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Logo of nihpaAbout Author manuscriptsSubmit a manuscriptHHS Public Access; Author Manuscript; Accepted for publication in peer reviewed journal;
Med Innov Bus. Author manuscript; available in PMC 2010 July 22.
Published in final edited form as:
Med Innov Bus. 2009 April 1; 1(1): 52–66.
doi:  10.1097/01.MNB.0000357626.97020.e5
PMCID: PMC2908321

Maturing Early-Stage Biomedical Research; Proof of Concept Program Objectives, Decision Making and Preliminary Performance at the University of Colorado

Section I. Introduction: Scope and Content

This manuscript focuses on organizational objectives, decision criteria and performance of biomedical technology commercialization programs as a context for understanding university technology maturation programs. The primary contention is that university technology maturation programs are not different in kind from public and private technology development programs, and the difference from these broader programs is primarily a difference of degree related to aspects of the university research context.

The University of Colorado (CU) has developed three different programs within its overall Proof of Concept (POC) funding process. Although the CU POC program relates to all areas of university technology, for this manuscript data will be presented from three program elements solely related to biomedical technologies (therapeutics, diagnostics, medical devices and to a lesser extent, tools and materials). In order to understand the objectives, decision criteria and performance of CU’s POC programs, it is important to understand how the program developed and evolved. Conclusions are provided in the form of lessons learned, and implications for university technology transfer practice. The main work on the topic is descriptive and primarily derived from practitioner reports and promotional literature (Johnson, 2005).

There has been a philosophical debate about whether it is the proper role of universities to develop technology, spin companies out, and commercialize technology and how to resolve the conflicts apparent in such activity. Faculty and administrators are divided, to various degrees, on this issue at many institutions (Siegel et al, 2003). Economic development and political leadership of many economic regions see their respective universities and public assets with a broader role than just advancing the frontiers of science. Universities are seen as economic engines, beyond the people they employ and educate. Many universities are seen as an integral and critical component of the knowledge economy. The progression is as follows: science leads to knowledge, which in turn leads to technology, which in turn leads to products and services, which in turn lead to business creation and eventually sustained job and wealth creation. The progression is not a consequence of happenstance; it must be planned and skillfully executed (Vohora et al. 2004). The major gap in this economic development system is generally agreed to be the transition from technology to product (Gulbranson and Audretsch, 2008).

Section II. The problem and context for University Proof of Concept programs

Most United States university intellectual property is derived from basic research. The research component of faculty evaluation is focused on research productivity as defined by the quality and quantity of peer reviewed publications. Essentially, biomedical investigators are rewarded for advancing understanding about basic biological processes and/or human health circumstances. The key point is that annual compensation, promotion and tenure is not predicated on intellectual property (IP) outputs, such as inventions and patents, or commercial outcomes, such as creations of therapeutics, diagnostics or medical devices.

University biomedical discoveries can be identified (via investigator disclosure) and protected (via patenting), but due to the early nature of the biomedical technology, it is difficult to find an adopter and champion willing to develop and commercialize the discovery (Shane, 2002). Biomedical technologies generally involve greater development and commercialization risks compared to other university technologies in the physical, engineering, materials, and information sciences. Compared to other university technologies, biomedical technology is even farther “over the horizon” due to longer patent prosecution risk, human safety and efficacy risk, risk of capital continuation, and reimbursement risk. In many cases, biological discoveries lack a clear definition of the product, lead market application, and business/revenue model.

Because most discoveries and inventions made in the context of a research institution with support from federal research grants, most of these inventions are typically immature when disclosed to the institutional technology transfer office (Jensen and Thursby, 2001). Patent applications, or even issued patents, are not normally stand alone, market-ready assets, nor are they the core of a viable development program. Furthermore, uncertainty with respect to technical feasibility, clinical feasibility, and market feasibility usually remain when an invention is submitted to the institutional technology transfer office. Most technologies disclosed to technology transfer enterprises are not the result of a market driven process and thus not immediately ‘transferrable’ to a private sector. The discovery, invention, or technology must evolve into a comprehensive development program to be conducive to significant capital investment and thus transfer to private investors.

Public funding of these key validation steps is not within the mission of most federal funding agencies. The obvious exception is the Small Business Innovation Research (SBIR) program and its companion program the Small Business Technology Transfer program (STTR). Although these two programs are widely perceived as successful contributors to development of early stage technology, their budgets constitute less than three percent of an agency’s extramural research budget. The vast majority of public research funds are generally allocated to projects that advance the creation of new knowledge and scientific principles, not validation of existing concepts. Preclincial drug development, prototype development, assay development, and assay validation are usually (traditionally) not suitable aims for federal grant funding.

