PARTICIPANTS:

Moderator: Courtney Fingar, editor, fDi

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Participants:

Gilbert Jimenez, director, Arizona Department of Commerce

Dr Raymond Woosley, president, C-Path

Dr Larry Sparks, head, Sun Health Research Institute

Ron Marler, associate director for research, Scottsdale Mayo Clinic

Dr Nina Ossanna, director, business development, BIO5, University of Arizona

Jeff Morhet, chief operating officer, InNexus Biotechnology

 

Courtney Fingar: Arizona’s biotech sector has experienced phenomenal growth in a remarkably short amount of time. As investorsthere and as stakeholders in the industry, why do you think this has happened?

Gilbert Jimenez:

We could probably cover it with three Cs: collaboration, co-operation and commitment. There is a realisation by many companies of a spirit of collaboration in this industry in the State of Arizona and they realise that there is a great deal of appeal to it. There is a real sense in Arizona of a bioscience community and that was perfectly illustrated by the creation of the Translational Genomics Research Institute (TGen) a few years ago here in Phoenix. That has spawned other interests, as well as other companies.

Second, the Arizona Bioscience Roadmap clearly defines the steps needed to develop a strong bioscience cluster. A virtual coalition of state-wide business and science leaders was formed to help carry out the recommendations of the Arizona Bioscience Roadmap.

Lastly, there is the support from the legislative front, as demonstrated by the new Angel Investor Tax Credit that begins this July and offers a 30-35% tax credit on investments in small businesses.

CF: What is the perspective of the scientific community?

Dr Raymond Woosley: I moved to Arizona five years ago because of this collaborative environment. I was recruited as the Dean of the College of Medicine at the University of Arizona and I had the opportunity to work with the community to build a new medical centre in Phoenix. We were able to pull together the city and many different entities to raise $92m for TGen to get started as a basic science base for the new medical centre. A few years later, we were able to raise $12m in commitment for C-Path, another very unusual investment.

Coming back to TGen, we were able to get funding from an amazingly diverse group that came together for genomics – including the Native American tribes – which was a surprise to many, the city, and the community very broadly. Regarding C-Path, we had a planning grant from the economic development commission that allowed us to develop a business plan. Half of our funding was donated by the city, Pima County and Tucson. The other 50% came from foundations.

We are publicly funded to work with the Food and Drugs Administration (FDA) to improve the process of translating all this biomedical research into commercialisation. It indicated to me that there is a commitment in this state, all the way from basic science like TGen to the most terminal translation of commercialisation and working with the FDA to make that happen more efficiently.

CF: How does this compare with experiences that you might have had in other locations?

 

Dr Larry Sparks: I have been involved in trying to get a biotech village (as I named it) off the ground in Surprise. With regard to the co-operation, I was impressed by the individual cities, for example Surprise, Peoria, Glendale or Phoenix. They tend to be actively interested and pro-biotech in providing incentives and whatever is necessary to establish these kinds of biotech industries in their cities.

With the village, one of the concepts was to focus on biotech. In Surprise, we were looking for focus. People from around the valley seem to pick out centres of excellence that they want to build on and then they bring in biotech that is complementary to that. They set up symbiotic relationships. Let us say we are going to build a biotech village with a medical campus: we expect a symbiotic relationship for translational research, so that we can make the developments, we can test clinically, and we can then bring it in as a standard of therapy.

CF: What about the tangible financial incentives that the state can offer?

RW: One of the other relevant things that attracted me is Proposition 301 money. This was a sales tax that was created to invest in science and education.

GJ: Governor Janet Napolitano, beginning in 2003, has made bioscience and the relevant issues around it – Innovation Arizona – a priority of her administration. We offer job-training grants that fund training to increase the skills of the workforce, paying up to 75% of training costs for new employees. It offers tax incentives to companies located in enterprise zones. In addition, Arizona offers R&D tax credits and more.

