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Minn. Life-Sci Sector Must Expand Focus Beyond Devices, Rx-Discovery, Development Group Says


Minnesota should expand its life-sciences focus over the next decade and a half beyond its renowned medical-device and drug-discovery sectors by developing clusters in animal health, food, biofuel/renewable energy, and renewable materials capable of competing with other states, according to a new report prepared for the state's life-sci job attraction organization.

The state should also improve its capabilities in tech specialties likely to be needed by all or most of the life-sci sectors, especially nanotechnology and bioinformatics, the public-private BioBusiness Alliance of Minnesota concluded in its Destination 2025 series of 13 reports, the last of which were released last week.

The reports, prepared for the alliance by Deloitte Consulting, are the second of three phases in Minnesota's long-term effort to chart a course for its life-sci industry. The first phase, completed in 2006, consisted of an assessment of the state's strengths and weaknesses. The third phase will consist of efforts to implement the findings of Destination 2025.

"We're very aware of the changes that are occurring in the industry, and the science that will be driving the economy now and in the future. We're trying to stay on top of that," Dale Wahlstrom, CEO of the BioBusiness Alliance, told BioRegion News last week.

Wahlstrom defended the effort's focus on multiple life-sci specialties, saying the state had several existing resources for attaining job and overall cluster growth in all six, and that the six would allow the benefits of life sciences to be spread across Minnesota.

While the state's medical device industry is clustered around large metro areas like Minneapolis-St. Paul and Rochester, animal health is stronger in more rural areas of the state, such as Willmar, Worthington — home to Swift and Co., the world's third-largest beef and pork processor — and the border region anchored by Moorhead and neighboring Fargo, ND.

"As you implement at a local level, you need a vision document for a specific industry that builds on the strengths of a community," Wahlstrom said. "Because all six of these are driven by the study and implementation of biology, and how biology is affecting those industries, we speculated we'd find a great deal of overlap between the six."

Minnesota has long been known as a medical-device powerhouse, anchored by spinouts of technologies developed at institutions such as the Mayo Clinic. But the state has lagged behind neighboring Midwest states, let alone biotech powerhouses such as California and Massachusetts, in commercializing those and other technologies, Destination 2025 concluded.

On medical-device growth, Destination 2025 noted significant erosion in the state's competitiveness compared with other states. It cited The Higgins World Competitiveness Report, an index of med device strength that ranked Minnesota 21st in its most recent report last year — tumbling from the top spot it occupied in 2002.

"There is absolutely no doubt that other states and other countries have understood the value and the profitability of the medical device industry, and have come after the Minnesota community," Wahlstrom said.

He cited North Carolina, which had spent two decades studying Minnesota's med device industry, and Ohio. "The competition has increased dramatically. And number two, our academic institutions have shifted more of their research toward the area of biopharmaceuticals and biologics. As a result, we've built a very strong capability in that area. But our device industry has not followed that lead."

The University of Minnesota and other academic institutions, according to D2025's medical device report, have not involved themselves in developing new devices, while the technologies spawned at the universities have not seen their way to industry.

"These disconnections have hurt both academia and industry. We view the current situation as less than optimal, especially in comparison to advances seen in other states, creating an alarming crack in the region's ability to compete long-term in the evolving device world," the report concluded.

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The solutions, according to Destination 2025, include shifting the focus of the medical device industry from cardiovascular devices toward faster-growing specialties such as neurological devices and diagnostics and monitoring devices.

Other recommended actions:

• Creating a new organization to guide and oversee development of a strategic plan for the medical device industry, a one-stop shop akin to the North Carolina Biotechnology Center or Science Foundation Ireland;
• Using state tax incentives to encourage the development and growth of med devic companies across the state;
• Expanding the University of Minnesota's Medical Devices Center and "expand on the research and educational capability" of the state college and university system to teach medical device makers;
• Creating a "center of excellence" focused on nanotechnology, to enter into partnerships with institutions around the world. The report cited successful nanotech efforts in Ohio and New York; and
• Creating a center of excellence focused on bioinformatics.

