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Reaching Deep
Investors reach deep in their pockets for biotech funding
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Business New Haven
4/29/2002
By: Lisa Micali
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It's no secret Connecticut's biotech companies are flourishing - thanks in large part to a broad range of initiatives by the state and Governor John Rowland. Numerous private and public industry lobbyists have also collectively contributed to the sector's strong growth since 1998.
But the industry's future growth faces a real threat if the General Assembly can't come to an agreement on how to raise money for the state budget without cutting the biotech cluster's economic stimulus.
Over the last 20 years, a “New Economy” has crept into Connecticut. Among its defining characteristics: an altered industrial and occupational landscape, unprecedented levels of entrepreneurial dynamism, and a dramatic trend toward technology - all of which have been spurred to one degree or another by revolutionary advances in public and private collaboration in the state.
The state is now viewed as a region abundant in investment opportunities and the growth of the biosciences industry over the last four years is a key driver.
“Despite very, very unsettling and difficult times, bioscience in Connecticut continued to perform at a very significant and important level,” says Debra Pasquale, president of Connecticut United for Research Excellence (CURE), which promotes biotech in Connecticut. “It still remains a time for quite a bit of optimism and growth when other sectors are not performing as well.”
Pasquale says the biotech industry is approaching maturation. “Small companies are increasing their investments in clinical research trials. And the number of clinical trials or milestones are increasing.”
Ever since the state adopted an “Economic Competitive Strategy” in 1998 that focused on nurturing clusters of high-growth industries to develop and renew the state's competitiveness, bioscience, the first cluster chosen for development, has made enormous strides towards fulfilling its promising destiny. As the sector grows, so do the regional economies - especially in Greater New Haven.
For every one job generated in bioscience, another three jobs result in the general economy, notes Pasquale. “While there were 16,500 direct new jobs in 2001, the total impact is more than 52,000 jobs,” she says. “While other industries are seeing downturns, the multiplier for this sector is rising.”
Biotech is still considered a very hot industry in Connecticut.
“It still shows great potential in New Haven,” says Mike Roer, director of the Connecticut Venture Capital group, a voluntary professional organization that is committed to connecting leading venture investment professionals with high-growth emerging companies.
The recent success at BIO 2001, the industry's largest event held last June in San Diego, attests to the successful public and private cooperation that is driving the sector forward in the state. The state and CURE led a congregation of 30 companies, governmental entities and educational institutions at the conference, one of the largest ever organized for an event of this kind.
CURE, for its part, has worked relentlessly to stimulate the growth of the emerging cluster by planting the seeds that have blossomed into more than $557 million in public and private capital in 2001. Working in partnership with the Department of Economic and Community Development (DECD) and Connecticut Innovations, CURE has actively publicized and promoted the industry through diverse outreach efforts.
As part of its educational efforts, CURE launched several new efforts over the last six months. First, its BioBus, a mobile, state-of-the-art, fully equipped biotechnology laboratory, launched in September, enhances the scientific curriculum at middle and high schools. Twenty-six biotechnology, educational research, pharmaceutical, and supporting organizations contributed $3.6 million over the next five years to help CURE and Connecticut Innovations bring the bus to schools at no cost to schools.
As of April 11, more than 10,000 people have boarded the BioBus learning laboratory. About 5,600 of them were students. It's so popular in fact, that there's a one-year waiting list for schools. The bus also appears at other events, giving the public an opportunity to learn about the industry. It will be part of the upcoming CPTV Science Expo in May and the New Haven International Festival Ideas in June.
In February, CURE launched “BioScience for Non-Science Professionals,” a new education program intended to help people in non-science roles at bioscience companies across the state develop a foundation of basic scientific and industry knowledge.
And with the establishment of the new BioScience Office under the DECD, the sector has finally received the kind of acknowledgement it needs. Led by high-profile industry advisor Harry H. Penner, Jr., (coined its “bioscience ambassador”), the new office is said to be one of the first of its kind in the country. Penner, former president and CEO of Branford-based Neurogen Corporation will advise the DECD Commissioner, James F. Abromaitis, in all things bio in the state.
At the same time, the governor formally launched his campaign promoting Connecticut as a high-tech “hot spot” in December. The campaign, an extension of the “You Belong in Connecticut” marketing effort, highlights both the bioscience and information technology industries. The first commercials promoting the industries and Connecticut aired in February.
Innovation within Connecticut's biosciences companies further stimulates economic growth. Likewise, the pay-off from research and development (R&D) funding, also acts as an effective agent of industry expansion.
Consider the latest the seventh annual economic report of CURE. Connecticut-based biosciences R&D investment in 2001 totaled $3.6 billion, an 18 percent increase over 2000. The report, titled “2001 Gains and Future Opportunities,” highlights several economic indicators that demonstrate the tremendous and sustained growth of the biosciences industry in Connecticut.
