Funding A Virtual Biotech Without Institutional Capital With Sarcomatrix's David Craig

0:03David Craig: Welcome back to the business of biotech. I'm your host, Ben Comer, chief editor at Life Science Leader. And today I'm speaking with David Craig, co-founder, president and CEO at Sarcomatrix, a virtual preclinical company founded in late 2022 targeting rare neuromuscular diseases. After graduating from South Dakota State University's pharmacy school, David took a job at Leader Labs, which became part of Wyeth and then Pfizer. But he left before that to become the fourth sales rep hired at Amgen. From there, David served in executive sales and market access roles at, among other companies, Gilead, CV Therapeutics, AcelRx, which is now Telferra, Portola, Alexion.

0:47David Craig: And he founded a life science consulting practice. In other words, David has been around and been around the life sciences industry for a while. He's seen a lot. And in June, he published The New Rules of Biotech, a founder's guide to building great companies. I'm thrilled to have him on the show to explain why the old biotech playbook doesn't work anymore and how emerging biopharma companies actually get funded and built in 2026. We'll talk about running a drug development program without institutional capital, what the virtual model actually costs and where the money goes, which functions can be outsourced and which can't.

1:24David Craig: And the difference between raising a Series A with a Series A funding with grants and retail dollars. David, thank you so much for being here. Ben, thanks for having me. I really appreciate being on this podcast. It's an honor. Well, I'm thrilled to have you, too. I think it's a really interesting company and model. So I'm looking forward to getting into that with you, David. But before I do, I have to ask you some background questions. You grew up on a farm as part of a big family. I mentioned in the intro you went to pharmacy school at South Dakota State University. How were you exposed to the to, I guess, the biopharma industry initially?

2:07David Craig: And what made you want to work in life sciences? Well, I think at the end of the day, it was South Dakota State at the time as a five-year program, BS. And in the fourth year is when Genentech, humulin, insulin, and some of the early biologicals were starting to come out. And even in pharmacy school, I said, well, first of all, I really didn't want to be a pharmacist. I did it because my dad is. And anyway, I got into the program and I didn't want to work retail. But I did know that the future was in biotech. So when I got out of school, I did start at Letterly Labs. And that is the they were consequently bought by YF, et cetera, et cetera.

2:58They're no longer around. But I did really well there. And then when they went to hire sales reps for Amgen, they took the tear sheet, which was ranking the sales representatives at Lerley. And I was in the top one or two and they offered me the job. So interest early, knowing that I wanted to get there and I was willing to start at the bottom, carry a bag.

3:25David Craig: I want to ask you a question about how things have changed since those early days at Amgen versus flash forward now to 2026. But before I do, I have to ask you, I saw a note on LinkedIn that you are a concert violinist. And I'm just curious if you still play and if you have a favorite violinist. uh i practice scales uh so a concert violinist i i started playing violin in the fourth grade all through high school and then um when i went to south dakota state it just happened that the piece that they were working on i had worked on in mankato minnesota um and they put me in the back of the second violin section.

4:16And then halfway through that piece, the conductor said, come and sit up here. And he put me a second chair, first violin. And it was just an honor that he recognized that I developed to a certain point. I would never really be a professional violinist because I actually asked my instructor, could I be a professional violinist? And he said, if I'm honest with you, technically you're pretty good, but you don't have it. So, and I think to be a professional, you do have to have it, which is the non-specific soft variables that come along with it and make you special.

4:59David Craig: Did you come from a musical family? Eight kids, everyone had to play an instrument. That was the rule. OK. All right. Well, let's let's go back to Amgen. You've worked in a bunch of senior roles at a bunch of biotech and pharma companies. You saw Amgen's growth into a billion dollar company firsthand. Do you think it's harder now than it was back then to start a company and fund a drug development program? No, I think it's significantly harder. And the idea of creating a fully integrated biotech or pharmaceutical company, I do think that Sarcomatrix, where I'm at right now, is positioned to do that.

5:44And here's the reason. Amgen had Epigen. They were promoting to dialysis centers. So you had a very concentrated commercial market and you had a drug that was making significant improvement in the life of these individuals. Gilead Sciences, the same thing with AIDS. So we had AIDS drugs. The AIDS community was focused on very specific clinics, small commercial footprint, really good drug. You could do the same thing. here at sarcomatrix there's basically 90 physicians or there's 450 physicians at 90 clinics that treat all muscular dystrophies and we have a drug that i think is going to make significant difference so it's teed up to growth and turning into fully integrated and that's what i would love to do but i think realistically You need to pull one of the assets to fund the company and figure out a way to improve the value of that asset to the point where, first of all, you have data and there's a desire for a strategic to buy you out of that asset.

