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LSDF's comparatively tiny budget should be easy to fund, given its role in the state's future

Don Brunell, retired president of the Association of Washington Business, summed it up best as we were discussing the perilous state of the fund whose purpose has for a decade been to promote the state's life sciences competitiveness.

"A $19 million expenditure in a $40 billion biennial budget is too small a percentage to even try to calculate," said Brunell, who as longtime president of the state's largest business association guided business's side of negotiations through four governors and two dozen legislatures.

"If it's a really important issue, as it seems the Life Sciences Discovery Fund (LSDF) should be viewed, you just take the $20 million out of a major-funded item," Brunell said, "particularly at a time when the state is experiencing an unexpected surge in revenue. It's not that difficult."

Brunell's comment, borne of years of playing the game of helping lawmakers reach budget goals while finding a way to save the most important business items in the final budget, is an important comment, since it's a thought that may still occur to the small group of legislators deliberating the final form of the state budget for the coming biennium.  

To be sure, there are a lot of smaller programs whose supporters are seeking to pressure lawmakers to safeguard in the final budget."Molehills vs. the 'mountain' of holding off new taxes," as one prominent business friend of mine, whom I respect but disagree with on this, put it in referring to those various programs.

That current LSDF funding of $19 million a biennium is the small remainder of the $400 million tobacco-settlement money from which LSDF was established in 2005 by the Governor and Washington's Legislature. The goal of the fund was to support innovative research in this state to promote life sciences competitiveness, enhance economic vitality, and improve health and health care.

The challenge for LSDF at this point is that while the money to sustain its funding for another biennium is in the House (Democrat) budget, and strongly supported by the governor, there is nothing for the agency in the Senate (GOP) budget, and there apparently is even Senate talk of taking back some of the money already granted.

Word leaked out earlier this week that the four budget negotiators (a Democrat and a Republican from each house) had reached a tentative deal on the total size of the budget. That's the first step before lawmakers begin tinkering with details, hammering out individual items (like the funding for LSDF's survival) and, of course, reaching some compromises before the hard deadline at the end this month when the biennium itself ends.

There is some belated talk, but probably not nearly enough of it, from business leaders about hammering the Senate with the reality that Republicans can't abdicate the image of supporters of entrepreneurs and innovation to a Democratic governor and Democratic House members.

Brunell was one of a half dozen major business-community figures I had talked within the past week to get a sense of the depth of understanding of and interest in the LSDF and its purpose. And Brunell admitted, as others have, that he was only vaguely aware of LSDF's role (which is visible mainly to the biotech industry and its supporters) or that it was in danger of disappearing, assuming that if it was an important business issue, Republicans would be watching out for it.

 

Brunell, who in his retirement now produces a regular column that appears in several dozen newspapers, seemed struck by the lack of visibility on what he agreed seemed vital to future of an emerging industry in this state.

Noting that there are a number of issues whose backers are bombarding supporters to press their legislators, Brunell said "I am pummeled with emails and contacts from wildlife and recreation and the folks wanting a carbon tax, but besides you I am not hearing from LSDF advocates. But supporting LSDF seems like a no-brainer."

It's important to share that my belief in the importance of LSDF comes, as is usually the case, from personal involvement and commitment. I had only been generally aware, as a journalist, of LSDF and its background and role.

Then I became involved in actively supporting an emerging biopharma company named M3 Biotechnology, believing in its potential dramatic impact if it gains FDA approval for a drug that would reverse neurodegenerative diseases, and in the CEO, Leen Kawas, who has been guiding the company's successful growth.  

As one whose wife suffers from Parkinson's Disease and with a father who died of it, and relatives and friends who have Alzheimer's, the company was a natural one.

It was as a result of involvement with the company that I learned the importance of LSDF, since the then just-launching M3 received grants from LSDF that allowed it to bridge what's referred to as the funding "Valley of Death," the financially challenging period from birth of a company to the successful initial funding round.

 

I also researched what states are doing to attract biotech, which this state's sound and fund has largely substituted for commitment, and learned that others are spending millions of dollars to attract and grow what they realize will be a key economic pillar in the future.

"M3 isn't the only company that needed the LSDF funding to survive until finding conventional funding," said Chris Rivera, CEO and President of the Washington Biotechnology and biomedical Association.

"Legislators tell me 'if we give LSDF $19 million, we'll have to take it away from somewhere else," Rivera said. "And I reply, 'if LSDF goes away, and the industry begins fading and the economy is being impacted in this state a result, you'll be doing a lot more looking somewhere else to make the cuts that will be necessary.'"

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Legislative disinterest in funding assist for life science industry troubling to many

(Editor's noteThis is the first of a two-part series on the state's life science/biopharmaceutical industry with this first article dealing with the challenges of getting the state to provide the financial tools necessary to grow the industry. The second article will deal with a couple of newly emerging companies that will help carry the hopes for the future of the sector in Washington.)

