By Jason Myers

Many states have identified the opportunity to build and attract life sciences companies because of their high paying jobs, clean manufacturing, significant growth potential and high profile successes.

Texas is no exception, and many resources have been dedicated to encourage startups and entice larger companies to relocate. What’s the real commitment to fuel and grow a life sciences sector throughout the state that will establish Texas as a biotech hub?

Several of Central Texas’ life science leaders sat on a panel in June to talk about the expansion of the sector. While most agreed we’ve done a good job of fueling startups, they also said a lot of work needs to be done to get the companies over the hump and to the next level.

What We’ve Done Right
The most prominent win for Texas in fueling startups in the life science sector has been the Emerging Technology Fund (ETF). The purpose of the ETF (according to its website), provides capital awards with priority to “proposals that involve scientific or technical fields that have a reasonable probability of enhancing this state’s national and global economic competitiveness . . . and are likely to create a nationally or internationally recognized locus of research superiority.” To date, 44 percent of the companies funded by the ETF have been in the life sciences, with North Texas and Central Texas firms receiving the greatest number of awards.

“Given today’s challenging venture capital markets,” said Dennis McWilliams, CEO of Apollo Endosurgery, “the ETF has been critical in helping life science companies get further down their commercial path, as well as incentivizing good deals outside the state to relocate their operations to Texas.”

Over the last several years, Central Texas has seen a growth in the number of Life science companies. “We count 117 in Central Texas alone,” said Bill McLellan, Executive Director of BioAustin.

The other advantage to the state is the quality of life. “Our exposure as a life science sector is expanding and the number of companies is growing very quickly,” said Ron Baker, CEO of Patton Surgical. “I’ve worked both in Silicon Valley and in Austin, and the quality of life is definitely something we have going for us here. It’s true that if you do well in Silicon Valley, you can work there in perpetuity, but in my opinion, it’s not the most delightful place to be because of cost and crowding. It’s much more conducive to having an entrepreneurial life here in Austin.”

Where We Need To Go
Many executives on the panel advocated building a medical school to supply research and fuel the sector, others admit that it would be nice to have, but don’t see it as a necessity. “You always hear that absence of a medical center being an issue for life science sector development,” said Mark Chandler, Chairman and Chief Executive Officer of Biophysical Corporation. “But Dallas has been somewhat unsuccessful at spinning out life science commercialization from Southwestern, and I could go either way on the subject. It seems axiomatic in the life science industry that you need a medical school, but I’m not so sure that’s the case.”

“In Central Texas, we’ve seen Seton and St. David’s taking a more active role in research for entities like ours to increase grant funding and undertake new projects,” said Craig Benson, President and Chief Executive Officer of Rules Based Medicine. “It will certainly increase their exposure, and I think that’s at least a positive sign for more research in the area.”

Even though the number of startups has grown in the major Texas markets, the main barrier, according to our panel, was the inability to get these companies over the startup hump, and onto the next level, which usually requires follow-on funding and access to venture capital. But because many VCs have pulled back and replaced their portfolios given the tough economic conditions, companies have had to expand their searches for active investors to other states like California. This creates a much tougher proposition not only because of increased competition vying for a smaller pool of available dollars, but also because many VCs won’t invest outside their state of origin, requiring companies to move their operations if they get funded.

Many executives in the life science sector are hoping that the ETF will evolve their current leadership to include a more managed portfolio that is private-equity based. “That would mean that existing companies that have received ETF funds, especially commercialization grants, would have the potential for follow-on funding, which is the critical piece that is missing in the state right now,” said Baker.

However, McWilliams noted for the ETF, that would mean navigating the political environment because of their requirement to mitigate risk. “The first phase of the ETF was great in getting the money out there,” he said, “but the problem is moving to the next series of funding, which is going to be a big challenge because they really weren’t set up to participate in that next round.”

Another boon to the sector would be attracting larger companies to relocate to the state, bringing more resources and employment opportunities. “There are two approaches to building the sector out,” said Bruce Leander, Past President of Ambion and founder of BioAustin. “You can continue to beat the drums and try to get companies like Genentech to move here, or you can concentrate on creating and fostering an entrepreneurial startup environment, which will eventually be a self-fulfilling prophecy. That’s a much easier proposition than trying to get the big companies to move here, and we’ve done a good job in Austin in terms of creating that environment.”

A skilled labor pool is also a necessity, said Jack Hart, Ph.D., Assistant Chairman of BioMedical Engineering at the University of Texas. “Austin has a good base of labor, but once you get through the early stage and are looking for more experience, it gets thin.”

But if Texas still wants to concentrate on attracting the big companies, Leander said they would have to get behind more incentives. “If you look around the country at where the successful biotech hubs are, it’s always the universities and states that have stepped up and created incubator facilities and other incentives for companies to start up and to move there,” he said.

What We’ve Done Wrong
Benson noted he’s had a different experience when it comes to the state’s interest in life sciences. “Several years ago, we formed a foundation for genome research, and we have the opportunity to attract the National Center for Genome Research to Austin. We’ve been breaking our necks trying to keep it here, but we’ve had a hard time getting anyone interested.”

Chandler noted that the genome research project would bring a lot of jobs and exposure to the area because “it would be the most widely sold genetic test available, and every OB-GYN in the country would tell women that are planning to start a family to go get this test.”

Benson talked about visiting a group in Kansas City that was interested in the project.  “Beyond having an established drug infrastructure, several medical schools and major hospitals, they produced one point of contact that coordinated a visit with every potential affiliate in our space. Pulling approximately 50 movers and shakers together in a two-day visit was impressive.”

Benson feels the key to successfully building a life science sector would be a single point of contact to connect people with resources. Those resources would include academic and political connections, both traditional and private lenders, community resources such as chamber executives, key medical school administrators, and connections with local CEOs to help with collaboration.

We’ve not done a great job of establishing an industry organization committed to life sciences,” said Leander. “Houston has done a better job (because they have dedicated staff), and in Austin we’ve had initiatives with the Austin Technology Incubator and with the Greater Austin Chamber of Commerce. But ultimately, we have yet to find the formula to allow for a dynamic, dedicated and sustainable industry organization that is indispensable to the local biotech community”

Collaboration is Key
Timothy Sullivan, President and CEO of Mystic Pharmaceuticals, calls for more collaboration among academia, established companies and start-ups. “There is a unique opportunity to collaborate to go after federal research grants and contracts that address critical healthcare needs and provide non-dilutive funding. The federal government is certainly looking for biomedical solutions addressing a broad range of public health, public safety and medical countermeasures for bio-terror and pandemic threats  . Mystic has been developing several of these collaborations over the last few years. We’re now at a point where we see some bigger opportunities. When you are selected for these programs, it fuels growth within the Texas life science sector, brings validation for the technologies, and can set the stage for longer term commercialization opportunities beyond what’s been developed for the government.”

Baker concluded that Texas is well positioned to fuel a successful life sciences sector. “Houston has world-class  research institutions and Austin has a strong  entrepreneurial network. As a state we probably have critical mass, but the challenge is to get everyone working together to bring the much needed resources (capital and talent) into the state that will allow us to go to the next level.”