6:56And nine times out of 10 nowadays, the entire company spot. Wow.

7:01David Craig: So only 90 clinics treating all muscular dystrophies in the U.S.? It sounds like a low number. Yeah, it is. There's 30 different types of muscular dystrophy. They're all neurological. Well, there's neurological and then there's a physical tearing type of muscular dystrophies. It's a complex disease and pathophysiology. And I think we underestimated how complex muscle regeneration was in muscle maintenance. So it's a it's a really hard problem to solve. Yeah. What what prompted you? You just I mentioned in the intro, you've published a new book just a couple of months ago. I'm curious about what prompted you to write that book, David, the new rules of biotech.

7:56David Craig: And why now? Well, first of all, I've been writing for 30 years and I keep a journal in a lab notebooks. And basically, at the end of the day, I write down two or three things that went well, one or two things that I could improve on, and then just my thoughts. So I had a lot of material to work with, if you will. When I started Cycle Matrix at the end of 2022, I thought, well, let's raise$65 million in a Series A because in the last several years, that wasn't unreasonable to ask. However, I didn't know that at that time that it was the beginning of what I would call the nuclear winter of fundraising.

8:43It just – Fundraising just fell off, right?

8:46David Craig: Absolutely, yeah. So after trying to push the Series A for three or four months, I realized we had to take a different tack. So that's when I thought, OK, let's get really creative and look at everything possible. So we know that grants are great. And if you can get them, it's a great baseline. And then I thought, well, we don't really use crowdfunding in pharmaceuticals. And that's an opportunity to reach out to friends, family, and unaccredited investors that want to invest a little bit of money. And then the high net worth individuals and kind of smaller VCs, if you will, you know, they want a Reg A, not a Reg A, I'm sorry.

9:31They're looking for the Reg D with some protections. So what I ended up doing was putting together a crowdfunding campaign. It raised only$52 ,000, and I spent over$40 ,000 just on marketing. So that wasn't necessarily a good fit. And when I started talking to people, they basically said, listen, for crowdfunding in the muscular dystrophy space, the problem is, is the friends and family of those living with muscular dystrophy don't have extra money because it's so expensive to take care of those family members. And I think if you did cancer or maybe arthritis or some other disease, it might actually work a little bit better.

10:18But I was leaning heavily into the Reg D program. And what I found is that, you know, it's really important to have face-to-face communications or engagement in some way, shape or form. Because I don't think outbought emailing to this day, it doesn't work. It doesn't seem to work very well. But I did go to as many pitch contests as I possibly could. And what I would find is that after the pitch contest, it was not, well, it wasn't. several times, someone would come up and say, I'd like to invest in your company and they would invest up to a hundred thousand dollars. So you asked me why I wrote the book.

11:06And I just wandered around there. I wrote the book at almost as therapy, as I learned about how you possibly could fund with different solutions, a biotech company in an environment where VCs aren't funding. And then I realized it's not about, in addition to funding, it's about running a very lean company and considering that you can't, well, the time horizon for most investors is three to four years with a 25X return when you talk to individuals and high net worth individuals, et cetera. To take a drug from preclinical all the way through regulatory approval and commercialization takes significantly longer than that and a lot more money.

11:58So the strategy of the book is raise money creatively, run a virtual company with very low burn rate. Every dollar that you bring in, you invest in a study that would lead to data that moves the product forward even incrementally. And then the strategy is the exit. And if you can show healthy volunteer safety data along with early efficacy data based on biomarkers, there's three companies in the market right now that did that. And they were all bought by strategics with a valuation over a billion dollars. So rough numbers, I think it takes about$25 to$35 million to get to proof of concept if you have pretty good robust preclinical data.

12:53And you could turn that into, worst case, I think$500 million asset in the rare disease space and possibly up to a billion. And with those funds, then I think you can really go back and do the science, advance your second, third compounds, create the company as a minimum as a research platform that advances drugs into the clinic. But I think ideally, I'd love to build a – I like to recreate the early days of Amgen because they were really special. And I remember that. The people that I work with remember that. And I think it's very similar to Genentech and other start in biotechs. There's just a certain vibe about energy and passion, you know, working overtime without even being asked.