The therapeutics business development model is unlike any other technology business development model, to the extent that some claim to be a “broken” business model (Gilbert et al., 2003). All this equates to greater business risk; however the risk is usually mitigated by large markets associated with many unsolved medical problems, the potential for significant clinical impact and possible immense financial success. At universities, technology commercialization success is highly associated with biomedical research capacity producing one, but not many, human therapeutic royalty streams (AUTM, 2008). The biomedical research enterprise and technology transfer experience at CU is consistent with the phenomena described above.

University technology maturation programs are relatively new, so much so, that no inferential empirical research is available. The main work on the topic is descriptive and primarily derived from practitioner reports and promotional literature. Given there is no inferential empirical research on the topic of POC funding and efficacy, for an empirical foundation one has to turn to scholarly areas relevant to this topic. Scholarly research on early-stage technology development addresses a wide array of topics. Various organizations in the technology development value chain make decisions analogous to university POC decisions. Within the context of a technology development organization, resource allocations are made to advance organizational objectives such as capital attraction, licensing transactions, revenue generation, clinical impact, and professional attribution. The criteria for POC decisions slightly differ by the type of organization undertaking the technology development activity (i.e. technology transfer office, venture organization, clinical research institute). In that light, five different funding models relevant to early stage technology development are used to examine objectives, decision criteria and performance relevant to POC activity:

  1. University entrepreneurship, in particular commercialization of university IP, which is generally know as “technology transfer”,
  2. Philanthropic early-stage university investing, in particular disease foundations,
  3. Federal government early-stage university technology development programs, in particular the SBIR/STTR programs;
  4. Business and economic development intermediary organizations, in particular biomedical business development organizations and biomedical business incubators, but including local, state, and regional economic development agencies,
  5. The early stage technology development firm, including institutional venture capital and private individual (“business angel”) financing

Domain 1 - University Entrepreneurship

For the university entrepreneurship domain the primary objective is technology adoption. Most university technology licensing managers report the mission of their office is to advance commercialization of their university’s IP (Colyvas et al., 2002), and not revenue creation (Collier, 2008). Other objectives may also apply such as regional economic development, faculty retention, and clinical and societal impact (Gulbranson and Audretsch, 2007).

Most university technology transfer enterprises are built to protect and license intellectual property generated within the research enterprise of the host institution. Most large public university Technology Transfer Offices (TTOs) are lean and highly leveraged organizations, meaning they receive a large number of invention disclosures relative to the staff, financial resources, and breadth of expertise in house. TTOs tend to focus their time and money where they think they can have an impact. Consequently, the decision process revolves around which disclosures to commit resources and matching intellectual assets with partners in the marketplace. Due to limited patent budgets, and the high cost of geographically broad and sustained patent prosecution, many TTOs have to make difficult choices and prioritize assets in the portfolio (proceed or abandon) as patent prosecution becomes incrementally more expensive and time consuming at each step. As a result of the resource constraints, most TTOs act as a funnel or filter between the research enterprise and technology market. TTOs focus their resources on two fundamental activities: 1) buying time through methodical patent prosecution, and 2) gathering information about market viability of a particular project or product. Alignment of the commercial drivers, research program, and patent prosecution process is usually not under the strict control of the TTO, and in fact the TTO rarely has meaningful influence on research direction outside of projects funded directly by the TTO. This is an important point that will be revisited later.

A traditional funding model for nascent product development programs is a research funding or collaborative partnership with an operating company, usually a pharma, biotech, medical device or diagnostics company, whereby the company provides research funding, and payment of patent costs, in exchange for IP rights to the subject project outcomes. Generally, these arrangements result in traditional license transactions with the technology transfer enterprise if the results look promising. It can, however be quite complicated to involve a new licensee company (typically called an academic spinout or university start-up) in this relationship between the research institution and the larger company. Usually, this is because of the competitive implications the academic spinout might create for the larger company. However, where rights can be divided by field, or other alignments of interest between the three parties (research institution, academic spinout, and large operating company) are feasible, corporate sponsored research deals can be catalytic to the development of an IP portfolio and development roadmap for a startup. A small handful of University of Colorado spinouts have achieved critical proof-of-concept threshold through such creative partnerships with large companies and the University.

In summary, most TTOs act as an IP intermediary for more mature and market ready assets, maintain and pursue IP protection, and to some extent help guide the commercialization process in a logical direction. Funding for such applied research and influence of research aims usually comes from non-Federal agencies and University sources.

