Small paper signs tacked outside doorways hint of new occupants at the Carmel Valley law firm of Pillsbury Winthrop Shaw and Pittman.
But the latest tenants to share space within the glassy confines of Suite 300 don’t pay rent. They aren’t required to show up for work. And they regularly seek legal advice from their neighbors.
Meet the newest inhabitant at Pillsbury: the startup.
For the past year and a half, Pillsbury has quietly incubated fledgling life sciences firms with promising new technologies. The law firm offers them a private office, a telephone line, technical and administrative support, access to one of its conference rooms and, most of all, legal guidance. In return, Pillsbury lawyers say they gain access to new clientele.
Partners at the firm said they took their cue from clients in need of legal support and a low-cost place to do business.
“There were companies out there that were sort of in need of a starting home,” said Pillsbury partner John Wetherell, a former biotech executive turned patent attorney. “It just made good business sense to us.”
While big drug companies such as Biogen Idec, Genzyme and Pfizer , which has a research hub in San Diego , began incubating startup companies a couple years ago, the concept is new to law firms.
Pillsbury’s team says it makes sense to incubate because startups require substantial guidance. The newly formed companies, many of them virtual, have access to a full range of legal specialties in one location; they might seek regulatory guidance from a patent attorney and land-use advice from a real estate lawyer.
And connecting startup companies with venture capitalists to raise much needed cash is an easy transition, according to Wetherell, because the law firm counsels both.
Local biotech company Apoptos, for instance, leaned on Pillsbury to guide it through a $28 million investment round. The small, privately held biotech, which develops cancer fighting drugs, was first to join the Pillsbury offices in Carmel Valley. Since then, Pillsbury has incubated three others.
Today, Pillsbury is counseling two startups: a medical device company and a biotech firm. Multimeric Biotherapeutics, a biotech with technology spun out of UC San Diego, is seeking investors to help push forward research on vaccines.
“They introduced us to a VC who wanted to be part of our syndicate, so that was extremely positive,” said Multimeric Chief Scientist Richard Kornbluth.
The other startup, Automedics Medical Systems, has developed an automated drug delivery system that monitors drug levels and keeps the drug, such as heparin, constant in the body.
Unique Challenges
But critics of the practice say incubating a company within a law firm comes with its own set of challenges.
“The only concern I would have as an investor is that you’re getting competitive rates from the law firm that is, in fact, exchanging the rent for services,” said Kevin Kinsella, a venture capitalist with La Jolla-based Avalon Ventures.
Unlike Big Pharma, companies incubated within the law firm’s offices aren’t restricted by various scientific milestones or other contractual agreements, such as retaining the lawyers for a certain amount of time.
Pfizer’s La Jolla Incubator, for instance, provides lab space, technical expertise and about $4 million a year in exchange for a piece of the company. It has the first rights to purchase any resulting products and technologies.
The startups cover operational expenses such as salaries, legal counsel and liabilities.
At Pillsbury, startups take advantage of free rent in exchange for legal guidance.
“We can get them incorporated, provide them with standard agreements and confidentiality and also provide them counseling in terms of putting together their business plan,” Wetherall said.
Mark Benedyk, head of the La Jolla incubator, said incubators have a unique place in today’s unsteady economic environment where raising funds to keep research going has proved especially difficult.
“The companies we invest in are going to be much more sheltered,” he said. “There still is a need for innovation and disease-modifying therapies and other health care technologies to help improve standard of care in a lot of areas.”
