BioPharma, Startups, Health Tech

For startups, benefits of non-dilutive funding extend far beyond cash 

Panelists at MedCity INVEST Precision Medicine said startups can gain valuable expertise and experience through the process of seeking out non-dilutive funding.

Non-dilutive funding sources, such as federal grants or industry partnerships, often get overshadowed by headlines about big VC-led fundraises. But these sources play a big role in bringing many critical technologies to market.

For example, the Biomedical Advanced Research and Development Authority (BARDA) fueled Moderna’s research that led to the development of Covid-19 vaccines, and is also investing in efforts to develop better at-home tests. 

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A Deep-dive Into Specialty Pharma

A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.

For startups, the benefits of these programs extend beyond the funding itself. Working with local government programs or universities can also help innovators bring needed expertise into their business and carve a path forward to commercialization, panelists said at MedCity INVEST Precision Medicine.

“It is 10 times more valuable in a lot of circumstances to have immediate access to the expertise and not the $150,000 that you might get upfront,” said Tiffany Wilson, CEO of the University Science Center, a Philadelphia-based nonprofit that helps early-stage companies get lab space, help applying for grants and other resources.

That expertise is critical for early-stage medtech and biotechnology startups. For example, Small Business Innovation Resource (SBIR) programs can connect founders to a vast network of experts, including potential vendors, advisory board members or regulatory professionals. In turn, it can save founders valuable time in searching for the right person, and can improve their odds of getting more funding later on.

“If you’re an early-stage company, you’re burning between one- and ten-thousand dollars a day,” she said. “Every day you’re not making meaningful steps toward commercialization, you’re potentially wasting dollars. To the extent that you can partner with some of these organizations … you are saving time.”

Working with these programs can also help founders troubleshoot for potential problems later on, said Kelly Wylam, director of innovation partnerships for Ben Franklin Technology Partners.

For example: Are any key personnel missing from a startup? Are they applying to the right agency for funding? Do they have agreements to use their intellectual property if it was developed at a university?

“Timing is extremely important,” she said. “We want to be in touch with an interested submitter as soon as possible.”

Even though these sources of non-dilutive funding don’t take an equity stake, that doesn’t mean there are no strings attached. It’s critical for startups that get federal funding to keep up with timekeeping and accounting, she said.

Startups should also expect to act as if they working for a pharmaceutical company, showing their progress, producing non-biased results and making good scientific decisions, said Tom Hu, an interdisciplinary scientist and project officer with BARDA.

But ultimately, the work should be worth it.

Hu recalled working with a critical care pulmonologist who discovered that an existing drug, activase, could be used to help treat a rare pediatric lung condition. BARDA was also interested in this research for biodefense purposes. There was just one problem: it was a billion-dollar drug.

The agency helped her negotiate with the pharma giant that produces the drug.

“We actually engaged with the company to go in front of the FDA to expand the label indications, so that it could potentially benefit the patient, help with national preparedness, and get additional knowledge into this disease area,” he said. “I was really proud of that.”

Photo credit: Topp_Yimgrimm, Getty Images