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An alternative to the school of hard knocks

In the research laboratory, it may not be better to be lucky than good, just hard to tell the difference. Mix one thing with another, and every once in a while, something unexpectedly good happens.

Science is about making breakthrough discoveries. But sometimes, the discoveries happen by accident.

In business, like in science, dumb luck seems to strike the prepared mind. You may have what you think is a good idea for a company, but chances are somebody has already thought of it. And, chances are, they are already doing it better than you can. Even if you come up with a great idea that really is new, you've got to be able to sell it to potential investors.

Business is about making money. And few great businesses happen without a plan.

Every Wednesday night this semester at the McColl Building, Kenan-Flagler Business School Dean Robert Sullivan and Ted Zoller, Kenan-Flagler's director of academic development and administration, have created a laboratory of their own sort in a course titled "Launching the Company."

Here, scientists and academics with ideas for a company and a passion to carry them out are mixed with entrepreneurs, venture capitalists and others with the know-how to show them how to make it happen.

Participants' ideas fall into three broad categories of biotechnology, information technology and innovative services. To get into the class, members had to have formulated a concept for a business and demonstrated a commitment for turning it into a real company.

Students taking the course represent a cross-section of University departments that includes chemistry, neurobiology, pharmacology, genetics, computer science, dentistry, immunology and biomedical engineering.

The dot.com craze may have subsided, but the number of biotechnology companies in the Triangle continues to rise. And this semester's class reflected that trend, Sullivan said.

"Many people who have the start-up fever are working in biotechnology and the hard sciences," Sullivan said.

"The course has become a maypole for attracting individuals from across campus in medical and technology backgrounds interested in taking their ideas to the marketplace," Sullivan said.

Among the hard scientists taking the course this past semester was Richard Mailman, a professor of psychiatry, pharmacology and medicinal chemistry who works in the University's Neuroscience Center.

Mailman said he sees himself as a reasonably good scientist who is clever with numbers and one who has followed the business world from a distance. None of those traits prepared him for the experience of seeing his research through to the market.

Before he came into the class, if somebody had asked, "What's your pre-money valuation?" Mailman wouldn't have had a clue.

What was pre-money? The paper at the mint before it's printed?

He didn't know. Now he does. When you are starting a company, you bring to the table a value that consists of what someone across the table thinks your idea, your intellectual property, is worth. And that's pre-money.

Many times, people with ideas for a company think that the power of the idea will propel everything else. What students like Mailman quickly discover through the course is that the power of their ideas, while vital, seldom has the oomph to get a company off the ground.

Investors don't want to hear an idea that sounds good.

They want to see evidence of how it could work to compete against already existing companies already doing the same thing. Or how it could carve out a brand new market niche.

Few venture capitalists -- the people who bankroll start-up companies with the promise of a share of the later profits -- will entertain the possibility of investing in a company unless there is a sound business plan in place, and to Mailman's surprise, a solid management team as well. With that in mind, one of the early requirements of the class is the writing of a business plan, a sort of blueprint that details how a company is going to be built, how it is going to run and how it is going to make money.

Before taking the class, Mailman had already named his company and taken a stab at developing a business plan. Only at the time he thought that the name given to such a thing was a prospectus.

No, he learned, a prospectus is the information companies compile for potential public investors to read. Oh, Mailman said.

It was among the 101 things Mailman found out he didn't know throughout the course of the semester. And wishing he'd learned years before.

At the intersection of change

The name given to this process of converting academic research into a marketable commodity is called technology transfer, and it's a growing trend on college campuses across the country.

At Carolina, the intersection where academia and business merge is the Office of Technology Development on the third floor of the South Building.

And the traffic cop signaling professors to stop, go or switch direction is Mark Crowell, who arrived from N.C. State University last fall to become the associate vice chancellor and director of the Office of Technology Development.

Crowell has been in the technology transfer game for 14 years now, and the way he measures the changing attitudes about professors getting into business is by tracking the growing number of professors who come through his door.

"I used to spend half my time convincing professors to think about patents," Crowell said. "I now spend half my time trying to figure out where to get the money to file all the patents that could be filed."

There are times when the professor wants to start a business, but the idea is more suited for a licensing agreement with an existing company.

Some walk in with a bad idea with the vision of becoming the next Bill Gates.

Others walk in with a great idea for a business but no interest in starting one. Take it, they say, so they can go back to doing the work they love.

And more and more, there are professors walking in like Mailman, with a great idea and an intense desire to transform it into a business of their own, Crowell said. And Mailman has a video of a clinical trial that made Crowell sit up and take notice.

