

    Nice write up Andrew.
    You advocate for universities to de-risk and then scale winners yet also note that talented senior management is strongly linked to success of biotech companies.
    Do have any thoughts you can share on how to structure (and fund) such an de-risking program within the confines of a university?

  2. Kentucky BioAlliance says:

    Great article, Andrew. Do you suppose that the “extra 23” startups are the results of working with averages? I’d be surprised if the number did NOT vary slightly either way from the “expected” number.

  3. Cheryl Vickroy says:

    Very thoughtful and thought provoking – thanks Andrew. Does this beg for a more ‘virtual approach’ in which industry also plays a role? NIH is taking a step in this direction w/ their centralized Accelerators of Innovation. Much work remains to be done but bright minds are working on this issue!

  4. Shawn Guse says:

    Good discussion to have, Andrew. Many technologies are developed at universities, but should universities be geared to pick winners and losers? And what, if anything, does our national research and commercialization ecosystem lose if our biggest scientific thinkers are worried about de-risking their work? I’d argue that problems with reproducibility of published research (see: http://www.economist.com/news/briefing/21588057-scientists-think-science-self-correcting-alarming-degree-it-not-trouble) is a far more confounding problem for our startup community than than lack of commercial expertise within universities. Developing commercial competencies within universities is a high-risk startup project; strengthening research and publication rigor is much lower-risk, process improvement.