SECOND STAGE EXTRA
Mixing focus, flexibility
Biomed innovator wants to get a reaction from potential buyers
Click photo to enlarge
From left, Swift Biosciences Inc. CEO David Olson, Chief Scientific Officer Vladimir Makarov and Chief Commercial Officer Steve Spotts are at the heart of the Ann Arbor lab, which makes liquid reagents for cancer research.
Photo: LON HORWEDAL
Ann Arbor-based Swift Biosciences Inc. makes niche products for biomedical research testing. Now it's trying to perfect the formula for taking its business to the next level.
Founded in 2010, the tiny lab is on the west side of town and doesn't look like much from the outside -- its tidy one-story office with wet lab sits among similar anonymous offices.
Swift keeps the lid on expenses by buying used furniture and foregoing a receptionist, among other cash-saving measures. But when it comes to scientific research, industry watchers and investors say Swift is an innovator.
Swift makes liquid reagents used by researchers for detecting mutant cancer genes. A reagent is used to cause a chemical reaction or to test if one occurs.
As it seeks to gradually grow and perhaps become part of a larger biomedical group, the company's emphasis has been on staying focused but flexible and on collaborating with key customers in developing product lines and licensing deals, said CEO and President David Olson.
"We have no plans for dramatic expansion of the company in the next 12 months," Olson said. "Best case, there are two options: Develop relationships with large product-based companies such as Life Technologies Corp., or with companies that specialize in diagnostics and services, such as Roche."
Life Technologies is based in Grand Island, N.Y. Roche, based in Basel, Switzerland, is one of the world's largest biotech companies.
"It's best to have as many companies as possible bidding for you, regardless of sector. I don't care how they evaluate us. Our goal is to make our technology as interesting to customers as possible. We could see a bidder within six to 18 months," Olson said.
Because many other companies are in the same market, Swift's product development cycle is measured in days or weeks rather than months. And customers are applying the company's products and processes in new ways.
"We sell products for research use only. However, through partners, our technology can be useful for in vitro diagnostics," Olson said.
Olson estimated revenue will be $1 million to $2 million in 2013. Swift is still venture-capital backed, with a current $2 million infusion expected to last until next summer. The company has 11 employees; eight of them are scientists working in the lab.
One product line, called myT Primers, helps researchers analyze more samples quickly and cheaply, according to the company. Test kits are sold in sets of 30 for $1,500, Olson said.
The company earns additional revenue from licensing agreements. Swift has fewer sales and more licensing revenue than first planned, Olson said.
"Revenue is an excellent thing. But like many startups, (Swift's) revenue demonstrates market interest and strategic value.
It's a means to having the company acquired," Olson said.
He keeps a close eye on expenses. If a purchase isn't strategic, the company doesn't do it, he said, observing that Silicon Valley startups seem to have money to spend on things that don't matter. Swift's landlord at the utilitarian space, Henry Brown, is also an investor.
Olson says he has to remind himself that science is not his job -- his job is to worry about cash flow. A molecular biologist by training, he's co-founded six biotech startups, including Ann Arbor-based Accuri Cytometers, which was acquired by New Jersey-based Becton Dickinson in 2011 for $205 million.
Swift's other co-founder is Chief Scientific Officer Vladimir Makarov. Makarov co-founded two biotech startups. Most recently, he served as chief scientific officer of Rubicon Genomics Inc., where he invented the Ann Arbor company's products. At Swift, Olson said, the company has a strong focus on so-called targeted gene sequencing, where the goal is to examine collections of a few critical genes, such as genes related to specific cancers.
The company has a half dozen products in the pipeline at any given time.
Swift's leadership style and revenue track record give it an advantage, experts and investors say.
With an active revenue stream, "you're not dependent on the financial market for venture capital. It's non-dilutive, not a bad situation to be in right now. You can have a partnership with somebody or all kinds of other things that you could never do in a therapeutics company," said investor Roger Newton, CEO and president of Esperion Therapeutics Inc., a Plymouth-based drug development company.
Walt Young, a Swift investor and director with broad experience with tech startups, likes Swift's leadership and flexibility. He was also an Accuri Cytometers investor.
Young points to the results of a global DNA study released a few weeks ago, which he calls game-changing. Such announcements have an immediate impact on research direction.
"It's is a very explosive area, getting a lot of attention from all sorts of areas: big pharma, drug, hardware and wetware (liquid reagents) companies. It's a dynamic segment, a most flexible area," Young said.
"That leadership of Vladimir and David -- that pairing is unique. They attract talent and add value. They bring talent from around the country."
Swift is gradually hiring scientists as it expands its product lines. It has two positions posted one for a molecular biologist, biochemist or biophysicist, and one for an applications scientist.
Part of the company's predicament is sharing enough information to build business without sharing so much that it risks an intellectual property breach.
The Swift staff meets weekly to share progress and monthly to strategize. Many ideas are simply filed for future development, but all are documented. They become part of the company's intellectual assets, adding value for a future buyer.
Protecting new IP is a challenge, Olson said.
"There's a little dance we have to do. We can't let customers and potential partners know what we're doing before we get things patent-protected. But we also need to make products available rapidly to select customers and business partners," Olson said.
Young concurs: "I'd be so protective -- you can't hide behind patents. You still want to keep quiet, have a competitive edge. Keep key collaborators, key projects under wraps. They're in an exciting, hot field."
Olson told news service GenomeWeb for a Feb. 23 story that Swift's corporate strategy is to produce products that will work on existing instrumentation. The proprietary reagents and matching protocols help customers do things with their existing instruments that they couldn't do before.
For a small company, the challenges are immense. First, Swift had to leap from R&D to commercialization with quality products, Olson said. Swift has had repeat customers, as well as contacts from multiple companies interested in licensing its technology.
In the year between announcing its R&D program and product launch, Swift concentrated on strategic and financial planning by Chief Commercial Officer Steve Spotts and consulting CFO Eric Halvorson to determine how much capital it needs to raise, Olson said.
"Now, what are the next products? The challenge is making the right strategic choices. We have lots of technology," Olson noted. "I'm making sure we make the right choices. We want to anticipate what customers will need in two to three years."
Young said the company had a breakthrough year making revenue but must remember the delicate balancing act that faces second-stage companies.
Swift has gone from its founding to getting its first revenue, he said. Now, the company has the skills and capabilities -- and growing credibility -- to change markets.
"Focus, focus, focus. The other 'f' word is flexibility. It sounds like yin and yang: two conflicting ideas at the same time," he said.
Ann Arbor banker Michael Cole says remaining small and nimble is key. He is president of the technology industry group at Bank of Ann Arbor.
"If you're trying to build a business based on unique intellectual property, any acquirer is going to be interested in that intellectual property," Cole said.
The future of second-stage companies in general depends on whether they are financed with venture capital or backed by their entrepreneurs, he added.
"Companies that are VC-backed tend to be focused on some type of exit -- a liquidity event for investors. Achieving milestones to increase valuation would be important to potential buyers," he said. "Non-VC-backed companies want to become profitable standalone businesses."
Said Olson: "We are in a very active, exciting area for acquisition and mergers. There's a lot of activity. It requires that we move swiftly as an organization."