Biotechnology startup companies and University research facilities are the primary source of innovation in drug and device development process (Ashbrook, & Sunkara, 2012).  Some of the key reasons why startups or universities are carrying research and development to the next level is because they deal with enthusiastic graduates and scientists that are motivated in discovery (Ashbrook, & Sunkara, 2012).  Perhaps, due to limited funding within their reach, they spend more time in research and development (R&D).   More effort is sequestered into discovery in other to qualify for grants and to have a stronger leverage in negotiating a technology transfer agreement with a bigger company for funding and royalties (Ashbrook, & Sunkara, 2012).  Another important aspect is that startups are willing to risk investment in a research that bigger companies will usually put off due to the small market shares and capital returns on the project in question that will not meet the bigger company’s high revenue target.

Startups attract venture capitalist investments, in the hope for future profits and significant high turnover rate of vested stocks or shares when a new product becomes commercialized (Ashbrook, & Sunkara, 2012). Venture capital investments are merely business driven and are high risk investments. Hence, venture capitalists derive profit by owning equity in the company they invest.  According to Dr. Sunkara, most venture capitalist invest millions of dollars in R&D because the innovators are motivated to put the product in the market.  On the other hand, universities have creative minds and new graduates who thinks outside the box and leads the path to new discoveries, which in turn creates new startups from university research projects.

These students/graduates tend to create a good scientific portfolio for their future carrier. Moreover, universities are the basis of constant research and innovation whose academic reputation and professor tenure are mainly resting on grant and subsidies. Therefore, professors, post graduate students and graduate students are very active in new research and new ideas that will get their program the next grant to keep the program actively running.  In contrast, bigger biotechnology companies, sponsor their own projects and in most cases may not qualify for grants due to the revenue cap that may limit their qualification.  In other words, bigger companies have enough capital to sponsor its own research. Bigger companies can also collaborate with other established firms or startups, to realize a mutual contractual agreement for a potential blockbuster product or project.

Some of the tips for a venture capitalist (VC) before investing in a project is to conduct a due diligent based on several factors. One of the primary factor use in evaluating and validating startups is a business plan assessment criteria (TSPIN, 2005). VCs should also be able to analyze and evaluate the projects and products in question, and weigh its validity to other competitor’s products out in the market.  In addition, “Proof of Concept” of any potential ideas or products must be transparent and reproducible because investing money on a project that will not create any real scientific knowledge may not encourage innovation (TSPIN, 2005).  Furthermore, some other factors VCs should evaluate include but not limited to the expertise experience of the scientists or the company, credibility, company estimated value, and of course, the owner’s investments in the company may help to achieve trust and credibility (TSPIN, 2005).

Some startup research laboratories may not have any good product and may build a portfolio of research projects, just for possible acquisition. On the other hand, the ones that have potential marketable product usually build up project and business portfolio, to become a bigger company (Weber, 2011).  The problem of acquisition type portfolio is that it does not actively encourage new and radicle scientific innovation (Weber, 2011).  For instance, the Microsoft incorporation founded in 1975 and Apple founded in 1976 both as a startup companies. These two companies knocked off the international Business Machines (IBM) cooperation, which was founded in 1911 from its number one role as the major computer technology company in the world. This dramatic success by Apple and Microsoft was possible because they were more active in innovation while IBM was more active in acquisition rather than innovative (Weber, 2011).  Therefore, once a company stops thinking and starts living in their past glory, they will stop dreaming and possibly there will be no new productive ideas.  Another example is Celgene, a New Jersey biotech company founded in 1986.  This company is currently making about 85% of its revenue from Thalidomide (a leprosy medication, cancer medication etc) (Celgene, 2012).  Thalidomide is a product discovered in 1950s by a German Pharmaceutical company called Grünenthal, which was founded in 1946.  Thalidomide is known to have caused several birth defect and was banned from the market in the 60’s. Currently, Celgene is making hundreds of millions of dollars from the product because they found a new application for the compound. This is also a good example where a patent protection could have been used to deter innovation and blind-fold scientists or restrict their freedom to operate (FTO) on a patented agent.

References

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