HIGGINS COMMERCIALIZING SCIENCE - SOI.ppt

F E B R U A R Y 2 0 0 7F E B R U A R Y 2 0 0 7

R O B E R T F. H I G G I N SR O B E R T F. H I G G I N S

H A R V A R D B U S I N E S S S C H O O LH A R V A R D B U S I N E S S S C H O O L

Commercializing Science:Commercializing Science:A Venture Capital PerspectiveA Venture Capital Perspective

S C I E N C E – B A S E D B U S I N E S S S E M I N A R

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OverviewOverview

» BackgroundBackground

» VC Investing EnvironmentVC Investing Environment

» Tech Transfer EnvironmentTech Transfer Environment

» Commercializing Scientific Research: The VC Commercializing Scientific Research: The VC ViewView

» Case StudiesCase Studies

» SummarySummary

BackgroundBackground

44

My BackgroundMy Background

» Harvard: AB History, MBAHarvard: AB History, MBA

» Government: International Economic AffairsGovernment: International Economic Affairs

» Healthcare Private Foundations, CEOHealthcare Private Foundations, CEO

» Charles River VenturesCharles River Ventures

» Founded Highland Capital Partners, ‘88 – Founded Highland Capital Partners, ‘88 – PresentPresent

» HBS Faculty, ‘00 – PresentHBS Faculty, ‘00 – Present

55

» Formed in 1988Formed in 1988

» $2.7 billion under management$2.7 billion under management

» Diversified portfolio strategyDiversified portfolio strategy

Life Sciences, IT, and CommunicationsLife Sciences, IT, and Communications

Seed, Early, and Late StageSeed, Early, and Late Stage

» 30 investment professionals30 investment professionals

Boston, Menlo Park, DC, Geneva, and ShanghaiBoston, Menlo Park, DC, Geneva, and Shanghai

Highland Capital PartnersHighland Capital Partners

66

Representative Highland SuccessesRepresentative Highland Successes

77

Highland Healthcare / Life Sciences TeamHighland Healthcare / Life Sciences Team

» Bob Higgins, Managing General PartnerBob Higgins, Managing General Partner

» Corey Mulloy, General Partner Corey Mulloy, General Partner – Robertson Stephens, Whitman Group, MBA – Robertson Stephens, Whitman Group, MBA HBSHBS

» Wyc Grousbeck, Venture Partner Wyc Grousbeck, Venture Partner – Glycomed, Celtics CEO, JD Mich, MBA – Glycomed, Celtics CEO, JD Mich, MBA StanfordStanford

» Bijan Salehizadeh, Partner Bijan Salehizadeh, Partner – Medtronic, HealthCentral, MD Columbia, MBA – Medtronic, HealthCentral, MD Columbia, MBA HBSHBS

» Dean Banks, Vice President Dean Banks, Vice President – Cytyc, J&J, MBA HBS– Cytyc, J&J, MBA HBS

» Jay DeCoons, Senior Associate Jay DeCoons, Senior Associate – Medtronic, Summit Partners, MBA HBS– Medtronic, Summit Partners, MBA HBS

» Sophie LaMontagne, Associate Sophie LaMontagne, Associate – The Lewin Group, Molecular Biology, – The Lewin Group, Molecular Biology, PrincetonPrinceton

» Maeve O’Meara, Associate Maeve O’Meara, Associate – Bain & Co., Economics, University of Virginia– Bain & Co., Economics, University of Virginia

» New Hire New Hire – Boston Scientific, Cardiologist, MD Brown, MBA HBS– Boston Scientific, Cardiologist, MD Brown, MBA HBS

88

Highland Healthcare Focus AreasHighland Healthcare Focus Areas

42

HEALTHCARE HEALTHCARE SERVICESSERVICES

LIFELIFE

SCIENCESSCIENCESMEDICALMEDICAL

DEVICESDEVICES

HIGHLAND HIGHLAND PHILOSOPHYPHILOSOPHY

» Serial Serial entrepreneursentrepreneurs

» Leveraging Leveraging trendstrends

» Platform Platform technologiestechnologies

» Multiple “shots Multiple “shots on goal”on goal”