Boosting nanotech and bioinformatics emerged as recommendations for growing the other life-sci sectors cited in the reports that comprise D2025.

For the biopharma/biologics sector, for example, the report suggested that the nanotech center of excellence work toward developing nanomedicines "as part of a larger, knowledge-based economic development strategy that serves all high-tech industries."

The biopharma report recommended developing a strategic plan for that sector anchored on two drug specialties: Diagnostic products and biomarkers, and newer biologics that include cell therapies, tissue therapies, organ and partial-organ technologies, and the transplantation of animal cells, tissues, and organs into humans.

In building up biopharma in Minnesota, the report continued, the state has the potential to improve upon its small venture-capital investment in the sphere. Between 1995 and 2008, Minnesota's average annual share of biopharma VC investments of $4.4 million was barely half the national average of $8.1 million.

Minnesota's smaller base of biopharma companies makes it harder to commercialize technologies developed at U Minnesota and Mayo clinics. "We just don't have, like North Carolina does, the pharmaceutical industry base. So the [intellectual property] coming out of the University of Minnesota and Mayo, they're kind of forced to license it somewhere else," Wahlstrom said.

The task of coordinating commercialization opportunities would be a key task of a new team of biopharma industry professionals recommended by the report. The team's primary role would be to devise a strategic plan for the sector within the next couple of years.

Similar strategic plans are envisioned by D2025 for the four other sectors targeted by the reports:

• Renewable materials — Build the state into a top center for the transformation of food into other chemicals and products, or biorefining, by nurturing the development of such technologies. Add production of other chemicals to the state's existing capacity for producing ethanol and biodiesel. Capitalize on existing strengths such as its large forest industry in the state's northern half, which employs more than 38,000 people.

• Animal health — With few employees in the sector, the industry should develop more training programs that build on strengths like the University of Minnesota's College of Veterinary Medicine in St. Paul, and the technician programs of community colleges in the Minnesota State Colleges and Universities System. One method, the report said, was by forgiving the student loans of graduates who agree in return to take animal health jobs in rural areas.

• Biofuel/Renewable energy – Develop a renewable energy industry anchored to production of biogas and solid fuel-combustible biomass. Create a leadership group to explore overlapping opportunities that could link the budding renewable energy sector with Minnesota's stronger food and renewable materials.

• Food — Create a statewide center for health and wellness by expanding the existing University of Minnesota Healthy Foods Health Lives Institute into an institution that could support basic and applied research in new health-enhancing or nutriceutical foods. Develop training programs for new agricultural workers who would grow the food needed for such products.

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The food sector can build on the cancer prevention and control work of the Hormel Institute in Austin, Minn. Last October, the institute completed a $23.4 million expansion consisting of a new two-story research building with 20 laboratories, part of a medical research center that has formed a "Bioscience Triad" with collaboration partners the University of Minnesota and the Mayo Clinic.

The expansion benefited from both public and private funding: Hormel Foundation itself gave $13.4 million, while Hormel Foods Corp. donated $5 million, and the Austin and regional community gave $1.5 million. The project also benefited from bonds issued by the city of Austin ($10 million) and Mower County ($5 million).

"Minnesota has proven that it can build a major sector and make it work, and make it grow. There are some new and very fast-growing things like biopharma discoveries being applied in the development of animal vaccines that are moving quickly to development in several of our outstate communities. There are several things that we are, and need to make sure we remain strong in, like biofuels, and other renewables," said Don Gerhardt, president/CEO of Life Science Alley, a nonprofit trade group focused on the needs of the state's existing life sci employers.

The state, Gerhardt said, has another asset it can leverage in competing with other states: a reservoir of top talent in clinical, regulatory, marketing, and IP operations through its past successes in med devices and food. That workforce, he said, can be shifted to other growing life-sci sectors.

