The DNA of Funding: Science Futures and Venture Capital
; published on March 15, 2011 at 1:03 pm
I have been an investor, an entrepreneur and a successful visionary in the valley for over 29 years. In that time period I have witnessed historical events in biotechnology which have guided my career as a venture capitalist.
I had a vision in 1981 that science futures would be as important as the commodity markets with their futures on oil, grain and pork bellies. I looked around and the only people playing in the science futures game were venture capitalists and a few brave souls who bought the stocks of the newly minted biotechnology companies.
Genentech set stock market historyin 1980 when it priced at $32 and opened at $80 dollars. Sequenom, a company I founded in 1993 did the same thing in the year 2000 during the genomiccraze when its initial public offering was priced at $26 and it opened February at $79. Fundamentals did not drive these price spikes, but the hope and hype of a better future did.
I have learned patience, persistence and now know that luck plays a big part of success!
Warren Buffet said “In the business world, the rearview mirror is always clearer than the window shield.”
I had been asked in high school by my biology teacher to do extra work for the A she wanted to give me. The extra work I did was to hand copy out of my MD father’s monthly newsletters, the exciting 1963 front page news, that, in 1954 the structure of DNA had been found by Watson and Crick. This showed me how long it takes to get Nobel Prize winning science in front of the eyes of MD’s but more importantly I got an insight into the world of DNA long before they were teaching it in high school. Being naturally curious and a student of history, as much as a scientist, I now recognize the guiding hand that had me latch on to DNA at such an early age.
No one could have predicted the impact of the Cohen-Boyer patents on the Office of Technology Licensing at Stanford, in the early 1970′s but I got an early glimpse of the tsunami of science surrounding DNA when I was early in my career as an application specialist for Millipore Corporation in 1977.
Talking to scientists at the N.I.H. (National Institute of Health) was part of my job and being a scientist myself it was easy to form friendships. Bill Bellini, a PhD researcher told me in a casual conversation on summer day in Washington, that the DNA he was experimenting with preferentially bound to Millipore filter paper – he didn’t know why, but said it made working with it easier.
I thanked him for the insight and said I would have it written up in our monthly application bulletin. Six months later Millipore bought Worthington Enzymes, a company in New Jersey that made specific gene splicing enzymes, so Bill and I had more to talk about and my life became very interesting as Millipore promoted me to Regional Manager for Life Sciences for the 21 Western States the next year.
Dr. Herb Boyer was at UCSF in 1973. He had isolated an enzyme that could cut DNA strings precisely into segments that carried the code for a predetermined protein, and these segments could also be attached to other DNA strands.
Dr. Stanley Cohen, from Stanford University had developed a method for carrying “plasmids”(little sacs inside a cell) into bacteria. He also had developed a method of isolating and cloning DNA genes carried inside the plasmids.
Cohen and Boyer went to a “bacteria plasmid”meeting in Hawaii in 1973 and they began collaborating. Four months later, they had science worthy of a publication in the Proceedings of the National Academy of Sciences.
The core of the Cohen/ Boyer collaboration allowed them to clone and produce protein inside bacteria. The bacteria had plasmids inside them. By selecting the DNA inside the plasmids, the bacteria would make a predetermined protein. Once the bacteria were grown in quantity they could be “harvested” split open and the protein removed.
Millipore Corporation not only played a part as the “Xerox” paper in preparation of the bacteria, but their filtration products were used extensively in the recombinant DNA industry to separate the protein of interest from the mixture of the bacteria cells.
I came to California in January 1978, two years after Boyer started Genentech with Bob Swanson of KPCB. Our offices were just down the street from Genentech and we had free access to all that was going on inside the company, as they developed the first product from rDNA, human insulin. So although the Cohen/Boyer patent had not issued at this time, work was being done in multiple companies around the Bay area using the science they outlined.
The initial patent by Cohen and Boyer was filed by Stanford University in 1974 almost a year after the publication. We can thank Niels Reimer, Founder of Stanford University Technology Commercialization Program, for pushing Cohen to seek a patent. It was filed with only one week left to the year after the famous publication.
Some six years after the filing the first patent was granted in December 1980. Two more followed entitled “Biologically Functional Molecular Chimeras.” The total patent portfolio consisted of 6 patents. The real win for Stanford was the licensing program that followed the patent.
