There are different patterns of scientific breakthroughs or discoveries.
A very rare few occur in isolation. Many more are stochastic (random). The ones most important for entrepreneurial pursuit, and also for a scientific career, are those that are happening within a new field that has just grown past a tipping point or critical mass of activity and acceptance.
When you work in such a field, you are swimming with the current, and that current is growing stronger. It makes new endeavors easier to pursue. Because that current is growing, there is ample room for a scientist to carve out a specialty.
Because it is a new area, its practitioners need new methods and tools for their work. An entrepreneurial opportunity is to provide for these customers.
New fields emerge all the time. In science and technology, new breakthroughs are always built on pre-existing scientific theories and technologies. Also, ideas and tools from adjacent fields can combine to create a new interdisciplinary field.
An earlier post introduced the concept of the “idea multiplier.” Ideas grow into more ideas. Many of these can cluster together to build the foundations of a new field.
Examples of very broad fields found through an analysis of idea multipliers are genetics, oncology, agricultural & plant sciences, and materials science.
Another way to visualize this is a network. Each node is some important idea or breakthrough, and they link with each other to form clusters. A new field becomes ascendant when enough of these nodes and clusters have connected and surpassed critical mass.
“Science, like galaxies, grows fastest at its fringes, and two areas where divergent fields overlapped and shaded into each other… offer far more powerful means for understanding how molecules behave and why.”
-The Billion Dollar Molecule, by Barry Werth, p 205.
These patterns are broadly recognizable to all of us when these networks tip (connect) into mainstream knowledge. This is why when Bill Gates was asked what field he would choose if he was starting out today, he said it would either be in artificial intelligence, energy, or genetics. This sounds obvious to all of us too, for the same reasons.
However, the above examples are too vague. To be practical, one needs to work in a much more defined area or sub-field.
In the previous post, that growing sub-field was “fluorescence techniques for biomedical research.” This sounds very specialized, but for those who work in it, and hence know about it, it is very large.
This sub-field was created by the convergence of multiple new and growing breakthroughs happening at the time:
- new fluorescent molecules were becoming available for use as probes,
- use of many different cellular compounds started to proliferate in biomedical research,
- new biochemistries were incorporating fluorescent molecules as a biomedical research tool,
- many different fluorescence methods and technologies were emerging,
- new fluorescence detection instruments were being developed.
Note that this sub-field is within the broader fields of biotechnology, genetics, oncology, and materials science.
In the previous case study, an entrepreneur started a company in 1992 to make fluorescent-labeled reagents for biomedical research.
There were many other new scientific tools emerging during this period of time.
In this case study, we look at two entrepreneurs who started a company, also in 1992, to make fluorescence detection instruments for pharmaceutical research.
The profile of two co-founders
In this case, both co-founders were electrical engineers with backgrounds in physics.
Kirk Schroeder obtained his degree in physics in 1984 from Illinois Wesleyan University, and his Master’s in electrical engineering, specializing in optical engineering, in 1986 from University of Illinois Urbana-Champaign.
Brad Neagle obtained his degree in physics in 1986 from University of Northern Iowa, and his Master’s in electrical engineer in 1988 from University of Michigan.
They met each other in their first job, at the Environmental Research Institute of Michigan (ERIM), which develops sensing applications for aircraft and satellites to collect military intelligence.
However, they both recognized emerging and converging trends in fluorescence that were compelling to them. Among other things, they worked on a system to quantify fluorescence from cells, which led to a patent.
One can imagine that ERIM had no commercial interest in something like this.
After working at ERIM for about six years, they left and co-founded NovelTech Systems in 1992, with Kirk as CEO and Brad as a VP.
That patent application was filed by ERIM on 30 September 1992, which they licensed.
Enabling high throughput screening
They developed their fluorescence application to study cellular activity by working with a pharmacologist at Upjohn, a pharmaceutical company.
Their invention was the Fluorescence Imaging Plate Reader (FLIPR, pronounced “flipper”). Building it involved engineering, optics, and robotics.
First, the system incorporated multiwell plates. Each well serves as a small “test tube” in which an experiment is performed. Thus a 96 well plate enables 96 simultaneous experiments. 384- and 1536- well plates are also available.
Second, automated pipettes dispense precise quantities of reagents into each well. The experiments begin, and events in each well can lead to fluorescence.
Third, the FLIPR has fluorescence detectors monitoring each individual well. These optical detectors are highly sensitive to even low levels of fluorescence, and they are fast, allowing measurements to be performed in under 1 second.
When cells are put into each well, the FLIPR technology allows one to use fluorescence to monitor cellular activity, which is known as an assay. It allows this to be performed very fast, and on a large number of experiments in parallel.
