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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
22
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