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Exclusive Life Science Feature covery and development, Pappas explains. "Venture philanthropy the same. He believes there may be less interest in the Form 10 does three things: one, provide funding; two, provide access to route and more movement toward the JOBS Act, and when a patients; and three, provide access to physicians in the disease company has an especially unique proposition, it should proceed space. So if you have a drug or treatment approach that no one under a standard IPO. Yet he says it is fundamentally important has pursued before, the philanthropists can be extremely helpful." to see these new and various instruments come forward because Accelerators or incubators have proliferated as a way to support they are providing attractive alternatives for financing life sciences life sciences start-ups and attract companies into local economies. companies. Pappas believes the jury is still out on the question of whether Whatever the alternatives, all of them together are unlikely to such entities will ultimately make money for investors, but says fill the gap left by VCs since their life science heyday. Despite he is seeing some better quality programs come out that are more even the current upsurge, many new companies will still wander capital-efficient. But these days, he believes the most effective into the veritable Valley of Death, often to meet the final fate its industry-boosting action in the United States is happening at the moniker implies. But Pappas sees the valley more as a filter than federal level, namely with new NIH programs, DARPA, and most a fatal furnace: "The Valley of Death is not a bad situation to have. recently the JOBS (Jumpstart Our Business Startups) Act. It helps sort out the science projects, which may be better done "We encourage all of our companies to make sure they're effecunder the purview of the NIH and until they get to the point tively looking at NIH, DARPA, and all of true translational medicine, where similar organizations and programs, they can define a plan to effectively particularly if they are not going to use pursue mechanism-of-action, proof-ofventure dollars. Those programs have concept, and a financially sustainable been there for a while and do conbusiness model." tinue, particularly in the major areas, SOURCING FUNDS — and we advise companies to pursue AND STABILITY them as needed." Whether the recent surge in biotech By some provisions in the JOBS Act, IPOs and VC cash proves to be a lasting companies below a certain size can boost or transitory bubble for early-stage forego some disclosure requirements investment, the full lessons of the past and negotiate with investors confidenwould favor an adaptive funding model. tially. "The JOBS Act is giving compaYoung, fragile companies need ways nies an opportunity to tap into the to insulate themselves from boom-andcapital markets in a way that we haven't bust cycles by diversifying their fundseen in over a decade," Pappas says. ing portfolios to tap sources that don't Besides and before the confidential flood in one season only to vanish with JOBS Act filings, and as an alternative the rains in the next. Even the stronto the traditional S1 IPO, companies gest organism can rapidly perish if it have been making use of the cluster of depends entirely on a single element of "Form 10" SEC filings to set up reverse Art Pappas, founder of Pappas Ventures its environment and the element sudmergers, essentially by turning a pubdenly disappears. Tiny foragers persist lic company into a shell. An updated where the dinosaurs fall. Form 10 issued in 2008 allows a new twist on the reverse merger, Time is the real commodity purchased with investment money. Time different from a typical S1 or a JOBS Act filing. to do the right work — formulate the compound, interrogate the Company investors prepare and file an S1, advising the SEC that toxicology, prepare to test in people, recruit patients and investigators, the company plans to go public. Then the investors put a small and run even the most elementary Phase 1 trial — all the work necesamount of money, say $500,000, into that vehicle and take it pubsary to attract more capital, a partnership, or an acquisition to advance lic, using primarily a retail base to buy the stock, which creates a the drug toward legal sale for use in medical practice. tradable security as a pink-sheet listed company. The company At a minimum, the young company must survive long enough then uses the appropriate SEC regulatory process to bring in large to prove its concept. To fail proof-of-concept in a fair scientific institutional investors to hopefully buy the public stock. The SEC test is regrettable, but not nearly so much as failing to achieve will review the S1 again as an already-filed public document. proof-of-concept because there is insufficient money in the But Pappas doubts the practice will significantly grow. He has not bank to pay for testing it. In such cases, the lost-opportunity seen a lot of new Form 10 filings come forward, primarily because costs for the company, the industry, and society remain as the JOBS Act has become so attractive and the absolute costs for unknown as an unresolved tragedy in the true sense. the traditional IPO, a JOBS Act IPO, or Form 10 IPO are exactly "Venture capital, in general, has stimulated the creation and growth of the overall biopharmaceutical and medical device industries, including that of the diagnostics sector. But the performance, particularly over the last 15 years, has been less than impressive for the life science asset class." September 2013 LifeScienceLeader.com 29