As investors, scientists, researchers and entrepreneurs gather in Raleigh for the annual CED Life Science Conference on Tuesday and Wednesday, it’s easy to forget the difficult times. As WRAL TechWire launched 15 years ago, one of our first major stories as about state budget cuts, the ongoing issue of scarce investment capital, and the threat these posted. Today, life science is booming. Here’s a look back at those darker days as part of WTW’s 15th anniversary locl back at the origins of our new site then known as Local Tech Wire. The author is LTW co-founder and continuing contributor Allan Maurer.
Lack of Capital, Other Investment Are Threats to North Carolina’s Biotech Sector
RESEARCH TRIANGLE PARK, N.C. – North Carolina has the people, technology and resources to reach for the top tier of biotechnology states, but is pulling back from funding its own efforts just as more than 40 other states and regions mount their own.
Some of those intimately involved with the region’s biotechnology sector feel North Carolina must attract substantially more institutional funding from state pension funds and university endowments, while others say we need investment bankers. Still others say we need to bolster our educational, transportation and other infrastructure.
Yet North Carolina cut the budget for its Biotechnology Center by $1.5 million this year and did not fund the Biogenomics and Bioinformatics Consortium the Center sees as the crucial next step the State must take.
Many states and regions send delegations to visit the NC Biotech Center, which a Maryland study of state initiatives in building biotech pointed to as a highly successful venture.
Invest $15 million a year?
At the Emerging Issues Forum focusing on biotechnology in the State, Dr. Charles Hamner, president of the Biotechnology Center, outlined what he thought the State must do to remain competitive.
Hamner said the state needs to invest $10 to $15 million a year in biotechnology, aimed at education at all levels, recruiting bio-manufacturing plants, investing in University research and seed funding start-up companies.
But Sam Taylor, director of the NC BioSciences Organization, tells Local Tech Wire that this year’s State budget crunch probably means its unlikely any additional funding will be forthcoming this year.
“Our goal is to make sure the biosciences infrastructure doesn’t suffer any further cuts,” he says. “Then we’ll look to 2003 and hope to see recovery in the State’s revenue picture. Ten months is not the end of the world. But we ought not let things languish longer than that.”
Taylor says that while fully funding efforts such as the Biotech Center and the Genomics Consortium are important, the State can also do other things to make North Carolina more attractive to biotech companies.
“We need to make the research and tax credit more attractive,” he says, “and we should give thought to exempting research and development equipment purchases from the state sales tax.”
More institutional funding needed
Daniel Egger, a managing partner with Eno River Capital in Durham, which manages the $26 million NC Bioscience Investment Fund started by the Biotech Center, tells Local Tech Wire, “Silicon Valley didn’t happen because the weather was nice.”
Egger says we need what helped make California, Massachusetts and New York the entrepreneurial powerhouses they are: more institutional funding of early stage venture companies.
“Look at the total amount of capital state pension funds and institutional endowments invest regionally in North Carolina: it’s a drop in the bucket. All things considered, we’d rather invest somewhere else to show there’s no local bias. That’s ridiculous.”
Egger admits it takes guts for politicians to invest State money, but he insists nothing will change until the state and its institutions “at least come up to the national average.”
Bring in the investment bankers
Charles Vass, a founder of Raleigh-based Corporate Investment Center, believes the region needs to interest investment bankers in filling in a gap many biotech companies face in acquiring all the financing they need.
“Biotech companies in our state face a significant gap in the capital markets when it comes to raising between $5 million to $30 million of institutional capital,” Vass tells Local Tech Wire.
“Many of our regional investment banks have been bought out or consolidated by the bigger New York banks, which are not strategically interested in smaller deals,” he says.
“We need to do everything we can to connect our companies to great sources of strategic financial capability, like Adams, Harkness & Hill, which has a positive attitude about helping the smaller local biotech and infotech companies.”
Vass recently helped bring Dr. Jonathan Gertler, head of the BioMedical Device and Technology Investment Banking Group of Boston’s Adams, Harkness &Hill Investment Bank to the Triangle recently to talk to some of its promising biotech firms.
Gertler heads up a division at Adams, Harkness & Hill, which since 2001 has played a role in capturing 23 percent, or $391 million of the $1.7 billion raised in public offerings in the biomed and technology market.
His group has also been involved in 31 percent of the market’s transactions in the biomedical device and technology sector since 2001, participating in five of the 16 public offerings in that sector during that period
“Gertler had a specific model in mind for companies, and we happened to hit on a couple of them,” says, Vass, but Adams Harkness prefers not to mention them for legal reasons.
Industrial clusters foster innovation
Vass believes the way regions create an environment for innovation is through the industrial cluster, an idea promoted by Harvard economic development expert Michael Porter.
“Each region has its own cluster,” Vass says. “Gene analysis is one of our strengths here in Raleigh. Each city has a different strength, medicine and hospitals (Durham), contract research for biotech (Wilmington).”
Vass also issues a warning: “Unless we do something, it’s as likely we will slide down the economic scale and become another West Virginia.
“Recruiting industrial manufacturing to the State is not the way to go. That paradigm is over with, but NC leaders haven’t noticed yet.”
