After starting Organovo in 2007, I spent much of the next decade as CEO seeking financing to advance our bioprinting technology.
Because I stepped out of an operational role early last year, I am now in a position of providing financing to aspiring life sciences entrepreneurs. The change has caused me to reflect a bit on the state of finance in biotech and in San Diego biotech particularly.
During the process of arranging early funding for Organovo in 2008-2010, I worked with angels in San Diego, all over the country, and around the world. About 40 percent of my financing at that time came from outside the United States. We decided to found Organovo in San Diego due to its premiere position as a biotech hub, a decision that more than fulfilled my hopes on the operational, partnering, and talent acquisition fronts. I also definitely discovered that capital in San Diego was not as forthcoming as I might have hoped. I think this remains true today, but there’s a lot we can do about it.
First, we should all agree that San Diego is a true biotech and pharma hub. With the exits we have seen here in recent years, that status has been clearly ratified. Cities that haven’t made the cut know it all too painfully as they find larger biotech and pharma companies abandoning them.
San Diego is in the enviable position of not only attracting pharma to acquire and operate companies here, but of successfully enticing pharma executives with many options to stay within our innovation culture. We often see former large pharma execs choosing to stay in town and work for, or start companies here, rather than climb back on the corporate ladder out of town. They come for a job opportunity and stay because we have amazing people in San Diego biotech and an exciting culture of innovation.
Many people ask why San Diego hasn’t organically grown its own large pharma companies and ask if we should be concerned. As the Nobel prize-winning economist Edmund S. Phelps described in his book on innovation, Mass Flourishing, once an economic model is established, already leading companies tend to stay in command of key fields. New companies rise to dominance in new technology areas or where there is significant innovative disruption. Consider that the most successful independent San Diego life science company, Illumina, rose to dominance in the emergent field of genomic sequencing. In terms of big pharma, San Diego simply wasn’t “present at the creation.”
San Diego did have one dominant player among the crop of true biotech companies created during the 1990s—Idec Pharmaceuticals. But Idec’s 2003 merger with peer Biogen eventually led to a consolidation that ended the company’s presence in San Diego.
In general, new large and dominant players in pharma only came into being when they took distinct approaches outside the risk profile for a traditional pharma company. Celgene developed new uses for thalidomide, a drug widely considered unsafe based on its previous history. Gilead developed therapies for HIV that were considered difficult and politically unattractive by large pharma. Companies that develop therapies under typical conditions are almost always going to be vacuumed up—and this has been a stimulus to San Diego innovation, not a mark against it. It can continue to be so in the future.
San Diego has a strong history of capital availability driving the emergence of San Diego as a hub in the decades after the initial Hybritech exit stimulus. Since then, local private capital has waxed and waned, and today it remains below critical mass. However, a wave of recent exits presents an opportunity for a new wave of capital reinvestment and long-term growth and success.
As I mentioned, I struggled to find angel capital in town a decade ago, and raised most of the money from outside San Diego. Entrepreneurs that I have financed in the last 12 months have similarly found themselves getting modest results locally, and that getting on a lot of planes is necessary.
We need to get to a point where a seasoned team with a sound business plan doesn’t face significant obstacles to raise a reasonable seed round, and where a successful company headed for a Series A round with a sound opportunity has a more modest travel schedule in order to close it. That is the funding situation in larger biotech hubs, and due to the recent exits for local companies, the power lies in local hands to foster such an environment here. However, those with the capital to invest have to choose to take the opportunity to do so, those who know them have to encourage them to do so, and we all have to work to lower the activation energy required for each investment. That means facilitating introductions and conversations, but also helping both investors and entrepreneurs in the work they have to do to get to an investment.
A lot of progress has been made of late in excellent innovation economies like San Diego’s by lubricating the path for startups to flourish. San Diego has research, medical facilities, scientists and companies that are world leaders in providing technologies to commercialize. San Diego’s biotech infrastructure excels at providing incubator and wet lab facilities, providing necessary professional services in a flexible model, and other key elements that grease the skids. But the core of driving innovation success is and will always be capital.
The seeds of San Diego biotech were sown long ago by highly active local reinvestment of entrepreneurial takings. If our successful entrepreneurs invest in seed stage companies and in venture funds, our economy can grow. If those entrepreneurs instead invest in traditional assets or put their funds in the hands of low-risk money managers, we’ll grow more slowly. We have generous and well-known philanthropists in town providing fuel to seed research, but who will emerge as well-known capitalists stepping up to fund companies? San Diego can grow exponentially from its enviable biotech leadership position—but it will grow fastest when capital is ample rather than merely achievable.