» Large Large marketsmarkets

» Short path to Short path to human trialshuman trials

CURRENTCURRENT

INVESTMENT INVESTMENT THEMESTHEMES

------------------------------------

» Consumer-Consumer-directeddirected

» Aging baby-Aging baby-boomersboomers

------------------------------------» Targeted Targeted

therapeuticstherapeutics

» Personalized Personalized medicinemedicine

» CancerCancer

------------------------------------

» CardiologyCardiology

» Drug-device Drug-device convergenceconvergence

99

Representative Highland Healthcare Representative Highland Healthcare InvestmentsInvestments

42

HEALTHCAREHEALTHCARE

SERVICESSERVICESLIFELIFE

SCIENCESSCIENCESMEDICALMEDICAL

DEVICESDEVICES

VC Investing VC Investing

EnvironmentEnvironment

1111

Deal Flow & Equity into VC-Backed Deal Flow & Equity into VC-Backed CompaniesCompanies

$19.5$22.4 $23.7

$19.6$22.1

$36.4

$94.8

$49.5

$17.9$13.1

$9.2

1851240323182213

2417

3296

6341

4590

25472211

1912

$0

$25

$50

$75

$100

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 YTD06*

0

1,000

2,000

3,000

4,000

5,000

6,000

Amount Invested ($B) Number of Deals

Am

ou

nt

Investe

d

($B

)N

um

ber o

f Deals

Source: Dow Jones VentureOne/Ernst &Young

$25.7

2454

2006

1212

Where are the VC dollars going?Where are the VC dollars going?

Dollars InvestedDollars Invested

20062006

ITIT54%54%

OtheOtherr

4%4%

Business Business & &

ConsumeConsumerr

10%10%

HealthcareHealthcare32%32%

BiopharmaBiopharma57%57%

Healthcare Healthcare IT/ISIT/IS5%5%

HealthcarHealthcare e

ServicesServices6%6%

Medical Medical DevicesDevices32%32%

Source: Dow Jones VentureOne/Ernst &Young

$25.7 $25.7 BillioBillio

nn

$8.2 $8.2 BillionBillion

Tech Transfer Tech Transfer

EnvironmentEnvironment

1414

» 1944 – Vannevar Bush, Head of Office of Scientific 1944 – Vannevar Bush, Head of Office of Scientific Research & DevelopmentResearch & Development Bush’s report “Science: The Endless Frontier”Bush’s report “Science: The Endless Frontier”

Urged government to become more involved in funding Urged government to become more involved in funding university researchuniversity research

Led to creation of National Science FoundationLed to creation of National Science Foundation

» 1980 Bayh-Dole Act:1980 Bayh-Dole Act:

““Perhaps the most inspired piece of legislation Perhaps the most inspired piece of legislation

to be enacted in America over the past half-century”to be enacted in America over the past half-century”

HistoryHistory

1515

» Number of patents filedNumber of patents filed

» Number of license agreements signed & licensing Number of license agreements signed & licensing revenuerevenue

» Number of new companies startedNumber of new companies started

» Number of breakthrough technologies launchedNumber of breakthrough technologies launched

» Ability to attract world-class graduate studentsAbility to attract world-class graduate students

How Universities Measure SuccessHow Universities Measure Success

1616

0

0.5

1.0 10

5

0

1.5 15

US patents (in ‘000s)

filed

issued

Net license income$B

US University Patents & Licensing TrendsUS University Patents & Licensing Trends

93 94 95 96 97 98 99 00 01 02 03

Source: The Economist & Association of University Technology Managers

1717

Milken’s “Top Ten” RankingsMilken’s “Top Ten” Rankings

RanRankk

UniversityUniversity

11 Harvard UniversityHarvard University

22 University of TokyoUniversity of Tokyo

33 University of University of LondonLondon

44 UCSFUCSF

55 UPennUPenn

66 UCSDUCSD

77 Johns HopkinsJohns Hopkins

88 Wash U, St. LouisWash U, St. Louis

99 Univ of WashUniv of Wash

1010 UCLAUCLA

RanRankk

UniversityUniversity

11 CalTechCalTech

22 MITMIT

33 StanfordStanford

44 Johns HopkinsJohns Hopkins

55 Univ of WisconsinUniv of Wisconsin

66 UCSFUCSF

77 Univ of ChicagoUniv of Chicago

88 Univ of MichiganUniv of Michigan

99 Harvard UniversityHarvard University

1010 Penn State Penn State UniversityUniversity

Source: The Milken Institute Mind to Market: A Global Analysis of University Biotechnology Transfer and Commercialization, September 2006

