Alternative Funding For Startup Biotechs

By Matthew Pillar, Editor, Bioprocess Online

Raising money is a challenge shared by virtually all startups, and the options are many and growing. There’s aggressive competition for the attention of angel investors and VC firms, and stakeholders in those organizations are very picky about choosing biotechs for good reason. While good high tech startups, for instance, often result in ROI for the investor within a few years, it’s not uncommon for investors to wait 8, 10, or more years for a return on a biotech—and more specifically, a biopharma—investment. That’s because even the most promising therapeutics take time, and lots of it,  to move from development to clinical trials and through regulatory approval processes.  

Tough competition for traditional funding sources has led creative entrepreneurs to seek alternative and diversified sources of funds. I recently caught up with Chad Dehmer, senior manager of business development at UPMC Enterprises, who informed me of one such alternative funding source that could be of interest to emerging biotechs.

By way of some background, UPMC, headquartered in Pittsburgh, is a $22 billion microcosm of the healthcare industry. It’s an academic medical center, separate from but closely affiliated with the University of Pittsburgh. It’s a network of 40 hospitals and 700 doctors’ offices staffed by nearly 5,000 doctors and 89,000 associates. It has the resources of the University of Pittsburgh Schools of the Health Sciences—one of the world’s leading life sciences research universities—at its fingertips. UPMC is also an insurer, with its nearly 3.6 million members making it the largest health insurer in western PA. Its international division is focused on bringing world-class care to China, Italy, Ireland and Kazakhstan.

The organization demonstrates a long history of innovation. Among other accomplishments, it boasts the invention of liver transplantation and the polio vaccine.

UPMC formed its Enterprises division five years ago as an innovation and investment group for the organization to continue its efforts in translational sciences and digital solutions.

I met Dehmer at a Life X Ventures event in Pittsburgh this fall, where we both took in a talk by 5 AM Ventures’ Jason Ruth. I subsequently spent some time picking Dehmer’s brain about his organization’s role in the larger life sciences/pharmaceuticals industries, and more specifically, how and why the organization invests in start-up biotech companies.

Inside UPMC Enterprises

Listening to Dehmer explain the Enterprises team’s work, it’s not hard to characterize it as a skunkworks operation. His team is versatile, creative, and has direct access to decision makers and resources. Its mission statement(s) are clear, yet leave plenty of room for lateral movement:

• Improve the quality and lower the cost of health care through data-focused digital solutions.
• Take full advantage of UPMC's vast clinical, technical, and financial resources to solve the most complex problems facing health care.
• Turn ideas into thriving companies that help the health care industry and impact the lives of patients in meaningful, lasting ways.

Dehmer says those goals drive the day-to-day activity of Enterprises’ nearly 300 employees. “When UPMC leadership looks to the future of our success and who we're going to compete with in the future, we recognize that our competition won’t be coming from the health system across the river or other insurers,” he says. “The real long term threats will come from large technology companies and big pharma.”

Amazon, in particular, is well-positioned to leverage its unprecedented logistics and service expertise and infrastructure to bypass traditional (and perhaps unnecessarily complex) payer-driven distribution models of getting drugs to patients. While pundits and pharma trade publishers are busy penning columns about how Amazon could upset the pharmaceuticals industry, Amazon is busy doing it. Its acquisition of PillPack and Alexa’s new HIPAA compliance offer recent proof. Bigger and bolder moves are coming. “Retail pharmacy has the very real potential to be left behind,” sums Dehmer.

Unique Opportunity For Startup/Emerging Biopharma Companies?

To accomplish its missions, UPMC Enterprises divides its attention between two focus areas: translational sciences and digital solutions. The digital solutions group works to develop, acquire, and implement a wide spectrum of technologies or products that, from a data perspective, are impacting the way UPMC provides care and insurance products. These include UPMC’s consumer portal called MyUPMC and other software applications.

The translational sciences focus is a bit more unexpected from a payor-provider network, and certainly intriguing to startup and emerging biopharma companies. “This group makes investments focusing on immunotherapy as it relates to cancer, transplants, and aging,” says Dehmer. “We see investments in these drugs as something UPMC patients may benefit from at some point down the road, and we’re funding early research and industry-grade drug development efforts.”

UPMC’s digital and biotech investments typically involve an ownership or equity stake for Enterprises. “We’re looking for return, but more importantly in the digital solutions focus area, we’re looking for UPMC to be customer number one, to try to get these technologies here as part of our larger innovation strategy,” says Dehmer. In addition to investments, the partnership offers the startups it works with something equally important: expertise. “If we can effectively pilot, or co-develop, these new solutions within our organization and there's a market for them externally, we want to offer our internal know-how from an implementation perspective. We want to bring value to those startups, and help them be in the game and poised for a successful future.”

UPMC Enterprises evaluates investment opportunities in what Dehmer calls a pipeline with 15 publicly-known “portfolio” companies as the latest stage. Dehmer says there are hundreds more in earlier stages.  “It’s not always that a company will spin out of our program and start selling its wares,” says Dehmer. “We've spun companies back into UPMC if we didn’t think there was a great commercial opportunity, but the internal operational value was there,” he says.

Dehmer summarizes the intention of UPMC Enterprise’s work in simple terms. “There are big systems and services here at UPMC and throughout the life sciences industry in general that are ripe for disruption. With our leadership focused on that, it’s our job to continue UPMC’s history of innovation before someone else disrupts us.”

As you evaluate your funding options, it’s a good idea to get plugged in to your local life sciences community. The healthcare network or HMO in your city just might have similar programs in place to help promising biotechs like yours move closer to marketability.

For more information on this unique investment vehicle, visit https://enterprises.upmc.com/