Bioscience lacks venture capital

Posted on December 06, 2006 | Type: In the News
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Arizona's bioscience sector has added jobs, drawn more federal research money and created companies, but the state still needs to attract more venture capital for the state to become a major player in the industry. That's the assessment of the status of Arizona's bioscience businesses after four years of a major public and private-sector effort to expand the industry in Arizona, according to Battelle, a Columbus, Ohio-based technology research organization, which wrote a 10-year plan for the state's bioscience industry.

"Arizona is well on its way to achieving the 2007 midpoint goals set back in 2002, when the road map was published," said Walt Plosila, vice president of Battelle Technology Partnership Practice.

But he added that the state is facing strong competition as other states increase their efforts in an industry that is expected to be one of the nation's major economic drivers.

"All 50 states have at least one bioscience initiative," Plosila said.

The Arizona Legislature has approved several programs to benefit the biosciences including $440 million for new research facilities at the state universities in 2003 and $35 million approved earlier this year for a 21st Century Fund to invest in medical and scientific ventures in Arizona.

Also voters approved Proposition 301, a 0.6 percent sales tax increase to fund education including bioscience research facilities at the state universities, and a $100 million bond issue to expand bioscience and health care training at the Maricopa County community colleges.

Philanthropic groups such as the Flinn Foundation and the Virginia G. Piper Charitable Trust also have committed millions of dollars to advance biosciences in Arizona.

So far, at least $231 million in public and private money has have been spent on bioscience developments this decade, and another $525 million has been committed, Plosila said.

Also the federal government funded $667 million in bio-related research in Arizona in 2003 and 2004. Another $151 million in private venture capital was invested in the state from 2002 through the third quarter of this year, he said.

Arizona research grants from the National Institutes of Health grew 30 percent between 2002 and 2005, compared to 19.7 percent for the nation as a whole. But still Arizona accounts for only 0.8 percent of overall NIH research funding, Plosila said.

Plosila said the campaign has added 10,700 Arizona jobs in the bioscience field, including hospital employment, a 16 percent increase, from 2001 to 2005. And wages have increased 13 percent, adjusted for inflation.

There also has been a jump in the number of startup companies in the sector. In 2002 only two new bioscience businesses were spun out of the state universities. Since then, 33 additional firms have been created.

But the state still receives less than 1 percent of the total venture capital invested nationally, and the first three quarters of 2006 have not kept pace with bioscience venture capital funding the state received in 2005, Plosila said.

Also the state still has not implemented three recommendations included in the road map, he said. Still missing is a seed fund to support bioscience firms in their earliest stages of development and technology zones where bioscience firms can cluster, he said. Also voters rejected a proposition in 2004 that would have enabled universities to take equity stakes in business ventures that grow out of their research.

Some aspects of the state's bioscience efforts have drawn fire from conservatives who say the program amounts to government subsidizing private enterprise.

Although the program may have helped create new jobs, the state's private sector also has been creating new jobs, meaning that bioech's percentage of the total hasn't increased, said Noah Clarke, economist for the Goldwater Institute in Phoenix.

"Yes, the number of biotech jobs is up, but the Phoenix area has been creating a huge number of jobs," he said. "Should everyone else be subsidizing the biotech jobs?"

He also took issue with the 21st Century Fund, which he said will funnel public dollars to risky business ventures. "Any new business is risky, and the vast majority fail in any industry," he said.

"So why spend taxpayer money on ventures that have a good chance of failure? Most of it probably will be lost."

Also, he said Arizona faces new challenges when more bioscience businesses are moving to low-labor-cost countries like India and China.

"If you can pay someone in China a tenth of what you would pay them here, why not do the research through him? Many more new drugs and new products can be created for the same amount of money."

Those arguments don't sway bioscience supporters, who say the public money is helping to diversify the Arizona economy and improve local access to the latest health care innovations.

"There is a growing acknowledgement that the biosciences are taking root in Arizona," said Martin Shultz, chairman of a steering committee overseeing the road map.

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