Honing the Edge

Biotech companies follow the money

  • Article by: THOMAS LEE , Star Tribune
  • Updated: March 23, 2011 - 5:01 PM

Cool investor response to one firm's diabetes therapy underscores the state's medical-technology dilemma.

When Lisa Jansa, CEO of Exsulin Corp., meets with potential local investors these days, she usually gets the same response: " 'We just don't do pharmaceuticals,' " Jansa recalls. " 'We do devices.' "

That's not entirely surprising. Minnesota boasts a strong medical device industry. And given the poor economic climate, any available money will unlikely stray far from investors' comfort zones.

But the real loser may be Minnesota, which has struggled to expand its high-tech economy beyond medical devices. If Jansa, whose Burnsville-based company is developing a promising protein technology to treat Type 1 diabetes, can't raise $2 million from local investors soon, she will move Exsulin, preferably to the East or West Coast, where biotechnology capital is more plentiful. Exsulin will use the money to fund clinical trials, one of several hurdles it must pass before it can take the therapy to market.

"We need to get some investors in Minnesota if we are going to be able to stay a Minnesota company," Jansa said. "Otherwise, we are going to have to leave. Our preference is not to do that. But you have to do what you need to do to get your financing in place."

Jansa isn't bluffing.

"If investors [in San Jose, Calif.] say they would like you to [move] to San Jose, the company goes to San Jose," said Jay Hare, a Minneapolis-based analyst with PricewaterhouseCoopers who tracks venture capital investments.

In some ways, Exsulin represents a stubborn problem in Minnesota made worse by the recession: the lack of venture money for early- to mid-stage start-up companies, especially those that don't specialize in medical devices.

Exsulin's "situation is not unique at all," said Dale Wahlstrom, CEO of BioBusiness Alliance of Minnesota, an industry group. "There are many companies in biotechnology and pharmaceutical companies that have good ideas that can be commercialized. But they have a difficult time getting funded in Minnesota. We don't have VCs [venture capitalists] active in that area. We don't have that reputation."

Industry and public officials have long warned that promising start-ups will flee Minnesota, preferably to regions where investors are more willing to write checks. While little data exists concerning the topic, anecdotal evidence suggests that it does happen.

For example, Rapid Diagnostics, a local pharmaceutical start-up, recently moved to Wisconsin, which offers generous tax incentives for angel investors -- affluent individuals who invest anywhere from $5,000 to $250,000 on start-ups.

Losing home-grown start-ups "continues to be a problem as we see it," said Don Gerhardt, CEO of LifeScience Alley, an industry group. "It's difficult to define early-stage capital in Minnesota. Plus, we don't have as aggressive tax incentives as other states."

Debating incentives

With the national economy in recession and Minnesota hemorrhaging thousands of jobs a month, state officials and legislators are weighing proposals to stimulate the job market by providing millions of dollars in tax breaks to investors willing to risk money on breakthrough technologies at Minnesota-based companies.

As many as 3 million people in the United States live with Type 1 diabetes, in which the immune system attacks islet cells in the pancreas, destroying the body's ability to produce insulin. Other than frequent insulin injections, Type 1 patients have few options for treatment, said Dr. Ward Godsall, an endocrinologist with Abbott Northwestern Hospital.

"It's the No. 1 disease that I don't want to get," said Godsall, who is not connected to Exsulin.

Over the years, scientists have looked at islet cell transplantation and embryonic stem cell research. Exsulin's technology focuses on certain proteins that can instruct progenitor cells -- basic pancreatic cells that exhibit stem-cell-like behavior -- to form insulin-producing islet cells.

But Godsall warns that none of the proposed therapies addresses the underlying cause of Type 1: The body's immune system might destroy the islet cells, whether they belong to the patient or to someone else.

Minnesota expertise

Lawrence Rosenberg, a scientist at McGill University who helped discover the INGAP proteins, said the therapy can be used with drugs that can calm the patient's immune response. INGAP, Rosenberg said, "can help get people off insulin and diminish the secondary complications of diabetes," including kidney failure, blindness and heart diseases. Even a 10 percent increase in the body's insulin production can make a big difference to a patient's health, he said.

Unlike other experimental treatments, Exsulin is already well into clinical trials and could receive approval from the U.S. Food and Drug Administration (FDA) within three years, Jansa said. She also noted that Alexander Fleming, the company's founder and chief medical officer, formerly led the FDA's metabolic group, which includes diabetes. The company is working with the president of the American Diabetes Association on a study to be published this year.

"We had some access to [investors], but a lot of times they don't really look at it," Jansa said. "They don't spend any serious time. People are ultraconservative right now. They want to stick to what they know. But it would make sense for the Twin Cities to establish themselves as a powerhouse in the field of diabetes."

Best Buy Co. Inc. founder Richard Schulze recently announced a $40 million gift to the University of Minnesota to help find a cure for Type 1 diabetes. The university was the first to perform an islet cell transplant in 1974. Since 2000, the university has transplanted islet cells into 26 Type 1 diabetes patients. Five years later, about half of them no longer need insulin injections.

Jansa said the company will decide within a few months whether to leave the state:

"Bottom line is that we would like to stay in Minnesota."

Thomas Lee • 612-673-7744

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