13:43All the things that go into, you know, really moving a drug into the market when, let's say, you're 400 people or less.

13:52David Craig: So I want to I'm curious about what you said on the the pitch contests. And, you know, I think it speaks to your point about the difference between, you know, a blind kind of out outbox email that someone's receiving cold versus you telling the story to someone in person. But were those were those contests held by like individual VC groups or tell me a little bit more about that? All of the above. So there's several groups that will put on pitch contests, startup, off the top of my head, I don't really remember them. But I would scan for any pitch contests where the entry fees were relatively low, even if it wasn't focused on pharmaceuticals or life science.

14:45Here's an example. There is a convention called Freedom Fest in Las Vegas every year. And it's a libertarian. Libertarians get together and we talk about, should we go back to the gold standard, you know, less regulation, all that type of stuff. So I'm pitching there and the three judges are Steve Forbes from Forbes magazine, John Mackey, who started Whole Foods, and Rob Arnault, who is the president of an analytics group that supports the PIMCO funds. So I get up there and I pitch. And I did talk to some people after that pitch. But the real issue, the most important thing was about five days after the meeting, Rob Arnault reached out to me and said, I'd like to invest in your company.

15:41So here's$100 ,000. And that's happened serendipitously several times. So I guess the question, you know, it's one thing to have the virtual teleconference or video conference. And I think that's much better than outbound cold emailing, et cetera, et cetera. But any way to get face-to-face, I think, is really good. I mean, other things that I do is when I'm, I pitched at Bio, NIH sponsored me at Bio to pitch. and usually at bio, when I go to a session or whether it's Europe, United States or some of the other large conferences I like to figure out where the stairs are to get onto stage and how the people are going to get up on stage and then I sit next to where they're going to exit so that I can be one of the first people to buttonhole the person that I want to talk to So just little things like that, I think, can make a difference.

16:44David Craig: Yeah, that's a that's a journalism tactic as well. I'm surprised I haven't bumped into you at some of those upstairs off a bio in the past. Let's let's talk a little bit more about developing drugs without institutional capital. And I have not had a chance to read the book yet. I do look forward to reading it, David. But I assume that you you talk about this in the book, Developing Drugs Without Institutional Capital, being creative, as you just described, using a virtual model. What made you, I guess, want it? Well, you explained why you wanted to try it. You know, you were in one of the worst funding environments, you know, in decades, starting at the end of of 2022.

17:30David Craig: How did you you know, how did you go forward? How did you was was that, you know, initial, you know, you didn't do so well in the crowdfunding, you were, you know, netted like ten thousand or twelve thousand dollars. You did get some checks through the the various pitch competitions that you went to. But was there a point at which, you know, you kind of knew like this is real. This this company is going to happen. You know, how did you how did you make that decision? When did it come, if that makes sense? Well, so the reason why I'm really sticky here is that I have family members with muscular dystrophy.

18:08Okay. And when I showed up at the Birkin Lab at the University of Nevada working on muscular dystrophy, I found my why. Three, seven years in the industry, onboarding as an entrepreneur at the University of Nevada, and then stumbling into this deep research with assets that are ready to go to the clinic, it all came together. Now, I'm going on three and a half years without taking a salary. And I'm okay with that, but my wife isn't. So I'll have to take care of that relatively soon. And then the several hundred thousand that I raised through the Reg D, then I thought, well, what else is available?

18:48So I reached out and it turns out that there's a venture fund in Nevada called the Battle Born Venture Fund. And it's one of these hybrid funds that will invest in startups for economic development reasons to build jobs effectively. And they agreed to match the first million in one to one. So I was able to raise another$300 ,000 there. And I continue to apply for grants. I'd like to think that one would come through on the Duchenne space, but not sure. And then I was actively reaching out to all the patient support groups, Parent Project Muscular Dystrophy, Cure Duchenne, Muscular Dystrophy Association, Jet Foundation, etc.

19:35I think you're going to find in the muscular dystrophy space, especially with Duchenne, that it's a very advanced support network. They're raising a lot of money, and then they invest in early startup companies. I have yet to get them to invest in Circle Matrix, but we're ongoing discussions with them and trying to sort that out right now. But that's another source of capital. And usually that's about a million dollars if we could land one of those grants.

