Starting a new biotech company is fraught with risk, but offers potentially lucrative rewards. Costly lab space, stiff competition and a long road to revenue (never mind profitability) stand in the way, and securing the financial backing to keep the lights on can be a challenge.
In conversations with a range of stakeholders, both on the incubator and on the biotech sides, six pieces of advice for early stage startups stood out.
1.) Applying to an incubator can help — even if you don't get in
Given all the challenges associated with launching new biotech companies, it is no surprise that incubators and accelerators have become a sought-after choice to jump-start research.
With all that demand, getting into a program might not be a sure thing. The New York-based Alexandria Center for Life Science announced its LaunchLabs program for early-stage biotechs last summer, and over 50 companies already have applied. Alexandria anticipates only about 20 companies will fit in the 15,000-square-foot space.
LabCentral, a leading incubator in the Cambridge area, has a waiting list to get into its current space, although it is in the process of expanding.
Even so, applying to an incubator can help biotechs just starting out develop and streamline business plans and strategy.
"We found that the process of getting into JLABS had value for multiple reasons. It helped us collect our thoughts, really polish and hone our business plan, our story so that we could effectively present the story to people that would understand it," said Joe Payne, CEO of Arcturus Therapeutics, which signed a licensing deal with Johnson & Johnson after incubating with JLABS.
2.) Working with an incubator can raise your fundraising profile
While the venture funding pool for biotech is still deep, raising seed money to launch a startup remains a challenge.
"The seed round money is very, very hard to get," said Payne. "Many would argue it is the hardest money to get because there is no data. You are really just investing in people and the story."
For start-ups, the imprimatur of a respected incubator can serve as a validation of sorts for the promise of its science.
"Once we got in [to JLABS], we found it was a hook to open doors to some high-net-worth investors… It helped us raise money because when they came to our place, we weren't in a garage. We were in A+ lab space," Payne explained.
3.) Target incubators that align with your therapeutic focus.
While promising science carries weight anywhere, some incubators look for biotechs that share a therapeutic focus with the pharma companies who back the program.
"It really has to do with science, need, team, what kind of funding syndicates [biotechs] have … Then, of course, we also look at companies that are in strategic areas of interest to Johnson & Johnson," said Lesley Stolz, head of JLABS California.
Thong Le, CEO of the life sciences investment firm and incubator Accelerator Corp., expressed a similar view. While Accelerator does look for partners across a wide range of therapeutics areas, the strategic interests of the pharmas on Accelerator’s 12-company investor syndicate play an important role.
"I will say that our perspective on what becomes the most exciting projects for us to work on certainly is shaped by the 12 stakeholders that we have. Certainly having the likes of AbbVie, Eli Lilly, J&J and Pfizer at the table, it shouldn’t come as a surprise that we will be looking at things that become areas of interest for those respective companies," Le said.
In addition to boosting growth, corporate-sponsored incubators can also be an opportunity for biotechs to show off emerging science to pharma backers, potentially leading to licensing deals down the road.
J&J, for example, has partnered with 48 companies coming out of the JLABS program since the incubator’s inception in 2012.
4.) Choose location carefully
High rental costs and historically low vacancy rates in biotech hubs like Boston and San Francisco can be a daunting barrier to entry for small, cash-strapped biotechs. With little time to spare for a lengthy real estate search, some biotechs are searching in peripheral areas for more affordable leases.
Yet looking solely at costs can obscure the substantial benefit of being in walking distance from the research institutions and potential pharma partners found at the center of, say, Kendall Square or greater Cambridge.
"Even though prices are high, being in a market like Cambridge and Boston, you are bumping into the best and brightest and most innovative scientists at the urinal," said Mass Life Sciences Center CEO Travis McCready. "Every day you are bumping into these folks. It has created an environment where drug discovery is more efficient."
An incubator can give biotechs a much-needed second option, offering more scalable and affordable lab space.
"If you actually look at the other side of the equation in terms of efficiency and time to market, or time to failure, paying that amount to be in Kendall Square, to be in Cambridge turns out to be a very worthwhile long-time investment," McCready said.
Gritstone Oncology, for example, found itself flush with cash after a $102 million Series A financing last October. Still, it wanted to quickly accelerate its early cancer research and get a head start in the hotly competitive field.
Gritstone chose to work with Mass Innovation Labs, a high-powered Cambridge-based incubator, and was able to quickly set up its lab and generate data which it parlayed into a partnership with Immune Design.
Locating near academic or research institutions can also help limit the need to make heavy capital investments in technology.
"Consider how location might enable you to defer capital costs by accessing large equipment at neighboring facilities such as academic core groups," said Mary Ludlam, founder and CEO of Carin BioSciences, which works out of Bayer’s San Francisco-based CoLaborator.
5.) Flexible approach to rent
Incubators give biotechs the opportunity to start with the minimum amount of space needed and grow into a larger footprint as research advances. For companies with a handful of founders, some office space and a spot at a bench might be sufficient while keeping options open in the future.
One of the key advantages of an incubator model is it provides an opportunity for biotechs to start small and build out new space as research continues.
At the Alexandria Center’s aforementioned LaunchLabs, for example, biotechs can rent an office workstation and a lab bench for roughly $2,000 a month.
"Think carefully about how to ensure you derive maximum value from the space you occupy. Rent the minimum amount of space you need to start with (probably less than you think!) and negotiate terms that allow you to expand or contract as needed," Cairn CEO Ludlam said in an email.
Mass Innovation Labs, which typically caters to rapidly expanding companies, recently expanded its offerings by adding so-called "innovation suites" and "bench on demand" space. Both offerings are geared to small, start-up biotechs conducting initial research.
Even for high-growth companies, flexibility is valuable.
"The flexibility that a partner, especially on the space side, can provide is attractive. That is one exciting things as we looked at MI Labs; they were able to be flexible. They had different suite sizes, different configurations, they could help change our office versus lab configuration quickly," explained Matt Hawryluk, chief business officer at Gritstone Oncology, in an interview over the summer.
6.) Check out the alumni
"In evaluating an incubator I would look at the alumni as well as the companies that are there," said Thomas Farb, president and co-founder of the Wakefield, MA-based Thrive Bioscience, which works with North Shore InnoVentures.
"I view it as a good sign if they have had successful graduates. I think it is important that they be graduating so they are not just hanging on to companies for their own economic well-being," Farb explained.
"Looking at both the successes and how they handle the ones that aren't is important.”
Some incubator programs, such as JLABS, have had a longer track record and can be evaluated on the companies which have since exited through licensing deals or other M&A.
In younger incubator, the progress of partnered biotechs towards licensing deals and generating data can also be revealing.