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Tuesday, April 16, 2013

Negative Results On-Q-ity

Bruce Booth has been an interesting blogger on the topic of biotechnology. He is the recovering scientist turned early stage VC. I've made the analogy that he is like the recovering gambler turned gambling advisor. You take the risks, I'll mitigate mine by using your money. Bruce wrote this post about a company he and his co-workers backed with other people's money. It failed and the post mortem was indeed the product of a most clever wordsmith.

Bruce's original thoughts on the investment opportunity:

  • “Hot space at nexus of two exciting themes in cancer and personalized diagnostics”
  • "Strong team with a track record in building diagnostic businesses"
  • “Robust financials with attractive recapitalization” 
  • “Very strong intellectual property”
  • Perception of “multiple possible exit paths via either diagnostic or oncology-focused pharma M&A or possible IPO”

Sexy, sexy, sexy!!! This company had a hot space, strong team, robust financials, strong IP and an exit door. What would the Reproducibility Initiative have added to this assessment? What Bruce was buying with other peoples money was a service. The money maker was suppose to be a cancer diagnostic service. Where in the above analysis do we hear anything about the science?

We here at the CCS believe that the number one reason most companies fail, and most projects in any company (successful or not) also fail is due to Cargo Cult Science. Whatever the reasons behind practicing CC science, it will not pan out in the end. The cargo planes will not land. In spite of this fact, money can still be made. This is what motivates Bruce to get the hell out of science to become an investor. I don't blame him, I got out too. The only difference is that I wouldn't waste any money on any biotechnology unless the technology is based on sound science. From that point the technology must then work as advertised. From that point you can start to look into the hot spaces where a strong team and IP can... MAKE MONEY!

After all... it is a business. Here is an easier decision, one would hope. The Office of Research Integrity (ORI) ruled that Andrew Aprikyan committed scientific misconduct. He no longer works at UW. Where does he work? He works at Stemgenics Inc. Stemgenics Inc. has recieved $180,000 USD in the form of a small business loan titled, SBIR Phase I: Membrane-Permeable Nano-Materials for Cell Reprogramming Solutions. The likes of Bruce Booth would probably have to pass in Stemgenics Inc. but the NSF likes what they see. In time Andrew Aprikyan could pull the wool over the diligent eyes guarding VC capital, except for the strong management team. Having a founder who has been ruled against in a misconduct case at the ORI should be a red flag for a venture capitalist. You may be able to hide this fact, but is the scientific foundation equally as shaky as the founder?

Ultimately, you can analyze the founders and the company all you want and you can easily fail. A better analysis would be focused on the science. Rather than doing what Atlas Venture did, hire a team at The Reproducibility Initiative to look into the science behind the technology. Hire anyone who has a laboratory and the ability to test the theory. If you think venture capitalists have a scientific method for picking winners, you would be mistaken. Science often takes off on paths that lead nowhere. That is part of the fun. The question for investors is "When?" is a business plan ready, from the scientific perspective? Without reproducibility, you are going to do what Atlas Ventures and On-Q-ity did. You will spend millions and millions more having the new lab staff try and validate the science. Chances are they will fail and your money is gone. 



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