By Number of Publications

By Number of Patents Issued

RankRank UniversityUniversity

11 MITMIT

22 Univ of CA Univ of CA SystemSystem

33 CaltechCaltech

44 Georgia TechGeorgia Tech

55 Stanford Stanford UniversityUniversity

66 Univ of MichiganUniv of Michigan

77 Univ of IllinoisUniv of Illinois

88 USCUSC

99 UPennUPenn

1010 Univ of MinnesotaUniv of Minnesota

By Number of Start-ups

1818

Overall “Top Ten” in Tech TransferOverall “Top Ten” in Tech Transfer

Source: The Milken Institute Mind to Market: A Global Analysis of University Biotechnology Transfer and Commercialization, September 2006

RankRank UniversityUniversity

11 MITMIT

22 University of CA SystemUniversity of CA System

33 CaltechCaltech

44 Stanford UniversityStanford University

55 University of FloridaUniversity of Florida

66 University of MinnesotaUniversity of Minnesota

77 Brigham Young UniversityBrigham Young University

88 University of British University of British ColumbiaColumbia

99 University of MichiganUniversity of Michigan

1010 New York UniversityNew York University

1818 ******

Harvard UniversityHarvard University

Milken’s “University Technology Transfer & Commercialization Index”

2000 – 2004

Commercializing Scientific Commercializing Scientific

Research: The VC ViewResearch: The VC View

2020

Evaluating Opportunities: VC CriteriaEvaluating Opportunities: VC Criteria

» PeoplePeople

» MarketMarket

» Technology / ProductTechnology / Product

» DealDeal

2121

People (Founders)People (Founders)

» Leading researchers in their fields of studyLeading researchers in their fields of study

» Serial entrepreneurs with successful track Serial entrepreneurs with successful track recordsrecords

» Ability to attract a world-class CEO, Board of Ability to attract a world-class CEO, Board of Directors, SAB, and investorsDirectors, SAB, and investors

» Understand their optimal role in the Understand their optimal role in the companycompany

2222

MarketMarket

» Potential for $1 billion+ market sizePotential for $1 billion+ market size

» Customers are quick adoptersCustomers are quick adopters

» Known acquirers in the spaceKnown acquirers in the space

» Wall Street followingWall Street following

» Ease of regulatory approval (FDA)Ease of regulatory approval (FDA)

» Coverage / Reimbursement (CMS)Coverage / Reimbursement (CMS)

2323

Technology / ProductTechnology / Product

» ““Breakthrough” technologies with clear Breakthrough” technologies with clear value propositionsvalue propositions

» Platform technologiesPlatform technologies

» Strong IP positionStrong IP position

» Follow-on potentialFollow-on potential

2424

DealDeal

» ValuationValuation

» Exit potentialExit potential

» Terms: equity, licensing fees, and royaltiesTerms: equity, licensing fees, and royalties

» Option poolOption pool

» Financing structure (current and future Financing structure (current and future rounds)rounds)

» Co-investorsCo-investors

Case StudiesCase Studies

2626

» MIT – Equity ownership, license fees, MIT – Equity ownership, license fees, milestone payments, and royalties milestone payments, and royalties

» Pioneering a new combination Pioneering a new combination therapy – “Biologically-active therapy – “Biologically-active devices”devices”

» World-class academic founders with World-class academic founders with successful entrepreneurial track successful entrepreneurial track recordsrecords

» Lead program Lead program Vascugel Vascugel could could transform major cardiovascular transform major cardiovascular marketsmarkets

