Commercial gains

Moving from patented concept to marketable product requires specialist skills and huge funding. Andrew Newland of venture consultancy Angle looks at how to match innovation with business skills.

Today's life sciences industry offers bright prospects for companies intent on intellectual property (IP) commercialisation. To capitalise fully on the opportunities, organisations need to bring together innovative technology; high quality management and abundant funding. But they also need to ensure that the commercialisation process handles these fundamental elements correctly. Much IP today is owned by large academic research or corporate organisations, which are not always best placed to carry out the necessary commercial development to bring it to market. While higher education institutions spend significant sums on r&d, their primary focus is on pushing the boundaries of science rather than deploying the results directly in the commercial field. Thus life science businesses formed by academics are unlikely to have either the broad-based management skills needed to maximise growth or access to the necessary funding.

Outside academic circles, there are three main technology investment strategies. The first consists of conventional r&d programmes, which are frequently stymied by the need for significant 'maintenance' overheads in order to safeguard IP rights. The second comprises captive 'corporate venturing' units, which large organisations develop specifically to commercialise IP and which are often held back by scarcity of resource or applicable skill-sets.

Finally, there are 'hybrid venturing programmes' which merge different areas of science and technology and have been developed by a large number of companies in this field. Typical barriers here include the availability of suitable specialist skills and related resources, together with a lack of appropriate risk management and analysis capability. As a result, in many large organisations, non-core IP is trapped by 'organisational sclerosis'.

Venture management businesses, such as Angle, are often well placed to help by effectively filling the business management gap, and acting as the 'corporate entrepreneur' in the equation. Ideally, the venture management company provides specialist management skills, market knowledge and technology expertise. It defines the most appropriate business model and routes to market and then manages and builds the business.

A key reason why many life science ventures fail to establish themselves centres on the collective mindset of top management. Managers often adopt too inflexible a strategy, based upon a misguided idea that they must adhere rigidly to the original business plan. In fact, they need to view the process as a commercialisation project that will ultimately turn into a business.

The advantage of this approach is that it places emphasis on defining the interdependencies of tasks, concentrating on the criticality of timescales and outlining the individual roles, rather than focusing on other trappings such as offices and infrastructure.

key differentiators

There are two main characteristics that distinguish life sciences investment from other technology areas: the long development cycles and the high level of investment required. These factors will inevitably make venture companies selective when looking at new opportunities. Consequently, such businesses will be more attractive if they present the potential for shorter timescale investments with frequent opportunities for exit or refinancing.

The nature of risk is another key differentiator of early stage life science investment. The most serious issues will typically be technical in nature: the possibility, for instance, that the product will not work properly; deliver the expected benefits; or that safety issues may emerge. If these concerns are effectively addressed, however, the rewards can outweigh the risks. In life sciences, if the product works and has regulatory approval there is usually a market ready to adopt it.

Angle bases its approach to risk on thinking creatively about how to manage its different aspects. In the early developmental stages, the focus is on taking high quality technology to proof-of-concept level to ensure that it is functional. Here, one of the ways in which risk is effectively limited is in ensuring that the IP is fully protected.

With these issues taken care of, the venture management company can start looking at the market opportunity and the competitive environment. How in practice do successful life science companies combine the three key elements of any newly emerging business: capital, technology and management?

NeuroTargets, an Angle venture, was originally founded as a genomics-based company to commercialise the research of Professor David Wynick at Bristol University in 1999. The company is a successful product of Angle's new venture process, Progeny, which commercialises IP through the creation and development of new companies as spin-outs from organisations that develop and hold new technology.

The company has developed a highly efficient, patented technology for discovering novel and rarely expressed genes that are involved in the pathways of pain perception and nerve repair. It has discovered several promising drug targets and is investigating their role in pain and nerve repair in the peripheral nervous system. In August last year, it refocused its strategic direction around product development when it announced an alliance with BioFocus, a world leader in collaborative drug discovery, focused on discovering treatments for nerve injury and pain.

In its early stage of development, it benefited from the strong business management expertise provided by Angle. NeuroTargets has also been successful in raising external investment capital from various sources. Today, Angle retains a 25.08% stake in the company and a seat on the board.

Provexis, a leading product development and licensing company, has also successfully blended the three key elements. The original genesis of Provexis was the academic discovery by the Rowett Institute that an extract from tomato had the capability of inhibiting platelet aggregation in humans, reducing the risk of heart attack and stroke.

Having identified the commercial potential of this technological discovery, Angle founded Provexis in December 1999. Over the next three years, it helped integrate the two missing elements of the commercial equation - funding and high-quality management - to validate the original discovery and ensure the successful ongoing development of the company.

In September 2002, a former Angle employee, Stephen Franklin, was appointed chief executive. Franklin identified a target market within the functional food arena and was then instrumental in developing the fruit juice, Sirco, from the original technology and taking it through multiple human trials to establish its viability.

The successful application of high-quality business management to the development of the original IP has led directly to the emergence of the Sirco product and a portfolio of complementary technologies. In turn, this has enabled Provexis to attract a new level of investment partner. Specifically, it has allowed the company to enter into a joint venture agreement with Nutrinnovator Holdings and complete the product development of Sirco. The relationship ultimately led to Provexis completing a reverse acquisition of Nutrinnovator Holdings and the flotation on the AIM market.

Abundant opportunities exist for any company able to integrate successfully the three key elements of IP commercialisation. By bridging the gap between business and science, such organisations can garner significant rewards.

Additional information

Angle is a consulting and management and venture company focusing on the commercialisation of technology and the development of technology-based industry.