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Lawmakers bring Life Science Discovery Fund to an end, not with a bang but a whimper

The fund established a decade ago by then-Gov. Christine Gregoire and the legislature with the lofty goal of supporting innovative research in this state to promote life sciences competitiveness, enhance economic vitality and improve health and health care has been terminated by the Legislature. And an oft-quoted line of poetry may best sum up the outcome: "not with a bang but a whimper."

The Life Science Discovery Fund (LSDF) was defunded by the Legislature at the insistence of the Republican Senate and at the eventual acquiescence of both the Democratic House and Democratic governor who had touted its importance to the state's future. In the rush to final budget passage, the fate of LSDF drew little attention except from the disappointingly few who understood its to the future of the state's economy.

Those who recognize the quote in the lead paragraph above as from T.S. Eliot's "The Hollow Men" should be forgiven for a quick sense of how appropriate the description "Hollow men" might be for the members of the Legislature.

And how appropriate also for that body might be the poem's line, "headpiece filled with straw."

The "whimper" is in the still unexplained rollover by both Democrats in the House and the governor himself after they had fought fiercely for LSDF funding and owned the vision space as it related to the importance of biotech and biopharma start-ups to the state's future.

The final budget was passed by the Legislature and signed by Gov. Jay Inslee last week after a conference committee had hammered out the details of issues in conflict, including the future of LSDF.  

In the end, House Democrats gave in and allowed a GOP-demanded shift of LSDF's treasury balance of $11 million to the state general fund and the stripping it of any revenue from any source over the coming biennium.  

I confidently (and obviously misguidedly) told friends and business associates the governor would use his line-item veto power to eliminate those LSDF death-knell provisions and turn GOP opposition to state support of entrepreneurs and biotech startups into campaign issues for Democrats next year.

Didn't happen. For reasons yet unexplained, the governor failed last week to employ the veto power he used a year ago to save the fund and thus become the political darling of those who saw LSDF as this state's message to the life sciences world about Washington's commitment to its future role in economic development in this state.

But for all the lamenting from those focused on how this state stacks up against competing states and the message LSDF's demise sends to entrepreneurs in other states, it needs to be remembered that LSDF's legacy is in the life science startups it funded and that are now growing and creating jobs.

And appropriately, one of the grant recipients, Seattle-based Omeros Corp., could possibly become a springboard for biopharma startups in the future because of its unusual program funded with a $5 million LSDF grant and, in an leading-edge partnership, $20 million from Paul Allen's Vulcan Capital in 2010.

Those potential spinouts could come from Omeros' G-protein coupled receptor (GPCR) program, a potentially lucrative focus in what is viewed as one of the most valuable families of drug targets.

GPCR's relate to key physiological processes in the body in which molecules bind to the receptors. GPCR relates to drugs that act on brain-cell receptors, unlocking them to drug development with such drugs representing 30 to 40 percent of marketed pharmaceuticals. Examples of the wide range of GPCR-drugs are antihistamines, opioids, alpha and beta blockers, serotonergics and dopaminergics.

 

The Omeros focus is on what are known as orphan GPCRs, those whose brain-cell receptors lack a certain DNA factor. There is a broad range of indications linked to orphan GPCRs, including cardiovascular disease, asthma, diabetes, pain, obesity, Alzheimer's disease, Parkinson's disease, multiple sclerosis, schizophrenia, learning and cognitive disorders, autism, osteoporosis, osteoarthritis and several forms of cancer.

 

A key Vulcan executive said at the time of the partnership announcement that the Omeros GPCR focus could accelerate new pipeline development across a broad range of highly attractive drug targets and can make a significant impact on the pharmaceutical industry.

 

Dr. Greg Demopulos, CEO of publicly traded Omeros, says the GPCR focus of his company is designed to promote the life science industry in this state in a way that is provided by other states that are spending millions to move life science to the fore in their economic development focuses.

 

But if the Omeros effort is successful in turning out startups to focus on various diseases that could relate to and be impacted by the GPCR research, the result would be a private-sector successor to, or funder of life science discovery since Vulcan Capital and LSDF have a right to receive a percentage of net proceeds generated by the GPCR program.

 

Meanwhile, the legislature, in head scratching fashion, didn't strike the Life Science Discovery Fund from existence, merely left it without resources to survivc.

 

But as a friend who has surveyed the legislative process for decades, and been closely involved with the lawmakers, explained: "This is how the legislature operates. They don't outright kill things.  They just turn off the money spigot because that's the way it's handled in the secretive budget process, which is gutless."

