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NC Biotech Center’s New Chair Art Pappas Eyes Cluster Growth, Centers of Innovation

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Arthur Pappas
Founder and Managing Partner
Pappas Ventures
An executive and venture-capital investor with a quarter century of building up North Carolina’s life sciences industry has accepted a key role in steering the biocluster as it begins its next 25 years.
 
Arthur Pappas, the founder and managing partner of the Research Triangle Park venture capital firm Pappas Ventures, has been named chairman of the North Carolina Biotechnology Center's board of directors. The center is a state-funded, private-nonprofit corporation whose mission is to “provide long-term economic and societal benefits to North Carolina” through statewide support of biotechnology research, business, and education.
 
He succeeds Sue Cole, a principal of Granville Capital of Greensboro, who served as chair for two years. She will continue to serve on the board's executive committee.
 
During the current fiscal year, the biotech center received $19.4 million from the state General Assembly, including $4 million of one-time revenue that included $2.5 million for a planned expansion of the center’s headquarters, and $1.5 million for new loans. This is compared with $15.6 million in the previous fiscal year.
 
Pappas’ venture firm manages more than $250 million and oversees investments in more than 40 portfolio companies. Before he founded the firm in 1994, Pappas was an executive member of the board of directors of Glaxo Holdings, and held executive positions for Abbott International, Merrell Dow Pharmaceuticals, and Dow Chemical.
He is the founding CEO and chairman of Durham-based CoLucid Pharmaceuticals and serves as a director for several pharmaceutical companies, including Massachusetts-based Genstruct, LEAD Therapeutics of California, and New Jersey-based TyRx Pharma.
 
BioRegion News last week spoke with Pappas about his longtime involvement with the biotech center, and its broader challenges in serving entrepreneurs and other key players in North Carolina’s life sciences industry.
 
Below is an edited transcript of that interview.
 

 
How long have you been involved with the North Carolina Biotechnology Center?
 
I’ve been involved with the center, I’d say, at least since its inception, and on the board for almost four years. I’ve been involved — I’m trying to think of the year — certainly for a long time. I’ve been a big supporter of it. I think it has been great for the state, and when I was on the corporate side at Glaxo, it was one of those focal points that we could use for early-stage companies and being able to direct entrepreneurs to a good forum to help build biotechnology companies.
 
How did you come to be involved with the center?
 
When I was at Glaxo, the center was right across from Glaxo. We were actively involved in kind of the early stages of helping to set it up. Then for me more specifically, it was getting involved at kind of this growth stage after Charles Hamner put in place the original structure for the center. Having our businesses in pharmaceuticals and biotechnology, and given that the North Carolina Biotechnology Center is the oldest and most significant biotech center in the United States, it was just a natural place to get involved in.
 
How has your role and involvement with the center changed over the years?
 
Initially my involvement was that of being inside of a large pharmaceutical company. The second part was in starting my venture capital firm, and working with companies looking for financing. I moved from a community-involved role into more active participation when I went onto the board four years ago, then becoming vice chair on the executive committee, and then chairman.
 
And how has the biotech center evolved during that time?
 
The center has evolved from where it was basically providing small grants and loans to support early-stage companies — that was one aspect. The other aspect is to assist companies in taking advantage of the significant infrastructure that the state has to support biotech and pharmaceutical companies. So the combination of those things for the center over the past 20 to 30 years has been strengthening. We’re doing larger programs, even though we’re doing the same ones as before. So even though we’re doing larger programs than we did at the beginning, we’ve now moved from small, I would call small-scale sponsoring and granting to having still small-scale programs to much larger loan and grant programs.
 
What is the center’s greatest value to life-sciences professionals, as well as companies and institutions?
 
From the academic side, a professional that wants to start their own company or see if a technology or a program that they’re working on at the academic level has commercial value, the center can be a non-biased place to have a discussion about what a commercial plan might look like to commercialize the technology or patent. For a businessperson that is professionally looking to build a company and access a technology, then the center provides a place to do their own research, to assess the market opportunity, and then to work with the center to build out a plan. And that would also include being able to submit for grants and loans that might assist in achieving the individual’s objectives.
 
A lot of people don’t realize how significant the center is compared with other biotechnology clusters around the United States. I can’t think of a place, even in the core areas like Boston and San Francisco, where an entrepreneur can go to one center and have access to not just information, but information, management, and then the ability to submit for grants and loans.
 
What circumstances unique to North Carolina enabled the center to develop as it has?
 
The uniqueness really goes back to the early founders of the Research Triangle Park having the wisdom to see how the three universities could work together and create the park. And then [the center] was just a natural outcrop that someone saw early on — that was Charles Hamner — that we should build it and develop it in a way that would make sense long-term for North Carolina.
 
So Charles Hamner, and maybe it’s more [former governors] Terry Sanford, and Jim Martin, and Jim Hunt, and now [Governor-elect] Bev Perdue, they all see how valuable biotechnology is for the state as we move into a new economy. And I think the state is really in a terrific position to take advantage of this 30-year infrastructure that’s been built in the Research Triangle Park, and the complementary infrastructure and assistance of the North Carolina Biotech Center can provide in helping companies grow and develop.
 
You mentioned Bev Perdue. How will she be able to carry forward what the state’s been able to do in the life sciences?
 