Access to capital is increasing – we are seeing an increase in venture capital coming to Arizona. For example, in 2004 we had $76m and that increased to $165m in 2005. There is more activity, more interest and more involvement from the private sector.

CF: Aside from the financial aspects, what else attracted your organisations to Arizona?

Ron Marler: I have been in several different locations around the country and I have looked at biotech operations in all of the big cities in the US. There is a big difference, I believe, in the State of Arizona, which I refer to as its ‘youthful exuberance’. You do not see this in other areas. It is manifested by our governmental agencies, by the private sector and the public sector, and it is unique in the sense that there are not paradigms that the organisations in Arizona function under. We define the rules as we move ahead.

Dr Nina Ossanna:

I worked back east at, arguably, the number one medical school in the US, doing technology transfer for it. In that area, everyone very much worked in silos. It is totally different here in Arizona. The collaboration here is creating a continuum of what we need to build this industry, starting with putting money into bricks and mortar at the universities and trying to create a culture of entrepreneurship. The Proposition 301 money was incredibly important for getting the universities in the game.

Hopefully, we will see the universities act as a nucleating force for spin-out entrepreneurship. I think both the University of Arizona (UA) and Arizona State University (ASU) have great business schools that are encouraging entrepreneurship. UA has the McGuire Programme that specifically focuses on entrepreneurship. Then there are local groups that keep that continuum going, for example mentoring programmes such as ASU Technopolis, and I think that is where we are looking to fill gaps.

The tax credits that have been passed in the past year are another piece of the continuum here that is helping to create this biotech industry.

LS:

One of the important elements is that the universities and the businesses here are drawing in assets. These are things that new companies coming into the valley can draw upon, particularly the research institutes, for example PNI and FHRI, the medical campuses, and the universities.

These are part of the environment here. Now, a new company looking into this area can say: ‘We have these two universities where we can draw technical support, we can hire their post-doctoral students, we can hire their new graduates, we can bring in their business people, and they have all of the components, so we can bring the foundation of a company in and build it in Arizona.’ That is a draw for people coming in from outside Arizona.

RW: I moved here from Washington DC, where the community was not supportive of the universities or biotech, except in the Maryland quarter. In DC itself, it was very difficult to get traction on this area and it was refreshing to see Arizona, the most rapidly growing state in the nation, focusing on bioscience.

CF: What about workforce training?

GJ: The state’s required equality core course ensures that we do have that workforce for tomorrow, which is better trained and more skilled to meet the demands of an innovative, global economy. Governor Napolitano established a programme that is focused on a quality, life-long learning from pre-school to post-graduate. This is something that has a high priority for the State of Arizona.

RW: Our community colleges have focused on biotech training for careers.

NO: I think each of the different sectors of Arizona have tried to get out of our boxes and have a sense of community. I work at the BIO5 Institute at the University of Arizona and we have programmes dedicated to workforce development – K through 12 education. I did work in a start-up pharmaceutical company here before and it is easy for a university to say ‘we do teaching and we do research – here are the classes’. Due to the Proposition 301 money, we have been able to expand some programmes and I am speaking from my experience but I think everyone of us around the table has extended ourselves to create this community and to make this happen.

CF: While, on balance, Arizona’s rapid biotech growth is to be applauded, with fast growth always comes challenges, for example, constraints on space and resources.

 

GJ: We see the limited laboratory space available as one of the challenges, although of late we have seen a fairly active level of interest from private developers regarding the need to expand the lab space inventory. We have a developer from San Diego that has recently unveiled plans for a three-storey, 10,700-square-metre, multi-tenant wet lab facility in one of the local parks here in Tempe, which is in the Phoenix area. He is also negotiating for additional wet lab space of up to 24,000 square metres. ASU has recently unveiled its new facility in Tempe. There is also the University of Arizona biosciences research park.

RW:

Early on, the shortage of lab space was a real problem for the universities and the community but the state legislature at the time had the foresight to pass a bill that authorised the construction of $440m worth of laboratories. Also, people did not realise how expensive laboratories were so there was an educational challenge.