20:04David Craig: You mentioned the research at the Birkin Lab at the University of Nevada, Reno. Can you describe, I guess, the process for licensing that technology? And then you also founded the company as a Delaware C-Corp. I don't know if that's related to licensing, you know, that doing that licensing deal with the University of Nevada, Reno or not. But maybe, yeah, just the initial steps as a co-founder and what that process looked like for getting that technology out of the university. Sure. So just a little bit of a backstory. I'm at Portola. We develop Indexa. The takeout is$1.4 billion valuation. Alexion buys it.

20:52And then AstraZeneca bought Alexion. And I was the last person standing that did the asset transfer over the course of a year and a half. So at the end of that, I was offered a job in the AZ Strategy Group out in Gaithersburg, Maryland. I live in Lake Tahoe, Nevada. and I wasn't going to move my family. So I took the package and then I thought, well, I wonder what's going on at the local university that's 45 minutes away. So I find the licensing office. I walk in, I meet Grace Chopp, who's the licensing agent. And what she says to me is, thank God you showed up. And I said, well, why is that, Grace?

21:34She said, because I know there's been about$178 million in NIH grants funding life sciences at this university, there has to be something there that we can move to the market because we need to move it to the market and get all license fees back so we can get the flywheel of investment and raising money coming together. So she made me an entrepreneur in residence that day and said, you have free reign. So I met with all the heads of the labs. Like I said, I think there's five or six companies there. They're doing really interesting things. There's one lab that has a material scientist got together with a virologist.

22:18You breathe into this tube that looks like a cigarette, and it'll diagnose five different types of cancer just based on the organic compounds that are in your breath. Things like that. But the Birkin Lab, not only did they, it resonated with me from a family perspective and my personal perspective, but they did a really good job of taking the 8.1 million collectively across small molecules, proteins, et cetera, and to move drugs forward. And especially our once daily oral drug codename 969. And they'd already done a lot of the preclinical work. They did a year-long mouse study that looked at histology and cardiac function and fibrosis, etc.

23:08Then they did a short-term study, ultra-high dose, you know, 10 times the theoretical dose to do that type of work. They did a rat study. They used some of the new 2D models in liver to figure out what the metabolism was going to be in the half-life in humans. And they also did a small non-human primate PKPD study. And the large animal model, that's the disease model for Duchenne is a gola retriever dog. And they did a small study in gola retrievers and collected all the typical things you would want between blood work, CK reduction, six-minute walk test, different strength, punch biopsies of the muscles, counting fibers.

23:59There's thickness of fibers, et cetera. So it's a pretty robust data set to work with.

24:04David Craig: So you identified these programs at the Birkin Lab. Had you already founded the company at that point, or did you do this licensing work and then found the company? So it turns out that the Birkin Lab and one other individual had started a company, Strykogen, sorry. And they had the research rights to the small molecule program. And when I worked with Grace, we decided, why don't we do this? Why don't we put together a clinical development and commercialization exclusive license and then give Strykogen exclusive research license? And then bridging the two is a research agreement that basically says Birken Lab will keep Sarcomatrix up to date on science and they have right of first refusal for anything that comes forward.

25:01So we could have taken Strykogen and turned that into a C-corp and grown Strykogen, but I thought, let's just start from scratch. So that's where we came up with Sarcomatrix and redid all the origination documents, sat down, issued founder share, did all the things you do from scratch. And then I wanted to design in such a way that it was set up for investment and recruiting employees with ISOs and stock, et cetera, et cetera. So it's a blank slate right now that allows flexibility in many different ways, if you will.

25:40David Craig: So you've got you've licensed these programs. You have, you know, some assets to progress. You have a virtual biotech now. What are the cost realities right right out of the gate, you know, just to get started?

25:59Let's see. Burn rates about 70 ,000 a month now, but it was much lower than that when we got started.

26:08But, you know, working with the scientists to continue to do a grant supported research was helpful. Just any money that was raised that we could do an additional study to get more data. And that was the tricky part is, you know, do you do. We did a study with a Maryland group on some disease models for Duchenne and for FSHD.

26:44It's just, I look back at it now and then I realized, well, the reason why at that time it was really hard for me to get a strategic or an investment from a VC was there was two critical issues. One was it was method patents only and worldwide and no composition of matter. In fact, the art had been abandoned earlier. So we were unable to do that. And then the second thing was elucidating the MOA. So money would come in. We would elucidate the MOA. We figured that out, which wasn't straightforward, but we figured it out.

