COVID-19 ‘curveballs’ plentiful during past year, but U-M startups find new missions, motivations

March 25, 2021
Contact: Jeff Karoub jkaroub@umich.edu

FACULTY Q&A

A year ago as the world descended into the pandemic, the economic picture was grim: Businesses were forced to temporarily or permanently close, workers faced layoffs or drastically reduced wages and hours.

Kelly B. SextonThere wasn’t a lot of room for optimism but there was motivation in at least one area: commercializing technology, especially the kind that could help ease the pain, literally and figuratively, of COVID-19. Given the initial outlook, officials with the University of Michigan’s Office of Tech Transfer were pleasantly surprised at just how quickly researchers and entrepreneurs rose to the challenge and put that motivation into action.

Kelly Sexton, associate vice president for research-technology transfer and innovation partnerships, discusses the landscape and how the business of commercializing university technology progressed and evolved.

As the pandemic took hold, what was the environment for startups and investment, and how did that play out?

As everyone will recall, this was a time of great uncertainty. It’s almost hard to believe how little we knew about COVID-19 in March 2020 compared to where we are today—incredibly effective vaccines being administered, and the knowledge that social distancing and mask-wearing can greatly reduce transmission.

In the early days of the COVID pandemic, with research ramping down on campus, we were obviously concerned about what the impact might be to our discovery and innovation pipeline. It turned out that our initial concerns were unfounded as we were soon at full capacity supporting the ingenuity and drive of the research community as they worked to develop new solutions to address the pandemic—from novel therapeutics to innovative personal protective equipment to advanced covid diagnostics.

We were soon running at full steam to support the COVID-related research that was allowed to continue during this time. It has been wonderful to witness the resiliency of our research community and to see that research was able to ramp up starting back in May and to continue safely with no incidences of COVID transmission in our laboratories when face coverings and social distancing guidelines are followed.

Likewise, in the early days of the pandemic, investors were anticipating that there would be a substantial correction/reduction in startup valuations, and many firms were taking a wait-and-see approach. Some venture capitalists were avoiding new investments in anticipation of significant economic impacts that could lower company valuations and even lead to some companies going out of business.

A lot of investors also assumed that they would not be able to make new investments until they could start visiting companies for face-to-face visits as part of their diligence process. These attitudes about in-person visits quickly shifted as everyone became accustomed to holding virtual meetings. When the major markets continued to perform well, the investments started to happen again and 2020 turned out to be a strong year for venture capital investments, particularly in the biotech sector.

Did startups succeed because or in spite of the pandemic?

Many of our startups succeeded despite the pandemic. A lot of companies reduced their capital expenditures and tightened up operations, focusing on maintaining momentum while they waited for leading indicators about their particular market segments and how the world overall was responding to this new paradigm.

For many of our biotech companies, there was the knowledge that diseases like cancer were not getting any less serious, and the world still needed new cures. These companies had to adapt to a very complicated clinical trial landscape, knowing that the hospital systems they were reliant on were often struggling to maintain clinical trial capacity while also handling an influx of COVID patients.

We saw companies adapt by spreading their clinical trials over several states and even countries in an effort to have a broad portfolio of trials that would be able to weather this storm.

Another subset of companies saw tailwinds created by the pandemic. From companies like Genomenon that saw accelerated adoption of their Mastermind Genomic Search Engine product as many researchers moved from the lab to online, to startups like Asalyxa that were able to advance to launch sooner than anticipated due to the opportunity to address inflammatory issues associated with COVID infections. We even saw acquisitions like Merck buying U-M startup OncoImmune for $425 million based on promising Phase 3 trials of one of its pipeline therapeutics for treating COVID.

What other surprises were there for technology being commercialized out of U-M? Did anything bubble up that otherwise might not have, or did anything develop more quickly because of what was happening around the globe?

One of the biggest surprises for us was the story of LynxDx. In fall 2019, we invited the research team and the company founders to ring our “Startup Bell” to commemorate the launch of the company based on a novel prostate cancer diagnostic created in the laboratory of Professor Arul Chinniyian in the Rogel Cancer Center.

We were very excited about the prospects of this company to bring this new diagnostic to the clinic to benefit patients. When COVID hit, we were concerned because the company was in its very early days and had not yet raised venture funding. We were thrilled to see them pivot to utilize their testing equipment to begin providing COVID tests to the community.

According to the LynxDx website, they are the largest supplier of tests in Michigan. In addition to their valuable science, they also truly provided an incredible service to our community by bringing this large testing capacity online so quickly.

I know some companies pivoted and found ways to respond to challenges posed by COVID-19. Can we expect to see more of that—any thoughts for the year ahead?

COVID-19 continues to throw us curveballs, and at the same time, human ingenuity and innovation continues to surpass every hope and aspiration that I have.

In the past year, we have learned how important our essential workers are to society. We have also witnessed Main Street businesses and restaurants be absolutely crushed by this pandemic. We have also seen some tech companies rake in incredible profits.

A lot of tech companies have stepped in to help with food delivery, and their marketing indicates that they are trying to help restaurants weather the pandemic. But what we’re learning is that these services are often not helping the restaurants’ bottom line. I’m proud that U-M startup Refraction AI is applying its robotic delivery system to food delivery, leaving more upside in the pockets of local restaurants while also reducing traffic congestion and carbon emissions. This type of innovation that solves a problem without further exacerbating societal inequality is part of what makes the Ann Arbor ecosystem so special.

I’m hopeful that this next year we will see more solutions that enhance societal prosperity for all. This is something that our region and our university excels at.

Finally, has tech transfer changed in any way in the past year? Any lessons learned that could be applied to future commercialization?

In March and April 2020, we became an extension of Michigan Medicine’s procurement efforts—leveraging our connections with the business community to assist with sourcing personal protective equipment (PPE) for our frontline health care workers. I was never prouder to be a part of this team—watching my colleagues recognize a problem, and then jumping in to offer help to support our frontline health care providers.

During the summer, as supply chains were reestablished and PPE became more widely available, we turned our attention back to our efforts to raise funding for the Accelerate Blue Fund, an early-stage evergreen venture fund that we are raising through philanthropy to invest in promising U-M tech startups. We initially thought that our fundraising efforts would be curtailed by our inability to travel and hold in-person meetings, but we quickly found the opposite to be true. We’ve had incredibly productive meetings with U-M alumni across the country through video conferences.

We think in a world where everyone is more comfortable with investing in startups that are “only a Zoom call away,” there is a real opportunity for Ann Arbor startup companies to attract more venture capital investment dollars. I’m glad we’re having success in fundraising for the Accelerate Blue Fund because it means that we will be able to help “de-risk” these companies at their earliest stages by helping them to achieve key business and technical milestones, while preparing them to successfully attract funding from existing capital markets.