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The half-billion-dollar idea

While at MIT, alumnus Todd Zion developed an insulin product that ultimately drew the attention of a pharmaceutical giant.
Todd Zion PhD ’04
Todd Zion PhD ’04
Photo: Rob Matheson/MIT

It seems improbable that a PhD thesis would lead to a multimillion-dollar payday. But that’s what happened for Todd Zion PhD ’04, who worked tirelessly on a new type of diabetes drug as an MIT doctoral candidate — and for several years thereafter — and eventually sold that compound’s blueprints to a pharmaceutical giant.

The progression from bench researcher to entrepreneurial success story, Zion says, took diligence, frugality and, in his company’s early stages, MIT’s resources for entrepreneurs.

During the early 2000s, in MIT’s Nanostructured Materials Research Laboratory — then run by former professor of chemical engineering Jackie Ying — Zion began chemically modifying insulin for diabetics. The modified insulin would automatically adjust to fluctuating levels of blood glucose, requiring just a single injection per day.

In 2003, he licensed this drug as SmartInsulin through MIT’s Technology Licensing Office and co-founded the company SmartCells to further develop the drug and turn it into a viable commercial product.

It worked: Seven years later, Merck & Co. acquired SmartCells and the license for SmartInsulin for a substantial upfront sum and milestone payments (to be made if the drug succeeds at certain defined stages in its development) that could exceed $500 million — an unprecedented amount for what was then a preclinical drug.

After nearly a decade of work on the drug, Zion met the acquisition with mixed feelings: On the one hand, it was a relief that Merck could take the drug through robust clinical trials, but on the other hand, his work was done. “When you realize you’re not needed anymore, there’s a gap. But once I got past that, I realized our drug was in good hands,” he says.

On the heels of the acquisition, Zion purchased the private Devereux School in Marblehead, Mass., which his three children attended, to save it from closing. It was a welcome change, Zion says. “In any biotech startup, everyday it’s some degree of failure until you finally succeed,” he says. “But with owning a school, just seeing young children’s smiles and hearing their laughter is rewarding every day.”

Lean and mean

What may be most impressive about the SmartCells acquisition is how much of the total buyout will actually go to its shareholders: Because the company was built in what Zion calls “a very capital-efficient manner,” he, his 17 employees and various shareholders were handsomely rewarded.

At the time of the company’s acquisition, SmartCells had raised only $10 million in funding, primarily from angel investors and grants from the National Institutes of Health — remarkably little for a company working on a potentially revolutionary diabetes treatment, Zion says. Generally, startups raise far more capital, and the ultimate payout, if it comes at all, rarely leaves much profit. “We had some help, but at the end of the day, we were pretty lean and mean,” Zion says.

Zion and his co-founders aimed to develop SmartCells’ core technology in the most cost-effective way possible. Raising millions to build infrastructure and conduct advanced clinical trials — as many biotech startups do — wasn’t worth the money, he says. Thus, SmartCells lived a spartan existence — the “road less traveled,” Zion says — but it paid off.

“Part of our strategy was not only to be innovative in the technology developed, but also in how we were going to build this enterprise and how we looked at it as a venture,” he says. “You live like a pauper for seven years building up this risky asset [SmartInsulin] and so I think there’s a sense that we were vindicated — this is a path you can take and you can succeed.”

It helped that the company’s eventual acquisition by big pharma was by design, Zion says. SmartCells had aimed to take SmartInsulin only to a point where it had taken “the risk out of the asset,” Zion says: It would have to be seen as a viable commercial product, but not so far along that a larger company couldn’t take over and run its own clinical trial.

It was at exactly that point when the company sold, Zion says. “We knew our job was to get the insulin to the point where enough risk had been taken off the table, so that someone else could take it the rest of the way. And we really stuck to that from day one,” he says. “It was the perfect time to sell.”

Off the ground

Zion says MIT’s resources for entrepreneurs and inventors — such as the Venture Mentoring Service (VMS) and the Institute’s entrepreneurship competitions — played a role in helping him turn his ideas into reality.

“Being associated with MIT certainly opened up doors to potential funding sources and a number of advisors,” Zion says. “Plus, there’s a tremendous amount of resources already within the MIT community to help a would-be entrepreneur get off the ground. And I think it’s the combination of those two things that were really important in the early days.”

The roots of SmartCells actually trace back to Zion winning MIT’s annual $50K (now $100K) Entrepreneurship Competition in 2003: From that experience, he earned startup funds for the company, learned the risks and rewards of building a business, and met a number of angel investors and entrepreneurs, among other things. “It really clicked that building a business could be the right way to bridge the gap between interesting technology and commercially viable products,” Zion says.

From there, Zion recruited his SmartCells co-founders: his former MIT lab partner, Tom Lancaster PhD ’04, along with experienced entrepreneur James Herriman, who he met through VMS.

But it wasn’t just tangible resources — people and funds — that Zion gained from MIT: He says his PhD experience also taught him the value of diligence and self-reliance in the face of challenges. It also instilled the ability to “face failure head-on” in the lab — a virtue that transferred to his business, Zion says.

“My time at MIT prepared me for anything I could face as an entrepreneur,” Zion says. “When you’re starting a venture in a very technologically challenging area, you have to be prepared for repeated failures and learn from them. Our philosophy at SmartCells was always to find the riskiest things and make a beeline for those, because you’ll learn so much more than just turning to easier problems.”

Zion has since returned to MIT as a VMS mentor. His time with young entrepreneurs has helped him reflect on what it takes to successfully see technology through from MIT labs to the market: primarily, he says, hard work, humility, and a willingness to gather advice from experts.

“That was certainly the key to my success: I knew how little I knew,” he says. “So I was able to assemble the right team, at the right time, and build that team in the right way. My advice: Recognize what you don’t know and surround yourself with people who can help.”

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