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The apparent legislative disinterest in the state having a financial role in the future of Washington's life science industry isn't a fatal flaw for what has become the nation's sixth largest biopharma cluster. But it will send the wrong signal to biotech entrepreneurs and investors elsewhere in the country and will inevitably mean some startups won't make it across the early-funding challenge that's known as "the valley of death."

 

"Legislative disinterest" means the very real possibility that the 2015 Legislature may turn its back on key funding for startups, who represent the seeds that grow into players and job creators in the industry, by declining to keep the innovative Life Science Discovery Fund (LSDF) alive.

 

If LSDF, created to foster growth of the state's life science sector, went out of existence on its 10th anniversary because the Legislature decided not to fund it anymore, It would represent an ironic measure of the legislature's lack of commitment to the future of that industry in Washington.

 

Key states around the country are going to great financial lengths in their funding commitments to life science, both to foster growth of that industry within those states and also to send "come join us" messages to biotech innovators and investors elsewhere in the country.

 

LSDF was established in 2005 by then-Gov. Christine Gregoire and the state Legislature to guide investment dollars from the Master Tobacco Settlement Agreement into research and development grants to entities that demonstrate the strongest potential for delivering health and economic returns to the state.

 

It was only the intervention of Gov. Jay Inslee, a key proponent of a strong life-sciences sector, that saved LSDF at the end of the 2014 legislative session, but he couldn't prevent the demise of the research & development credit against the state sales and business & occupation taxes.

 

The R&D credit expired at the end of 2014. More than 2,000 companies had used the credit against the B&O tax since it was instituted in 1994, and about 400 have used the sales tax credit. The lost revenues through 2012 totaled about $950 million, but the investment the credits generated came to about $8 billion, and repaid the state several times over in overall tax collections, according to industry sources.

Chris Rivera
WBBA president.

Washington is now is on a short list of companies that don't offer R&D tax credits, and perhaps the only state on that short list that actually hopes to see its life sciences fortunes be an important component of economic success.

 

The budget Inslee has submitted to the Legislature would make a $20 million investment for LSDF and re-establish a $70 million Research and Development Tax Credit program with the governor telling the life sciences industry he is "a strong supporter of the R&D tax credit and sales tax deferral."

 

To be sure, the industry, guided by the Washington Biotech and Biomedical Association and its president, Chris Rivera, himself a former biotech CEO, have friends in Olympia in addition to the governor.

 

But the myopic among lawmakers will point to this region's sixth-largest life sciences ranking and say "well, things are obviously going pretty well for us."

 

The fact that the Seattle area ranks third among cluster-cities in the total of NIH dollars, at $142 million for the most recent year calculated, is viewed as reflecting the fact the region is anchored more by academic and independent research institutions than by local companies.

 

In fact, those academic-independent institutions, like the Gates Foundation, Fred Hutchinson Cancer Research Center, PATH, Institute for Systems Biology and the University of Washington may well be the most prestigious collection of industry research players in the country.

 

But the startups spun out of those institutions need conventional financial support to become full-blown businesses and that has been a challenge for companies in this state.

 

And from a competitive-clusters standpoint, the fact that two of the cluster cities above Seattle on the list are in California, with San Diego third and the Bay Area a far-ahead number one, is something that the lawmakers and policy makers need to be continually focused on.

 

Indeed nothing points up the importance of competitive awareness than the experience of Chris Rivera himself.

 

Rivera recalls that when he sought advice on launching a biotech firm in Seattle that would focus on orphan diseases "I told a key industry leader I needed space, talent and money. The response was 'you won't find those here.'

"

So having been involved with firms in Boston and the Bay Area before moving to Seattle in the mid-80s, he headed for California where, in 2005 in South San Francisco, he launched Hyperion Therapeutics, a specialty biopharmaceutical company focused on the development and commercialization of therapies for gastroenterology and hepatology diseases.  

 

Rivera guided his company through the usual ebbs and flows of early growth challenges, including downsizing when the IPO market dried up. He stepped down in 2008 as the company prepared for what turned out to be successful Phase II trials and a $69 million funding in June of 2009 in one of the largest VC raises that year. Hyperion went public in 2012. He remains an investor in the company, but it is a growing Bay Area firm, not the Seattle-area firm it might have been.

 

Thus it wasn't surprising that when the WBBA executive committee went looking for a new president in late 2008, they lured Rivera back to Seattle with one of his goals being to create a strategy to help keep companies in Washington.  

 

"I think we've done a pretty good job of achieving that," he says.

 

Success for Washington's life science industry often seems a matter of two steps forward and two steps back, despite the best efforts of WBBA, whose strategies include a successful mentor program for entrepreneurs.

 

There was some of both forward and back in 2014. The steps back were the departure Amgen, taking with it the jobs of more than 600 biotech employees, and the demise of once-high-flying Dendreon, which had more than 700 employees, leaving perhaps the largest number of jobless biotech employees ever in this area.