» 2 clinical trials underway in 20062 clinical trials underway in 2006

P E R V A S I S T H E R A P E U T I C SP E R V A S I S T H E R A P E U T I C S

F O U N D E R S

Bob Langer, MITElazer Edelman, Harvard/MITJay Vacanti, Harvard/MGH

V C I N V E S T O R S

Highland Capital PartnersFlagship VenturesPolaris Ventures

A M O U N T R A I S E D

$19.9 million

2727

P E R V A S I S T H E R A P E U T I C SP E R V A S I S T H E R A P E U T I C S

2828

P E R V A S I S T H E R A P E U T I C SP E R V A S I S T H E R A P E U T I C S

2929

P E R V A S I S T H E R A P E U T I C SP E R V A S I S T H E R A P E U T I C S

Pig

3030

» Harvard, Duke, and University Harvard, Duke, and University of Wisconsin – equity of Wisconsin – equity ownership, license fees, and ownership, license fees, and royaltiesroyalties

» MIT – annual license fees and MIT – annual license fees and royaltiesroyalties

» Platform using sophisticated Platform using sophisticated informatics and robotics to informatics and robotics to synthesize DNA more rapidly synthesize DNA more rapidly and cost-effectively than and cost-effectively than current technologycurrent technology

» Creating a paradigm shift in Creating a paradigm shift in “constructive biology”“constructive biology”

» Founders are leaders of the Founders are leaders of the synthetic biology fieldsynthetic biology field

C O D O N D E V I C E SC O D O N D E V I C E S

F O U N D E R S

George Church, HMSJoe Jacobson & Drew Endy, MITJay Keasling, UC Berkeley

V C I N V E S T O R S

Highland Capital, Flagship Ventures, Khosla Ventures, Kleiner Perkins, Alloy Ventures

A M O U N T R A I S E D

$33 million

3131

C O D O N D E V I C E SC O D O N D E V I C E S

3232

» Spinout of Harvard Medical School Spinout of Harvard Medical School & Dana Farber Cancer Institute& Dana Farber Cancer Institute

» Dana Farber – equity ownership, Dana Farber – equity ownership, license fees, and royalties license fees, and royalties

» Specialty pharma company Specialty pharma company focused on the dermatology focused on the dermatology marketmarket

» Developing next generation of Developing next generation of safer and more effective safer and more effective treatments for skin pigmentation treatments for skin pigmentation disordersdisorders

» Team includes co-founders of Team includes co-founders of Idexx, Immunex, Alnylam, Idexx, Immunex, Alnylam, Momenta, Vertex, Biogen and Momenta, Vertex, Biogen and GenzymeGenzyme

M A G E N B I O S C I E N C E SM A G E N B I O S C I E N C E S

F O U N D E R S

David Fisher, Harvard, DFCIBob Langer, MITPhil Sharp, MIT, Nobel Laureate

V C I N V E S T O R S

Highland Capital PartnersVenrock AssociatesTVM Capital

A M O U N T R A I S E D

$17.2 million

3333

M A G E N B I O S C I E N C E SM A G E N B I O S C I E N C E S

3434

» Spinout of the Dana Farber – Spinout of the Dana Farber – equity ownershipequity ownership

» Discovery and development of Discovery and development of novel cancer therapeuticsnovel cancer therapeutics

» Proprietary Proprietary in vivoin vivo cancer cancer models for identification and models for identification and validation of novel drug targetsvalidation of novel drug targets

» Collaboration with MerckCollaboration with Merck

» 2 compounds in clinical trials2 compounds in clinical trials

» World-renowned Scientific World-renowned Scientific Advisory BoardAdvisory Board

A V E O P H A R M A C E U T I C A L SA V E O P H A R M A C E U T I C A L S

F O U N D E R S

Ron DiPinho, HMS, DFCILynda Chin, HMS, DFCI

V C I N V E S T O R S

Highland, MPM, Flagship, Oxford, Prospect, Venrock, and Greylock, and Merck

A M O U N T R A I S E D

$58 million

3535

A V E O P H A R M A C E U T I C A L SA V E O P H A R M A C E U T I C A L S

S C I E N T I F I C A D V I S OR Y B O A R DS C I E N T I F I C A D V I S OR Y B O A R D

» Lynda Chin, MD, Lynda Chin, MD, Dana Farber Cancer InstituteDana Farber Cancer Institute

