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Life Science Discovery Fund prepares for what could be its most important grant

 

The life Sciences Discovery Fund, in a finale made possible by a $2 million error by a legislative leadership intent on ending state funding for the organization whose years of grants have enhanced Washington's life-science competitiveness, is preparing for what could be its most important grant-making decision.
 
The board of LSDF, which was created a decade ago from the state's $1 billion share of tobacco-settlement money to promote the growth of the life-science industry, will soon be reviewing four finalists for what are characterized as "ecosystem" grants. The $2 million will go to one or more organizations that can stimulate momentum toward commercializing life-science innovations.
 
And while details of the four applications will remain under wraps until the LSDF board reviews them late this month and on February 8 announces one or more awards, one application that would pair the commercialization activities of the state's two research universities should attract considerable interest when those details emerge. That teamed application from UW and WSU is intriguingly titled the "Concept-to-Commerce Coalition."
 
The word "legacy" is one that has begun to be used by those who lament the decision by lawmakers to defund LSDF and who believe that what Executive Director John DesRosier dubbed "ecosystem 2016" grants could serve to create a follow-on to LSDF's decade-long role of funding life-science innovation.

 
  
But DesRosier, who has guided LSDF since it came into existence in 2005, insists "we're not using the term 'wind down' since we want to keep our options open," although he is retiring in April.

And the fact the organization must remain in existence over the next two years to manage the 46 grants already awarded from the fund means LSDF can't just go away. And that leaves some supporters buoyed by the possibility that a new role could emerge for LSDF, possibly with an administrative role managing another type of health-related activity.

"LSDF is in a transition as a model that we know has to change in response to current circumstances, said board member Roger Woodworth, chief strategy officer for Spokane-based Avista Corp.

"It has been a wonderful asset for the state that has been remarkable in terms of attracting, administering and validating a variety of exceptional ideas," Woodworth added. "It is in transition but that doesn't mean we throw it away or shut it down."

The unanticipated opportunity for the "ecosystem 2016" grants came about when the lawmakers, primarily the Republican majority that was never invested in the value of LSDF, specified that while the funds LSDF needed to manage the existing grants would remain in its account, its remaining operating funds would shift back to the general fund.
 
Except that when the lawmakers spelled out the operating-funds total of $11 million, there was unexplainably almost $2 million left in the LSDF account, unallocated and not ordered sent to the general fund. So it remained under LSDF control.

DesRosier notes that the "ecosystem" grant competition will be different from individual grants LSDF has made to for-profit or non-profit life-science entities that have received pieces of the $106 million in grants made since 2007.

"This grant-making won't be about trying to perpetuate ourselves but rather be a key step to support the life-science ecosystem with funding support for one or more organizations that either already exist or would come to existence to stimulate momentum in commercialization," DesRosier said.

"The opportunity for the life-science sector in Washington is a huge one and that's why, when this fund was first created a decade ago, it was a smart way to begin to capture the enormous intellectual capital that existed in this state," says Carol Dahl, LSDF board chair.

 

Dahl, who is executive director of the Lemelson Foundation that supports what are called "impact inventions," points to the fact that almost 70 percent of the $1.5 billion in federal funds that flow into Washington each year is for life science.

 

But Dahl is among the many observers who seek ways to address the dilemma that while this state has developed one of the nation's most impressive life sciences non-profit sectors, it trails many other regions in the development of a for-profit sector. The Seattle area's biotech cluster, for example, is dramatically exceeded by the industry size in The Bay Area/Silicon Valley and San Diego, as well as places like Boston and North Carolina's Research Triangle.

As one national ranking of biotech clusters characterized it, the industry in the Seattle area is "being anchored more to academic and independent research institutions than local companies."

In other words, this state is experiencing a gap between early stage ideas and things that investors can be convinced to embrace.

"I believe in the future of the state's life science community, but there needs to be a change in people's willingness to invest in it," she said. "They need to develop a confidence about being part of the commercialization of what those federal dollars are producing in what has become one of the nation's most impressive life sciences non-profit sectors."

In fact, it was because of LSDF grants that a number of the emerging life science companies that are growing, creating jobs and carving out key roles in their industry were able to bridge what's famously known as "the valley of death" between concept and the time when investors can be lured to be involved.

Enhancing commercialization is what each of the four of the ecosystem grant applicants seeks to foster, including the team-grant proposal put together by UW and WSU.

