Excerpt from Dr. Andrew P. Mazar, Entrepreneur in Residence,testifies to the U.S. House of Representatives Committee on Science and Technology (Sub-committee on Research and Science Education). These comments reflect the need for and gap funding emphasis on development-intensive technologies, like Pharma.

 

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“The last major challenge that I would like to comment on is funding. I believe that it is possible to discover and develop new drugs through early proof-of-concept studies in the academic setting and that large research-driven institutions with medical schools such as Northwestern could become quite good at this if funding was available. Today, we do not have a fund that can provide the capital required for these types of activities. Thus, I have to access grants and development resources at NIH and DoD that can pay for pre-clinical development that will support an Investigational New Drug (IND) application. This requires that I be a co-investigator or principle investigator on these applications and drive their preparation and submission. This takes time away from my other activities and, unfortunately, there are not enough of these programs available and the application process is slow. Other academic institutions have been able to raise small gap funds, usually through philanthropy, but in most cases these have not provided adequate resources to really move projects forward. There are some examples (Michigan, Harvard) of gap funds that were allowed to invest sufficient capital in promising projects, and returns on investment have already been observed just a few years after the initial investment. Utilized properly, a gap-funding model can support drug discovery and development. In addition, by making these funds self-sustaining (or “evergreen”), an initial investment can provide a capital base that potentially generates a program capable of perpetual funding.

 

One way that government could accelerate commercialization of academic technologies (and I believe that this is in keeping with the mission of the I-Corps program) such as new drug and diagnostics, would be to invest in these gap funds regionally, so that non-grant capital that can be put to work rapidly would be available to support commercialization activities such as drug development. Currently, it may take me several years to go through the grant application process to secure support on a project by project basis. For example, I mentioned the SMARTT award on which I am a Co-PI. The implementation,application and subsequent start of that program was something that took several years to get into place.

 

 

If I had access to gap funding, I could have had that project to the end of a phase I trial in the time it took to secure that award. Patients would have already had access to a new drug and if it showed signs of clinical activity, the university could have already realized a return on this project. The caveat is that at least $2-3M would have had to be committed to that project and the tendency with many existing gapfunds is to put in small amounts of money into many projects. I think there is still room for that kind of support but there also has to be sufficient capital to make a few large bets each year because these will be the value drivers for potential pharma partnerships, investments, and returns in the near term.

 

I believe that the EIR program can be replicated at other institutions if their culture is open to new models of academic entrepreneurship. There are many flavors of possible EIRs (traditional venture EIR, my EIR model at NU, others in between) and these could be molded to fit the specific needs of each institution. One idea would be to create a national academic EIR program. It would be even more interesting if that program could also provide a gap fund for each EIR. This gap fund could be provided locally for each EIR, or there could be a central gap fund to which all the EIRs could have access. Projects would be selected for funding competitively through an independent external review committee and each EIR could champion his/her institutions own programs for this funding. In some ways, this is the model that is being advanced through the National Heart, Lung and Blood Institute (NHLBI) Centers for Accelerated Innovation (CAI) (RFA-HL-13-008). Thus, the beginnings of a national entrepreneurial ecosystem are starting to form and this should be nurtured and developed.

 

Historically, good researchers have not been considered to be good business people and venture backed start-ups developing drugs rarely had a scientist CEO. However, this is now changing in the drug development space. When an IPO was the preferred exit strategy, selling the story was most important and traditional CEO’s with a business background were the logical choice to lead these efforts. Now, the exit strategy is to find a pharma partner to either license or buy a new drug asset and thus, the metrics have changed. There now has to be very solid science and research behind each product, otherwise it will never survive the due diligence process. This has created an opportunity for scientist CEO/entrepreneurs to guide start-up companies and has created a need for mentoring and training these individuals. Most of Northwestern’s entrepreneurship training has been geared toward students and not faculty. However, this is changing. Northwestern’s Farley Center for Entrepreneurship and Innovation

provides faculty support in entrepreneurial activities. The Levy Institute at the Kellogg Business School runs an Entrepreneurship and Innovation Program that is open to faculty. Northwestern, along with the University of Illinois at Chicago and the University of Chicago, have instituted the Chicago Innovation Mentor (CIM) program that forms mentorship teams to work with faculty inventors from all three schools to advance commercialization of their therapeutic, diagnostic and device ideas. iBio also has the Propel program that matches entrepreneur mentors with faculty interested in forming start-up companies.

