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Scripps Unveils New Drug Development Arm, Signs J&J as First Partner

Xconomy San Francisco — 

Venture capital firms have long nurtured biotechnology startups that make use of discoveries from non-profit research centers—but the roster of such VC firms has been shrinking. To fill the gap in that financial ecosystem, both research institutions and pharmaceutical companies have been trying out new roles—and meeting each other in the middle.

The Scripps Research Institute in La Jolla, CA, has just unveiled an unusual new standalone drug discovery company it has created: Scripps Advance, which has already founded one startup.

Scripps Advance was also designed as a vehicle to support collaborations with pharmaceutical companies looking for promising early stage projects. It has signed its first deal with the Johnson & Johnson Innovation Center in California—a Menlo Park, CA-based branch of the international scouting initiative J&J created to keep its drug pipeline filled.

“Pharma is investing earlier in product development cycles,” says Scott Forrest, vice president of business development at Scripps. “They don’t stand by while an ecosystem dries up.”

Under the collaboration with the J&J unit, the new Scripps initiative will receive upfront funding (the amounts aren’t being disclosed). The J&J organization will also earmark further money to move a selected number of lab discoveries closer to commercialization, Forrest says.

In addition to funding, J&J’s Innovation Center will also provide guidance to lab scientists—possibly even some specific work plans designed to clear up uncertainties and risks that would make a big drug company hesitate to support or license new technology, says Thorsten Melcher, senior director of new ventures and partnerships at the Innovation Center in Menlo Park (pictured above).

The J&J center is a communications and dealmaking hub that can tap the interests of other Johnson & Johnson units, such as its R&D organization and its venture capital subsidiary, Johnson & Johnson Development Corporation, Melcher says. It can arrange for R&D collaborations, mentoring relationships, equity financing deals, and the formation of startups. The California Innovation Center has already formed relationships with other academic institutions in the state, including UC San Francisco and Stanford University.

“New company formation is down, so we feel we need to be more active in the earlier stages,” Melcher says.

The creation of Scripps Advance marks a turning point in Scripps’ method of interacting with pharmaceutical company partners, Forrest says. In the past, Scripps had formed five-year “first rights” collaborations with a single drug company at a time, such as Pfizer and Novartis. That company gained the right to license any technology at the institute, in exchange for financial support of about $100 million to $125 million, Forrest says.

But it was left almost to chance whether the academic lab projects matched the drug company’s interests, Forrest says. The Scripps Research Institute was free to partner up with other pharmaceutical companies on technology that the “first rights” partner had turned down. But once that happened, outside companies could get the impression that the project was “subpar,” he says. It was a form of what the venture investing community sometimes calls “signaling risk.”

“Not everything got snapped up,” Forrest says.

Now, Scripps Advance plans to form about three to four non-exclusive collaborations with drug companies. The pharmaceutical partners will each go through a formal upfront process, laid out by Scripps Advance, to identify their specific goals and interests, Forrest says.

“This vehicle should improve the likelihood of adoption,” Forrest says. Any profits earned by Scripps Advance from the activities or the sale of its affiliated startups would benefit the corporation’s owner, The Scripps Research Institute.

Few other non-profit research centers have founded their own drug discovery corporations, Forrest says. The leading model for Scripps was Cancer Research UK, a London-based charitable organization that funds cancer research. The charity founded a commercial drug development arm, Cancer Research Technology (CRT), also in London.

Scripps expects its own standalone corporation to improve licensing rates for the institute’s platform technologies, such as drug discovery tools, by spinning them out as separate companies affiliated under the Scripps Advance corporate structure.

Forrest says it’s harder to get pharmaceutical companies to support platform technologies than drug candidates, which fit more easily into the divisional “silos” within a drug firm devoted to specific therapeutic areas. Rather than relying on a single drug company division to support a platform technology, one or more drug companies can invest in a Scripps Advance spinout company, he says.

While all these business innovations replicate the traditional financing and mentoring roles of VCs, venture firms aren’t being left out of the new Scripps model. Scripps Advance has already teamed up with the investment firm Atlas Venture to found the Cambridge, MA-based startup Padlock Therapeutics, which plans to develop drugs based on gene regulation findings by a group of Scripps scientists. Traditional VCs can join with drug company venture arms in investment syndicates to finance Scripps’ new companies.

Scripps supports its in-house scientists with toxicology and chemistry facilities, and a high-throughput screening center at its second campus, Scripps Florida in Jupiter, FLA. Scripps Advance now plans to open up opportunities within its entrepreneurial initiative to a network of outside research institutions, startup companies, and entrepreneurs already built up by the existing Scripps business development unit. Any of these outside entities might participate in the deals formed with Scripps Advance’s pharmaceutical partners.

Johnson & Johnson already has a significant presence near Scripps—its subsidiary Janssen Research & Development operates its West Coast Research Center in La Jolla, CA. The J&J Innovation Center has named a broad range of disease areas of interest for the Scripps collaboration, spanning oncology, neurology, immunology, cardiovascular cardiovascular disease, and infectious disease. But Melcher says each category contains specific focus areas, such as Alzheimer’s disease and mood disorders in the neurology space.

It was not only the excellent science at Scripps that attracted the J&J Innovation Center to the new collaboration, Melcher says, but also the institute’s business innovations and the external network it had created.

“We see academic institutions as part of our global R&D network,” Melcher says. “It gives us that reach into the cutting-edge science.”