Domain 2 - Philanthropic research funding and investing model

A recent trend in philanthropy has been to fund applied research that accelerates the advancement of diagnostics, vaccines and therapeutics into clinical validation trials. Such funding has benefited high risk, high reward ventures, where the most applied, but cutting edge research tends to happen. The term applied to such funding is venture philanthropy (Letts, Ryan and Grossman, 1997). The premise is that risk capital is provided to promising teams and technologies at a stage where a financial return on investment (ROI) may not be readily or easily achievable, but at the same time, the private sector is best positioned to clinically advance the technology Although the investment goals of such philanthropic organizations might not be ROI based per se, the organization retains a carried interest in the venture and participates in financial upside or at least secures a return of their funding downstream. Such funding sources are often slightly downstream of POC funding activity of most technology transfer enterprises. Many foundations have historically been averse to subsidizing private, for-profit entities, but some have seen the biomedical technology development ecosystem more holistically and realize that some for-profit companies can be capable and productive partners in the advancement of promising biomedical technologies. This is perhaps most true in therapeutics, where large scale clinical trials are almost always financed by the private sector. The retained interest through royalty stream and/or equity interest allow such funding initiatives to be “evergreen” or self replenishing. Examples of this approach are evident in the activities of the Juvenile Diabetes Research Foundation and Puretech Ventures:, Cystic Fibrosis Foundation Therapeutics, Inc., BIO Ventures for Global Health, FastCures, the MS Socienty, and the Michael J Fox Foundation. This blending of philanthropic funding with capitalist incentive models and venture investment discipline, has come into favor among some successful tech entrepreneurs and investors, turned philanthropist, such as Bill Gates, Warren Buffet, Michael Milken and others.

Domain 3 – US Government Small Business Innovation Research (SBIR) and Small Business Technology Transfer Research (STTR) programs

Historically federal research agencies such as the National Institutes of Health funded basic research and not development. With the creation of the SBIR (in 1982) and later the STTR program (in 1992), federal research agencies directed some attention to technology development. Recently, SBIR business development follow-on funding has become available for successful Phase I and Phase II awardees through the NIH and the National Cancer Institute’s Rapid Access to Interventional Development programs (RAID) and other similar clinical development grants.

At a national level, the objective is increased technological innovation for sectors identified as important priorities by federal agencies and federal political leadership. Some political jurisdictions, particularly states, have pursued SBIR/STTR assistance programs directed toward increasing applications and funding success for companies residing within the political jurisdiction under the guide of a more comprehensive economic development strategy, targeting high technology companies. Entrepreneurial inventors take it upon themselves to seek and secure funding through the SBIR and or STTR mechanisms. Phase I grants, generally in the $100–150,000 range, can be a scientific validation of a research program and a catalyst for some sources of POC funding. Some state and regional economic development programs, and technology transfer and incubation organizations also provide assistance and proactively drive the pursuit of SBIR/STTR funds on behalf of client companies. Examples of this are: the State of Kentucky, Pittsburgh Life Sciences Greenhouse, the Illinois Innovation Challenge Program and the Wyoming Phase 0 program. A few states provide or have provided matching funds for SBIR/STTR awards, such as Kentucky, Colorado, Texas, Arizona, Oregon, North Carolina, Michigan and Oklahoma.

Relatively few pieces of the commercial roadmap must be in place to secure Phase I SBIR funds. Phase II funding, generally in the range of $750,000 to $1.5M, requires many aspects of a commercial plan, but does deeply delve into key intellectual property questions, market viability issues, and a strategic and sustainable funding model. A phase II award might address critical precommercial milestones, but such an award does not generally convert an academic venture into an investor ready venture.

Domain 4 – Business development intermediary organizations, in particular biomedical business development organizations and biomedical business incubators

Technology oriented business incubators and public business development programs emerged in the mid 1980’s (Allen and Levine 1986), with biomedical specific programs emerging soon thereafter. Public business development organizations, which are typically non-profit organizations organized at local/regional/state levels, are driven by economic development objectives, specifically job creation and economic diversification. Business incubators, a subset of this larger category, are driven by various objectives, with the general objective of public incubators being economic development, specifically job creation (Phan et al., 2005). Bioscience incubators are typically closely affiliated with research universities and in a much small number of cases, venture capital firms. As part of their service offerings technology incubators typically provide business development and investor networking function. For example, four academic sites of the University of Colorado (Aurora, Boulder, Colorado Springs and downtown Denver) are independent entities, but each have an affiliation with the CU Campus in that vicinity. Each campus works with a distinct and regionally based business development and incubation organization (Fitzsimons BioBusiness Partners, Boulder Innovation Center, and Colorado Springs Technology Incubator and the Bard Center for Entrepreneurship, respectively).