 

But the steps forward were the emergence of Juno Therapeutics, a company less than two years old that surged into an IPO in late 2014, and the surge in interest for Omeros Corp., whose CEO Greg Demopulos jokes that it has taken his company 20 years to become an overnight success.

 

Ironically, the hiring mode for Juno, which develops immunotherapy treatments for cancer and has had remarkable results in small clinical trials, has benefitted from the availability of former Amgen and Dendreon employees.

 

Omeros, a Seattle-based biopharmaceutical company focused on developing and commercializing small-molecule and protein therapeutics for large-market as well as a variety of orphan indications, has become the best biotech story of 2015 and we will take a look next week at the company that celebrated its 20th anniversary last June.

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Access to growth capital could challenge state life-sciences sector's bright future

Washington State's life-sciences sector has remained, through the economic downturn, a jewel in the state's economic development crown. But the challenge of accessing capital that bedevils the industry's emerging companies, including the possible demise of the Life Sciences Discovery Fund, could hinder future growth.

 

The role biotech and biomedical companies have come to occupy as one of Washington's five largest and fastest-growing sectors, generating tens of thousands of high-wage jobs and more than $10.5 billion in economic activity, creates an important anchor for the state's economic future.

 

But as the Washington Biotech & Biomedical Association (WBBA) prepares for its annual meeting next week, in partnership with The Governor's Life Sciences Summit, there's an ongoing focus on seeking to ensure that emerging companies in the industry find the growth capital they need. And that could be increasingly challenging.

 

"With 70 percent of our companies having 50 or fewer employees, access to capital is the greatest challenge we face," said Chris Rivera, WBBA president.

 
 

 

An important part of that funding has been the Life Sciences Discovery Fund (LSDF), the program created by tobacco-settlement dollars that came into existence in 2008 and has been championed by Gov. Chris Gregoire as a key to fostering more biotech innovations and jobs in Washington.

 

But it has taken deep cuts each session as legislators grappled with yawning state budget deficits, and now could face elimination.

 

Rep. Glenn Anderson, the Eastside Republican who is one of four legislative trustees for the fund, says "it's an open question whether the fund will survive" the next session's budget cuts.

 

"The fund has done a good job of encouraging basic science and marketable, actionable, investable outcomes," Anderson said. "But I'd say there's only a 50-50 chance it will survive and if it doesn't survive, I think that would be shortsighted."

 

Rivera puts numbers on the fund's successes to provide definition to shortsightedness.

 

"LSDF awardees have been able to leverage their grants and bring in $9 for every $1 awarded," he said. "These are real dollars from out of state.  This has led directly to job creation, and great innovation in our state.

 

"I believe that LSDF has proven to be a smart investment by our state into a sector of great current economic value and future potential," he added. "Other states have poured hundreds of millions into life sciences, as they see the potential economic value of this sector and are willing to invest strategically."

 

Beyond the fund, WBBA has mounted some initiatives, as have supporting organizations, in seeking to develop alternative sources of capital, given both the now-challenged traditional lending sources and the problems facing the venture capital industry.

 

Bruce Jackson, vice president for business development at EnterpriseSeattle and ex-officio member of WBBA's board, says that despite the success of the biotech and medical-device sector, these are "clouded times" for young companies seeking to ramp up.

 

"In addition to the fact federal regulations can create a headwind for companies, access to capital for some deserving companies can be difficult," Jackson said.

 

EnterpriseSeattle's year-old partnership with the City of Federal Way in a medical-device incubator called Cascadia MedTech Association is an innovative approach to helping grow the industry, though Jackson concedes "the model hasn't been proven yet."

 

"The companies we're supporting must transition from being supported by grants to creating cashflow," Jackson added.

 

WBBA itself touts the program it created called VIP Forums, through which quality investors and strategic partners (VIP's) are invited to Seattle for a showcase of the most promising life science companies and research opportunities.

 

In addition, in spring of 2009 the association formed a non-profit angel network called WINGS, whose role is to close the early-stage funding gap to speed medical-technology innovation "from lab bench to patients."

 

The gathering of industry leaders and others for whom the industry is part of the economic hope for the future will likely hear an upbeat assessment as they review the WBBA's third annual Life Sciences Economic Impact at their gathering on November 18 at Meydenbauer Center in Bellevue.

 

Comments from the governor, who will be attending her last WBBA annual conference, and University of Washington President Michael Young, attending his first, are likely to focus on upbeat prospects for the sector's future. But both may also share concerns about the impact of funding availability on that bright future.

 

And a comment from Rivera during an interview this week could set the stage for some discussion among attendees: "I understand and know that these are difficult times, but I hope that our state leaders are strategic in where they place our precious resources, and help this state maintain its competitiveness nationally and globally."

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