Writing in Xconomy San Diego, CONNECT CEO Duane J. Roth describes a new funding model for innovation. The Distributed Partnering Model, which Roth co-developed with Pedro Cuatrecasas, former president of pharmaceutical research for Parke Davis Warner Lambert Co. and adjunct professor of pharmacology and medicine at the University of California San Diego, is designed to advance life sciences innovation but also can be applied to high-tech, cleantech, and other technology sectors. The model emphasizes the importance of advancing innovative technologies and products instead of emphasizing the development of individual companies around each new discovery or invention. “In our model, we have identified four independent entities that work collectively to advance innovation, based on the unique assets, skill sets, cultures, and risk tolerance to be applied,” Roth writes. “Each would have a rational investment risk and reward as a specific innovation gets relayed from one business entity to the next.” These four entities are:
- Discovery: A research institute that focuses on new discoveries.
- Definition: A company that invests in defining the initial product(s) from the research-based discoveries in a given field of expertise.
- Development: A company with responsibility for funding and advancing product development.
- Delivery: A company with a significant marketing and distribution channel.
“Our model is fundamentally different than previous models in that it focuses on these independent groups to collectively contribute to advancing products from research discovery to commercialization,” Roth explains. Two key enabling elements of the proposed model include 1) the formation of a new type of company called a product definition company (PDC) to address the “Valley of Death” bottleneck; and 2) more efficient use of infrastructure and product development expertise provided by professional service providers (PSP). PDCs would focus on translating a portfolio of research discoveries into an early, development stage product managed by an experienced entrepreneurial team with significant operating experience in a given field. The PDC business model calls for selling the product or technology assets to VCs or distribution companies after the initial product definition phase for further product development and, eventually, delivery to the market. Potential PDC investors include angels, large corporations, VCs, and foundations, and investor focus would be on their field of interest and the expertise of the operating team.
Instead of investing in infrastructure — the norm for the VC start-up company model — the translational experiments to reach “proof of relevancy” would be contracted to PSPs to perform the key development activities. By transferring the product development and technology to the PSPs, acquirers will not be dependent on the PDC management team for expertise. Following acquisition, the product development company could operate in a virtual mode with a small group of key managers by simply continuing to fund the PSPs. Hence, the vast majority of investment in this model is focused solely on advancing the product or technology rather than on start-up infrastructure and associated operating and maintenance costs. “We believe the distributed partnering model offers a rational framework for a new approach to risk-adjusted financing of innovation,” Roth concludes.
Source: Xconomy