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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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Scott Jarvis merits retention in role as state's chief regulator of financial firms

As Governor-elect Jay Inslee puts his administration's leadership team in place over the coming weeks, the state's community bankers hope to persuade him to retain the man who oversaw the state's regulation of financial institutions during their unprecedented turmoil.

 

If Inslee asks outgoing Gov. Chris Gregoire about Scott Jarvis, whom she appointed director of the State Department of Financial Institutions (DFI) at the outset of her tenure in March of 1985, she'd undoubtedly give an unqualified endorsement.

 

Scott Jarvis
Scott Jarvis 

Brad Tower, president and executive director of the Community Bankers of Washington (CBW) will be suggesting to his members that they urge Jarvis' reappointment. The state-chartered community banks around the state may represent the most economically important sector of industries that fall under Jarvis' oversight.

 

Part of what Inslee must weigh is the fact that Jarvis, during an almost unprecedentedly challenging time for banks, credit unions and other financial companies, created a firm but caring state regulatory environment. What he created was important not just to the industry he oversaw but also to the economy of the state.

 

The state's banks and savings and loans were awash in profits when Gregoire plucked James (Scott) Jarvis from the office of the state insurance commissioner, where he was Deputy Commissioner for Consumer Protection, to head the agency that oversees all financial-transaction businesses.

 

It wasn't long into his tenure that Jarvis, an attorney, came to realize that what he recalls as "extremely high concentrations of lending in land acquisition and real estate development was going to be a problem for community banks if the economy took a turn for the worse."

 

But he was frustrated by the fact that, as he puts it, "there were no tools in the regulator's tool box to impose enforceable concentration limits nor to compel a profitable and healthy institution to reduce its exposure to a line of lending."

 

Thus as Jarvis came to know personally many of the bankers who ran institutions he regulated, "I knew who among them was struggling and whose banks, absent infusions of hard-to-come-by capital or an acquisition, would not survive."

 

"To watch these decent individuals keep a stiff upper lip and act as if all was well when they were among their peers and competitors was difficult," he said, in a comment bespeaking a regulator with a human side. "And it became all the more difficult as time for failure drew near." In the end, 17 state-chartered banks failed.

 

"I believe that over the last seven years, the environment he has created and people he has surrounded himself with has been one of the greatest assets for community banking in our state, and actually nationally," said CBW executive Tower in a telephone interview.

 

"While he has been a tough regulator, he's been fair and supportive and has been willing to push back on federal regulators when they were failing to be sensitive to local conditions," noted Tower, whose CBW is viewed as the pre-eminent voice of the state's 60 independent community banks. "Scott has been directly involved in slowing the knee-jerk reaction of the feds to close first and ask questions later."

 

That ability to work with federal regulators stems in part, likely, from Jarvis' role as legislative committee chair for the national organization of state regulators, where one of his duties is to coordinate the legislative positions of the organization at the federal level.

 

Pat Fahey, one of the state's most respected bank CEOs, recalls that as he sought to turn around failing Frontier Bank, "Scott was very supportive, even meeting with the governor to see how she might get involved, in seeking to convince the feds to accept a deal we had put together to save the bank."

 

In the end, fed ineptitude caused investors who sought to put together a deal with Fahey that would have saved Frontier Bank and its parent Frontier Financial Corp. to back away and the bank was shuttered and its assets sold to California's Union Bank.

 

Fahey is now at the helm of First Sound Bank as chairman, president and CEO seeking to turn it around. 

 

Patrick Patrick, like Fahey, a turnaround banker now involved in bringing back Seattle Bank, where he is CEO, says Jarvis "was the man the state needed in a very difficult time for Washington. He represented the interests of the regulatory system as well as the communities whose banks he oversaw."

 

Patrick credits Jarvis with "making certain, where possible, that people who had given back to their communities had a chance to continue to do so with their banks."

 

It's interesting, as well as telling, that Jarvis views his role as DFI director to be fostering policies that not only provide a healthy and predictable regulatory environment, but also promote economic vitality. It's clear he understands that what his agency website describes as "a fair and dynamic lending environment that results from viable state-chartered banks and credit unions" is important to capital formation for small business.

 

Jarvis' agency, in addition to regulating state chartered banks and credit unions, also regulates a variety of non-bank financial services providers, including mortgage lenders and payday lenders, as well as our state's securities industry.

 

Tellingly, CBW's Tower notes that "The FDIC has ramped up hiring and paid outrageous amounts to get good people. Scott can't pay market rates for his people so the only way he can keep good people is to create a good working, even a mentorship, environment."