The other challenge that communities in Arizona and all over the country face, which we are meeting as well as anyone, is the critical mass. Small companies get to a certain point and they need a critical mass of science around them to survive, and I think we are reaching that.

The other problem across the country has been a shortage of venture capital. We have met that challenge because many people in Arizona have been investing in real estate and they look at the future and say ‘the future in Arizona is bioscience’. We have had the same problem with venture capital but it has had less of an impact here because of this shifting emphasis in the economy.

NO:

To this list I would add critical mass of management – getting experienced management here. When you have rapid growth, there are always going to be a few holes. If you are going to recruit top-level management, they are going to say: ‘If this does not work out, where do I go?’ Perhaps they do not want to keep moving around. We are starting to bring in some of these managers that can help with the companies and entrepreneurship.

RM:

We have taken a unique approach. We have two large campuses: one in North Phoenix and the clinic campus in Scottsdale. The clinic campus in Scottsdale has about 180 acres. About a year ago, we opened up our new collaborative research building and there are multiple tenants in there, including InNexus Pharmaceuticals, a strategic relationship with ASU and Mayo, and TGen and two of its subsidiaries.

We have every intention of building the 180 acres into a collaborative research campus. We are not as constrained by some of the whims of the market relative to cost because Mayo owns the property and a very generous individual has stepped forward to construct the building.

CF: What other tactics are companies using to get around these issues?

Jeff Morhet: Part of the way that we got around some of the challenges was that we recognised Arizona early on. Our challenge was to ask: ‘Is Arizona worthy of transferring our company here?’ We chose Arizona over San Francisco, Seattle and San Diego, which are much greater momentum biotech players.

Although we have our headquarters in Vancouver, our principle management is going to be based in Scottsdale. Forty per cent of our institutional ownership is based in London and the London marketplace seems to have quite a bit of interest in biotechnology. This is for multiple reasons. First, they have limited biotech start-ups coming out of London.

Second, they have a tremendous amount of capital being delivered into the marketplace that wants to be able to take a bite of biotech. Third, they like small public companies due to the fact that they do not have Sarbanes-Oxley and it is a likeable environment. These are some of the challenges.

Does this mean that London will become a challenger to Arizona? Not per se.

Every couple of months, we are in London talking to institutional investors and they are extremely interested in Arizona and in what is going on in the biotech sector. It is not about bringing companies into London necessarily, but it is about getting involved in things. We are seeing the barriers dropping when we talk about globalisation.

CF: On the subject of the international market, there seems to be quite an international flavour to the biotech sector in Arizona, which might be surprising given the location. What has allowed Arizona, as a base, to propel these companies into the international market in the way it has?

JM: Right now we lack the proximity of resources compared with San Francisco, San Diego, Seattle and other locations, but we have only started in the past three or four years.

What we do have is a tight-knit group of leaders here who are not afraid to reach out to people, who are not afraid to find ways to collaborate, and who are not afraid to put their necks on the line to say that they support Arizona and they support the biotech sector.

LS: With this new project out in Surprise, I have been trying to entice two Japanese companies to come into the Surprise area for their biotech. They are interested because it is accessible by air and, rather than going to California, the Pacific Rim people are interested in the fact that there is a lot of open land in the West Valley where they can build what is needed to suit their purposes.

One thing that I found curious is that they are also interested, particularly the Japanese, in the entertainment aspects. There are all the sporting events that you need and all the golf courses and that kind of thing, so that seems to also be an asset that can draw in these very specific technological endeavours that have just been spoken about. It is this whole milieu – everything is offered here. You can snow-ski in the morning and water-ski in the afternoon.

NO:

I came back to Arizona five years ago, although I grew up here. I think it is a really exciting time to be here and I think I returned at the right time because we have so much going on. It is challenging and fun, and we are building something here.