I don’t know exactly yet what her fundamental plans are. I do know that she has, early on, seen the value that biotechnology can bring to all the areas of the state, in biotechnology as well as bio-ag and biofuels. And she has been a terrific supporter of how the center can piggyback onto the college and community school system, and how that should make it attractive for companies to come into the state, as well as entrepreneurs to build companies. She’s been a terrific supporter of that in her previous role [as lieutenant governor], and I can just imagine that that’s going to continue. I don’t know what her specific plans are, but I do know that it’s an important part of how she sees the development of the state.
 
Now that you will be chairman of the biotech center, what do you see as its greatest challenges that you will work to address?
 
I’d say there are probably two. One is, if biotechnology continues to grow, then the center will grow in support of that, and the growth will be definitely on a statewide basis. I think one of the challenges is managing the growth and being able to provide the right support outside of just Research Triangle Park.
 
The second — which is not so much a challenge as it is managing an opportunity — are these centers of innovation programs that have been put in place by the center. The program has received support from the state, as well as from our own operating plan at the center. This was set up so that new types of institutes or centers can be set up around the state to build out a specific area. So for instance, one of the centers of innovation is in marine biology. Another one is in medical devices. Another is in nanotechnology. And the program is designed to provide capital to let leadership come together, and then a new leader, once they’re in place, can receive additional funding to build out another center of innovation. It’s not so much a challenge as it is more managing the opportunity, because we do see [the centers of innovation] at the center to be a great way to further build out the commercial base in North Carolina.
 
Last year when he became CEO of the center, Norris Tolson expressed two goals for it: One was doubling the state’s biotech workforce by 2020. The other was gaining additional state government funding. What effect has the economic downturn had on pursuing these goals?
 
I can’t speak to the number of jobs. We have an upcoming meeting where we’re actually going to look at those numbers, though I do think they’re trending positively because of the number of activities that are occurring in Kannapolis and Wilmington and Asheville.
 
As far as the dollars from the government, I think we have received more. I think the center is extremely fortunate to have Norris as its leader. He’s well-connected. He understands the industry. And he certainly knows how to direct the growth opportunities that we’re going to be supporting as this thing goes forward.
 
How will you and Norris adjust what the center does given the current financial downturn?
 
I don’t think I have a clear answer on that right now, because even from my own business on the venture capital side, we’re still trying to evaluate that. I think we are going to see a slight slowdown of new companies being formed. I think early-stage companies where venture capital might be not readily available or less available for early-stage companies, they may be seeking more support from the center, so by definition, we’ll have to be even more diligent than we already are in terms of evaluating those deals and seeing which ones are worthy of funding in that regard. We have a meeting coming up in early December where even with the downturn in the economy, we haven’t seen any slippage of different opportunities to look at in that regard. But I think it’s too early to tell right now.
 
Over the summer, the center announced it had raised its maximums on the amounts borrowable through its loan programs for startups. What effect has that had so far in seeing more startups come through the center?
 
I would say that the number continues to increase; I don’t have the actual number at my fingertips. But what’s nice about the way they’ve now built out the different programs is, someone could come in — let’s say you have an idea to start a company. You can start with a grant of $25,000 or $50,000 to help build it out. And then as your program progresses to each stage, then each of the programs that are now in place allows you to have the ability to pull in money as long as your business is performing. And then there’s an encouraging matching program that gets the entrepreneur to work closely with the venture community. It has been now built out in a way that the grants and the loans are very meaningful and substantial, and it’s getting good attention from entrepreneurs, particularly those that have had experience in building companies.
 
To what extent will startups and entrepreneurs be increasingly reliant on the center as opposed to going to venture capital firms, whether it’s your firm or another firm? Will the center replace that source of funding?
 
No. I think there has been over the last, let’s say three or four years, an increasing trend in the venture community to do less early-stage investing, at least until a good business plan or a clinical program confirming some kind of animal data has been sorted out. There has been that kind of evolving trend that we’ve always been paying attention to in that regard. So I think the center, as well as some of the smaller funds that do specialize in these early-stage companies, have done a better job of helping these companies address their fundamentals. That has been positive for us when we’re ready to step in to do venture-type investing. These companies are a little bit further ahead of the nascent idea. But that is also good for the entrepreneur, because in theory he should be able to pick up more value for his company.
 
Does that suggest the center will evolve toward more of an accelerator for advanced startups, rather than an incubator for startups of several phases?
 
No. If you define incubator in terms of helping startups, like the centers of innovation help define the programs and the ideas, I think [the center’s role] is more supportive. We’re still seeking a management team to really do the work which I would call incubator or accelerator. The center hasn’t stepped into that kind of role.
 
About a year ago, the biotech center began exploring an expansion of its headquarters designed to create space for more conferences, offices, projects, and partners. What is the status of that review?
 
It hasn’t happened, but it is a key, number-one discussion, because there is a need. The center has kind of overgrown itself in terms of space for the basic folks managing the programs. I know that Norris is evaluating different alternatives, but at this point there has been no decision made to go ahead with it. We do know we need to expand, but whether we do it with our own building, we do it through a lease, we do it through other alternatives, we haven’t really addressed that yet.
 
And probably with the market the way it is, it’s going to cause us to maybe just pause a little bit, until we see how things sort out.

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