More VC Needed For Life Sciences

April 21, 2006
Print
Text Size:
A A

KALAMAZOO — In the world of medical and biotech startups, success depends upon the congruence of resources — people, technology and capital. The only category in which Michigan is lagging is the latter.

So said Donald Parfet, managing director of Apjohn Group, during a panel discussion on the economics of Michigan's life sciences industry at WesternMichiganUniversity's Shaw Theatre Tuesday. Apjohn is a business development company that works with medical and biotech startups.

Startups in the medical and biotech fields need substantial sums of money to fund their development plans, so they must seek professional investors, Parfet said. The professional investor will work with the enterprise to establish budgets and often will stage the level of investment based on the achievement of milestones.

"Life sciences investing is not for the faint of heart; it requires deep understanding of medicine, physiology and diseases, as well as patience in the research path that is being pursued," Parfet said. "'The pharmaceutical industry states that the development of a single new drug costs nearly a billion dollars and takes 10 years. It's important to point out that 85 percent of that cost is the cost of failure."

Very early on in the development of a drug, the risks are high because the ability to determine success is at the lowest point, and the costs are lowest at that point, too, he said. Conversely, when the drug makes it to the full commercialization phase, the risks are low but the costs are high.

Parfet said the state presently is strong in the "people" portion of the congruency equation; it has the highly skilled individuals with advanced degrees in their fields. The pharmaceutical industry downsizing of the past decade has made a lot of talented scientists and researchers available in the market.

The state also has the technology and intellectual property, but not necessarily the investors willing to put up the money to fully develop the technology. Located within the Great Lakes Region are some of the nation's and the world's best medical research universities, Parfet said. Collectively, the Great Lakes region of Michigan, Ohio, Indiana, Illinois, Wisconsin and Minnesota is really a hotbed of medical research. The large medical research universities of this region attract more than $2 billion in annual grants from the National Institutes of Health — more than 10 percent of the total NIH grant program, he pointed out.

"So we have the people and we have the technology, but, sadly, this is not yet translating into an equivalent share of risk capital."

Nationwide, some $5.9 billion in venture capital was invested in deals; of that, only $200 million was invested in deals in the Great Lakes region. To Parfet, that disconnect means we are failing to take commercialization advantage of the technology created in our own backyard. He noted that a good portion of investments in the other regions are backing technology that has actually been sourced here in the Midwest.

"I submit we are weakest in our ability to attract risk capital. For decades it's been the large, successful companies that have been making big bets in the life sciences," he observed. "We have to start building that venture capital inertia, and we are starting to build it. We have to grow our own venture capital industry here. The only way I know to do that is to start slowly, demonstrate success, talk about that success, and start building people's confidence in making those kinds of investments."

Michael Jandernoa, principal of the venture capital group Bridge Street Capital Fund, said people who are interested in investing need to be educated more on how to invest in life sciences.

"A lot of people look at the idea of investing and they can understand something about manufacturing, but they are not as knowledgeable about the pipeline and how long it takes for life sciences research to be accomplished," Jandernoa said. "We need to work together collaboratively to provide expertise in the scientific evaluation of life sciences companies and startups for individual investors."

Van Andel Institute CEO and Chairman David Van Andel lauded the state's existing life sciences leadership as exemplified by firms such as Richard Allan Scientific, MPI Research, Stryker, Upjohn, Pharmacia and, now, Pfizer; by pharmaceutical leaders such as Perrigo; by medical device manufacturers such as ATEK Manufacturing and Inrad Inc., and by innovative manufacturers like Autocam and Cascade Engineering, both of which have taken their expertise in automotive and applied it to the medical device market. Add to that the state's 11 SmartZones, the Life Sciences Corridor, the Core Technology Alliance and university research efforts, he said.

"The SmartZones demonstrate the power of collaboration, a power we first saw developed and exploited when the Life Sciences Corridor began," Van Andel said. "The Core Technology Alliance's innovative network, I think, is exemplary at that. It's a major move forward in bringing all the resources of the state together.

"We're seeing this now on a regional scale all across the state. We're hopeful that entrepreneurs, researchers and the Core Technology Alliance serve as a catalyst to bring all the research and development together."

In the past four years, the state of Michigan and private investors have spent more than $1 billion on life sciences, not including investment in hospitals, Van Andel pointed out. The Michigan Strategic Fund bill passed last year guarantees millions of dollars in funding annually to life sciences and other high tech industries in Michigan

The 21st Century Jobs Fund, too, will provide investment in the development and commercialization of competitive-edge technologies. Up to $200 million of the fund is set aside for commercialization efforts, up to $114 million for capital investment, and up to $71 million for commercial lending.

"It's important to note that the fund will give preference to collaborative efforts. In other words, it's actually trying to force people to collaborate on innovative initiatives that reach across geographic, institutional and corporate lines."

What can Michigan do to assure success in the life sciences? It can boost its investment in K-12 education by placing greater emphasis on math and science, according to Van Andel.

Western Michigan University President Judith Bailey pointed to a recent, five-state survey of new economy business executives commissioned by the university. Asked what was most crucial for a new economy business to grow and thrive, among respondents from all five states, 72 percent said a well-educated work force was "above average" in importance or "very important" to success.

Education is the long-term solution; the short-term solution is to ease immigration policy, Van Andel said.

"We cannot afford as a nation to have a closed border such as we do today if we want to continue to attract the best and brightest from around the world," he said. "I'm not sure that we'll ever be able to grow all of our own scientists. I think we can grow a lot more than we have, but long term, we're still going to have to have some other way to fill the gap."

Immigration policy is a big issue for universities, as well, Bailey said.

"We're seeing some progress," she said. "I just came back from a trip to the Middle East and they were reporting that they were beginning to see an easier visa pathway for the students. But our reputation as a country is what's blocking us from the reality of open play. We need to deal with that quite rapidly."     

Recent Articles by Anne Bond Emrich

Editor's Picks

Comments powered by Disqus