The next step in creating the product system was to provide “kits” of reagents to allow scientists to perform different types of experiments conveniently and quickly. This is applications development. It requires biochemists and molecular biologists to invent these kits.
Another important step is to be able to manufacture these instruments and these kits in commercial quantities and to a high standard of quality.
The FLIPR was launched in 1995.
In the pharmaceutical industry, the FLIPR more than any other instrument enabled high throughput screening of compounds in two of the largest classes of drug targets in drug discovery: G-protein coupled receptors (GPCRs) and ion channels.
The market demand was there for this “killer application.” This enabled NovelTech Systems to be sold in 1996 to Molecular Devices, a large vendor of bioanalytical measurement systems.
Molecular Devices had the resources to accelerate commercial development of the FLIPR, establishing it to be a fundamental tool in drug discovery in all of the largest pharmaceutical companies in the world, as well as in specialty biopharmaceutical companies.
The business model
At the time of launch, a FLIPR machine cost US$250,00 to $275,000.
The cost of consumables (the kits) and disposables (the multiwell plates) for each high throughput screening campaign adds to the recurring revenue stream.
Three years after launch, my estimate of sales from this line was about US$8 million per year by 1998, based on US SEC filings. By 2006, when Molecular Devices was acquired by Canadian-based MDS Inc., revenues of the FLIPR line had grown to about US$68 million. Three years later, MDS Inc. was acquired by US-based Danaher Corporation, where it is now a subsidiary.
The cost of running a high throughput screen on a FLIPR can be quite high, amounting to a significant recurring revenue stream for Molecular Devices.
When I was director of research for a biopharmaceutical company, a modest high throughput screening campaign (circa 2004) was US$20,000 for consumables, disposables and overhead. This cost grows when a large screening effort is going on for months at a time.
The next step of entrepreneurship
As for Kirk and Brad, they stayed at Molecular Devices for a year to hand over the business. Then they went on to co-found their next company, Essen Instruments, in 1999.
Their learnings from the applications development of the FLIPR was that the most important method for single cell ion channel measurements was patch clamp electrophysiology. This was a manual method requiring skills of a specially trained scientist, usually at the PhD level.
Hence, their new entrepreneurial aim was to automate patch clamp electrophysiology. Their new instrument, called IonWorks, was launched in 2002.
The IonWorks enabled high throughput assays of ion channels. Like the FLIPR, it is primarily used in drug discovery.
They continued to develop other new lines instruments for different types of cellular assays.
Essen Instruments was acquired in 2017 for US$320 million by Sartorius, a Germany-based global provider of biopharmaceutical and laboratory instruments and services.
By then, Essen Instruments had US$60 million in sales and employed 150 people in the Ann Arbor, MI area as well as in the UK and Japan.
Take home messages
1. Tools companies have a short life span, but they support the founder’s subsequent venture
In this and the previous case study, both companies launched successful products and were acquired within 4 and 6 years of their founding, respectively. This is the natural end game of a scientific tools business. Consolidation is inevitable to provide an efficient and convenient distribution channel for customers who use a broad range of tools.
This business consolidation gives the venture a short life span and limits the financial upside, but the key point is the success of the venture. This provides the entrepreneur with the track record and insights towards a new business venture that is more purposeful and has even greater potential.
Indeed, both case studies show these entrepreneurs becoming more successful with their next endeavors.
2. Dearth of industry experience and talent is a hurdle for a local industry to reach global status
Entrepreneurs are the source of innovation by creating the product and the business. The global companies swallow them up, because they are about efficiencies of scale.
When this happens, the entrepreneur can go on and contribute further to the local innovation ecosystem.
However, for the local industry to achieve global status, it also needs executives with industry experience at a global level to lead the acquiring company to global status.
In this case study, a Canadian company, MDS Inc., was indeed the acquirer of Molecular Devices. Unfortunately, for its local economy, MDS Inc. failed in its business evolution.
A short explanation of MDS Inc.’s failure was that its executives and its Board did not focus on the important business strategy in this industry, which is to achieve efficiencies of scale. They spread MDS thin across multiple businesses. In addition to the research instruments business, they added clinical research, medical isotopes, venture capital, contract research, and discovery services. None of these businesses received enough resources and attention to compete within their own industries at a global scale, resulting in the eventual breakup of MDS.
The characteristics of leadership and execution required for success at this level are different from that of the entrepreneur. These types of leaders are just as important as entrepreneurs in building and maintaining a sustainable industry ecosystem. However, the topic of managing a global company is outside of the scope of this blog.