Indiana’s life sciences effort should benefit over the next few years from a rising supply of seed and venture capital, as well as growing demand for financing from startups spun out of the state’s two largest research universities, panelists agreed at a recent conference in Indianapolis.
The increase in capital is reflected in figures from two trackers of the nation’s venture capital market. Last year venture investors pumped about $37.9 million into three emerging Indiana biotech businesses, versus just $1.6 million into two in 2006, according to data released online earlier this month by MoneyTree Report, a quarterly review by PricewaterhouseCoopers and the National Venture Capital Association, with data from Thomson Reuters.
Another quarterly VC market watcher, Dow Jones VentureSource, earlier this year offered even larger numbers for just the Indianapolis metro area: $54.8 million in five biotech deals in 2007, versus $17.6 million in five deals the previous year.
Both market trackers, however, recorded a dip in venture capital for Indiana during the first quarter of 2008. While their year-ago first-quarter numbers differ — $24.5 million in two deals cited by VentureSource, $15 million in one deal by MoneyTree — the two recorded the same single deal for the Hoosier State in Q1 ’08: the $6.25 million in series A financing awarded to CS-Keys, an Indianapolis proteomics firm developing biomarkers for diagnosis and treatment of cancer, using technology licensed from Indiana University.
Triathlon Medical Ventures, a seed investor in CS-Keys, led the series A round, which included Clarian Health Ventures, Prolog Ventures of St. Louis, Evanston, Ill.-based Ceres Venture Fund, and Indianapolis-based Spring Mill Venture Partners. CS-Keys drew the first investment into any Indiana company by Prolog and Ceres, as well as the first-ever investment of newly-formed Clarian.
Many more emerging Indiana life sciences companies will join CS-Keys in winning financing, a consensus of venture capitalists, entrepreneurs and officials agreed May 16 at a day-long life sciences economic development conference.
“If you’re not a lazy VC who wants to stay home and look around the neighborhood, there’s an amazing opportunity” in Indiana, said John Diekman, founder and manager partner of 5AM Ventures, a venture capital firm with offices in Menlo Park, Calif., and Waltham, Mass. The region has “really got the beginning of being a really good center in terms of life science investment.”
Diekman said 5AM has begun matching its warm words for Indiana with action, in the form of investing in one of the state’s emerging life sciences companies — Marcadia Biotech, a developer of therapeutics focused on diabetes and obesity using technology licensed from IU.
“And we’ve seen eight or nine other very exciting little companies,” Diekman added.
Indiana, Diekman added, is one of several Midwestern life sciences clusters that he said are emerging “on the basis of good inventions, a cost structure that is much more reasonable, [and] a much more stable scientific environment. It’s a terrific find.”
“I think we are getting better. Five to seven years ago, I think we just weren’t good at it. Some of the inventors at IU and Purdue just didn’t think entrepreneurially. There’s much more awareness of entrepreneurship.”
Diekman spoke during a half-hour presentation before joining three panelists in discussing “The National Life Sciences Venture Scene and Indiana on the Map,” during the “Life Sciences is a Capital Idea” conference held May 16 at University Place Conference Center, within the campus of Indiana University-Purdue University Indianapolis.
Agreeing with Diekman was Gus Watanabe, the chairman of both Marcadia and of the state’s life sciences industry group, BioCrossroads.
Watanabe — a former chair of the department of medicine at IU School of Medicine — said Indiana’s life sciences effort has benefited as university researchers and faculty members have improved at commercializing life sciences and other tech discoveries.
“I think we are getting better. Five to seven years ago, I think we just weren’t good at it. Some of the inventors at IU and Purdue just didn’t think entrepreneurially. There’s much more awareness of entrepreneurship. There is awareness that even if you are a university professor, one of the ways to really have an impact on the world is [to] try to help develop and commercialize your inventions,” said Watanabe, who retired from Eli Lilly in June 2003 as executive vice president of science and technology, after serving as president of its Lilly Research Laboratories.
Lilly, which is headquartered in Indianapolis, is among several pharma giants that have long anchored Indiana’s life sciences industry. While Lilly has grown within Indy in recent years, completing a $560 million, three-facility expansion, other pharma giants like Pfizer and Roche plan to scale back operations to cut costs.
Industry, academic, and government leaders have responded by working to expand the state’s life sciences industry through a multi-cluster strategy that buttresses big pharma with a wave of university-spun startups plus contract research organizations, prescription management companies, and medical device makers. For example, Warsaw, Ind., bills itself as orthopedics capital of the world based on its concentration of those companies.