27:23David Craig: and then and you prioritize that because you knew understanding the mechanism of action would lead to being able to bring more money and more easily exactly okay and the other thing that was a key variable was the ip stack so um the some of the first money that we brought in i spun up a small cmc campaign to look at salt variants of the freebase and polymorphs so we isolated tons of polymorphs, and then we found two salt variants that had significantly different properties in the freebase, meaning that it's absorbed through the gut three to 400 % better than the freebase. And so that allowed us to go back and improve our IP stack significantly.

28:09So if you look at the worldwide method patents, drop in orphan drug, and then look at polymorph and salt patenting, we probably can extend this out to 2047. And that runway is a runway that pharmaceutical companies will take serious.

28:28David Craig: Yeah, yeah, absolutely. What about other partners that you're having to contract with at this point? And I don't know if you're dealing with outsourcing partners at this early stage, right at the beginning. I know you are now, but outsourcing partners, you know, hiring a staff, you know, initial leadership and beyond staff at Sarco Matrix, other other expenses. You know, you mentioned the burn rate was a little lower now, and I'm sure, you know, it's grown as you're as you're doing more and getting getting closer to the clinic. But how did you manage that part of it kind of scaling up, you know, from the from the, you know, employee number one?

29:13So here's where the 37 years in pharmaceuticals helped significantly. I think when you go to a company, there's always a handful of individuals that through working with them, you realize are really, really good at what they do. and they tend to be people that I mesh with. So the bottom line is that I'm the only full-time employee. Everything else is outsourced. And the way that I've got regulatory support, clinical development support, IP support, back office operations, technology support is equity to key individuals that are not working for a salary. And so I handpicked basically the four-person team that we have right now.

30:09Actually, five people, including myself. Based on previous experience, their willingness to, you know, at the end of the day, their belief in what we're doing, which is getting a really important drug to people that need it. And they love the startup environment. And we had a good working relationship in the past. And it was a lot of fun calling them up and saying, jump on board. Yeah. And they did.

30:36David Craig: Yeah. So you've got your you've got your leadership core there with you. But then now you're you're juggling outsourcing partners. Are you how difficult was that process? I mean, were you were you getting quotes from multiple companies? Was there a kind of small universe of CDMOs that that could even work on, you know, this particular, you know, drug modality or MOA? How did that go? Well, through the years, Ben, I've learned that the selection process for outsourcing is really, really critical. And so there's this kind of structure approach that I use. First of all, I draft a very comprehensive RFP of what is needed.

31:21Then I do research on large, medium, and small vendors to kind of get the breadth of what we're looking for. And I do a two-step process where, first of all, I invite them in for a 45-minute presentation of what their background is. So I can get a little bit more color to those individuals, companies that we're looking at. And then I issue the RFP and I have a scoring system in advance of that. And usually it spits out two that are pretty similar cost wise, quality wise. And then I just use my judgment about fit cultural wise. And that's how we find the vendors. OK.

32:04David Craig: All right. The funding environment has improved. It is sort of on an improving trajectory. I think it's fair to say at this point there's been some activity in the IPO market. some, you know, new or old dollars coming back into into biotech financing. But there are still a lot of companies out there with a lot of great science who are struggling to find traditional institutional investors for a series A or even or even later. Um, how should founders think about the various alternative or non-institutional financing opportunities? Uh, and I guess I'm thinking about that in terms of the trade-offs, you know, what, what are some of the pros and cons of going this more creative, more kind of, um, you know, mixed, uh, financing situation where, you know, you're, you're going out to a lot of different groups as opposed to maybe like, you know, one or two, a single syndicate or, you know, one or two large investors?

33:10So a couple of things I learned the wrong way is when you do a crowdfunding campaign, you need to spin up a special purpose vehicle so that all of those monies land on one line and I'm on the cap table. Otherwise, VCs aren't going to touch anyone that's downstream. I think that you need to look at a pre-seed round, a seed round, a series A and series B and design all four of those rounds at the same time so that you're incrementally adding value as the checks increase, but you're not blocking and getting in the way of the next round. And then in the crowdfunding, you need to use a platform because it is an Edgar filing.

33:58I don't know if it's public, but it's got a lot of paperwork involved. And then there's restrictions on how you can reach out to individuals, etc. et cetera. So there's half a dozen different vendors, StartEngine, WeFund, others out there. That's a good place to go. Now, it's going to cost$20 ,000 to$30 ,000 to complete all your legal documentation, onboarding, et cetera. But the thing that you really need to consider is how much money do you have for an advertising campaign? Because it's one thing to get the crowdfunding up and you're going to raise money from your friends and family and anyone you can pick the phone up and talk to.