Economic Development Model

Bioscience companies can be scalable, attract large amount of capital to a region, state, or municipality, and thus result in the creation of high paying, high skill jobs. Some economic development (ED) agencies are becoming savvy about programs to assist nascent biomedical companies reach a viable threshold and secure venture financing (vs. bricks-and-mortar infrastructure investments). It is common for urban ED organizations, particularly ones with affiliations with academic medical centers, to have programs directed to the critical need for early stage, patient, risk tolerant capital necessary to get biomedical ventures to their first professional financing round. Most ED support programs require some commitment to the region, which can limit company mobility and attractiveness for an investor out of the region. ED program evaluative criteria can range from financial ROI measures (such as loan repayment, royalty revenue and equity ownership) to measures of job creation success. Despite potential complications associated with funding from an ED agency, such funds can be an important component to the pre-venture capital financing plan for a nascent biomedical company.

Typically program investment diligence is not as extensive as would be undertaken by venture capital investors. The process for making funding decisions shares some of the attributes of peer-reviewed basic research (review by relatively homogenous peers) with additional criteria directed to technology development. The basic economic development objectives of these public organizations leads to a set of decision criteria biased toward job creation and near term impact. Consequently, the most scalable ventures, those developing new therapeutics, can be disadvantaged if criteria for support are biased toward requiring or rewarding near term outcomes.

Domain 5 – The early stage technology firm

For this domain the primary POC objective is return on investment (ROI). The institutional venture capital industry (VC) and the angel capital industry best represent this domain and have been called the “essence of capitalism”. As the VC industry has grown over the past six decades, it has gradually moved away from its seed capital origins to more later-stage, larger investments. During 2007, the seed venture capital investments constituted about 4% of the total $29.4B VC investments. Life sciences constituted 31% of the total VC investments in 2007 (PWC MoneyTree, 2007).

Business Angel financing is thought to be as large as institutional venture capital, but angel investments are primarily small size (approximately $100,000 per investor with three to ten individuals composing most angel investor syndicates). Accordingly, angel investing is many times larger than the institutional seed capital industry. However, angel investing in biomedical start-ups is about as frequent as VC seed investing, given relatively few angels have biomedical experience and feel comfortable with the risks posed by biomedical investing. Within the university context, a few seed capital funds and business angel networks have been created, including the Baylor Angel Network, MIT Angels, Harvard Angels, and Tech Coast Angels.

The Integrated Ecosystem

The University of Colorado has evolved toward an integrated venture development process that coordinates all of the sources of precommercial funding, coupled with the entrepreneurial and operational advisors and drivers critical to building a viable start-up company. A coordinated commercial plan and development roadmap from the very beginning can ensure impactful use of each source of funds, within the inherent limitations each source of funding might impose. In a perfect world, a venture financing would present the fewest limitations and require the least effort and cost to manage. In reality, most nascent academic ventures have to bootstrap themselves to financial viability (i.e. develop a credible development and business plan and secure a first “smart angel money” commitment) by reducing the fundamental types of early risk that preclude ROI-based venture investment such as technical viability, some preclinical feasibility, early financing, intellectual property and market acceptance risks Elements of a viable and investment quality venture are usually:

  • an experienced and credible entrepreneurial driver or team with relevant operating and fundraising track record;
  • viable patent estate with issuable and enforceable patent claims and freedom to operate in the specified field;
  • proof of technical concept package, with some clarity of regulatory barriers; and
  • readily evident business and revenue model

Getting a good handle on these early risks, allows venture investors to focus on risks they are more comfortable assessing and managing such as execution and business model risks, systemic financial market risks (capital availability when capital is needed), clinical and regulatory risks and market risks. The aforementioned sources of maturation funding can be helpful in compiling the complete package (and risk reduction) necessary to attract venture financing. In fact, a rule of thumb used by some professional venture investors requires that they commit more than five to ten times the amount of capital previously committed to venture, ostensibly to ensure a sense that the team and technology have a solid foundation (and track record) upon which to build value. The elimination of compound risks certainly improved the odds of success and degree of confidence investors has in their ability to successfully grow a business and obtain a return on investment. To the extent this rule of thumb holds true, POC funding is not only a catalyst for venture financing, but perhaps the rate limiting step and catalyst in many cases.

The inherent development, regulatory, and financing risks of early stage biomedical technology, coupled with biomedical technology investors (financial and strategic) trending toward risk-aversion (Fishback et al., 2007), lower valuations, and generally higher hurdles to investment, means many TTOs find themselves in the technology maturation business. POC programs can be a catalyst for downstream capital investment, and facilitate transfer of the technology, if the POC investment programs are designed to lower the activation energy of that downstream investment.

