WisBusiness: Panel sees Madison life science start-ups facing funding difficulties
With more than 10,000 employees and 159 companies, the biotech industry in Madison has reached a critical mass. In recent years, between $3 billion and $4 billion has been generated when 11 local firms were taken public or sold.
But that doesn’t mean some early-stage companies aren’t struggling now, especially when it comes to raising money, a panel of life science veterans said Wednesday at a BioForward breakfast at the University Research Park.
“We’re now ranked as the 15th largest cluster in the U.S., new companies are being created and 14 angel funds and 45 venture capital funds -- many part of syndicates -- are invested here,” said Russ Smestad, the CEO of Stratatech, a regenerative medicine company.
A 30-year veteran of the biotech industry, he was most recently was president of Mirus Bio. He also runs the biotechprofiles.com website, which tracks the history of biotech companies in Madison.
“But funding is constrained and some firms are downsizing,” he said, noting recent headlines that said Third Wave Technologies – which is based in the research park – may lay off many of its 179 employees and close within two years.
And while it may be painful for the scientists and other employees who lose their jobs, Smestad called the reductions “part of the natural cycle” of business and capitalism.
Trevor Twose, president of Mithridion, said his firm developed three drugs to treat devastating nervous system disorders like Alzheimers and Parkinsons Disease. He, too, has worked in the life science industry for more than three decades and once – he noted wryly – even ran a company that had a positive cash flow.
Twose said he remains a “great believer in biotech as the pipeline for new drugs.
“But there are challenges out there in the marketplace and it’s not all positive. The old model of multiple rounds of funding no longer works well,” he said.
He started Mithridion in 2006 with money from angel investors and within a short time found that the university research on which the company was founded was flawed.
“That was a setback,” he said dryly.
The company refocused, purchased an Ohio life science firm, was refinanced with venture capital funding and moved forward.
Its Phase I testing was successful, proving a company could do first-class drug research in the Midwest, he said. Subsequent talks with more than 80 venture capital funds, however, did not produce a lead investor.
“We needed $15 million to proceed because the (drug) industry is looking for Phase II proof of pharmacology data. But while there are more and more biotech companies out there, funding has remained flat, and there is extreme competition for venture capital,” he said.
Another major problem, he said, is that investors want to get their profits within three to seven years – which is possible with an IT start-up – but a “ridiculous” expectation for a biotech firm that takes 10 to 20 years to develop a drug.
“So sadly, our great team was dismantled. We sold our lab equipment and cut our expenses by 90 percent so that we are financially stable and have no creditors,” added Twose, who said he remains committed to finding a partner who can help Mithridion move forward with its drug development efforts.
Alex Vodenlich, former president of GenTel Biosciences, said the 1990s were boom times for most life science companies, but last 10 years have been difficult for many firms.
“I lived through that,” said Vodenlich, a former vice president at PanVera. He is now a consultant.
He said it is important to keep expectations of biotech firm investors realistic, even though it might result in them keep their checkbooks closed.
“It’s called ‘patient investing,’ and it means it will take around 10 years before they can exit,” added Vodenlich, who said he struggled with a board at GenTel that had conflicts.
“I don’t want to be negative,” he said. “But be careful who you take money from. Knowing what you want for your company will lead you to funding sources that are aligned with how you think.
“Part of the problem now, though, is money is tight. So if it’s green, I’m taking it.”
Still, he said, he wouldn’t trade his career for another.
“Seeing young scientists launch their careers, be successful and start families has been great,” he said.
-- By Brian E. Clark