34:43But to really get the numbers that you want, you basically need to do a social media campaign, email outreach campaign, Instagram, Facebook, all of the above, because the funnel needs to be really wide on the top so that you raise the money because there's a lot of wash out there.

35:02David Craig: Yeah. Yeah. And you said you spent 40 ,000, I think, on your crowdfunding marketing? Is there anything you would do different on the marketing front in hindsight?

35:15That's a great question. I think in hindsight, I would have focused more on instead of like long-term data MOA type videos that last four minutes, five minutes or so, I'd spend much more time on nine 60 to 90 second snips that you can use for your social media campaign. I mean, I've gone back and taken those longer videos and cut them up and made them available for social media, but that tends to be a lot of work. So that's one thing I would do differently. The other thing is at the end of the day, there's a lot of things you can do on your own. As an example, Sarco Matrix, that the logo is an S and the, the font is, it's just a font that I found that's really unique.

36:08David Craig: So that's, you didn't need to pay my brand thousand dollars for that. Yeah. No, that's, that was the branding right there. Yeah. And then there's a lot of things that I just did on my own from a marketing perspective. I designed the website, put that up. flyers that you're going to take to conferences, etc. Especially now with some of the large language models like Claude. You can really spit up some very professional looking like tear sheets or leave behinds, etc. Just using that. Yeah, I think look at the things that you potentially can do on your own to just really minimize costs. It doesn't have to be perfect.

36:50You know, B plus work on time is acceptable here. And that's kind of the way that I think about doing this because, you know, you're going to come back and redo it anyway when real money comes in. Right.

37:01David Craig: Right. Well, on the on the the alternative or non-institutional financings, are what are the I guess, what are some of the costs of those compared with a traditional institutional investor on the back end, maybe in terms of reporting and governance? Is there a substantial difference there? um yeah actually there's more reporting requirements with the crowdfunding campaign spinning it up shutting it down etc the rig d campaigns like a 506 c allows you to reach out to um basically the general pub any investor but you have to validate that that is an accredited investor before they can invest. Now, you can actually, you know, with an attorney, you can spin up documentation to manage the whole thing,$5 ,000 to$7 ,000 if you find the right attorney.

38:03And you come to him with some templates that you've found, rewrote them, you know, with some work product that's already been completed. And then they put the finishing touches on it. And then it turns out that as far as managing money in and documentation, you basically need a system to manage your cap table, to document the money in, to document shares issued. And I was doing it all basically on my own. So it's a lot less expensive than doing a crowdfunding campaign. Now, the other regs, the reg D, other reg D's in the series A and the A pluses, I haven't gotten there yet. I suspect there's a lot more documentation that goes on.

38:54But the reg D campaign is relatively straightforward.

38:59David Craig: So now you're running a virtual company. I'm curious about, you know, what the day to day. I hope you're not still doing everything yourself, David. But, you know, what is the day to day look like? And then in terms of your outsourcing partners, what what can't be outsourced? What you know, what what is something that it's not is not safe or advisable for a young company to outsource? Well, the way I look at it is the functions that you can't outsource. CEO leadership. I think you need to own the quality systems because regardless of what CRL you use to do clinical studies, it's the study protocols, the study reports, and then documenting change there.

39:49You're ultimately responsible for that. So I don't like outsourcing that. I also think that the regulatory interface or strategy is best if it's in-house because the way we look at it is that filing for a drug approval is multiple meetings. You want to make sure that you have very high quality individuals that are articulate and understand the depth of your program in case some odd questions come up, if you will. So that's one to keep. I think CFO, outsource. Unless they're bringing money. And then maybe offer them a board seat or a full-time position. CRO, clearly outsource. CMO. I do have a chief technical officer.

40:41I like that as a full-time employee. And let me tell you why. It tends to be very complex. And the idea that you're just going to turn over your program to a CDMO and they're going to deliver. I've had too many experiences where timelines are missed. There's not appropriate project planning for rate limiting steps, etc. So I like a chief technical officer or someone that's a project manager that really understands the minutia of manufacturing, how to put together a project plan, and then how to monitor that on a regular basis. So those are the people that I like to have on full time.

41:26David Craig: So for like a position like a CFO, you said you can outsource that. Is that like a fractional employee or is that a full time outsourced CFO? And we could use a different example, too. But I guess I'm curious if you're using, you know, fractional workforce or if you have these full time outsourced folks like, you know, in the in the C-suite, like a CFO. Yeah, fractional for sure. Yeah. With a single asset, depending on the amount of activity, it's fractional. In fact, you can do quite a bit of like standing up your accounting system and your bookkeeper. You can do that as a CEO or you don't really have to hire anyone to do that.