The video is of a monkey so crippled by Parkinson's disease that it can barely move. Then, the drug is applied and the monkey turns into a whirl of motion. All symptoms of the disease have disappeared.

Back when he was still only a scientist, Mailman used to think that having "proof of principle" of what a drug can do would make even the most skeptical venture capitalist jump.

Yet, they didn't and this was one of the reasons Mailman turned to the business school for help.

He and his research partner, David Nichols of Purdue University, had spent years studying a novel receptor and trying to develop a new drug for it. This was the drug given to the monkey in the video more than 10 years ago.

The problem was the effects of this wonder drug lasted for only an hour and it could only be given by injection.

Drug companies came calling, but always with the same questions. "Can you give it as a pill?" "How long does it last?" The questions were always followed with, "Come see us when you solve these problems."

Disheartened, they went back to their basic science studies.

The school of hard knocks

Then, Mailman and Nichols stumbled upon one of those pieces of dumb luck.

It happened when Mailman and Nichols, a medicinal chemist, were experimenting with a new approach to drug development called "receptor modeling." Working with them was Alex Tropsha of the University's School of Pharmacy.

Drugs are chemical compounds with the capacity to change how cells work. In the brain, drugs can change the way people think, feel and move by targeting specific functions of certain cells.

When you take aspirin to get rid of a headache, for example, you are sending a chemical compound into your bloodstream that "targets" the protein causing your headache and makes it stop.

Sounds simple enough, but getting the right compound to the right protein is no easy trick.

One way to find new drugs is by random selection, testing millions of compounds as a protein "target" until one finally works to achieve the desired result.

Mailman and Nichols took the opposite approach. They found a specific protein of interest and asked: What is it about this protein that makes it recognize some small molecules and not others? They then created a model of that "pocket" in the protein that allows a molecule to bind to the protein and change the way it functions.

With Tropsha's help, a model was created for something called a D1 dopamine agonist.

Then they asked: Is this a really good model? Nichols set about finding a brand new molecular compound that fit the model.

Complicated, yes, but as simple in principle as looking at two puzzle pieces to see if they fit rather than blindly trying one after another without regard to their shape. And in the back of their mind was the idea that a drug that fit the model might also be useful for Parkinson's disease if it had better properties than the earlier drug.

At about the same time, Mailman, Nichols, Tropsha and other University scientists entered into a research grant with a major pharmaceutical company that would provide research support of $1 million a year. The scientists called themselves "Team Dopamine" and they all believed they just entered the best of both worlds.

That was before they ran into the brick wall that Mailman came to know as "the NIH syndrome." On college campuses, NIH commonly stands for the National Institutes of Health, the organization that dispenses millions of dollars of federal grants so that research scientists like Mailman can conduct their work.

But in this context, Mailman found out, NIH stood for "not invented here." The company's scientists did not want anything to do with Mailman's discovery because it was not their own. And when top company management left, these company scientists no longer had to. By mutual agreement, the agreement was terminated.

Then, Mother Nature smiled on Mailman and his partner when they proved that one of the later compounds developed from their model had the same effects against Parkinson's when taken orally as it had when injected. It was the first molecule of its class that had that characteristic, and that characteristic was one of the most vital to turn the molecule into a commercial drug to be made available to people with the disease.

In 1996, they published their findings, confident that this breakthrough would lead to another licensing agreement with yet another "Big Pharma" company, only this time one that would recognize the value of what they had.

They were right about the first assumption, wrong about the second.

The licensing agreement they entered into with the second "Big Pharma" proved to be another painful lesson in what not to do.

Mailman and Nichols neglected to read the fine print in the contracts and soon learned that they were on the verge of losing credit and control of their discovery.

"It was like giving up your 7-year-old to another parent," Mailman said. "And we didn't know we were doing that."

Under the contract, they later also learned that the University and inventors would receive revenues for only the first drug developed, although many drugs were possible.

But again they got lucky. Because of a difference in interpretation of a key experiment, the company gave up rights to their inventions.

This time, Mailman and Nichols resolved to strike out on their own by starting their own company.

While finishing a research sabbatical in England during the 1999-2000 academic year, Mailman began acting on the idea.

They named their company DarPharma. Working alone at first, and then with a third person, Jeff Segal, Mailman and Nichols slowly and painfully developed a rough business model and incorporated DarPharma in November of 2000.

Shortly after, Mailman heard about the "Launching the Company" course and knew immediately it would be a boon if he could get accepted.

"I'm an example of what you shouldn't do in the school of hard knocks because if I had some education way back when, it would have certainly saved me a lot of aggravation," Mailman said.

Business no longer 'a dirty word'

Of course, the whole idea of converting pure research into what some would see as pure profit continues to be anathema to many in academia, Sullivan and Crowell and others who are involved in technology transfer understand all too well.