Section III: Other University POC Maturation Funding Models

General technology transfer enterprise (POC) funding model

Many large research universities have one or more proof of concept or seed funding models, with varying objectives and funding uses (reviewed by Johnson, 2005). Some are based on an ROI model such as Baylor College of Medicine Ventures, early stages of ARCH Venture Partners, Illinois Ventures, and the Boston University VC fund. Others are catalyst or pre-seed funds with a primary objective of facilitating downstream capital attraction such as the Despande Center at MIT. Funds can be segregated based upon intended use of funds, with uses including: scientific validation, business and regulatory planning, product prototyping and development, and clinical development. Generally, early stage aims like scientific validation and planning fit the risk profile of catalyst funds, where ROI funds tend to support later stage objectives such as regulatory and business development and clinical validation.

Many, but not all, catalyst POC funds require some form of repayment or carried interest: ROI funds will certainly have such provisions. Repayment can be in the form of cash or stock, and can be at a set time or deferred until financing or revenue generation. Most funds strive to be sustainable or evergreen by recovering capital from successful projects for later redeployment, whether at nominal value or a multiple of the original amount. Whatever the payback provisions and stage of deployments, most POC funds share a common goal: advancement of technologies stuck in the technology gap between research funding and private investment.

Section IV: The University of Colorado POC Maturation Funding Programs

The University of Colorado proof of concept funding program involves three distinct types of awards: 1) Proof of Concept grants (POCg), 2) Proof of concept investments (POCi), 3) State of Colorado matching grants (POCsb).

The POCg program is a seeding program offering grants to faculty inventors of $10,000 to $25,000 to generate key preliminary data for downstream grants. The funding roadmap for a POCg project usually leads through SBIR/STTR, federal funding or POCsb funding. The key milestone is usually technical proof of principle in a simple and cheap experimental model system. POCg awards are usually given with the intent of either licensing or spinning technology out in a new venture. The decisions are largely made internally, with the input of external advisors of an ad hoc basis. This program requires the University to tolerate the most risk, but given the small capital commitments, this program has the most potential to lead to high leverage in the form of larger boluses of capital inflow downstream. These are grants and are not repaid.

The POCi program is the University of Colorado’s most focused and specialized funding mechanism. Up to $100,000 of funding is provided to a University spinout in the form of a nonrecourse convertible loan. Conversion is usually triggered by a qualified financing of a predetermined amount. The key milestone is usually one that would enable venture or angel financing, but sometimes enable an SBIR or STTR award. A POCi award requires a commercial driver or champion, often in the CEO role, to lead fundraising efforts and manage the early business development activities of the nascent venture. Funding decisions are recommended by a venture capital advisory panel, based upon their assessment of the products and concepts most likely to attract venture funding into a stand alone startup company.

The POCsb program is largely subject to the legislative mandate and restrictions in the state bill that allocates the matching funds. Grants up to $200,000 are provided to university inventors for promising technologies that are likely to support Colorado-based venture backed start-up companies. The funding decisions are recommended by a panel of venture capitals and biomedical operating executives. Key milestones are variable, but must clearly lead to a logical, likely, and appropriate funding source. This program is most flexible in staging, but very focused on advancing technologies and concepts that can support stand-alone, scalable ventures given the economic development mandate of the legislation enabling the program.

The strategic goals of the University of Colorado POC program, in the context of the biomedical development environment are represented schematically in Figure 1. There are two parallel and fundamental development tracks, business and technical, for any nascent biomedical product originating from a research institution. The University of Colorado POC programs are designed to address gaps in both elements of the development continuum by funding both technical and business development.

Figure 1
Schematic diagram of the Colorado Biomedical Venture Development model employed by the University of Colorado. There are two parallel development thrusts represented by the upper and lower half of the diagram, Technical Development and Venture Development, ...

Section V: Overview of Outcomes and Lessons Learned from the CU POC programs

The University of Colorado has experienced some early success since its launch of the POCi program in 2004, the POCg program in 2005, and the POCsb program in 2006. Overall, roughly half of the projects receiving POC funds have been licensed to commercial entities. However, a more meaningful measure of validation and success of these programs are the capital commitments occurring downstream of those licenses Table 2. The program has averaged a 20X amplification of initial capital investment based upon slightly more than $5 million of POC investments through the University of Colorado (Table 2 and Table 3).

Table 2
Summary of projects funded under University of Colorado POC programs and relative success if licensing and leverage multiple, for the four primary technology categories representing POC investments. Number Funded represents number of projects allocated ...
Table 3
Summary of Proof-of-Concept (POC) investments and grants at the University of Colorado by technology type. Columns represent various sources of primary funding (POC Award Amount) and follow-on funding by source and in TOTAL. Leverage represents POC Award ...