42:10Just find a really good bookkeeper that's proven and knows how to run the business. Legal, outsource, fractional. sometimes the licensing group at the university will actually pay for early legal fees so that's something to check out and I do think that culture is really important so I actually have an advisor on culture because I think you know open honest communication, challenging each other to higher standards holding each other to high standards you know communicating in a way that it's very direct knowing that it might be a little irritating to some individuals but put a process in where you can repair whatever's irritating and the example i like to think about is amgen amgen we're all young hard driving you know doing a lot of stuff but they had a what they call a fermentation seminar on friday afternoons And so Friday afternoon, about three or four o 'clock, they'd have different kinds of beer, et cetera, out on the lawn.

43:27And the objective there was to say, all right, who did you piss off during the week? Go find them, grab them, get to know them a little bit better, and then make sure you clear the decks for the next week. So little things like that, I think from a cultural perspective, can make a big difference. And if you establish that culture early on, as you bring people on, you can maintain that culture. If you don't establish culture early on and really shepherd it and take care of it, you're basically importing cultures from different companies and it kind of just munges together in some way, shape or form.

44:05But it's not really designed, if you will.

44:08David Craig: So is it trickier to establish a culture that, you know, is felt when you're in a virtual company, when you're working, you know, with a lot of a lot of partners, a lot of folks that are there outsourced that aren't FTEs? Is there, you know, do you have to is there a different approach to it or a different technique or process that you would share? Well, I think with COVID, we all learned how to do virtual things, which is right. Right. The major outsource vendors, I treat the lead there as an employee, effectively as an employee. So everyone gets weekly updates on progress and priorities. We tend to meet once a month company wide, including the vendors, to have a virtual meeting, if you will.

45:03And then recently, some of the people I brought on, and I agree with this, as money comes in, we can afford it. Pick some place, you know, Denver, Dallas, wherever, and at least have one face-to-face meeting per year, if not two. So that's what I think that's what our strategy is. Over-communicated writing, do virtual meetings to the extent that you can. It really helps. and then the face-to-face annual or semi-annual. Got it.

45:36David Craig: I wanted to add, you mentioned regulatory sequencing a minute ago and the connection between financial strategy and regulatory strategy. And I wonder, David, what you might say about how a founder at a virtual company should think about regulatory sequencing and if regulatory strategy should influence financial strategy or vice versa. Yeah, it's a multidimensional problem for sure. You need to understand your clinical path, phase one, two, and three clinical plan, even as a basic, because that's going to drive the finances and how much you need to raise. and then CMC manufacturing tends to be quite expensive too.

46:26So, and the other thing is, is really digging into the IND enabling work that's been done, even if it's non-GLP work, because a lot of that stuff you can recycle and present it in such a way that it's professionally presented and it's actually highlights the data the way that it should be. So what was the question?

46:52David Craig: Oh, yeah. No, just about, you know, if financing. Yeah. So the other thing about regulatory is, you know, there's plenty of regulatory consultants. And I think here's what I've learned about rare disease. There are – you can bring a rare disease drug through regulatory approval with a lot less studies and costs than you would with a traditional drug. Absolutely. So when you work with regulatory groups, I think you need to do what we did is find a regulatory agency that is either embedded in that space or is developing a drug or solution that is very similar. In your therapeutic area, you're saying.

47:44In the therapeutic area, ideally. because what you want to know is, you know, where is the gray area where you may or may not have to do the study? And where is the black area where, you know, it's not necessary? And then, you know, the area in the middle, which is, this is the basic core studies that you need to do. And that's judgment call is what it is. It's not paint by number. Here's what the FDA expected. I'm going to do all the studies, et cetera. But it's, you know, judgment about risk, because let's be honest, you have to be risky. You have to have reasonable risk, not risky, reasonable risk, and understand that without that individual with the experience, it's just really difficult to figure out the mandatory studies and how it's going to work.

48:41And then the other thing I would say is engage early and engage often. Our theory is, you know, multiple meetings with a regulatory agency, go in very well prepared, have representatives from the company, chief medical officer. That's the other full-time employee I like, by the way, chief medical officer and yourself, maybe some consulting support along the way. But you need to build a very credible relationship with that regulatory reviewer and over time. And it's just so critically important that I'd like to be involved. And I think it's important to own that interface.