But Sullivan also knows there are a growing number of research scientists like Mailman who have already made the decision to pursue a business and who need help figuring out how to clear the hurdles.

Technology transfer not only brings money and prestige to the University and professors, it also helps create better services and products that can help grow the state's economy and enhance the quality of people's lives, Sullivan said.

"It's part of our mission to encourage this," Sullivan said. "We have a responsibility to stimulate job creation and company creation. We are investing in the learning process of individuals who are willing to take the risk of starting a business."

From an individual perspective, the class helps people like Mailman to figure out faster and easier whether their ideas can turn into a business. From an institutional perspective, the class has also served as a bridge to connect Kenan-Flagler Business School with Crowell's Office of Technology Development, said Marc Sedam, an MBA student taking the class who also works as Crowell's associate director.

Sedam is involved in two start-ups in the biotechnology area. For the "Launching the Company" course, Sedam is working with a start-up that has a new technology that screens for clinical trials only those chemical compounds that have all the other requisite properties that would make them viable in the market.

The other start-up Sedam is assisting with is Quantum Genomics, the company that Terry Magnuson and his partner, David Threadgill, started. Magnuson recruited Threadgill from Vanderbilt University. Sedam said everyone has known for a long time that it would be a good idea to foster more collaboration between the office and the business school. This class has proven to be the best way to do that so far, Sedam said.

Mailman said he would like to see the relationship be made even stronger and that Crowell and Sullivan have the attitude to make that happen.

"They need to work out more mechanisms like this class," he said.

After taking the course, Mailman said he has a far better sense of the market that he and his partner will be competing in. They know about the size of the populations who could use their drug. They know, too, about all the other companies that are out there or that are being developed and are seeking to reach the same population with their therapies.

The challenge for Mailman continues to be raising money.

No venture capitalist wants to be wrong, but the greater fear is to be wrong alone, Mailman said. And the kind of technology on which his drug compound is based is not the one currently in vogue. Given that, a third partner, Jeff Segal, joined the company and was charged with the responsibility of finding "angel investors," people with enough money and enough conscience to take a risk on a product that could help people.

This spring, Mailman said, their company has turned a corner. Segal rounded up more than $1 million of "angel money." More important, professional investors have taken a fresh look at DarPharma thanks in large part to what Mailman has learned in the "Launching the Company" class. Now a funding round appears imminent, he said.

"The things I learned from Ted Zoller and Dean Sullivan and the other faculty have made all the difference for us," Mailman said.

What taking the course did more than anything else, Mailman said, is teach him to tell his story to business people. "We have always believed our drugs would do wonders for people, and we figured our company was a good investment," Mailman said. "Now we know that it's a great investment."

Along with wisdom gleaned from the class, Mailman will be helped by another Kenan-Flagler program -- the school's "Launcher."

Mailman competed to get a slot in the launcher, a pre-commercial business incubator located in the basement of the McColl Building. It's sponsored by Kenan-Flagler's Center for Entrepreneurship and Technology Venturing and the Office of Technology Development.

The Launcher helps student-led business teams to take their idea to the "next level" and secure venture capital or angel funding. Companies admitted to the Launcher have earned access to office space and equipment and get the expertise and support of Kenan-Flagler staff.

Mailman said he understands the concerns that many of his colleagues have about technology transfer because 10 years ago he held the same reservations.

Many professors worry that academic freedom could be lost if money that is provided to fund research becomes increasingly tied to the kinds of research that can make the most money. Some believe the idea of a research university is to add to the body of knowledge, not to some company's bottom line.

Mailman no longer thinks it's that simple.

For one, taxpayers and the NIH would see something good achieved with the research they funded on campus.

The University, in turn, would find another way to serve the people through that research.

"It's a win-win if it is done right," Mailman said. But it doesn't stop there.

"You help train students better. You create more jobs in North Carolina and elsewhere. You are doing what we are supposed to be doing -- growing the economy by creating services and products that didn't exist before that are novel and improve the quality of life. It's kind of nirvana if you can make it work."

His drug for Parkinson's is a case in point.

Maybe it isn't a cure, but it is a drug that has the ability to ameliorate the debilitating symptoms of the disease longer and better and without as many side effects as any other drug now available or that may be under development. If there is a compound available right now that can help thousands of people who suffer from Parkinson's, what argument can there be not to do it, Mailman asks. Mailman also believes their technology has the potential to develop first-of-a-kind drugs to treat other neurological and psychiatric disorders as well.

"This is something I've learned: I don't think business is a dirty word anymore as I used to. They can convince other scientists of that, too."

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