“An 18% increase in research and development spending last year is marvelous news,” says Pasquale. “The fact that the cluster saw a 3% increase in employment when in fact the state noticed a 1.2% decrease in overall unemployment is a very significant finding.”
“Last year was a tremendous year for everyone involved in the biosciences in Connecticut,” concurs bioscience ambassador Penner. “When CURE released its annual economic report in March, we saw the kind of growth that establishes Connecticut as leader in bioscience research and development.”
A large measure of the sector's well-being can also be attributed to the recent upswing in the amount of money investors have made in state firms.
Last year, investments in the biotech industry ranked number five nationwide. In Connecticut, the industry secured around $1.5 billion in funding from both the public and private markets.
The last quarter of 2001 saw $88 million invested in state biotech companies - mostly in New Haven. Many of these companies have been spun off from Yale research or, like Achillion Pharmaceuticals, have been attracted here by the presence of the university and a bio-friendly government.
Achillion, which develops anti-viral drugs, raised $45 million from venture capital firms. Likewise, two other New Haven-based companies, Agilix and Rib-X Pharmaceuticals raised more than $20 million each. The amount of biotech investment here is approaching that of Massachusetts, which has a much more mature industry.
These figures emphasize the momentum surrounding the industry. But, one underlying factor driving the sector's growth stems from the collaborative culture between Yale, young biotechs and strong pharmaceutical corporations like Bayer, Boehringer Ingelheim and Pfizer.
Another factor is the emergence of Yale's role in nurturing potential commercial research. The university, almost overnight, has turned into a commercial hub of research and development. It serves as the catalyst, in much the same way California universities have spun off ideas through ties with private industry thus turning Silicon Valley into a mecca of high-tech growth.
“What's more interesting than royalty figures [licensing revenue] is the number of companies created,” says John Soderstrom, managing director of Yale's Office of Cooperative Research. “The point isn't how much royalties Yale made but the economic impact on the community: the number of companies, the amount of money that they're raising and the jobs that they're creating. This is all future looking. Over the last two years, the amount of money raised by New Haven based companies is about one and a half billion dollars. That's astounding.”
Licensing efforts at the university have succeeded in bringing in millions each year and more importantly, spinning out new companies, as Soderstrom says. Making just $37 million, Yale ranks number five in licensing income according to the 1999 (the latest year numbers are available), survey of the Association of University Technology Managers. That's nearly half of the universities of California with more than $80 million.
But, despite its growth as a commercial research center, Yale ranks relatively low, (a mere 27) on the list for patents issued in 1999. Both California and MIT rank first and second respectively with 243 and 138 patents in 1999. Yale doesn't even make the top 10 in new company spin-offs. Consider this: the universities of California spin out on average 18 companies a year from its schools. Imagine the resulting economic impact.
Yet, Yale is doing its part and is credited with creating an entrepreneurial environment.
“There are something like 17 companies that have come out of Yale over the last five years,” says Soderstrom. “Probably, the most interesting numbers of all is the amount of private equity that was raised by biotech companies in the last year. “New Haven biotechs in the fourth quarter of last year, collectively raised about 40% of all the venture capital raised in the Northeast. These are the kinds of indicators of the continuing success we're having in this segment.”
Despite the relatively low numbers, success stories from Yale spin-offs abound. One company, Rib-X Pharmaceuticals Inc., the latest Yale spin-off, raised $22 million in January.
“We continue to impact the community on an economic front. We formed two companies in the first quarter of this year,” explains Soderstrom. “And hopefully, this quarter we'll form two more on top of that.” Soderstrom says the pace is accelerating.
So far, Connecticut is home to 16 biotech- and bioscience-related companies employing some 16,500 people in high-paying, high-skilled jobs. As the number of companies continues to grow, so does the need for continued economic incentives.
Currently, the Connecticut General Assembly is faced with the very difficult task of balancing the state budget. The 1999 landmark legislation related to research and development tax credits for biotechs is in danger of becoming a casualty in an effort to balance the state budget.
Says Pasquale: “If you look at this policy in 2000 and 2001, biotech companies were reimbursed a little less than $17 million for that tax credit. During those same years, they invested more than $500 million in R&D in Connecticut. That's a 30-fold return on investment for the state. I think that is very compelling evidence that policies such as that really do add significant economic value to the state. It's a policy that is reaping tremendous economic rewards directly to the companies but also indirectly to the economy. This particular initiative that must remain on the books.”
Without the encouragement of the state who has put tax dollars on the line in the past to encourage private and public investment, the industry might not sustain its phenomenal growth.
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