Published in UT San Diego, January 19, 2015
Finding money is a challenge for every early-stage company. Friends, family and fools are often the initial source, but they have limits, so where do you go next?
For those of you who think the government is good for nothing, think again. Because it is federal grants and contracts that recycle your tax dollars back into research and commercialization of technology. The major advantage of the programs for entrepreneurs is that they are non-dilutive, which means you don’t have to give up equity.
The most well-known government program is the Small Business Innovation Research, or SBIR, a highly competitive program that provides funding for research with commercial potential. Each year, federal agencies with extramural research and development budgets that exceed $100 million are required to allocate 2.8 percent of their R&D budget to these programs. Currently, 11 federal agencies participate in the program.
We talked with two San Diego early-stage biotech companies — Pimera and Abreos Biosciences — which have successfully competed for government grants.
In October 2014, Pimera received approval for a $665,000 grant from the Department of Defense to fund continued work on a molecule that has the potential to treat metastatic breast cancer. Winning the grant is not the same as getting the dough the next week. The company expects to receive the money at the end of the first quarter.
The company’s founders — Mustapha Haddach, the company’s president, and Denis Drygin, vice president, research and development — met while working at another biotech company that was sold. In 2012, Haddach started working on what has become Pimera, and Drygin joined a year later.
“We raised some early money from friends and family and put in some of our own. That helped us to develop the initial science to be prepared to ask for a government grant because you have to have some of the science already done,” Haddach said.
They are able to keep their costs down by leasing “affordable” space in JLABS (formerly known as Janssen Labs), an incubator run by pharmaceutical giant Johnson & Johnson. “We have access to sophisticated equipment to run assays. They allow us to realize our dream without having to spend $250,000 immediately,” Drygin said.
They found their grant simply by going to the grants.gov website, where they searched for grants relevant to cancer. Their proposal included a technical abstract, a layman’s abstract, preliminary data, information on their scientific advisers, and a budget. An anonymous group of scientists and a cancer advocate reviews all the proposals. They said they knew no one at the agency and merely followed the rules.
The idea for Abreos Biosciences started when research faculty member Brad Messmer at UCSD Moores Cancer Center read an article in the Economist about fake Avastin, a drug approved to treat certain kinds of cancer.
“I thought I have the perfect technology to identify counterfeits,” Messmer said. Messmer had taken our course at the University of California San Diego, but when he approached Neil the first time, the answer was no. He wasn’t able to identify a customer, but Messmer was relentless and pinged Neil again nine months later. The landscape had changed; there had been two recent stories on counterfeit drugs, and now there was a much clearer path to a real customer. Neil joined the board.
Like Pimera, Messmer said government grants are not enough to build a company.
“The timelines are brutal so it’s hard to build a company only with SBIR grants. After the first grant, we then raised $150,000 from an angel investor,” he said.
At this point, Abreos has an excellent track record. “We applied for multiple grants within different centers of the National Institutes of Health — cancer, blood clotting and auto immunity — and we have won four out of the six grants for $800,000 total,” said Messmer, who added that an additional $4 million is pending. Until then, he still needs his day job, and his strategy is to have multiple grants in the pipeline.
Pimera and Abreos have succeeded in leveraging government grants because they have experienced teams, strong scientific advisory boards, low overhead and some private funding. Still, they have a long road ahead.
“What keeps me going is the dream to have an approved drug on the market. It’s been my dream since I started in this industry,” Haddach said.