Early-Stage Science and Technology Find Critical Financing From Non-Traditional Sources

Submitted by Norm Roulet on Wed, 11/03/2004 - 11:37.


To a large degree University of California in San Diego gets credit for
reinventing their regional economy, most visibly through their
"Connect" services. Below is an article from their latest
e-newsletter which highlights how much they do to connect early stage ventures
there with all levels of funding - from "food and rent" grants to
partnering with large pharmaceuticals. Important model and lessons to learn of
NEO to connect with the new economy!

Visit the UCSD Connect website to learn more about their
programs - sign up there to receive their newsletter (this latest edition is
not yet online).

Early-Stage Science and Technology Find Critical Financing From Non-Traditional

By Andrea

This summer, Merck & Co.
established a permanent licensing office in San Diego as part of the
pharmaceutical company's effort to intensify its search for promising science in
local biotech and academic labs. This "scouting," as it is called, would not
only help boost Merck's competitive standing in the global drug market, but it
would also help provide critical funding for early-stage products.
Merck, and
companies like it, have made their way into the capital food chain, giving
entrepreneurs and start-ups increased funding options, which also include
grants, nonprofit organizations, Springboard programs and city government

To Jim Schaeffer, Merck's Executive Director of Licensing and
External Research in San Diego, the pharma industry must continue the recent
trend of increasing collaborative interactions between large pharmas and the
biotechnology companies.
"Biotech companies can move very rapidly but they
can only bring their (product) to a certain point," Schaeffer explains. "They
can rarely afford to bring it through late-stage clinical

Schaeffer says it's critical for Merck - which also has a
research center in San Diego - to have a licensing office here due to the
region's rich academic community and world-renowned research centers like The
Salk Institute, The Burnham Institute, and The Scripps Research Institute.
says the "scouting" trend has grown tremendously over the last couple of years
as pharmas have boosted efforts to maintain their competitive and innovative
edge. In 1999, Merck completed 10 licensing deals worldwide. That number grew to
47 in 2003; so far this year the company has signed 42 licensing
"We're not limiting ourselves to compounds in clinical trials,"
Schaeffer says. "We are also evaluating preclinical programs as well as platform
technologies. We are scanning as broadly on the horizon as we can. Other major
pharmas are doing the same."

Meanwhile, start-ups like San Diego-based
Chimerix have found funding routes through organizations like CONNECT. When
Kevin Anderson was hired to help biotech vet Karl Y. Hostetler find money to
launch Chimerix in early 2001, nobody was remotely interested in funding the
development of a small pox drug. The timing was off - capital markets were in
the midst of a downturn, following an over exuberant and over funded dot-com
frenzy-turned collapse. That's when Anderson and Hostetler turned to CONNECT's
Springboard program, which assists early to mid-stage companies by critiquing
their business plan and evaluating their growth strategies.
"The Springboard
program quickly oriented me with issues that VC's have and what they like to
hear and how you raise money," says Anderson, now Chimerix's vice president of
business development.

Following Springboard, the VC's started appearing.
The first firm to fund Chimerix was San Mateo, Calif.-based Sanderling
Biomedical Venture Capital, which led a $2.2 million round of funding in 2002.
Chimerix, which has raised a total of $5.3 million, has also received two
substantial grants from the National Institutes of Health, totaling $37.7
The company's NIH grants validated the potential of its smallpox
drug and its proprietary chemistry for making drugs orally available, raising
the brows of many investors.
"In our case, it was the interest expressed by
the government in funding our small pox program that convinced investors that
this was real and not another story of somebody else looking for money,"
Anderson says.

CONNECT Executive Director Duane Roth says the tech
organization will continue to fuel successes like Chimerix's by helping to find
new funding sources for early science and technology.
"Capital availability
is fundamental to the advancement of early stage innovation, particularly at the
proof-of-concept stage," Roth says. "We work closely with angel groups such as
the Tech Coast Angels, as well as with traditional venture capitalists. We also
plan to work with organizations like BIOCOM, San Diego Telecom Council and the
San Diego Regional Economic Development Corp. to expand our existing funds and
to establish new venture funds in the San Diego region."

Some tech
entrepreneurs who don't have luck with traditional investors may also tap into
the San Diego-based Center for Commercialization of Advanced Technology (CCAT),
a nationwide academic, government and industry consortium created to fast track
technologies from the lab to the marketplace. CCAT grants usually total $75,000,
with an opportunity for follow-on funding. That may not seem like a lot, but
many of today's entrepreneurs will jump at the chance to score what may be food
and rent money, says Dennis Leidall, program manger for CCAT and UCSD
"We see the entire gamut of companies and many that may only have
the cash flow to stay in business for four to six months, and without this
$75,000 they wouldn't be around," Leidhall says.

Another alternative cash
source is the San Diego Technology Fund, formerly EmTek. The fund, operated by
the City of San Diego, provides loans averaging $200,000 at a fixed rate of
interest. The San Diego Technology Fund also participates with angel, strategic
partner equity, or senior asset-based debt at 20 percent to 50 percent of a
$100,000 to $ 1.5 million early-stage round of financing. Such funds have made
their way into the capital food chain by soliciting entrepreneurs at funding
events such as CONNECT's Financial Forum. "Many times we will give our cards to
(entrepreneurs) and talk to them and they say they need $2 million and we know
they need less," says Patricia Hughes-Raber, senior business finance officer of
the city's Community & Economic Development Department. "They go to angels
and the angels say they're not enticing enough. They'll come back to us and say,
'This is the money I need because I can't get the money anywhere

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