One early-stage medical device maker is NICO Neuro and Spine, an Indianapolis company focused on minimally invasive biopsy and removal of intracranial, skull-base and spine tissues. NICO’s president and CEO, Jim Pearson, has grown a medical device maker before. He previously served as president and CEO of Suros Surgical Systems. Pearson catapulted Suros to dominance within the market for minimally invasive, MRI-guided breast biopsy devices before selling the company in 2006.
Pearson said Indiana and its life sciences cluster will benefit even as companies grow to become acquired by out-of-state buyers — as happened when Hologic of Bedford, Mass., completed a $280 million acquisition of Suros in 2006.
“The money [Suros] produced is here. And that money is really waiting in the wings for, whether it be for NICO or somebody else starting a company out here. There really is cash available. And also there are people that see the pitfalls as well as the successes. I think we’re more experienced. I think that we’re a little more ready” to launch future companies, Pearson said.
Bruce Kidd, director of entrepreneurship for the public-private Indiana Economic Development Corp., said many of the state’s life sciences startups like Marcadia and Suros could not have survived pre-venture capital stages without help from the state.
Marcadia received the maximum $2 million grant from the state’s 21st Century Research and Technology Fund, while Suros benefited from $862,500 in Indiana’s Hoosier Business Investment tax credits over four years, as well as $1.4 million in tax credits over five years through the Economic Development for a Growing Economy, or EDGE, program.
“I’ve always viewed this as a relay race, and we want to get the company [off] to a fast start, out of the blocks with our money, the seed capital,” Kidd said. “And once the company gets going like a Marcadia, we can hand the baton off to John [Diekman] and people like him who have bigger capital sources than we do.”
Created in 1999 with tech business creation in mind, the 21 Fund has $35 million remaining to be awarded from its current $113 million, two-year allocation. In 2005, the 21 Fund was restructured by Gov. Mitch Daniels, a Republican seeking re-election this year, to shift assistance to emerging smaller tech companies rather than corporate giants or universities seeking to spin out new companies.
One consequence of that shift, he said, was that companies receiving state aid were stronger financially, because they drew financing through venture capital or corporate partners: “For us, that’s as much validation as anything. To have a corporate partner who may or may not be an investor, but who may be a distributor of the product or service, that validates the market opportunity and is willing to put time and, in some cases, money behind the deal along with us.”
Earlier this month, IEDC sought to promote the state’s early-stage life sciences and other tech companies to investors at an “Innovation Showcase” that drew representatives from 30 business recipients of 21 Fund grants, as well as venture capitalists from the East and West coasts as well as from the Midwest.
The VC growth, panelists agreed, reflects a rising tide of spinouts from the state’s two largest universities — both of which trumpeted their tech commercialization efforts during the conference.
Among new projects toward that end are two being undertaken by a nonprofit affiliated with Purdue University. The Purdue Research Foundation’s Purdue Research Park is expanding with construction of two new technology parks designed for life sciences and other tech startups.
In New Albany, Ind., just across the Ohio River from Louisville, Ky., Purdue Research Park is less than three months away from completing the 45,000-square-foot Purdue Technology Center of Southeast Indiana. Cost of the project is about $6.5 million, plus another roughly $2 million for site work, including utilities, fiberoptics and other infrastructure.
The tech park, set to open in early to mid-August, will set aside about half its space, or 22,000 square feet, to house startups expected to be in the life sciences and two other Purdue specialties, information technologies and advanced manufacturing and logistics.
“We have the capability and plans to expand another 45,000 square feet as soon as the facility is somewhere in the neighborhood of 60- to 75-percent occupied,” Joseph Hornett, senior vice president, treasurer and COO of the Purdue Research Foundation, told BRN.
The other half of the New Albany space will be a learning center allowing Purdue to offer, for the first time in Southeast Indiana, four-year undergraduate degrees in technology. Till now, Purdue’s only presence in that section of the state was offering two-year degree programs at a nearby Indiana University campus.
The tech park will rise on 40 acres donated by the Shine family, which founded and owns the electronic interconnect manufacturer Samtec. “The discussions to locate in Southeast Indiana and ultimately locate a research park there began when the family could not find the skilled workers that they needed for their business,” Hornett recalled.
About 120 miles northwest of New Albany, near Indianapolis International Airport, Purdue Research Park is teaming up with developer Holladay Properties to develop an approximately $10 million, 55,000-square-foot incubator. The new Purdue Technology Center of Indianapolis will be occupied by startups in life sciences as well as IT and advanced manufacturing and logistics.
“We would expect because of the large life sciences presence or cluster in Indianapolis, that the majority of what would take place at the park in Indianapolis will be life sciences or life sciences related,” Hornett said.
Roughly half the space in the Indianapolis park will be built as wet lab space, and Purdue Research Park can expand the building by another 50,000 square feet if it can come close to filling the space it is now constructing, Hornett said.
