GUIDE TO A BIOTECH STARTUP ENTREPRENEURS GUIDE TO A BIOTECH STARTUP THE ENTREPRENEURS GUIDE TO A BIO-TECH STARTUP THE ENTREPRENEURS GUIDE TO A BIOTECH STARTUP THE ENTREPRENEURS GUIDE TO A BIOTECH STARTUP THE ENTREPRENEURS GUIDE TO A BIOTECH STARTUP THE ENTREPRENEURS GUIDE TO A BIOTECH STARTUP THE ENTRE-PRENEURS GUIDE TO A BIOTECH STARTUP THE ENTREPREN EURS GUIDE TO A BIOTECH STARTUP 4TH EDITION THE EN-

SCIENCE PATENTS FOUNDERS LAWYERS SALES EXPENSES REVENUES INVESTORS BREAKEVEN LICENSING TECHNOLOGY PRODUCTS OPTIONS BUSINESS DEVELOPMENT PHARMACEUTICALS VENTURE CAPITAL MEDICAL DEVICES DRUGS PATIENTS F FCUSTOMERS PHYSICIANS CLINICAL TRIALS FDA REGULATIONS PRICING MARKET DIRECTORS MANAGEMENT IPO SCIENCE PA TENTS FOUNDERS PETER KOLCHINSKY, PhD LAWYERS SALES EXPENSES REVENUES INVESTORS BREAKEVEN LICENSING TECHNOLOGY PRODUCTS OPTIONS BUSINESS DEVELOPMENT PHARMACEUTICALS VENTURE CAPITAL MEDICAL DEVICES DRUGS P IENTS DOWNLOAD A CUSTOMERS PHYSICIANS CLINICAL TRTIONS WWW.EVELEXA.CO PRICING MARKET DIRECTORS MANAGEMENT IPO SCIENCE PATENTS FOUNDERS LAWYERS SALES EXPENSES REVENUES INVESTORS BREAKEVEN LICENSING

4TH EDITION

THE ENTREPRENEURS GUIDE

TO A BIOTECH STARTUP

PETER KOLCHINSKY, PhD

DOWNLOAD ATWWW.EVELEXA.COM

Peter Kolchinsky, PhD The Entrepreneurs Guide to a Biotech Startup

Contents

ABOUT THE AUTHOR ................................. 1 ACKNOWLEDGEMENTS.............................. 2 AUTHORS NOTE .......................................... 3 THE BIG PICTURE........................................ 5 EVALUATING THE IDEA............................11 THE BUSINESS PLAN..................................15 PEOPLE..........................................................19 PATENTS....................................................... 22 ATTORNEYS................................................. 29 LEGAL ISSUES...............................................31 ACCOUNTING & FINANCE ...................... 36 REAL ESTATE .............................................. 42 RISK MANAGEMENT & INSURANCE ..... 46

MEDIA & PUBLIC RELATIONS ................ 50 PHARMACEUTICAL BUSINESS DEVELOPMENT ...................... 52 DEVICE, DIAGNOSTIC, & INSTRUMENT MODELS ............................ 57 DRUG PRICING PRINCIPLES ................... 58 CLINICAL DRUG DEVELOPMENT.......... 62 MEDICAL DEVICE APPROVAL................. 70 EQUITY ......................................................... 76 RAISING MONEY ........................................ 82 GOVERNMENT GRANTS........................... 89 IPO: GOING PUBLIC ................................... 93 NETWORKING............................................. 95

In praise of The Entrepreneurs Guide to a Biotech Startup: I have not seen in one reference all of the topics which the Guide covers; it should be an invaluable aid to biomedical entrepreneurs. -Michael Lytton, General Partner, Oxford Bioscience Partners The Entrepreneur's Guide is also relevant for non-entrepreneurs with industry experience who want to know how a biotech company gets to where it is and where it can possibly go. Well done. -David Bancroft, PhD, VP Automation & Head of Intellectual Property, GPC Biotech AG

COVER: Original artwork and cover design by Paul Krasnoo, based on his study titled "Ezekial" of Michelangelos Sistine Chapel. To see more work by the artist, visit www.krasnoodesign.com.

Copyright 2001, 2002, 2004 by Peter Kolchinsky, pkolchinsky3@evelexa.com This document may not be reproduced in any form without the permission of the author.

http://www.krasnoodesign.com/mailto:pkolchinsky@evelexa.com

Peter Kolchinsky, PhD The Entrepreneurs Guide to a Biotech Startup

ABOUT THE AUTHOR

Dr. Peter Kolchinsky performs due diligence on investment opportunities at RA Capital Associates, a biotech-focused public equity fund. He works closely with Richard Aldrich, a founding employee and former CBO of Vertex Pharmaceuticals. Peter is the author of The Entrepreneur's Guide to a Biotech Startup, a business aid published on www.evelexa.com. Evelexa is an online resource for biotech entrepreneurs and investors, which he launched in 2001 and grew to a membership of 5000 within two years. He also co-founded BiotechTuesday, a popular monthly networking series for the Boston biotechnology community, and the

Harvard Biotech Club, both of which exceeded 2000 members in their first two years and continue to prosper. He has spoken at colleges and graduate schools on biotech entrepreneurship and career development and enjoys helping scientists consider the leap into business. Peter received a Ph.D. in Virology in 2001 from Harvard. His thesis research in Dr. Joseph Sodroski's laboratory at the Dana-Farber Cancer Institute focused on HIV entry mechanisms. He graduated cum laude from Cornell University with a degree in Microbiology. He is also an alumnus of Phillips Academy Andover.