"The ability to assist either new companies, or companies that are spawned out of places like Willmar and Worthington, that they get the best assistance in the world to do what they need to do."

Life Science Alley has laid out its priorities for action by lawmakers into its five-page 2009 State Legislative Agenda. Those priorities include additional tax breaks targeted to building new life-sci businesses, opposition to legislation that would limit human embryonic stem-cell research, and subsidies toward commercializing new technologies developed in the state.

Rep. Tim Mahoney (DFL-St. Paul), chair of the state Legislature's Bioscience and Workforce Development Policy and Oversight Division committee, cautioned to BRN that Minnesota's ability to assist the life sciences industry will face a tougher test than in recent past years, because the state's first priority is to plug a budget revenue shortfall that officials have projected at about $5 billion. That number likely to be raised as much as $2 billion on March 2, when officials release a new budget forecast. Minnesota operates on a two-year, roughly $35 billion spending plan set to end this year.

"We've done a good job, but we have to do a better job. That will not be easy," Mahoney said.

Wahlstrom said his group and other industry leaders will be happy to get programs launched this year, with the hope of funding next year or soon after as the economy improves.

"The funding that we'd love to have, which is in the hundreds of millions of dollars, is not going to come," Mahoney said. "But we are going to have enough funding come through the process, which will be enough to put our teams in place, get development activity defined, begin implementation, and then hopefully in our bonding year, some of our large investments will make the legislative bonding cycle."

"If we implemented everything that we wanted, it would be more than $1 billion" — a sum unlikely to be attained for several years as the programs prove themselves effective, he acknowledged.

Despite this year's budget squeeze, Mahoney told BRN last week, several Life Science Alley priorities are likely to be signed into law this year. They include:

• Alliance funding — The life-sci group is seeking $2.2 million in state funding, up from $1.75 million in the 2007-09 period. "This is likely to be very much a piece of the [budget] legislation," he said.

• Office of Science and Technology — Mahoney said he supports the alliance's request to quintuple its funding from $400,000 to $2 million for the state office charged with bringing together business, academic, and government leaders to secure federal funds toward technology projects deemed to "lead to long-term economic growth." OST reflects "what we're trying to do in this state" with advancing the life sciences, he said, adding that funding would be shifted to the state's operating budget with other ongoing programs.

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• Centers of Excellence — He said the state is looking to create one center each focused on one of the six life-sci specialties identified in the report.

• SBIR and STTP Matching Grants — Minnesota is considering a bill to set aside $2 million over two years to match the funding researchers receive under the Small Business Innovation Research and Small Business Technology Transfer Grants programs. The programs offer up to $100,000 in their first phases, and up to $750,000 over two years in their second phases to expand on first-phase results.

• Small Business Investment Tax Credit — Mahoney said lawmakers will likely get behind Pawlenty's proposal to set aside $60 million in tax incentives to insurance companies for investments in state-sanctioned venture capital firms, or "certified capital companies" that would be required to invest in qualified companies with fewer than 100 employees each. Pawlenty has said he wants half the funds to be invested in biofuel companies and other alternative-energy "green" startups.

• Angel investment tax credit — Mahoney said this should be the year Minnesota finally enacts a tax credit for angel investors, though it "won't quite get to Wisconsin's level, because they've been at it for four years. They have seen the success that it has had. We still have to prove that to a number of politicians in Minnesota, and be able to afford it."

Minnesota's angel credit would be modeled on Wisconsin's Article 255, which offers a 25 percent investor tax credit over two years — up to $500,000 per investment — for individuals and venture funds that invest in early stage high-technology companies. Wisconsin credits Article 255 with a 56 percent increase in the amount of angel capital invested between 2006 and 2007 in a variety of industries, with life sciences and biotech accounting for the greatest share.