Follow-on grant and angel funding was distributed across technology categories similar to POC allocation, but venture funding was heavily focused on therapeutics (Figure 3). Not surprisingly, therapeutics projects resulted in the greatest amplification of CU investment at nearly 30 X. In fact, while slightly more than half of POC projects funded were therapeutics projects, those projects accounted for 94% of the downstream capital attracted.

When looking at POC and follow-on funding distribution across the various CU POC programs, the most mature program, POCi, tends to have the most amplification. In the same vein, the least mature program, POCsb, shows the least amplification because most of the capital commitment under that program has been recent and follow-on funding has not fully materialized. That program was launched in 2006, and projects are just beginning to mature into viable and investment quality programs. A note about methodology is in order. If a single project received multiple POC awards, the follow-on funding is attributed to the program in which the last or largest award was issued, to minimize bias in the methodology for measuring leverage for a first, smaller investment or grant.

Case studies

Taligen Therapeutics was the first recipient of a POCi award from the University of Colorado TTO in 2004. Taligen was founded to develop antibody therapeutics targeting the complement system, thus the potential to address a broad array of clinical unmet needs. Preliminary in vivo characterization of proof of concept antibody therapies was funded through POCi. Data from POCi studies were leveraged to attract SBIR awards in 2005 and a seed investment by a state of Colorado sponsored venture capital program. In 2006 Taligen closed on a $3.8 M series A financing led by a California venture capital firm. After hitting key milestones with Series A funding, Taligen was able to secure a $65 M commitment and closed a Series B financing in January 2008.

Keys to Taligen’s success were:

  • Clearly defined milestones and path to the next round of funding
  • Committed commercial driver to step in as CEO and move the company forward
  • Resolution of IP licensing and ownership issued under the POCi and through TTO, in support of financing diligence

Serendipitously, Taligen was the first and most leveraged POCi investment in the University portfolio. With such an example to learn from, minor refinements have made the POCi program highly successful, both in the proportion of projects that receive downstream commercial support and the aggregate dollars those projects have attracted. While it is virtuous to learn from failure, it is fortuitous to learn from success.

Sierra Neuropharmaceuticals

Sierra Neuropharmaceuticals Inc. (Sierra) was founded in 2005 to develop proprietary formulations of nonproprietary psychotropic drugs of known safety and efficacy. Sierra’s technology and IP platform takes advantage of intrathecal delivery of psychotropic drugs that have pharmacologic profiles rendering them suboptimal for systemic delivery. Original proof of concept work was enabled through a $25,000 POCg award in the spring of 2006. Preliminary data on a novel formulation of clozapine were leveraged to get a POCsb award of $190,000 to support formulation and regulatory development for other drugs. Venture capital firms were keenly interested in addressing the unmet need for neurocognitive diseases and the potential for Sierra’ s platform to provide entry into that lucrative market. A local entrepreneurial group, who had experience raising $400 million in financing and exiting a prior University of Colorado start-up licensee therapeutics company, provided guidance and assistance to the scientific clinical founder of Sierra. The team assembled a viable and credible business plan and was able to close a $21.5 million series A financing in 2008, led by two local venture capital firms and a third Boston firm.

Sierra is an unusual University spinout in two respects: the scientific founder was at the forefront of fundraising activity and continues (successfully) to be the CEO of the company, and a therapeutics company going from inception to series A in less than three years. Market conditions and prudent use of early capital allowed the founders of Sierra to slip into the window of opportunity in a hot market area.

Endoshape Inc.

Endoshape is a biomedical engineering platform company founded in 2005 to develop novel biocompatible shape memory polymer materials for endovascular and intraluminal clinical applications. Endoshape’s scientific founder was the beneficiary of a $10,000 POCg grant award in September of 2005 and a second $20,000 proof of concept grant in January 2006. Funding was used to optimize polymer materials for application in vascular stents and characterize materials properties in ex vivo and benchtop proof of concept studies. Those projects were encouraging, a commercial champion was engaged, and a $100,000 POCi proposal was awarded to perform in vivo performance and biocompatibility studies. These POC awards led to over $1.2 million in nondilutive SBIR funding to date.

Endoshape represents the third company the faculty founder funded based on CU IP, with minimal dilutive capital. Endoshape is an interesting case study, though still a developing success, in that they have used to POC funds to validate a materials platform and get downstream grant funding, then effectively utilized State of Colorado matching funds to mature IP diligence and hone market strategy and prioritize product development opportunities prior to seeking any venture capital funding. Venture capital financing and exit multiple remain to be determined, but the company has successfully reached early stage milestones without dilutive financing, and continues to plot a course forward with minimal stalls and pitfalls.

