Letter to a young biotech founder

Based on a few conversations I’ve had recently.

Dear Such-and-Such,

Thank you for your email to me. My weekend did go well. I appreciate you asking.

Congrats on almost finishing your PhD. That’s a big accomplishment! It sounds like you’re working on some interesting stuff.

Anyhow, I appreciate you reaching out to me about wanting to start a biotech company based on your PhD research. Here are my thoughts.

You said you think you’ve developed an engine for developing new drugs for a certain target, and that you just need money for a proof-of-concept. Then, you’re thinking about licensing the drugs, the engine, or developing the drugs yourself. Now, I like where you’re coming from, but I have bad news. You’re going to have a rough time with doing any of that.

It’s not that I think your idea doesn’t work. I mean, it might, although I’m not going to sign an NDA to do due diligence on it, as there’s literally nothing in that for me. Here’s your basic problem: nobody knows you.

That shouldn’t matter that much, but it does. Nobody knows you, so you’re not going to get any intros to companies who might want to license your drug or your engine. Even if you did, the company wouldn’t want to license a drug or an engine from someone who nobody knows, because it’s really tough to write an exciting press release around that. And, if they can’t write an exciting press release, then they’re not going to be able to raise money for the next step, yeah?

Because that’s what it all comes down to. What you’re proposing is coming in at the pre-clinical stage, either with another company or on your own. That’s ok, as that’s where pretty much all drugs start. However, if you really want to do a new chemical entity for a human drug, that’s at least a couple million to finish preclinical, $5 million for phase 1, $10 million for phase 2, and $30 million for phase 3. The million dollar question (sorry) then becomes: who’s going to pay for all of this?

That’s what every partner and every venture capitalist will be thinking about. Unless you partner with Pfizer, nobody can take your drug from preclinicals to market on their own. I mean, even if you do partner with Pfizer, no one person in Pfizer can do it either. They have to constantly be justifying it to their internal business development team.

That means that you need a really good answer to how you will get the funding for the next step. And, if you plan to get venture capital, you also need a really good answer to how you’re eventually going to pay them back (i.e. by IPOing or getting acquired), and you need to be thinking about that from the very first check. Keep in mind, by the way, that almost all acquisitions and IPOs happen before your first drug makes any revenue.

Here’s what my advice would be for your options then:

1. Do a postdoc with a professor who has lots of spinouts. This will be a very competitive position, and, once you do get venture capital, you are going to have to fight very hard with the VCs to retain more than a 3% share of your company and a meaningless position as a scientific advisor. However, you will find it easy to get lots of money for your spinout, and 3% of a big number is also a big number.

2. Get a job at a VC and get them to trust you. Once they can trust you to make decisions with lots of money, you can get funding for your own project.

3. Work at a name brand company for 10 years, network aggressively with VCs, and then start your own thing.

4. Search really hard to find an idea that doesn’t require that much money for the initial experiments. Use your own money for the initial experiments. Then, because you have no brand name, network with random people with money until you slowly cobble together enough checks to make it to the next step, and the next step, until finally you have a drug.

Let me know what you decide to do, and best of luck!

Trevor Klee