Montana Drug R&D: Good Science but No Commercialization Funding

By Beacon Staff

We have first-rate life science and biotechnology R&D groups in Montana, but it is highly unlikely that any world-class human drugs developed here will be commercialized by new Montana startup companies. Wow…that’s too bad. But…why not?

All new drugs that are administered internally to the human body require some form of very expensive and time-consuming FDA regulatory approval. This includes new drugs taken orally or by injection. It includes diagnostic and therapeutic medications. It also includes any intrusive (internal to the body) medical devices and procedures. Unless similar drugs or procedures have already been approved by the FDA, approvals require perhaps 3-5 years and $10s of millions of dollars. Once the drugs or devices are approved, many millions of dollars will be required to build a company and management team to effectively execute the sales and marketing plan. All in, it has been estimated by experts that $100 to $200 million is required to commercialize a new drug for use in humans after the laboratory research and drug development is complete – $100 million and more just for regulatory approval and commercialization.

Who provides this funding for promising startups? Let’s review the capital sources available to Montana innovators and entrepreneurs in life science and biotechnology: Federal government sources are available for R&D on drug development but little or none is available for regulatory approval or commercialization. As we discussed in our February column, “Capital Sources for Startup Entrepreneurs”, angel investors provide funding from $100,000 to $1 million, and maybe up to $2 million in rare cases. But, angels understand the capital sources available to entrepreneurs in Montana and are unlikely to provide any seed/startup stage funding for companies who need more than $2 million in capital to be successful. Startup entrepreneurs requiring more than $2 million must find venture capitalists willing to fund their deals. But, as we also discussed in February, Montana has attracted almost no venture capital funding in the past decade – exactly eleven VC financings have been identified since 2000.

A visceral reaction by entrepreneurs might be: “Well…my product and technology are just so much better than others in Montana that VCs will flock here to compete for financing our deal!” Sorry, there are life science and biotechnology centers in every state in the union, but life science and biotech companies are only being funded in Boston and Silicon Valley (with a sprinkling of VC monies in Seattle, Denver/Boulder and San Diego). Two-thirds of all venture capital is invested in California and Massachusetts. Half the states in the union (including Montana) almost never benefit from venture capital funding. And, this is not likely to change.
This sad story is not just true for commercialization of promising drug development, it is true of almost any startup venture in Montana (and many other states) which will require more than $2 million to reach positive cash flow. (Once companies achieve positive cash flow, they can grow on internally generated cash from earnings, without additional external capital.) We see lots of clean energy deals (as an example) that need more than $2 million to be successful. Sorry, these deals probably cannot be funded in Montana (and many other states with little or no local venture capital).

What options are available for commercializing Montana drug development (and other expensive life science, biotechnology and energy deals)? While none are particularly attractive, here they are:

1. Move the Montana drug development startup company to California, Boston, Colorado or perhaps Seattle.
2. Partner with research colleagues in universities close to venture capital sources in in those same states and commercialize the products in startup ventures near the research partners’ location.
3. Partner early with large pharma companies.
4. Leave the commercialization of drugs to others through licenses and agreements.

How do we address this mismatch between innovation and commercialization capital? Here are my suggestions:
(a) Recognize and define the problem, and
(b) Develop a regional strategy which better matches innovation resources with available commercialization capital. The following are just a few thoughts that might be included in such a strategy:
1. Building a robust venture capital community in Montana is not a viable option. This has been tried elsewhere and failed.
2. Refocusing startup commercialization activities towards those life science niches (such as some medical devices and animal healthcare) that can and do get funded in the regional market.
3. Commercializing drug developments by licensing is a viable strategy in Montana.
(c) Then, disseminate the definition of the problem and the resulting strategy broadly across the state.

Columnist Bill Payne is an entrepreneur and angel investor. He may be reached by email at {encode=”bill@billpayne.com” title=”bill@billpayne.com”} or see his website at www.billpayne.com where his book The Definitive Guide to Raising Money from Angels is available. This is the ninth in a series of monthly articles in the Entrepreneurs’ Corner written by Bill Payne for the Flathead Beacon.

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