SF’s Prescience Sharpens New Biotech Business Model in San Diego

Xconomy San Diego — 

[Updated 12/12/11 11:20 am to clarify terms for startups. See below.] After spending much of her career in the tech sector, Melinda Richter has been pondering a provocative question for the life sciences industry.

“Billionaires are a dime a dozen in tech,” she says, “but it’s hard to find an entrepreneur in the life sciences who is a billionaire. I can’t think of a single small biotech company CEO who became a billionaire.”

Richter says she founded San Francisco-based Prescience International at least partly with the hope of addressing such inequities. Prescience helps start and manage life sciences incubators, institutes, and other research centers.

Melinda Richter

Mostly, though, Richter says she wants to make it possible for life sciences entrepreneurs to take advantage of the sort of low operating costs that make it so easy for a handful of tech entrepreneurs to start a Web 2.0 company with a few hundred thousand bucks. It’s that kind of minimal capital requirement that can enable biotech entrepreneurs to prove their concept, giving them something more than a business plan when they seek venture funding. The low-cost model might even help entrepreneurs hold onto a bigger ownership stake in their startups.

“You look at these IT companies,” she says. “You give a couple of guys a couple hundred thousand, and after a couple of months they’ve got a new iPhone app and they’re ready for business. But it’s not curing cancer or HIV.”

So Richter was on the ground floor, so to speak, as executive director when the San Jose Redevelopment Agency spent $6.5 million to start the San Jose BioCenter, a life sciences incubator that opened in 2004. The BioCenter officially hired Prescience to manage the facility in 2005, and Prescience took over management of a cleantech incubator, the San Jose Environmental Business Cluster, in 2009.

Now Prescience is in San Diego. Johnson & Johnson has hired Richter’s firm to manage the incubator it has been creating at its San Diego R&D facility, now known as the Janssen Labs at San Diego. Under a plan unveiled in October, J&J plans to host 18 to 20 startups at its new innovation center, which has various size wet labs and offices for individual companies, and common areas for shared use. Janssen Labs has emphasized that space in its innovation center comes with no strings attached. The startups that enroll will not be required to give up an equity stake or intellectual property rights. They simply have to pay a monthly fee under a 90-day lease agreement.

When we met recently, Richter told me she got into the business partly for personal reasons.

After graduating from the University of Saskatchewan (she is a Canadian), Richter joined Nortel Networks, where she says she spent more than eight years on a fast-track executive program that took her to corporate posts in the United States, Europe (she got her MBA in France), Latin America, and China.

While in China, however, Richter had what you might call a life-altering experience. She says she got very sick and was hospitalized somewhere between Beijing and Hong Kong for two to three months. “They knew I had meningitis, but they couldn’t figure out what else I had,” she recalls. “They said they didn’t think I was going to make it.”

Richter remembers thinking, “How can we send men to the moon but not be able to figure out what’s wrong with me?”

Her eventual recovery prompted Richter to think about how she wanted to spend the rest of her life. During her years at Nortel, Richter says she was involved with acquisitions, strategic planning, marketing, contract negotiations, engineering and manufacturing optimization, and general management of an IT business. And she remembers thinking, “I am not a scientist, but I am a good businesswoman. There must be a better way, a way to this [to advance new medical discoveries] that is faster, cheaper, and easier.”

With her management of the San Jose BioCenter, Richter began to develop a new model by assuming responsibility for the business operations of all the life sciences startups in the incubator. “Let’s tell these founders, ‘Hey, you’re a scientist. You should just focus on the science, because all the other stuff is just a commodity service, and we’re really good at it.”

When a group of scientific entrepreneurs decide to build a life sciences startup, Richter says they typically find that there’s no such thing as a small commercial space. They usually have to sign a long-term lease for far more laboratory space than they really need. Then they have to go shopping for all the equipment they’ll need—laboratory supplies, biosafety hoods, refrigerators, centrifuges. And then there are all the specialized needs, such as finding a source of reverse osmosis de-ionized water.

Richter says Prescience takes on these business tasks and more. After flooding from a chemistry lab inundated a small startup’s space in the San Jose BioCenter, Richter says Prescience moved the company into another suite and took over the cleanup and lab re-certification process.

“When you look at all these pieces, you can see why it takes a lot of time and a lot of money,” Richter says.

One San Diego startup CEO, G. Sridhar Prasad of CalAsia Pharmaceuticals, tells me, “The overall concept is excellent and will be extremely beneficial for startups that have deep pockets to start with.”

But Prasad says he worries the rent would be too steep for an early stage startup like his, which depends on grants from the National Institutes of Health. He says he also frets about keeping his proprietary information confidential in an incubator’s shared work spaces, and about the experience and qualifications of firms hired to operate sophisticated biomedical instruments.

[Updated to clarify terms.] Richter says she did not address pricing during a December 1 presentation at Janssen Labs. While Prescience has not yet disclosed pricing for the San Diego incubator, Richter says the firm has been developing a series of package prices that are intended to be affordable for life sciences startups, depending on the space and scientific needs of each company.  She also says Janssen Labs has a variety of safe and secure spaces to accommodate companies of varying sizes, so that companies can keep their confidential data and intellectual property secure. As part of Janssen Labs standard operating procedures, she says company employees must be trained to use the common area equipment, or they must use technicians with that expertise.

“Early stage funding in general has been taking a hit, and the life sciences in particular,” Richter says. “Because life science is so risky, a lot of venture capital has pulled out, but now you have different business models coming out. It’s changing the dynamic.”

In the meantime, Richter says she’s working to apply some of her experience in San Jose to help get the Janssen Lab incubator ready to open by next month. She also says she is encouraged by the life science sector’s “cohesive and collaborative community” in San Diego. “We just need to make these investments look a lot more attractive to VCs,” she says, “and to get everybody to beef up their activity in this area again.”

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2 responses to “SF’s Prescience Sharpens New Biotech Business Model in San Diego”

  1. Scott Struthers says:

    This is a major step forward for the San Diego Biotech community.
    We all owe J&J our thanks for making this contribution.
    With over 300 people showing up to last weeks San Diego Entrepreneurs Exchange to hear about the new incubator and our other panelists, obviously this is something of great interest to local entrepreneurs.
    Anything that reduces capital barriers to asking scientific questions will help young companies grow and rebuild our economy.

  2. 300 people attended the last SDEE event “Being Fundable and Getting Funded”. The evening started with an overview of the incubator model that J&J is proposing, by Diego Miralles (J & J, San Diego site head) and Melinda Richter (Prescience). This is the first life science incubator in San Diego to offer short term access to a fully equipped facility, with an operations team in place. In an incubator, life science companies can get started quickly, and focus on advancing the company’s science and products, without the expense of independently operating a facility. The incubator model is becoming essential for start-ups in today’s economic climate, and the Janssen Research Laboriories will be a great asset for San Diego entrepreneurs.