Bets on Biotech
The nonprofit world steps in to finance for-profit drug ventures
Five scientists created a new way to make an antimalarial drug in their University of California-Berkeley lab and wanted to build a company around it. But when they considered the traditional path of asking venture capitalists for money, their ambitions hit a roadblock. The timing turned out to be all wrong. It was the summer of 2003, and after being badly burned on iffy prospects, biotechnology investors had become squeamish.
U.S. biotech funding had peaked at nearly $33 billion in 2000 and then collapsed. The market has yet to fully recover. By last year, the money raised by American biotech firms from stock offerings, venture capital, and other sources was still at less than half its peak. There has also been a change in where biotech money is going. Investors now favor companies with drugs and devices nearing Food and Drug Administration approval rather than early-stage ventures. "There's been a valley of death between research coming out of academic institutions and the capital needed to fund these companies," says John Maraganore, CEO of Alnylam Pharmaceuticals in Cambridge, Mass., which despite its risky research went public two years ago. That has left a void for entrepreneurs like the Berkeley scientists, who had promising, but still unproven, initial research.
Now a surprising source of funds is filling that void: the nonprofit world. A new breed of foundations flush with capital and a more businesslike approach is stepping in to pick up the slack. And many formerly skeptical biotechnology executives are warming to the idea of using nonprofit money to prop up projects during the lengthy, failure-prone path to profit. So when the Berkeley scientists stumbled on an answer to their funding problems in a nonprofit just across the Bay Bridge in San Francisco, they took it. The result is their company, Amyris Biotechnologies, one of a growing number of biotech-nonprofit marriages.
Gates money. Amyris's partner, the Institute for OneWorld Health, opened its doors in 2000, with help from the Bill and Melinda Gates Foundation coming in 2002. It aimed to be the first nonprofit drug development company. It started with a low-risk project, resuscitating a drug that had gone off patent and was no longer available. That black-fever injection received Indian government approval last month. Then the institute got bolder. Looking for new ways to attack malaria after a decades-long dearth of research into parasitic diseases, it decided to fuel a biotechnology company from the ground up. OneWorld Health funneled $12 million from a $42.6 million Gates Foundation grant directly to the Berkeley researchers to help get Amyris up and running. "It was a scary experiment," says OneWorld Health's founder, Victoria Hale. "We were the first venture capitalists for Amyris-the only ones."
Amyris would have eventually found funding, insists its president, Kinkead Reiling, a protein engineer who is one of the five Berkeley scientists who founded Amyris. But the money helped Reiling and his colleagues move faster and gave the company "some breathing room," he says. Amyris is trying to mass-produce artemisinin, a chemical found in a Chinese herb used to treat malaria. Because the parasite hasn't yet developed a resistance to it, the chemical has great potential to treat the afflicted in Africa who've developed resistance to other medicines.