UCSF and Stanford by the end of 2001 had made $225 million in licensing revenues from licenses granted to a total of 468 companies. More importantly, a total of 2442 known products were developed from the patented technology. Commercial products from rDNA technology generated over $35 billion dollars in sales during the life of the patent. (This expired in 1997)
Outstanding royalty payments continue to trickle in, but nothing like the first 17 years.
The open door policy at the Stanford OTL to venture capitalists made a huge impact on business in Silicon Valley. OTL was seen as a marketer both within the University and to the outside world.
Technology commercialization should be easy. Stanford, MIT and UCB all benefited from Reimers commercialization programs. His strategy was consistent with the university’s ideals of public service. By broadly licensing the technology at affordable license fees, (as opposed to high value exclusive licensing) there was more incentive to license than to litigate.
Although the University set up a fund to do litigation it was not necessary. There were incentives for private companies to commercialize derivative products. Royalties came with these arrangements. The income from these programs has provided for the university’s academic and R&D programs. The university became user friendly and receptive to industry ideas.
As a VC, patents are the cornerstone to a start-up. They are the “family jewels”. Many start-ups are funded solely on the strength of their patents, and often the management teams are scrutinised for their ability to compile and build a patent portfolio. Licensing of key patents makes or breaks a financing.
Technology is dominated by two types of people…
- Those who understand what they do not manage.
- Those who manage what they do not understand.
US competition in the global market depends on patents. Even President Obama in his State of the Union speech in early 2011 said:
“No country has more successful companies, or grants more patents to inventors and entrepreneurs.”
In a perfect world, we would have:
- A strong patent protection and an easy Patent System
- A balanced reimbursement policy, where those that needed life saving drugs or even drugs for chronic diseases could get them.
- A science based regulatory system, not a political policing agency like the FDA has become.
We should not be siphoning off user fees at the patent office. These fees should feed the patent process and speed it along.
Patents are the cornerstone to inventions. In a tough investment climate, innovation that has multiple risks needs patent protection. This is certainly the case in the life sciences.
However, there is a gender difference in patenting in academic life sciences. Male scientists secure patents at more than twice the rate of their female colleagues. Why is this so? According to a study done by the Kaufmann Foundation, female academic scientists only produce patents at about 40% the rate of men. There is no evidence that women do less significant scientific research based on standards of scientific impact. The contributors in this gender gap seem to be the;
- lack of exposure and social networks by senior women scientists to commercial sectors
- the concern among women scientists that pursuing commercial opportunities might hinder their university careers.
This should change! Women must be supported to file patents on any science progress they think would be useful or novel.
Younger women now realize that the path to more income lies in patent filing.
I hope this financial realization will help them overcome the barriers and lead to additional important discoveries in the future.
Scientific insights into the last decade have shown me that the computer is playing the major role in biology and life sciences. New software has allowed a single machine to decipher 3 human genomes in a little more than a week. This took 14 years in 2000.
New insights are gained by the vital link the web provides between researchers and publicly accessible databases of genome information. In March of 2010 a new species of human was discovered from ancient DNA. In November, the Chinese unveiled the world’s fastest supercomputer.
The science tools that have made the last10 years of insights possible are basically ways of gathering, storing, and disseminating information. These tools have transformed science. Researchers generate more observations, more models, and more automated experimentation than ever before, creating a data saturated world.
Communication between scientists and non scientists has accelerated through the internet. Theorists have spawned a new field called “network science”, because science itself is becoming more of a network – more collaborative, more multidisciplinary as we realize it takes many minds and varied expertise to tackle complex questions of life, land and the universe.
Constant new insights will lead to new scientific breakthroughs and the tools you out license may well become the backbone of a new post-biotechnology age, an age of information and enlightenment.
So what can one do?
We can take heart that the entrepreneurs in computer and life sciences will continue to invent and mine the genome and its cousin epigenome. The pace is accelerating and the adoption of new applications is also accelerating. Just this Christmas I had my genome analyzed for a mere $99.00. New products and computer technology has brought the price down.
So I urge you to:
“Take the attitude of a student; never be too big to ask questions. Never know too much to learn something new.” Og Mandino
And realize that:
“Perplexity is the beginning of knowledge”
Nola Masterson is Managing Director of Science Futures Management Co, LLC. Co founder of Sequenom and seed stage investor in IDEC, InSite Vision and Resound. She first presented this talk at the Licensing Executives Society Spring Conference 2011.