For the past four years, officials have worked to create an angel tax credit for at least, only to hold off on action, then see Wisconsin run with the idea. He acknowledged that Article 255 has both drawn many startups to Wisconsin and persuaded many others to stay in the state, but added: "Is a significant number a half-dozen companies? I don't know that a whole lot of [Minnesota] companies are willing to move to Wisconsin just to get that incentive just yet."

"They're kind of hoping for Minnesota to get its act together, and I expect we will," Mahoney said. "It seems to have a lot more legs this year. People are starting to understand that leg of the stool that we need."

Mahoney said he based that optimistic expectation on support the life-sci industry has attracted from state legislative leaders and Gov. Tim Pawlenty, a Republican in his second term.

"There is serious consideration being given to trying to figure out ways to fund these measures. I've had a number of conversations with [House] Speaker [Margaret Anderson Kelliher] and [Senate leaders] as to what we can do and how we can fund them.

Do I think we get all of them? None of these are real expensive programs. I think in total it is $15 million over the two-year cycle. In a budget of over $30 billion, that's not that huge," Mahoney added. "We can get many of the smaller items to move forward, as long as we can keep the dollar figures reasonable, and promise results."

Pawlenty is expected to demonstrate that support anew within the next 30 days, when he joins developers of a planned 200-acre biotech campus in what he and developers have billed as a key announcement in the development of Minnesota's life-sci industry.

While neither Pawlenty nor the developer of the BioBusiness Center at Elk Run have elaborated, the governor did tell Minnesota Public Radio Network that members of his administration had talked to biotech investor-analyst G. Steven Burrill and his associates about funding early-stage biotech companies that move onto the campus, to rise just north of Rochester, Minn.

"We've had meetings and discussions with [Burrill and aides], and it's a hopeful project, and one that they continue to work on," Pawlenty told MPRN, adding. "If they can get a few more items lined up, that's something you'll be hearing more about in the coming weeks and months."

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Burrill's investment would finance as many as 30 startups through a $1 billion venture capital fund his firm would launch with campus developer Tower Investments, the Star Tribune of Minneapolis reported, adding that the Mayo Clinic in Rochester will also collaborate on the project, "according to two sources who have knowledge of the project but are not authorized to speak for it."

Nate West, a spokesman for Tower Investments, told BRN on Feb, 27 it had "no more updates at this time" to share on the Elk Run project.

BioBusiness Park at Elk Run would include an incubator for startups, to be called the Biotechnology Center, as well as 1.7 million square feet of space for tenant businesses ranging from clinical development drug discoverers to manufacturers — a specialty that could be enhanced by a biomanufacturing training bill Mahoney said was now being written.

The campus would be the anchor of a 2,325-acre mixed-use residential and business development that would transform what is now a fenced expanse of vacant land along Highway 52 called Elk Run. Minnesota's Department of Transportation is considering a $50 million project to improve highway access to the site, MPRN reported, citing as its sources several unnamed lawmakers.

In late January, Pine Island won a $1.2 million state grant toward installation of $2.5 million in onsite infrastructure at the BioBusiness Park at Elk Run. The balance of the cost will be paid by the developer. In January, the Pine Island Council authorized City Engineer Neil Britton of Widseth Smith Nolting to finalize project specifications and begin advertising for bids, with bid awards expected by early- to mid-April of this year [BRN, Feb. 2]

Construction of the infrastructure improvements is expected to start by late May or early June of this year. The city and Tower Investments signed a Master Development Agreement last June, allowing for an earlier phase of off-site infrastructure improvements [BRN, July 21, 2008].

Mahoney's committee on March 3 will take up another biotech bill not included in the alliance's legislative wish list. H.F. No. 567 would create a competitive grant program for local governments that would award funding either up to half the cost of public infrastructure for new life-sci projects, or half the total cost of infrastructure plus the cost of the project benefiting from the funding, whichever is less.

"The purpose of the program is to keep or enhance jobs in the area, increase the tax base, or to expand or create new economic development through the growth of new bioscience businesses and organizations," according to the text of the bill.