49:21David Craig: In our final minutes, David, I'd love to get an update on Sarko Matrix. What's next for the company? What are your key priorities right now? So what's next? From a planning perspective, I figured that because funding is actually getting, the first half of this year was actually getting worse. I did an analysis. I think there's roughly 1 ,490 assets that are preclinical in the United States that are chasing five. There's been, I think there was, and you know these data better than I do. But the sources I was looking at suggested that there was five investments in a preclinical company. So we're all chasing the same few investments, which is really challenging.

50:12Because we haven't been able to raise money, I'm probably nine months to 12 months behind where I'd like to be. The next phase is I do have term sheets coming in and things are starting to shape up. So don't get me wrong. We need to manufacture the SALT variant. Get on top of that. That's probably 500 ,000 minimum, more close to 700 ,000 to do that, just to scale up a minimal quality system and then manufacture the drug that you need for clinical development. And then in addition to that, the IP is really important. And, you know, getting that in shape was a little bit of money. But the next thing is rate limiting is GLP tox studies.

51:06And this is where it gets a little nuanced. You know, typically if it's not a chronic therapy, 28-day dog and rat, you're done. If it's chronic therapy, it's either three months, six months, possibly more. And I think in the rare disease space, this is where you have a really good conversation with the regulatory agency. Because I suspect that you could get away with a three-month talk study with additional oversight when you go into humans versus a six - or nine-month study. And that makes a big difference on money and time when you go to the market.

51:43David Craig: Right. Right. Well, maybe the last question I'll ask, David, is the model that you're using at Sarco Matrix. Does that require rare disease economics? You're, I think, targeting, you know, some rare forms of muscular dystrophy with the potential to expand out. But does this kind of alternative financing work outside of rare diseases? I guess what I'm trying to ask. Well, I look at the continuum of muscle diseases. If a genetic cause, it's a rare disease, and we're talking tens of thousands of patients. On the other end of the spectrum, our drug will probably work for age-related sarcopenia. So I've talked to big strategics about it, and they're very interested in it, but they want to see proof-of-concept data, and they want to see healthy volunteer data.

52:36So, and that's a huge market, the under-end of the spectrum. In the middle, cachexia related chemotherapy or GLP-1s, et cetera, et cetera. If the model is do the early work, advance the drug to phase one healthy early proof of concept, it doesn't matter whether it's a large market or a small market. Assuming that the data that you generate for the large market is acceptable to the strategic buyout, whoever it is. that's the theory I haven't tested on a big market hyper focused on muscular dystrophy for a variety of reasons and rare disease is a really fun place to be it's a special place and I think you could really make a difference for not a lot of money and I suspect that with 7 ,000 different rare diseases

53:33that have few patients my family members RYR1, congenital muscular dystrophy, 400 patients in the United States. I think we're going to have to solve for that in some way, shape, or form. So, in fact, my next book that I'm writing is The Rare Disease Playbook.

53:55David Craig: Really? Have you started it already? Well, actually, I put it up on Amazon as a soft launch. Oh, you did? So you had a lot of information in that notebook, that lab notebook then. Oh, there's two other books I'm working on too. But, you know, in the rare disease playbook, there's some nuances around engaging with patient communities early. They're not an afterthought when you go into marketing, but they're your partner as you go through it. I think a lot of the messages about a virtual biotech company, even to the point where there was one VC or it was a high net worth individual, had zero full time employees and bought a drug to the market just with contractors.

54:42So that's about as lean as you could go. And then some of the other nuances around being creative on funding that are in the new rules book that we have on the market, too.

54:56David Craig: All right. Well, I've got to get a copy of that one and I'll look out for the new one, too, David. Thank you so much, though, for coming on the show and and sharing your story with us. I appreciate it. Ben, my pleasure. Really look forward to working together again, potentially. And I just really appreciate the opportunity to be on your podcast. Thanks so much. We've been speaking with David Craig, CEO, co-founder and president at Sarco Matrix and author of The New Rules of Biotech, a founder's guide to building great companies. I'm Ben Comer, and you've just listened to the Business of Biotech.

55:30David Craig: Find us and subscribe anywhere you listen to podcasts, and be sure to check out our weekly video cast of these conversations every Monday under the Business of Biotech tab at lifescienceleader.com. We'll see you next week, and thanks as always for listening.

55:56We'll be right back.