 

Looking down the road for the industry he's come to understand as well as anyone, Jarvis thinks that as the economy improves "we can expect to see entrepreneurs looking to the state bank charter as the vehicle to create and grow new local community banks."

 

But he adds that for now, "and perhaps a bit beyond, consolidation remains the more likely path as the economic environment strives to sort itself out and attractive returns on investment remain challenging."

 

"Though not in the numbers seen in the past, well capitalized proposals, with strong management and sound business plans, will have a place in the Washington community banking environment in the years ahead and should receive federal approval," Jarvis said.

 

In addition, Jarvis notes, "a number of Washington institutions have recently switched from a federal to a state charter and several more are giving serious consideration to doing so."

 

"I would like to think that our efforts to be perceived as a fair, competent and knowledgeable regulator and our performance during these almost unprecedented times has something to do with that," he added.

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While Dems have had lock on governor's office, GOP has longer hold on Sec. of State

The GOP lament in Washington State about the fact it's been 32 years since a Republican was elected governor pales somewhat compared to how long Democrats in the state have watched a string of Republicans hold the post of secretary of state.

 

For Rob McKenna, the two-term state attorney general who is the Republican nominee in the governor's race, the long Democratic tenure in the governor's mansion, longest rule in the nation by either party, has provided the opportunity to tell voters "we haven't refreshed this place in a generation." 

 

sam reed
Sam Reed

But in the race for secretary of state, the post from which Sam Reed is retiring after three terms, Democrats will be seeking to reverse their almost half-century absence from the office that oversees state and local elections, corporate and non-profit filings and records and is supervisor of the State Archives.

 

A Republican has held the post since A. Ludlow Kramer, a young Seattle city councilman, ousted incumbent Victor A. Meyers in 1964. So it's been 52 years since Meyer's 1960 victory as the last Democrat elected to the position. The secretary of state is second, behind the lieutenant governor, in the line of succession to the office of governor.

 

It was in 1964 that Dan Evans defeated Democratic incumbent Albert D. Rosellini, who was seeking a third term. The two Seattle Republicans, Evans and Kramer, thus both beat incumbent Democrats despite the fact that Lyndon Johnson carried the state overwhelmingly in the presidential vote, suggesting that Washington voters can sometimes make independent judgements about state and national races.

 

Washington's history with secretaries of state is in marked contrast to the background of the office in Oregon, where it has long been viewed as a stepping stone to the governor's office.

 

In Washington State, it's been the office of attorney general that has been seen as the stepping stone, with the last three, including outgoing Gov. Christine Gregoire and now-GOP candidate McKenna, looking to occupy the governor's mansion.

 

Two of Oregon's best-known and respected political figures made stops at the secretary of state post en route to larger roles. Mark Hatfield was elected to the position in 1956 and two years later won the governor's race while Tom McCall was elected in 1964 and two years later won the first of his two terms as governor. Hatfield went on to the U.S. Senate, where he served for 30 years and was even briefly considered for the vice presidential spot with Richard Nixon in 1968.

 

If the Democrats in Washington think they've been shut out of the secretary of state post for a long time, consider that Barbara Roberts, in 1991, became not only the first woman to hold the position in Oregon but also the first Democrat elected to the post in more than 100 years.

 

Six of the last eight Oregon secretaries of state ran for governor, with Hatfield, McCall and Roberts being elected and three others losing in the general election.

 

I asked Reed why he thought the Washington secretary of state position hadn't also produced gubernatorial aspirants.

 

He admitted that he had been urged to run for governor in 2004 as the GOP sought a candidate to oppose then-Atty. Gen. Christine Gregoire in seeking the position being vacated by Gary Locke, who decided against seeking a third term. State Sen. Dino Rossi eventually was the GOP candidate, losing by a handful of votes.

 

"I thought seriously about it but decided that I enjoyed the responsibilities of secretary of state, so I passed," he said. "It was a matter of thinking, 'why let the ego trip of running for governor interfere with doing what you like to do.'"

 

So he ran and was re-elected twice more to the office he had actually prepped for over a period of decades, working first with Kramer in the late '60s and with Bruce Chapman, who held the office in the late '70s. Then he spent 20 years as Thurston County auditor, a local-level version of the responsibilities handled by the secretary of state at the state level. He was elected to the county post in1980 and re-elected four times.

 

And Ralph Munro, Reed's predecessor who served five terms as secretary of state, said having worked in the governor's office for a number of years under Evans left him with "no desire to be governor."

 

He admitted to me that he had been lobbied to run but that "I never saw the office as a stepping stone. I really enjoyed being secretary of state."