» Ronald DiPinho, MD, Ronald DiPinho, MD, Dana Farber Cancer InstituteDana Farber Cancer Institute

» Lewis Cantley, PhD, Lewis Cantley, PhD, Harvard Medical SchoolHarvard Medical School

» Tyler Jacks, PhD, Tyler Jacks, PhD, MIT Center for Cancer ResearchMIT Center for Cancer Research

» Robert Horvitz, PhD, Robert Horvitz, PhD, Professor of Biology, MIT, Nobel LaureateProfessor of Biology, MIT, Nobel Laureate

» Richard Klausner, MD, Richard Klausner, MD, Former Director of National Cancer InstituteFormer Director of National Cancer Institute

» Raju Kucherlapati, PhD, Raju Kucherlapati, PhD, Harvard Center for Genetics & GenomicsHarvard Center for Genetics & Genomics

» David Livingston, MD, David Livingston, MD, Dana Farber Cancer InstituteDana Farber Cancer Institute

» Edward Scolnick, MD, Edward Scolnick, MD, Former President, Merck Research LabsFormer President, Merck Research Labs

» Doug Hanahan, PhD, Doug Hanahan, PhD, Professor of Biochemistry, UCSFProfessor of Biochemistry, UCSF

3636

» Second-generation drug-eluting Second-generation drug-eluting stentsstents

» Engineer-founder Engineer-founder

» Key contributor: Elazer Key contributor: Elazer Edelman (Brigham/MIT)Edelman (Brigham/MIT)

» Serial medical device Serial medical device entrepreneur as CEO entrepreneur as CEO (interventional cardiologist)(interventional cardiologist)

» Highland investment: $17M for Highland investment: $17M for 21% of company21% of company

» IPO in December 2004 IPO in December 2004 (NASDAQ: CONR)(NASDAQ: CONR)

» Acquired by J&J for $1.4BAcquired by J&J for $1.4B

C O N O R M E D S Y S T E M SC O N O R M E D S Y S T E M S

F O U N D E R

Jeff Shanley, VP Engineering for Purus, Inc.

V C I N V E S T O R S

Highland Capital PartnersEaston Hunt Capital, Maverick, Radius Ventures

A M O U N T R A I S E D

$84 million (pre-IPO)

3737

Conor’s CoStar StentConor’s CoStar Stent

C O N O R M E D S Y S T E M SC O N O R M E D S Y S T E M S

3838

P R E D I C T I V E B I O S C I E N C E SP R E D I C T I V E B I O S C I E N C E S

F O U N D E R S

Marsha Moses and Bruce Zetter, Harvard Medical School & Children’s Hospital

V C I N V E S T O R S

Highland Capital PartnersIDG Ventures

A M O U N T R A I S E D

$10 million

» Spinout of Harvard Medical Spinout of Harvard Medical School & Children’s Hospital School & Children’s Hospital BostonBoston

» Novel diagnostic assays for Novel diagnostic assays for informed cancer managementinformed cancer management

» Proprietary urinary protein Proprietary urinary protein biomarkersbiomarkers

» Potential for personalized Potential for personalized treatment planstreatment plans

SummarySummary

4040

Rules for SuccessRules for Success

» Stay close to academic entrepreneurial “hotbeds”Stay close to academic entrepreneurial “hotbeds”

» Build deep relationships with key university research Build deep relationships with key university research centers and tech transfer officescenters and tech transfer offices

» Maintain stable of entrepreneurial managersMaintain stable of entrepreneurial managers

» Keep on top of cutting-edge scienceKeep on top of cutting-edge science

» Key Takeaway:Key Takeaway:

Most importantly, back exceptional peopleMost importantly, back exceptional people

F E B R U A R Y 2 0 0 7F E B R U A R Y 2 0 0 7

R O B E R T F. H I G G I N SR O B E R T F. H I G G I N S

H A R V A R D B U S I N E S S S C H O O LH A R V A R D B U S I N E S S S C H O O L

Commercializing Science:Commercializing Science:A Venture Capital PerspectiveA Venture Capital Perspective

S C I E N C E – B A S E D B U S I N E S S S E M I N A R