Summary of case studies

A common theme emerges as driving fundraising success of these spinout companies:

  • a strong and compelling scientific founder who is persistent and coachable
  • the importance of an involved entrepreneurial team or champion, early
  • seed capital to validate the deal and nucleate the team

A POC program that can direct resources to the right opportunities and people, can create significant impact for an institution and a bioscience industry cluster.

Section VI: Challenges

POC funding in a research institution creates some tensions between two major constituents in the technology development ecosystem: the faculty inventors (the sell side) and the venture and entrepreneurial community (the buy side). These tensions are result of well known cultural and value differences among the two constituents (DeFrancesco, 2008; Sparey and Gliubich; 2008). It is critical for both participant to understand the context and objectives of POC funded research.

Faculty inventors often apply the same principles of merit and objective to POC proposals, as they would a grant application to a federal funding agency. The goal of the latter type of funding mechanism involves advancing the frontiers of knowledge, often through the use of the most cutting edge analytic methods, and elegant experimental designs. The goals of the typical POC project are derived from questions posed by the venture and entrepreneurial community or industry advisors. These questions rarely involve the most elegant lines of inquiry, and consequently are not viewed by inventors and faculty entrepreneurs as scientifically valuable and publishable in top tier journals. The goals of POC projects are to address questions of technical, clinical, and market feasibility, which usually do not advance the frontiers of science. Managing expectations of faculty inventors early in the POC process is critical to establishing a credible investment process in which faculty are willing and motivated participants.

Most effective POC programs utilize advisors or panels from the entrepreneurial community and industry. These industry and entrepreneurial participants usually have valuable market and/or clinical domain expertise and have experience in evaluating new technologies for investment by the organizations to which they are/were affiliated. Thus, these advisors come to the process with criteria suited for major venture or development program investments these advisors are accustomed to evaluating. Advisors and panelists must be aware of, and share consensus about, the investment objectives for the POC program. The investment objective is usually a milestone corresponding to the next round of capital which would be a seed, Series A, or capital commitment from a licensing partner. It is critical that the evaluation process not be established with exactly the same criteria one would expect a financial investor to use for Series A venture investment or a licensee or strategic investor to use for capitalization of a biomedical development program. In reality, the scope of most POC investments is an order of magnitude smaller and an order of magnitude more risky than investments advisors are accustomed to evaluating. While a few similar investment principles and disciplines may be applicable, the risk profile for a POC project will almost always be preclusive of such a sizable capital commitment. The advisory process should reflect the practicalities of the high risk but small investment paradigm. The critical “smart money” investment milestone (not near term ROI, per se) must always be at the forefront of any POC investment decision, Furthermore, the advisory group must always be cognizant of their role in defining that milestone for the TTO and faculty inventor, rather than deciding whether the project is ready for Series A or a corporate investment.

While the benefit of a robust POC process is iterative refinement of a technology development program that might be “too early” for POC investment, it is critical that entrepreneurial advisors or potential investors do not perceive the unsuccessful proposal/program as damaged goods, whereby there is a negative validation effect when a project is not funded. One of the most common mistakes technology transfer enterprises can make is providing ambiguous feedback to an applicant, such as: “…the project is too early”. The damaged goods issue is partially mitigated through clear communication of why a project was not funded and what an applicant can do to position the project more competitively in the next round of applications. A clear, candid roadmap of pitfalls and milestones can put a projects true merits and challenges in an objective and proper perspective. This kind of candor is especially difficult when the proposal simply does not involve the right people or skills, or worse, involves the wrong people. Projects that are truly too early and lack merit for larger POC investments might be candidates for smaller programs in the $10–50,000 range if there is a clear milestone.

Institutional politics might also come into play in how programs are administered and potentially impact relative distributions of funds among departments, colleges, or other institutional business units. The most effective programs will externalize the decision process by substantially involving industry advisors in the funding decisions. Some see merit in having a scientific and/or clinical capacity in advisory panels. This is often easily accomplished through industry advisors and venture capitalists who have a solid technical background.

In summary, most of the inherent challenges in a POC program can be somewhat mitigated through implementation of the following best practices:

  1. Clear statement of POC program objectives (i.e. down stream capital commitment to a project after achieving a critical technical milestone)
  2. Clear statement of investment discipline for advisors
  3. Management of inventor expectations around acceptable project aims
  4. Distinguishing objectives of POC funding from traditional research funding
  5. Clear statement of milestones that represent a value inflection for a recipient
  6. Clear homework assignments and interim milestones for unsuccessful applicants

A robust and objective evaluation process should flesh out the critical risks and milestones inherent in the roadmap of any technology maturation project and build a long-term track record of success that lends credibility to the POC program and the TTO administering the program.