 

Republican candidate Kim Wyman, who followed Reed into the Thurston County auditor's office in 2000, faces former state Sen. Kathleen Drew, a Democrat to see who replaces Reed. Thus no matter which one wins next month, the next secretary of state will be a woman.

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Rushworth's portraits of the prominent present career-transition success story

As then-Gov. Gary Locke's staff was weighing which artist to hire to paint his official portrait, he was on hand at Safeco Field for the unveiling of the retirement portrait of Seattle Mariner great Edgar Martinez in the fall of 2004. After Mariner CEO Howard Lincoln unveiled the portrait on the field before 40,000 appreciative fans, Locke contacted his staff and basically said "I want that artist."

 

The artist who painted Edgar was Michele Rushworth and Locke, whose eight-year tenure as governor was nearing conclusion, thus became the first public commission for the Sammamish, WA, artist. It was a noteworthy step for a woman who, with little formal training in that medium, had decided a few years earlier to make portrait painting her career.


 
The portrait of Locke, completed several months later, opened important and extensive new doors for Rushworth with governors in other states, as well as high-ranking officials, contracting with her to do their portraits.

It was in the late 1990s that Rushworth, with two toddlers she and husband, Tim Jones, had adopted from China a couple of years earlier, decided to give up her career as an office-products sales executive and turn to portrait painting fulltime.

 

When I asked her about formal training, she admitted that her art-college schooling some 20 years earlier was "avant garde video production, performance art and scrap metal welding. Not much drawing or painting at all."

 

"I've taken a few week-long workshops since then, but that was about it," she added.

 

It was really more of a "eureka moment" for Rushworth, who recalls having done portraits "rather informally" in high school and college, as she thought about what line of work to go into after the kids started full time in school.

 

She says she found a website she describes as "like a portal site for portrait artists. I remember thinking, I could do this, and saying out loud, 'this is it!'"

 

From the late '90s until the breakthrough with the Martinez portrait, much of what she did was "dozens of private family portraits, mostly children," including daughters Rachel and Emily.

 

How competitive is her business?

 

Well, it's not like Michelango or Renior lounging about waiting for a summons from the Pope or the monarch. Rather there's an entrepreneurism and business savvy that come into play to be successful, and she says her sales years "were actually a big help in knowing how to run a business and work in a professional way with people in all sorts of fields."  

 

"The business of doing portraits is very competitive," she told me. "There are probably 50 to 100 artists in the United States who do what I do and we all know each other."

 

As to how decisions are made on who to hire to do a portrait, she says "whenever someone needs a portrait done they may have a favorite artist in mind or they may look at dozens of portfolios. Quite often they'll have seen a portrait they liked and want to work with that same artist."

 

So it was with the charge to do portraits of two Nevada governors after the Nevada Arts Council saw the Locke portrait.

 

And the Nevada commission led to an unusual assignment to do several Wyoming governors after that state's legislature decided to "fill in the blanks" of 12 former governors who had never had portraits painted, and hired three artists to do the work.

 

"Some were recent governors and some were from a hundred years ago," says Rushworth, who actually did five of the 12. "For the posthumous ones I worked with archive photos, history books, family records, etc. In cases where the former governors were still living I went to meet them."

 

Rushworth recently completed official portraits of two high-ranking military officers in Washington D.C: retired Commandant of the U.S. Coast Guard, Admiral Thad Allen, and Air Force Chief of Staff General Norton Schwartz at the Pentagon.

 

Now she is engaged in a couple of special assignments, one is to do Locke's successor, Washington Gov. Christine Gregoire, whom Rushworth describes as "delightful to work with," for a portrait that will be completed near year-end as Gregoire's eight years as governor come to a close. Gregoire's portrait will then hang next to Locke's in the gallery of paintings of the former state chief executives.

 

Then there is the second portrait of Locke, contracted for by the U.S. Department of Commerce, which Locke headed before becoming ambassador to China. That portrait will be unveiled in the fall, she expects.

 

Working with the man who is now ambassador to China on the portrait may serve as reminder for Rushworth of the memories of the country to which she and Tim, at the time vice president of sales for Puget Sound Business Journal, twice traveled to adopt their daughters.

 
 

She's fond of recalling how the portrait of Martinez that really opened the door to her success could have ended in amusement rather than applause from the thousands of fans. As she put the final finishing touches on the portrait, showing Martinez at home plate in his classic batter's stance, she recalls thinking that she was finished. Then she realized that she had left out home plate from the portrait. "I quickly fixed the oversight."

 

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