Part one of two.North Carolina’s biotechnology industry has suffered its share of setbacks recently, but things may not be quite as bleak as they look, say regional biotech leaders.

The leader of the state arm of the national biotechnology organization that is one of the Biotech 2002 major sponsors on May 20 even believes the cash-strapped state may find more money to invest in biotech initiatives before the year is out.

And given recent developments, the additional money could be a plus.

State economic development officials were taken by surprise when North Carolina lost a $425 million Eli Lilly plant to Northern Virginia early this month.

North Carolina’s biotech companies have had their share of difficulties, too.

In April, Inspire Pharmaceuticals (Nasdaq: INSP) saw its stock price tumble 45 percent following bad news from a Phase III clinical trial of its lead product.

Paradigm Genetics (Nasdaq: PDGM) stock plummeted as genetics tool companies saw their fortunes wane. The stock fell further when the company fired president and co-founder John Ryals (who resigned from the board on May 16).

Some private area biotechnology companies looking for later stage expansion rounds also have been offered term sheets slashing their valuations to a quarter of what they were according to one local venture capitalist.

Freshly created biotech companies, on the other hand, find it difficult to pry early round cash from venture capitalists who are still shy about risk and are instead protecting wobbly portfolio companies.

In the government sector, the state cut the NC Biotechnology Center’s allotment by $1 million at a time when 45 other states and regions are launching well-funded initiatives to attract biotech firms.

Some success stories

On the plus side, Durham-based Merix Biosciences nailed a $40 million venture round in September last year. Triangle start-ups CropsSolution and ChemCodes closed small early rounds recently.

Trimeris, (Nasdaq:TRMS) saw its stock price leap 25 percent in one day after it announced positive results from Phase III Clinical Trials of its lead drug, a new type of treatment for AIDS.

Biogen cut the ribbon on a $175 million 250,000 square foot manufacturing plant and a $45 million office-laboratory complex in Research Triangle Park this month.

North Carolina Biosciences Organization Executive Director Samuel Taylor says he thinks biotech remains a plum industry many states want to pick because, “It has the most promise to deliver profits in both the near and long term.”

Taylor says to some extent, North Carolina is “the victim of its own success in losing the Eli Lilly plant. We already have a substantial biopharmaceutical manufacturing industry in NC, but there is a dearth of trained labor here.

“The biggest challenge we face in NC today is providing the number of trained workers for this technology. Until we redouble our training resources, we risk losing opportunities like the Lilly plant.”

Northern Virginia and Maryland are both close to U.S. Government facilities such as the National Institute of Health and research universities, giving them a large biotech savvy workforce. Former Triangle-based genetics company Intronn recently moved to Maryland, citing that very advantage as its chief reason.

Northern Virginia also offered the Lilly company $8.5 million in economic incentives to land the new plant. North Carolina, meanwhile, offered about $3 million for training and infrastructure and tax breaks from the William S. Lee Act.

Up the ante or lose?

But buying jobs with incentives isn’t always a good idea.

Asked about the Lilly plant, Max Wallace, Cogent Neuroscience chief executive officer, president, and co-founder, says: “North Carolina has always been careful not to buy its industry. We’ve tried to create an attractive business climate with fair regulation, a good work force, and excellent education.”

Barry Teater, communications director of the NC Biotechnology Center agrees with Wallace. “We take a more conservative approach,” he says. “We don’t usually give away the farm and in the past we haven’t had to. You lose some, but we win more than some. People in this region look to NC as a leading biotech state.”

The flip side of that coin, Teater says, is that “Lots of states are beginning to spend more money on biotech than North Carolina. If we don’t up the ante, we’ll lose more of those plants in the future. We’re working on trying to get more money for the state biotech initiative so we can land those plants in the future.”

Taylor of NC Bio says his trade association is working closely with state leaders hunting for resources even in this budget strapped year. “I wouldn’t rule out getting more money this year,” he says.

“Those people I’ve talked with are committed to addressing the needs of the industry and I think we’ll find a way to do that. Gov. (Mike) Easley has said repeatedly that the most important thing we need to do in this budget climate is not lose ground in areas where we’ve made progress.”

Next: One local venture partner says the climate for private biotech financing is “the worst I’ve ever seen.” Also: why it might be a good time to buy stock when a biotech company reports bad Phase III Clinical Trial news; how two biotechs shifted gears to survive the changing economic scene. Coming Friday in the Biowatch column.