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Peter Kolchinsky, PhD The Entrepreneurs Guide to a Biotech Startup

ACKNOWLEDGEMENTS

This guide would not have been possible without the generosity of the people whose professional experiences are reflected in this text. Steven Aaronoff, Attorney, McDermitt, Will, and Emory Beth E. Arnold, Attorney, Foley, Hoag & Eliott LLP Michael K. Barron, Attorney, Nixon Peabody LLP Frank Bilstein, Managing Director, Simon-Kucher Janice T. Bourque, President, Mass Biotech Council Anthony R. Briggs, PhD Candidate, MIT Sloan Joyce Brinton, Director of Tech Licensing, Harvard David E. Brook, Attorney, Hamilton, Brook Mark Chalek, Director of Corporate Research, BIDMC Paul T. Clark, Attorney, Clark and Elbing LLP Ron Cohen MD, President and CEO, Acorda Therapeutics Dave G. Conlin, Attorney, Edwards and Angell LLP Dana B. Edelman, Collaborative Seed & Growth Partners Barry Eisenstein MD, Executive Vice President, Cubist Ron I. Eisenstein, Attorney, Nixon Peabody LLP Martin E. Fishkin, Attorney, Prince, Lobel, Glovsky Gregory J. Glover MD, Attorney, Ropes and Gray Marc E. Goldberg, BioVentures Investors Robert Gottlieb, Managing Director, Feinstein Kean Peter Hecht PhD, CEO, Microbia Mark A. Hofer, Attorney, Brown, Rudnick, Freed, & Gesmer Julie Huang, Vice President, Financial Dynamics Jonathan H. Hulbert, Attorney, Foley, Hoag & Eliott LLP Skip Irving, Managing Director, Health Advances Paul Kidwell, Communications/PR Consultant Michael King, Managing Director, Banc of America Securities William A. Knowlton, Attorney, Ropes and Gray Roberto G. Kolter, Professor, Harvard Medical School Liisa T. Kuhn PhD, Instructor, The Children's Hospital Jeffrey Labovitz PhD, Director of Tech Transfer, UCLA Evan M. Lebson, VP-Treasurer, Genzyme Corporation Gregory P. Lucas, Senior Managing Director, Insignia ESG Michael E. Lytton, General Partner, Oxford Bioscience Gary P. Magnant, President, Thermoceramix Jack Malley, Partner, FirstJensenGroup Louis Myers PhD, Attorney, Fish and Richardson Lita L. Nelsen, Director of Technology Licensing, MIT Michael R. Pavia PhD, Partner, Oxford Biosciences

E. Robin Plumer PhD, Attorney, Wolf, Greenfield & Sacks Randy J. Pritzker, Attorney, Wolf, Greenfield & Sacks William S. Reardon, Partner, PricewaterhouseCoopers Robert H. Rubin MD, Professor, Harvard Medical School Bruce Rubinger PhD, Managing Director, Global Prior Art S. Una Ryan MD, CEO, Avant Immunotherapeutics Alfred Server PhD, Attorney, Hale and Dorr LLP David Sherris PhD, Sherris Pharma Partners Steven D. Singer, Attorney, Hale and Dorr LLP Albert L. Sokol, Attorney, Edwards and Angell LLP Ashley J. Stevens PhD, Director of Technology Transfer, BU Matthew P. Vincent PhD, Attorney, Ropes and Gray Christopher T. Walsh PhD, Professor, Harvard Med. School Jeffrey M. Wiesen, Attorney, Mintz, Levin Steven A. Wilcox, Attorney, Ropes and Gray Walter Winshall PhD, Collaborative Seed & Growth Partners Larry S. Wittenberg, Testa, Hurwitz & Thibeault LLP I am very grateful to the guest authors for generously contributing their expertise to the Guide: Peter B. Finn ESQ, Senior Partner, Rubin and Rudman Nathaniel S. Howe Jr., Vice President, Marsh USA Inc Kenneth B. Klein M.D., Endpoint, Michael D. Miller MD Betsy M. Ohlsson-Wilhelm Ph.D. and Katharine A. Muirhead Ph.D., SciGro, Jack Malley, Partner, FirstJensenGroup, Christopher Pimental, Vice President, Lexten Inc. Alfred Vaz, Vice President, Vertex I also thank Cayce Denton, Jennifer DOnofrio, and Daniel Zahler for providing valuable editorial support. A special thank you goes to Richard H. Aldrich, my mentor, who, in the time that I have worked for him at RA Capital, has taught me much of what I know about investing and business. I appreciate the time he devoted to discussing and editing the text. My family and friends, especially Laurie, could not have been more supportive. Thank you.

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Peter Kolchinsky, PhD The Entrepreneurs Guide to a Biotech Startup

AUTHORS NOTE

ORIGIN OF THE GUIDE

In January 2000, a post-doctoral fellow in my research laboratory approached me to discuss a technology he had developed. He wanted to start a biotech company. I offered to draft an executive summary and help secure financing. Two weeks later, we had an attorney and a three-month option to exclusively license the key patents from our research institution. We met with venture capitalists, who told us that without an experienced management team the company was not ready for funding. A local biotech company offered to incubate our venture but demanded a majority stake. At the time, this seemed unreasonable, and we stalled as we considered our lack of other options. With obstacles looming ahead, our three-month option expired and