 

I also partner with individual faculty to mentor them in translation of new therapeutics, as described above, and I believe there will be more such programs launched in the future. For example, the CAI described above will have a training component to mentor faculty in translation and commercialization of new therapeutics, diagnostics and devices in areas of interest to the National Heart, Lung and Blood Institute (NHLBI). Additional programs like this funded through government agencies would also boost these activities.

Chicago is a very unique area in terms of commercializing new therapeutics. Despite the academic intellectual firepower, many early stage academic therapeutic projects with commercial potential, and several large pharmaceutical companies in the vicinity, there is a paucity of investment in biotechnology spin-out companies and not many larger venture firms that invest in that space are located in the area. When technologies are spun-out, they end up going somewhere else geographically.

 

Not having a large group of venture investors in the area definitely hurts our ability to create spin-outs because investors just don’t think about Chicago when they think about investing. Baxter has a program with Northwestern where they provide small grants for Northwestern early stage projects but these are typically small and insufficient to support translation. However, it is my understanding that Baxter would like to begin supporting projects with true translational potential in the future so this situation may change. Similarly, the Chicago Biomedical Consortium has also provided a lot of early stage basic science support and is also looking to move more into the translational space, another good sign for Northwestern and the Chicago area.

 

I believe that there is a real opportunity for the government to provide funding that would be truly disruptive and transformative by creating a national EIR program that comes with a gap fund, as described above, and could also encompass a hands-on training component for faculty. For example, faculty that submit a project that receives funding from the gap fund component of such a program could have the option to actually see their project through to some inflection such as a partnership with a pharmaceutical company or forming a spin-out company and closing on financing for that company.

This type of funding could help transform the Chicago drug translation and entrepreneurial ecosystem, which is burgeoning, but needs the injection of funds to push it over the top. All the pieces are already here, we just need the resources to connect the dots. I believe that if federal funds were available, these could be leveraged through a variety of local sources to form private-public partnerships to support the types of entrepreneurial programs described above. This could replicated throughout the country.

 

I believe that I-Corp program is trying to do exactly this and should be expanded. My understanding is that there is concern that this is not a basic enough academic mission for the NSF to fund but I have provided some examples of how entrepreneurial activities are absolutely aligned with the basic mission of a university in terms of knowledge generation, economic growth, and contributing to the benefit of society. Without programs like I-Corp, the basic research investment will be wasted. If gap funding is not available and if venture capital is no longer investing in early stage projects, which it is not, then basic research sits on a shelf somewhere and all these marvelous basic discoveries never see the light of day.

 

Or, someone sees that information in a publication in a country outside of the US, they invest in its development, and we lose the economic benefits of developing this technology ourselves. The most important thing that I would like to see from the I-Corps program is to make more funds available for each project. Each project should be evaluated for what milestone or inflection needs to be met next, and sufficient capital should be provided to support this. The milestones may be scientific, commercial or a combination of the two but providing insufficient funds is as bad as providing no funds at all.

Given that there are limits on how much money is available for this program, I would favor making a few meaningful bets rather than trying to fund as many projects as possible and have none of them really move forward. This is not to say that the federal government should bear the cost of these types of programs alone. It is possible to leverage the federal investment with private funding and in fact, the federal investment can be viewed as a de-risking strategy that attracts private funding that would not otherwise be available. This is the strategy of the CAI program described above, which requires a

commitment of non-federal dollars to leverage the federal investment. Another example of matching public to private funds is the CIPRIT program in Texas, which will match on a 2 for 1 basis, fundsobtained from private investors for start-up companies. The I-Corp program is already doing something like this by requiring identification of potential customers for each technology funded and I believe that if I-Corps funding is increased, this approach can be expanded to seek out actual commitments of funds that can match or exceed the government investment. This drastically lowers the barriers for entry into commercialization and in my opinion, spurs entrepreneurship and economic growth.”