Can biotech boom in state?

Few people believe in the promise of biotechnology more passionately than G. Steven Burrill. Investors and executives flock to his conferences and eagerly digest his annual "State of the Biotech Industry" report.

But some of them are scratching their heads over the San Francisco venture capitalist's decision to invest up to $1 billion to convert an elk farm in southern Minnesota into a bioscience incubator.

"I'm not getting a good sense that there is a workable business model here," said Peter Bianco, director of life-science business development at Halleland Health Consulting and a former CEO of University Enterprise Laboratories in St. Paul. "This thing defies gravity, in my view."

Supporters say the project could spark a biotech industry in Minnesota, creating companies and thousands of high-paying jobs at a time when the state's core medical device companies such as Medtronic Inc. have matured and are even laying off workers.

The state has begun work on $15 million worth of improvements, including a new interchange connecting Hwy. 52 near Pine Island to the facility. Tower Investments, which owns the 3.6-square-mile site, hopes to complete the facility in five to seven years. John Pierce, an executive with the firm, said in July that 10 companies already have committed to Elk Run, although he declined to name them.

Burrill, a Wisconsin native, has pledged to raise $1 billion by the end of the year, a difficult task in the current economy. He says he will use the money to lure biotech companies to Elk Run and to commercialize technology originating from the University of Minnesota and Mayo Clinic.

Several states have tried, with little success, to carve out a biotech niche from scratch. The Midwest, in particular, has focused on biotech to replace lost manufacturing jobs. But to create a successful biotech incubator, a state needs venture capital, a location adjacent to a major research institution, a skilled workforce and breakthrough scientific research -- things you wouldn't necessarily expect to find in Pine Island, a city of about 3,300 located 15 miles north of Rochester.

With his bushy white hair and trademark pink tie and hankerchief, Burrill travels the country, chatting up biotech with anyone who'll listen. His yearly "State of the Biotech Industry" report is held in the same reverence as Warren Buffett's annual letter to shareholders.

"The Burrill Report is the bible for biotechnology," said Doug Cameron, a former Silicon Valley-based venture capitalist who has worked with Burrill. Cameron is now chief science adviser to Piper Jaffray in Minneapolis.

Midwestern roots

Burrill has deep ties to this region. He still owns a lake home in Wisconsin and his son will attend graduate school at the University of Minnesota in the fall. Burrill earned a business degree from the University of Wisconsin at Madison in 1966 but soon left the state to establish his own name.

"Every place I went, I was [my father] George's boy," Burrill said in a recent interview. "I didn't like being George's boy, so I was going to get as far away from my dad as I could."

He ended up in Silicon Valley as an accountant for Ernst & Young. Soon, Burrill was advising technology and biotech companies. Microsoft founder Bill Gates is a friend.

"I built probably the greatest Rolodex in the world," Burrill said. "But in my Ernst & Young role, we were always advising. ... The frustrating side of that was we saw enormous value [and] wealth being created but I didn't share in it. I decided as I got in my later life that it was time for me to make my living based on what I owned instead of what I did."

So he founded Burrill & Co. in 1994 to take ownership stakes in biotech startups. Denise Kettelberger, a lawyer who specializes in biotechnology patents, credits Burrill with steering investors toward the then-obscure industry.

Burrill "is the real deal," said Kettelberger, a special counsel for the Faegre & Benson law firm in Minneapolis. "He really was one of the first to know and promote biotech."

Tower never planned to build a bioscience center when it bought the 2,325-acre Bird Island property in 2006. The company envisioned hotels, schools, a wellness center, shops, office and warehouse space -- even a water park. Tower added a bioscience center only after it had failed to win state money for infrastructure improvements.

Since 2002, the two institutions have collaborated on a project that uses IBM's Blue Gene supercomputer to mine Mayo's 6 million electronic patient records for disease trends in large populations. Such a system could give health care providers speedy access to treatments of specific diseases in like individuals by comparing genomic data.

"Minnesota sits at the intersection of predictive and preventive medicine," Burrill said. "The state is mostly known for medical devices, but there's a much more natural linkage here than people think.

"But there has been no catalyst to ignite it here."

Burrill thinks he can be that catalyst. Under his plan, the $1 billion fund will spend roughly $500 million to purchase $20 million equity stakes in each of 15 to 25 companies that will move to the bioscience center. The remaining $500 million will go toward the rest of Tower's real estate projects at Elk Run.

While experts applaud the plan's size and ambition, they question its logic. While venture capital-backed incubators have succeeded in places like Seattle and Menlo Park, Calif., the real estate portion of the fund adds a layer of unpredictability, said Randy Olson, vice president of economic development at the Initiative Foundation in Little Falls, Minn.

"There is a risk profile here that is probably off the charts," Olson said. "But we need more risk-takers in Minnesota."

Pierce, of Tower, said Burrill's $20 million investment in each company will cover the leases.

The Mayo connection

The bigger question surrounds Mayo Clinic. Burrill thinks he can speed up the commercialization of Mayo's discoveries by pairing the technology with relevant companies that move to Elk Run.

"It's not the pieces of dirt but it's the proximity [of Elk Run] to Mayo," Burrill said.

Burrill is keenly aware of this. But the recession has hit Mayo and the university hard, and both institutions realize they need to generate more money from research, he said.

Some experts wonder about Burrill's relationship with Mayo. The two parties say there is no legal partnership that gives Burrill first crack at Mayo technology, only a vague "working relationship." Whether that's good enough for investors remains to be seen.

"It doesn't make a difference that he does not have an exclusivity deal with Mayo," said Leslie Williams, a Boston-based partner with Battelle Ventures who frequently deals with schools like the Massachusetts Institute of Technology. "No one else does, either, and you have to develop relationships to get on the 'inside' anyway. He will have those through his companies."

Elk Run's biggest risk may be its sheer size.

"This project has a 'big-bang' feel to it and I don't know of any areas of the country where this has produced sustained economic and entrepreneurial growth," said Marti Nyman, a former director of global alliances at Best Buy and founder of Altavail Partners, a business incubator.