Business

Annual national biotech meeting: Survival of the fittest

Recession, health care reform and expected closer scrutiny from the FDA put the spotlight on adaptation at this year's biotech industry convention in Chicago.

May 13, 2010 at 9:05PM

Steve Burrill (Star Tribune/The Minnesota Star Tribune)

CHICAGO

The biotechnology industry, hurt by the recession, is looking for inspiration from Charles Darwin.

Leading executives say unless biotech companies adapt to a less-robust economy and changing industry standards, they won't survive the downturn. Biotech start-ups, seen as the lifeblood of the industry, have been among the worst hit by a decline in venture capital investments.

"We've gone through the biggest economic decline in the history of the world and the result is [that] what we need to do as an industry to survive is totally different," said Steven Burrill, CEO of San Francisco-based Burrill & Co. "You need a different playbook, for a different environment moving forward."

Burrill, who is considered a biotech guru, will present his annual state of the industry report at the BIO International Convention in Chicago on Tuesday. This year's report features Darwin on the cover. The four-day BIO convention, the industry's largest gathering, started Monday in Chicago.

Jim Greenwood, president and CEO of the Biotechnology Industry Organization (BIO), echoed Burrill's assessment.

"Investors are still willing to invest, but they want to see real results. They are looking for things that aren't just incremental improvements ... but real innovation," Greenwood said.

The annual meeting comes as the industry is grappling with tighter funding, a monumental change in health care rules and potential changes to the way the government regulates the food and drug industries. Attendance at the event is expected to be about 13,000, or 42 percent fewer than the convention's 2007 peak attendance year.

Risk-averse?

Minnesota has faced its own set of challenges as well when it comes to biotech. Analysts say biotech has failed to grow as briskly in Minnesota as it has in states like California. Some say the reason is a lack of talent; others say it's an unwillingness of risk-averse Midwesterners to accept that start-up biotech companies may fail. Historically, the majority of Minnesota's venture capital investments go toward the medical device industry.

"Why has California succeeded? We allow people to fail," Burrill said, sporting his iconic pink shirt and tie at a Chicago hotel. Burrill is raising money for a bioscience center in Pine Island, Minn., just north of Rochester. "We have to have a culture that understands risk. We have to fail to succeed. There is no question capital will follow great entrepreneurial activity."

Burrill said last year that his company would raise a $1 billion fund to help develop the Elk Run bioscience center and support start-up biotech companies there. The project, which would include a 200-acre biotech business park, housing, as well as other buildings, would be developed by Tower Investments.

"We have a commitment from an investor for $1 billion dollars," said Burrill in an interview with the Star Tribune, adding closing the commitment is "challenging."

"You don't raise $1 billion overnight," Burrill said.

When asked if there is only one investor, Burrill declined to comment further. Burrill said as far as he knows, no leases have been signed yet at Elk Run, although the center is in "active dialogue" with 10 to 20 companies. He declined to name them.

Burrill described the Elk Run center and the Mayo Clinic as having a close working relationship. "You would probably put it in the category of we're 'best friends,'" Burrill said. "We don't have any rights. We don't have any first dibs."

Tough to raise money

Midwest biotech start-ups say it has been challenging to gain venture capital financing. Tetsuro Wakatsuki, co-founder and chief scientist of McFarland, Wis.-based InvivoSciences, says he hasn't had any luck getting VC money yet.

InvivoSciences made $100,000 in sales last year and is hoping to make close to $500,000 this year. The company has seven employees. Wakatsuki's company is looking for a manufacturing site where it can produce engineered tissues and is considering a location between St. Paul and Rochester.

"There are a lot of difficulties in the general economy and expectations for the small biotech [companies] are very high," said Wakatsuki, a convention attendee.

Other companies said it's taking longer to win over investors because of the anticipation of more scrutiny from the U.S. Food and Drug Administration.

"When I talk to investors to raise money, they are very skittish with me," said Randall Woods, president and CEO of San Diego-based Sequel Pharmaceuticals Inc. at a convention panel on Monday. "There is an unknown now that is factored into this equation."

Wendy Lee • 612-673-1712