Venture capital in academia: does present reality call for more nonprofit venture?

The legend of an academic researcher toiling away in an ivory tower is still very much alive. Many physicians and biomedical scientists are driven to find new methods to diagnose and treat human disease, with the ultimate dream of taking something discovered at the bench to the bedside. This is the core mission of the academic research hospital and an engine for biomedical innovation. A physician-scientist may spend a significant amount of time poring over tissue samples, understanding gene and protein expression patterns, and teasing out potential drug targets, often by themselves or with a small team of graduate students, postdocs, and academic collaborators. Optimally, the effort leads to identification of a drug target and occasionally to a research-grade antibody or small molecule, with variable efficacy in relevant molecular and cellular assays and uncertain value for drug discovery.

At this stage, industry veterans should take on the herculean task of creating a drug development candidate. Academic researchers will look for venture funding to support a startup company outside of their institution. Although the science is exciting with great potential, researchers typically embark on a quixotic series of meetings with lots of questions and no commitment to bring the science forward. The lack of investor interest may be justified, as many of these ideas are speculative and high risk. The financing process leads to significant time lost for scientists, who are pitching ideas instead of doing what they do best — scientific discovery. Even when venture capitalists show interest, scientific founders find themselves in a weak negotiating position, and the wear of selling an idea over many months to years leads to venture capitalists gaining most of the ownership stake.

At Mass General Brigham (formerly Partners HealthCare), we have 6200 principal investigators (PIs), who are active in therapeutic areas ranging from neuroscience to oncology to rare diseases and employ technologies, including CRISPR, gene therapy, CAR–T cells, therapeutic oligonucleotides, antibodies, and small molecules. Annually, the technology transfer office receives over 500 PI-submitted invention disclosures (Figure 1), many of which are highly valuable but not the foundation for a strong biotech company. These inventions include diagnostic biomarkers, algorithms, research tools, and surgical devices. It is less common (only about 50 per year) for disclosed concepts to enable the creation of a new company (newco). Mass General Brigham looks for ways to transform these commercializable concepts and turn them into newcos, an example of which was started in 2008 and is discussed below.

Figure 1

PIF pipeline for next-generation therapeutics. PIF originated from the combined investment of MGH and BWH. Funds are used to invest in institutional PIs at the seed stage to support the development of research concepts and follow through on investment in lead productions for further development as a newco or pharma. A dynamic pipeline of publications, inventions, and PIF investment review produces newcos with a sustainable future.

In 2008, hospital leaders recognized that it would be financially and strategically beneficial to take propositions created at the hospital into the clinic and then partner with pharmaceutical companies, as opposed to engaging pharma at the scientific hypothesis stage, resulting in potential shelving of ideas when pharma strategy changes. Leaders also recognized that biotech companies have a strong track record of recruiting the relevant drug discovery experts. As a result, the Partners Innovation Fund (PIF) — a venture fund initially with $35M under management that has now grown to $170M — was created. The original funding came from Massachusetts General Hospital (MGH) and Brigham and Women’s Hospital (BWH), with $17.5M from each hospital. From 2008 to 2014, PIF invested in three to five companies per year but had not yet had financial exits through an acquisition or an IPO, which are the lifeblood of the venture industry. Patient leadership from the hospitals and strong management from the founding partners, Roger Kitterman and Carl Berke, kept PIF in the game as seed-stage investments matured. From 2014 through the end of 2019, PIF had 12 exits and achieved top-quartile life science venture returns.

Since 2008, PIF has operated as a typical fund, including Monday afternoon deal meetings with partners and venture associates. PIF now has four partners who are industry veterans and a senior venture associate with a scientific/consulting background. PIF also has an investment committee of leaders in the life science venture and pharmaceutical industries, who must approve investment decisions recommended by the partner team; the investment committee helps maintain objectivity and independence from the host institutions. The fund was designed to maintain adequate reserves for follow-on investment, rather than investing only at the beginning of a company’s life and hoping for the best. This design enabled a more rigorous process, as opposed to the previous academic model of making an upfront investment without the ability to influence the company’s long-term success. PIF forged a strong connection with the licensing office to identify new opportunities that emerged from our large academic ecosystem. The hospitals also amended the standard licensing agreements to include a term providing PIF with the right to invest in up to 10% of the seed and subsequent financing rounds. This term enables a more robust investment, with board rights to protect the interests of our investigators and the institution.

PIF has helped launch 43 companies in the past 12 years, and several core themes have emerged as a critical part of the founding process. First, ensuring appropriate founding equity to our scientists has been critical for the initiation and continued involvement of scientific founders to propel companies toward success. Scientific founders have worked for many years in the research area, and their insight into the biology or technology is necessary to recruit other venture investors and eventually create a bridge between the academic science and the company team. Second, most academic science is immature as a product, and therefore low pre-money valuations allow for sufficient interest from early investors. This concept is sometimes difficult for founders to accept, given that their perception of the potential future value of their idea does not translate to the existing value of the technology. Third, reasonable and timely technology transfer agreements are essential for newcos. Almost all of the company’s money at the early stages must go to investing in the company rather than back to the institution, which will provide the company with a sustainable intellectual property portfolio strategy. PIF will ensure that the hospital receives small royalties so that the long-term upside can be shared. Patent costs must be reimbursed as well as small clinical and commercial milestones. The inherent benefit of having PIF interact with the MGB technology transfer office allows this process to move efficiently, which saves precious time and effort that the company can use to focus on advancing the scientific mission. Last, the choice of a CEO is one of the most important decisions for the success of any newco. This will usually be someone with a deep scientific background in the area of interest and translational expertise to bring a drug or technology into the clinic. This person should also have experience raising funds from investors and the ability to operationalize the team. It is often difficult to find someone who can do it all. In addition, the CEO needs to ensure communication between founders, investors, and the team. The balance is tricky and requires great patience from founders and investors, and PIF can serve as an intermediary to help bridge these concepts from the lab to the newco.

We acknowledge the feedback from Daniel A. Haber and the PIF team (Roger Kitterman, Carl Berke, Stacey Brenner, Meredith Fisher, and Rosy Hu).

Address correspondence to: David T. Ting, Massachusetts General Hospital Cancer Center, Building 149, Thirteenth Street, Room 6-618B, Charlestown, Massachusetts 02129, USA. Phone: 617.240.9402; Email: dting1@mgh.harvard.org. Or to: Julius J.S. Knowles, Partners Innovation Fund, 215 First Street, Suite 500, Cambridge, Massachusetts 02142, USA. Phone: 857.307.2436; Email: jjknowles@partners.org.

Conflict of interest: DTT has received consulting fees from ROME Therapeutics, Merrimack Pharmaceuticals, Ventana Roche, Foundation Medicine, and MilliporeSigma. DTT is a founder of and holds equity in ROME Therapeutics, PanTher Therapeutics, and TellBio, Inc. DTT receives research support from ACD Bio-Techne, PureTech Health LLC, and Ribon Therapeutics. DTT’s interests were reviewed and are managed by Massachusetts General Hospital and Partners HealthCare in accordance with their conflict-of-interest policies. JJSK is on the board of Abcuro, Apres Therapeutics, Keros Therapeutics, ROME Therapeutics, and SwanBio Therapeutics and represents the fund on the boards of Akouos, Lysosomal Therapeutics, and Triplet Therapeutics. JJSK has had previous investments in Editas Medicine, Denali Therapeutics, Tilos Therapeutics, and Translate Bio.

Copyright: © 2020, American Society for Clinical Investigation.

Reference information: J Clin Invest. 2020;130(7):3336–3338. https://doi.org/10.1172/JCI138642.