That tech park — set to open no later than the end of the first quarter of 2009 — will anchor the new Purdue Research Park at AmeriPlex-Indianapolis, rising on 78 acres along the Interstate 70 corridor. The research park includes space for up to four additional buildings allowing incubator companies to accelerate growth, as well as an industrial flex building of 100,000 to 150,000 square feet; a 50,000- to 70,000-square-foot multistory office building; a 300-bed, six-story hotel with a 30,000-square-foot conference center; and three sites for restaurants or retail shops.
The new Indianapolis tech park sits near the new $1.2 million passenger terminal, now under construction at the airport’s midfield between the two main runways.
The Indianapolis and New Albany tech parks would join two existing research parks run by the foundation — one near the Illinois border in Merrillville, Ind., home base for more than 20 emerging companies as well as the Midwest offices of EDS; and the anchor research park in West Lafayette, Ind.
The West Lafayette site is located about two miles northwest of Purdue’s main campus, and houses 150 startups. Tech companies account for about two-thirds of the companies at the existing tech parks; of those, about half are in the life sciences. While just half the companies spin out directly from Purdue, the research foundation requires incubator tenants to maintain some relationship with the university, such as employing students as interns or employees, or sponsoring research with Purdue.
“Both in West Lafayette and Merrillville, our incubation facilities are completely full. We know from studies that we have done that the demand for the services we provide is there. We are quite confident that the need is there both in New Albany as well as Indianapolis,” Hornett said.
Also building new space for startups is Indiana University, whose board of trustees earlier this month approved construction of a new IU Emerging Technologies Center incubator with laboratory and data center space at the Bloomington campus, within walking distance of IU’s supercomputer, dubbed “Big Red.”
The emerging tech center would be the second for IU, which now runs a similar facility with 10,000 square feet of wet lab space in downtown Indianapolis — the first of a planned four buildings with incubation and post-incubation space.
“Our expectation is that about half of the businesses that go [to the Bloomington incubator] will be life sciences, and the other half will be related to information technology,” MacIntyre said. “We’re at capacity at our building in Indianapolis. It’s our belief to, within a few years, be able to fill out quite a bit of additional space. There are a number of research projects which are expanding and hold some promise for translating results in to some kind of economically viable product.”
The Bloomington incubator is a small piece of the 2.6 million square feet IU has either completed, is constructing, or plans to build for research in life sciences or other technologies like IT, at a cost of more than $1 billion. “Probably half that gain we’re coming to expect over the next three to four years,” McRobbie said.
Neither McRobbie nor an IU spokesman would detail the entire list, saying it includes projects the university plans to announce later this year.
McRobbie, who like Cordova, took office last year, said his school’s 37 percent jump in external research funding showed progress toward IU’s goal of catapulting itself into one of the nation’s top 20 research schools. During the first nine months of the current academic year, through March 31, the university was awarded 2,096 research grants for a total $406.3 million, up 20 percent from the 1,742 awarded for $296.9 million during the entire 2006-07 academic year. During that time, grant proposals rose only 9 percent, from 3,004 to 3,283.
Another sign of IU’s increasing research focus: Earlier this month, IU announced it would eliminate almost all of its two-year associate degree programs, shifting them to IvyTech Community College.
In addition to operating their separate research and tech commercialization programs, IU and Purdue are also working together to pursue state funding for future research initiatives. The two universities have begun hashing out details of a wish list to be presented to state lawmakers early next year, when the state begins crafting its next budget for the two years starting July 1, 2009.
McRobbie said IU and Purdue would seek funds for “an extensive program in collaborative research between IU and Purdue. And to the best of my knowledge, that is unprecedented. That’s indicative of how serious we are about collaboration between IU and Purdue and how important we think it is to the future of the state, and not just in the life sciences.
Added Cordova: “There are tremendous opportunities for our state in the life sciences, and Purdue and Indiana universities are focusing our research and business development efforts to build on this potential.”
After the conference Larry MacIntyre, an IU spokesman, said the joint proposal “will concentrate on life sciences and life sciences research, and the way we translate that research into products and economic development. We’re not ready to describe what that proposal will be yet. It’s not been put together.”
Not discussed by the universities or their presidents: Their toughest challenges in transforming their professors’ inventions into startup companies capable of filling those new incubators.
At a panel talk preceding that of the university presidents, Craig Brater, dean of IU’s School of Medicine, said schools like his have come a long way toward encouraging researchers and professors to commercialize their discoveries. Brater said his school seeks out evidence of entrepreneurial activity in evaluations of faculty members and departments by review committees.
“Are we at the point where those review committees give the same weight to entrepreneurial activity [as] to getting a bunch of NIH grants? Honestly, the answer to that is, ‘No,” conceded Brater, who served as moderator for the panel discussion.
“We’re trying to move in that direction.”