Merck, J&J Back Stanford Student Incubator as Innovation Farm Team

Xconomy San Francisco — 

A veteran biotechnology reporter once complained privately that covering the industry was like watching grass grow—companies seemed to inch by slow degrees toward products and profits, sustained by a dwindling stream of funding.

For an antidote to that dreary picture, consider the swift developments at StartX Med, a life sciences accelerator program founded by Stanford University students in 2012. It’s a health care-oriented offshoot of StartX, the original student-initiated incubator program for researchers and others affiliated with Stanford.

The 25 startup companies that have passed through StartX Med’s two accelerator classes over the past year have raised a total of $81 million, and one company, Gauss Surgical, has scored FDA clearance to market a medical device, says StartX Med co-founder Divya Nag.

“Every one of the top 10 pharmaceutical companies is a paying customer of at least one StartX company,” says Nag, 22.

Now, StartX Med has signed up two New Jersey drug giants as its first corporate sponsors: Whitehouse Station, NJ-based Merck (NYSE: MRK) and Johnson & Johnson Innovation, a sort of talent scout unit of New Brunswick, NJ-based Johnson & Johnson. The J&J innovation unit opened an outpost close to Stanford’s medical school in June.

Both drug companies are pitching in financial support for the non-profit campus accelerator—though the amounts have not been disclosed—and are eagerly offering mentorship and feedback to the students, professors, and other entrepreneurs who are launching companies under StartX Med’s guidance.

Dr. Sachin Jain

Dr. Sachin Jain, chief medical innovation officer at Merck

“The opportunity was too good to pass up,” says Dr. Sachin Jain, chief medical innovation officer at Merck. The drug giants stand to gain as well as give.

Jain’s innovation group at Merck is on the hunt for entrepreneurs developing new ways to improve health care or enhance the value of the company’s drugs. That could include digital health technologies to nudge patients to stick with their drug regimens, or to monitor their own symptoms, Jain says. Fledgling companies might also find ways to help doctors make treatment decisions, by tapping into the vast banks of stored medical data.

“This is the next frontier of clinical care,” Jain says. He said he was impressed by Gauss Surgical’s invention, which tracks the amount of blood loss during surgery or childbirth. He says the system could prompt surgeons to administer transfusions.

Merck experts can help young, healthy entrepreneurs understand the complexity of delivering health care to patients who may suffer from multiple disorders, take multiple medications, and face difficult family and social issues that can interfere with treatment, Jain says.

Diego Miralles, who heads J&J’s new California Innovation Center near the Stanford campus, says his unit’s contributions to StartX Med will give the company greater access to Stanford’s entrepreneurial culture, including the students who are dreaming up ideas for new companies between their classes.

“It’s really innovation in its most raw expression,” Miralles says. “Young students have irreverent ideas; they have not been shaped by life yet, so they can perhaps think more freely.”

Nag herself co-founded a company, Stem Cell Theranostics, with three lab colleagues when she was a 20-year-old Stanford sophomore studying human biology. She was a student researcher with a lab group at the Stanford Institute for Stem Cell Biology and Regenerative Medicine that created cultures of beating heart cells derived from the skin cell samples of 150 patients. The co-founders saw the cell cultures as a resource that could be used to test experimental drugs for cardiovascular disorders, rather than trying the drugs out too early in humans.

Stem Cell Theranostics was one of the first startups admitted to the original StartX accelerator program, which was founded in 2009.  Nag says her young biomedical company gained immensely from the accelerator session in 2010, even though the other startups were consumer IT developers and other high-tech innovators. To help spread the benefits, she and her business partner, Stanford MD-PhD student Andrew Lee, decided to found StartX Med the following year to meet the particular needs of other companies in the fields of digital health, medical devices, and biotechnology.

Divya Nag

StartX Med Co-founder Divya Nag

Under the StartX umbrella, Nag and Lee created a six-month StartX Med accelerator program and recruited volunteer industry advisors in areas such as FDA regulation and grant funding. Startups admitted to the sessions get free office space, instruction on business formation and financing, and industry mentors. Like StartX itself, StartX Med doesn’t ask for any ownership stake in the companies it nurtures.

Experts from both Merck and J&J had already been contributing their time informally when StartX Med started talks with the two companies about a corporate partnership early last year, Nag says. The companies’ financial support will allow StartX Med to hire more staff, expand its office space, and admit more fledgling companies into the program, she says. For the accelerator’s second session starting in January, there were 80 applicants for fewer than five slots.

“There was such a huge demand,” says Nag, who dropped out of college when she started her career as a co-founder of new enterprises. She is now chief product officer for the StartX organization.

Another StartX Med startup is Analytics MD, which analyzes data on the workflow in hospitals to improve their efficiency. For example, it can track the amount of time spent by hospital frontline staffers at each stage of patient care, to detect bottlenecks that might increase costs or lower the quality of treatment. Another of the accelerator’s startups, Medwhat, is developing a service that allows patients to ask health questions in their own words, such as, “Why does my stomach hurt?’’  The platform searches medical databases to come back with answers.

For StartX Med participants and alumni, the new link to two major pharmaceutical companies could open up a host of opportunities. Miralles says Johnson & Johnson’s California Innovation Center will be looking for talent in drug development, medical devices, and health IT. It’s possible that some graduates of the StartX Med program might be invited to join the Janssen Labs incubator program at San Francisco’s Mission Bay complex that is being set up by J&J unit Janssen, Miralles says.

Both Merck and J&J also have venture capital arms that might consider making investments in the StartX Med companies, the executives say. These startups already are candidates for investments from the new Stanford-StartX Fund announced this month, through which Stanford University and Stanford Hospital & Clinics will join venture firms and angel investors in early financing rounds for startups that emerge from the StartX and StartX Med programs.

Meanwhile, Stem Cell Theranostics, the company co-founded by Divya Nag, Andrew Lee, and Stanford professors Robert Robbins and Joseph Wu in 2010, is pulling in revenues by supplying its beating heart cultures to the big drug developer Gilead of Foster City, CA, and two other large companies that also use them for testing, but don’t want their names disclosed. Because the startup was already reaping some revenues, it was able to bypass the step of seeking initial financing from angel investors and retain a greater ownership stake for its co-founders, Nag says. Stem Cell Theranostics is just now raising its seed round of funding from investors.

Nag says experienced industry folks tell her things don’t usually move so fast. But, she asks, isn’t that the point of an accelerator?

“We’re all about speed,” Nag says.