• WisBusiness

Friday, June 15, 2012

 7:00 AM 

Column: For Wisconsin's biotech industry, a mix of encouraging and challenging news


By Tom Still
As Wisconsin's delegation of biotech executives, researchers and others arrive in Boston for this year's BIO International Convention, they will enter an industry setting that has changed for the better in some ways, for the worse in others - or simply just changed.

Learning how to better manage regulatory, financial and research challenges to biotechnology - an industry that extends to health care, food, renewable fuels and more - is why some 15,000 people from 65 countries and about 30 states will gather for the June 18-21 convention. About two-dozen people from Wisconsin will attend.

On the plus side for the industry, the past year has included some major victories in Congress.

The Senate and the House of Representatives have agreed to raise user fees paid by affected industries to the Food and Drug Administration for safety and efficacy reviews. Drug-makers and device companies agreed to about $2 billion in higher payments in exchange for a promise of faster reviews of products they are trying to bring to market. The bill also speeds approval of treatments for life-threatening conditions, enhances safety monitoring of devices after clearance and addresses spot drug shortages.

The biotech industry also cheered the passage of the American Jumpstart Our Business Startups Act, which changes federal rules related to "crowdfunding," general solicitation and initial public offerings. Known as the JOBS Act, the law could make it easier for some companies to raise money - and to begin the process of becoming a publicly traded company.

Also, efforts are underway to resurrect the Therapeutic Discovery Project that supported medical discovery and job creation by life sciences companies in 2009 and 2010. The program in 2010 provided $1 billion in grants and credits to nearly 3,000 small U.S. companies.

The legislative progress comes at a time when the American biotech industry, long the dominant force in the world, is being pressured from abroad.

Countries in the Pacific Rim, as well as European powerhouses such as France and Germany, are adopting biotech-friendly policies in an attempt to lure companies away from the United States. The Battelle Technology Partnership Practice recently released a report, commissioned by the pharmaceutical industry, which charted how other nations are upping the ante.

The American edge is still large - but rising costs in some regional biotech centers, such as Massachusetts and California, have opened the door for other nations. It's also an opportunity for smaller U.S. regions such as Wisconsin and the Upper Midwest to pitch the fact that lower costs can be achieved close to home - without going overseas.

Biotech's biggest hurdle is competition for private capital. Investment figures from 2011 and the first quarter of 2012 show the number of biotech deals financed by institutional investors, such as venture capitalists, on the decline. All life science investment (biotech and medical devices) dropped by 22 percent in dollars and 11 percent in deals in the first quarter, according to the National Venture Capital Association.

"The biotech and life sciences community is wrestling with a dearth of capital, which is being directed increasingly toward IT and Internet-based applications," said Pete Shagory, a partner with Baird Venture Partners. Among Baird's recent deals was its part in a $6.2 million investment in Zurex Pharma, a Madison-based firm.

Competition from Internet and mobile application deals is crimping biotech investment, Shagory explained, because IT deals mature faster.

"Capital goes to where the returns are highest and the risk is lowest," he said. "The question for life sciences is how to mimic the speed of IT from an investment standpoint. On the IT front, the companies are not only able to advance more quickly, but they're taking less capital."

Larger biotech deals continue to hold up, Shagory said, but "the early stage category is suffering the most." Those are companies seeking to raise roughly $2 million to $7 million, a range that represents the first institutional financing a company receives after angel investments.

That's troubling for Wisconsin biotech companies because so many fall into that category.

"That funding dynamic raises the bar and makes it more challenging for the companies we find in our region," Shagory said.

Potential offsets to that trend, he added, are the rise of more sophisticated angel groups that can co-invest in larger deals; individual "super-angels" who see private equity as an alternative to public markets; and corporate venture capital firms, especially in the pharmaceutical industry.

Wisconsin has a story to tell at BIO: First-rate research and technology, a strong talent pool, emerging companies, lower costs and a culture that values innovation. In biotech's increasingly competitive environment, that story bears repeating.

-- Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal.

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