Mpls. medical company may bolt for Wisconsin

  • Article by: THOMAS LEE , Star Tribune
  • Updated: May 5, 2009 - 9:33 PM

VitalMedix, a start-up medical company born of U of M research, might relocate in the Badger State for lack of investors in Minnesota.

A highly touted start-up company recently spun off from the University of Minnesota will likely move to Wisconsin because it can't raise enough money in Minnesota to fund its research.

VitalMedix Inc., a Minneapolis-based company developing a hemorrhagic shock drug designed to keep alive a victim suffering near-fatal injuries, needs $3.5 million to advance its technology to human clinical trials. So far, VitalMedix has attracted only $600,000 from local investors.

"We're not getting the job done in Minnesota," said CEO and president Jeff Williams. "Angel investment in the Twin Cities has almost dried up. People are just sitting on their money. The past year has been the most difficult that I've ever seen in my career. It's extremely difficult and frustrating."

Williams said there is a 60 percent chance VitalMedix will move to Wisconsin, where investors enjoy tax incentives that encourage them to fund risky, early stage companies based in the Badger State. Angel investors there can claim a 25 percent tax credit over two years up to $500,000 per investment; venture capital funds can earn a 25 percent credit over one year up to $2 million per investment.

VitalMedix has already lined up about $300,000 in oral commitments from angel investors in Wisconsin, Williams said.

Angel investors are typically affluent individuals who pump $5,000 to $300,000 each into new companies. Start-ups of all types have struggled to raise money, partly because the recession has forced them to pull back.

Nationwide, seed and early stage funding over the first three months of 2009 fell 45 percent, to $852 million, compared with the previous quarter, according to the MoneyTree report by Pricewaterhouse- Coopers and the National Venture Capital Association, based on data by Thomson Financial.

Should VitalMedix move across the border, it could lose $1 million in 2010 federal funding that U.S. Rep. Keith Ellison, D-Minnesota, has been trying to secure in Congress.

Experts have long warned that Minnesota start-ups would flee to Wisconsin. Despite an early push from Gov. Tim Pawlenty and the DFL-controlled Legislature, a proposal to create angel investment tax credits now remains bogged down in contentious budget negotiations. The Senate tax bill includes the tax credits but the House version does not.

"We need some tools to keep our more-promising businesses in Minnesota," said state Sen. Kathy Saltzman, DFL-Woodbury, a strong proponent of the tax credits. "Our future economy is going to suffer. Wisconsin is snatching up our companies."

Minnesota arguably has a greater stake in VitalMedix. The company is one of the first start-ups to emerge from the U's ambitious effort to revamp its technology transfer program and generate profits from university research.

Based on the work of two U doctors, VitalMedix's drug, dubbed Tamiasyn, incorporates chemicals found in some animals that allow them to survive in certain conditions, such as hibernation or at great undersea depths. The idea is to extend what trauma surgeons call the "golden hour," the period after an injury that offers the patient the best chance for survival if quickly transported to a hospital. Independent experts have called the drug a breakthrough of tremendous potential.

Doug Johnson, head of the University's Venture Center who also sits on the company's board, said he does not want to see jobs created from U of M technology end up in Wisconsin. However, the school has a financial responsibility to ensure VitalMedix survives. The U has already invested several hundred thousand dollars, not to mention many hours, into nurturing VitalMedix, he said.

"It's better to leave the state than go out of business," Johnson said.

Thomas Lee • 612-673-7744

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