Anson Fatland, the associate vice president for economic development and external affairs for Washington State University, explained how teaming with his UW counterpart came about after both universities had submitted initial proposals back in September when the plan for the life science eco-system grants was first unveiled by LSDF.

Fatland noted that once he and Patrick Shelby, who directs the New Ventures group at the UW Center for Commercialization, were both invited to submit full proposals, "we decided to sit down and talk about what we were trying to do."

"We realized we had a truly unique opportunity for innovation activities across the state, allowing the industry to really talk about a legacy grant," Fatland said.

The other applicants are Accelerator Corp., which is seeking money for a commercialization funding program; the Washington Biotech and Biomedical Association, and what's called the Southsound Research Coalition, which also involves UW along with Madigan Army Medical Center and Multicare Healthcare Systems.
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Life Science Discovery Fund, defunded by Legislature, will exit with last hurrah

 

The Life Science Discovery Fund (LSDF), created a decade ago from the state's share of tobacco-settlement millions to promote the growth and competitiveness of the life science industry in Washington but defunded by the 2015 Legislature, has found a way to go out in style after all.

In what amounts to an unusual but fitting last hurrah, LSDF announced today that it is launching a six-month competition for what might be described as a "legacy" or "ecosystem" grant of almost $2 million to one or more organizations that can stimulate momentum within the life sciences commercialization sector.

The LSDF was established by then-Gov. Christine Gregoire and the legislature with the vision of using Washington's multi-million-dollar share of the Tobacco funds from the 1998 settlement to promote life sciences competitiveness, improve health and healthcare and help shape that industry's future.

But perhaps proving that vision can't be passed on, the 2015 Legislature defunded LSDF, with Democrats in the House and the Statehouse eventually acquiescing to the demand of Senate Republicans that funding for LSDF end.

In writing about that final legislative action, I said that LSDF went out "not with a bang but a whimper," given that strong support for the organization from Gov. Jay Inslee and House Democrats evaporated in the final days of legislative give and take on what would be included in the budget.

Wrong about going out with a whimper! LSDF will be going out with a bang after all, but not one the Legislature intended, or knew was possible.

In defunding LSDF. the Legislature specified that the $11 million in the organization's treasury balance be shifted to the state general fund.  

Except that in Addition to the $11 million that was to be LSDF's operating funds for the next year, and the nearly $12 million in the LSDF treasury to manage the stable of 46 grants already awarded by the fund, there was almost $2 million left in the treasury. Unallocated and not ordered sent to the general fund.

So the LSDF board last week approved the idea of turning that nearly $2 million remainder into what Executive Director John DesRosier refers to as " a life science ecosystem grant" and LSDF took the first step today by announcing the request for proposals with a pre-proposal deadline of September 21.

Full proposals will be due by January 6 with awards (possibly more than one) to be announced February 8 as an appropriate denouement for LSDF, which since it first began making grants in 2007 has awarded nearly $106 million to non-profit and for-profit life science businesses.

DesRosier said the grant o grants could be awarded to either a non-profit or for-profit entity that might already exist or come into existence "to stimulate momentum within the life science commercialization sector."

DesRosier views LSDF's eight years of funding activity, largely to startups for whom the grants often served to allow entrepreneurs to bridge the early funding challenges referred to as "the valley of death" for startups, as "creating a momentum for the life science industry's emerging companies.

And for all the lamenting from those focused on how this state stacks up against competing states and the message they fear that 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.

"So now the question is how do we keep this momentum going," he asked. "We think one way is to create programs that support entrepreneurs in their endeavors, not with individual grants but in a less prescriptive way."

It's clear that the LSDF board wants to be flexible in determining what type of organization or groups might best contribute to the life sciences ecosystem they seek to foster. "We want to keep as much flexibility as possible, depending on the scope of the proposals we receive," DesRosier said.

LSDF will be downsizing its staff by the time the board awards the grant, or grants. But DesRosier avoids referring to the end of the organization, saying "we're not using words like dissolving."

It's worth remembering that the legislature only denied LSDF future funding, it didn't strike the organization from existence.

"We're actually downsizing the staff by the end of February and we may or may not be in or current physicial space (LADF has been housed in the headquarters of the Washington Biotech & Biomedical Association)," he said. "But whether or not the organization continues to exists still up in the air, as well as the question of whether we will continue to oversee the existing grants."

"We're still quite flexible if something interesting comes up between now and then," said DesRosier.

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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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