When recently speaking at a faculty seminar at CU, a tenured colleague faculty member from the University of Wisconsin - Madison asked if the several hundred million dollars of down stream capital investment in technologies from a university really is a measure of success, in light of some of the struggles and failures a biopharma partner of venture firm might experience with a university originated development program. A fair question given withering drug pipelines in big pharma and losses experienced by many biotech companies who have licensed or acquired early-stage product development programs from research institutions. Given a research institution’s limited and appropriate role in the technology development ecosystem, the next round of investment is an appropriate measure of success for both a POC program and the technology transfer enterprise running it. It is the goal of financial investors to exit at a high multiple, and the goal of strategic investors to acquire market share through their deals. Research institutions are generally best suited to mature assets to a transferrable stage of development and hand them off to partners with the appropriate capabilities and resources. Downstream capital investment (in a diverse array of projects) is arguably one of the best measures of the effectiveness of a TTO. The University of Colorado has sought to build capacity and focus resources to optimize and not maximize the degree of vertical integration.

Section VII. Implications for University Technology Transfer Offices

The core competencies of top performing technology transfer enterprises are:

  1. credible and positive relationships with the primary customer - faculty inventors
  2. ability to identify and articulate inventions within disclosures
  3. following, and perhaps sometimes nudging the research toward enablement and establishment of an optimum IP portfolio
  4. execution of fair and timely license agreements

The foundation for a successful technology transfer enterprise is an integrated system with capabilities in asset identification, articulation, development, maturation, and the business development and capital allocation activity necessary to elicit investment and derive value from the technology pipeline.

Two emerging capabilities common to these more effective and elite technology transfer enterprises are:

  1. business development activity with key participants in technology development and investment value chains
  2. mapping commercial and market drivers for a given technology and guiding relatively modest POC investments to align the risk profile of a technology development program with the profile of a viable investment for a biomedical development project

The additional business development and investment activity of university TTOs has the effect of nucleating entrepreneurial teams and drivers to move nascent technology toward the profile of an investable opportunity. POC investment gives a program or project the credibility necessary, the critical mass, to attract necessary entrepreneurial management, technical talent, and downstream resources necessary to get a program through a key viability milestone. Viability milestones for a novel, first in class therapeutic is often a validated target and IND enabling data package; for a diagnostic, retrospective validation of a formatted assay on an FDA- acceptable analytic platform in a relevant clinical cohort; for a therapeutic medical device, demonstration of proof-of-principle in an animal disease model. Arguably, such success in reaching validation milestones should be the primary objective of an academic TTO and proper place for transfer to another more capable participant in the technology development value chain.

Institutional research administration will face policy and fiscal implications when projects are funded through TTOs. These intrainstitutional funding activities have the added benefit of being highly leveraged sources of research funding in that they can be augmented with economic development funds, federal matching funds, donor funding, or even private matching funds. The case is usually compelling for reduced facilities and administrative overhead for projects funded through the intrainstitutional transfer from a technology transfer enterprise. However, the matching funds and source of that match can present a quandary for research administrators trying to maintain a reasonable degree of fiscal parity (and baseline F&A rate expectations) among various research funding sources.

Most POC funds, especially those operated by public universities, have an economic development objective, which generally puts a successful POC program and the projects it funds, on a trajectory toward a fast-growing, well capitalized start-up company. The faculty inventor is often a key contributor to the financing and growth of the company, which presents many potential inherent conflicts of interest and conflicts of commitment. Consequently, robust POC programs should go hand in hand with a robust institutional conflict of interest policy and best practices.

In summary, an effective POC program can be an extension of the research enterprise of its host institution, and augment the clinical impact of such institutions, through advancement of fundamental and applied research into novel biomedical technologies and on into the clinic. Leveraged POC funding has the potential to amplify the impact of traditional federal grants and intrainstitutional funding many fold. Coordination of POC funding with downstream investors and market drivers can provide the best results if success is downstream investment. However, the process for funding decisions, nature of research aims, and fiscal administration require different practices by administrators and fresh perspective among faculty participants. It is critical for the university TTO to effectively work with all business community and institutional stakeholders and build institutional consensus about the value and management of all aspects of the POC program to ensure the program is credible and effective, inside and outside the host institution.

Table 1
Summary of University of Colorado Proof of Concept funding programs, scope, aims and funding objectives.
Table 4
Summary of Proof-of-Concept (POC) investments and grants at the University of Colorado by POC Program. Columns represent various sources of primary funding (POC Award Amount) and follow-on funding by source and in TOTAL. Leverage represents POC Award ...


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