Arizona’s Growing Bioscience Sector

Aug. 19, 2009

Transcript:

Ted Simons:
In 2007 Arizona's bio-science sector had a $12 billion economic impact on the state when research by hospitals and universities is included. That's according to a study commissioned by the FLINN foundation. In the last decade, Arizona has made a strong push to become a world leader in the bio-sciencing there. Have been a number of victories, but the current economic crisis led to setbacks as well. I'll talk with industry leaders, but first David Majure and photographer Richard Torruellas show us a local medical device company that's trying to move from start-up to commercial success.

Doctor 1:
Stick your arm in here.

David Majure:
More than six years after surviving a stroke, Lori is still working hard to improve the use of her once paralyzed arm and hand. Swan rehab in Phoenix helps Lori and others like her recover from brain injuries, using a variety of therapies, including the latest technology.

Doctor 1:
The machine automatically saw that Lori was having difficulty, and so it adjusted itself to make it easier.

David Majure:
The Hand-Mentor Pro is a robotic device linked to video game that challenges the patient to perform repetitive hand movements.

Ed Koeneman:
The hardest thing is to open up their hand. So that's what our first device is intended to train.

David Majure:
It's manufactured by Tempe-based kinetic muscles.

Ed Koeneman:
We make robotic devices to help stroke patients after they've incurred a brain injury, you end up paralyzed on one side of your body, the new science is saying that we can rewire our brains after an injury. We make devices to help people recover function after a stroke.

David Majure:
The handmentor, or as K.M.I.'s first product. It's approved by the F.D.A. as a class one medical device available by prescription only. It takes a lot of time and money to bring a medical device to market. K.M.I. has come far as a company, but it still has a long way to go.

Ed Koeneman:
We need to increase our sales. That's the big thing. Now we have a product. We are finishing up a very large clinical trial to prove that our devices can be used at home with the same efficacy as in clinic use.

David Majure:
Kinetic muscles was founded in 2001, but it still considers itself a start-up.

Ed Koeneman:
We're not cash positive yet. And I think that's the delineation to when you're not a start-up anymore. You've proven yourself, you're selling the product, and you're cash positive.

David Majure:
In 2008, Grant Ferrell was hired as C.E.O. to take the company to the next level.

Grant Ferrell:
It's really to be able to take the company from a start-up mode into a fully commercialized business. There's a lot of growth that has to happen to do that. It has to go through quite a few phases of evolution of the business, focus on sales and marketing as opposed to focus on product development. So there's really that transition that we're going through.

Ed Koeneman:
We are in the valley of death. Our product is on the market. We're selling it. We're not quite cash positive yet, but hopefully within the next year and a half we plan to be cash positive.

David Majure:
So far the company's been funded primarily with grants from the national institutes of health and a group of angel investors.

Ed Koeneman:
All told, N.I.H. has kicked in about $5 million towards our technology development. And so that pays for research and development. But it doesn't pay for sales manufacturing, marketing, and so we've got to go out and find some investor to do that.

David Majure:
But access to capitol will be a challenge, especially in a state where Ferrell says something is missing.

Grant Ferrell:
A strong investor community, more than anything. And there are signs that that's really about to change in the near future there. Have been some of the large V.C. firms look at the valley over the past 12 months. Of course with the economic cycle, that's slowed down a lot of their initiatives, but it's pretty clear once the market starts to come back and the investor community picks up, there will be people starting to come back and look at the valley, look at the Phoenix area as new hot spots for investment in this type of business.

David Majure:
Meanwhile, this nine-person company is tightening its belt, doing everything it can to stretch its funding as far as it will go.

Ed Koeneman:
There's got to be something to take you through that valley of death. Which is a term within the start-up company industry.

Doctor 1:
That's beautiful.

Ed Koeneman:
If that period from when you have proven your technology to when are you cash positive. Overall the business climate in Arizona for bio-science companies is very bright. The lack of capital is the biggest piece of the puzzle. Investors invest in what they know. Because this community is so new in medical device terms, in drug development terms, it's a new community; you've got to be able to point to some success stories before people believe your story.

Ted Simons:
Joining me to talk about Arizona's efforts to grow its bio-science industry are Dr. Jeffrey Trent, president and research director for T-GEN, Dr. Michael Mobley, chairman of the board for the Arizona bio-industry association, and a professor with A.S.U.'s bio-design institute. And Marty Schultz, chairman of Arizona's bio-science road map steering committee. Thank you for joining us. Where are we in terms of research and enterprise with bio-science, and where should we be?

Marty Schultz:
We started years ago as far as the road map is concerned. This was established by the FLINN foundation, a 10-year project. We're halfway into it. We never thought we were going to be San Diego or Boston, but instead a market niche orientation. And in fact we've made a lot of progress in many of our indicators. For example, the bio-science jobs now are producing about 52,000 dollars a year on the average. We have made a huge progress in N.I.H. grants, and in a number of indicators. So it's very positive.

Ted Simons:
Are we where we should be in terms of bio-science in Arizona? And Marty mentioned we're not in certain areas, we're a niche market. Is that what we have to be because we kind of got into the game a little late?

Michael Mobley:
Well, there's lots of opportunities in the bio-sciences. There's many problems out there. And I don't look at it that we're competing with other major players that have been out there longer, but we're actually competing against the problems as we want to attack. And there's many of those. And recognize that we have a special skill set here in Arizona that allow us to compete against some specific needs, very effectively. We talked earlier about, for instance, new bio-fuels and new systems for producing algae, and bacteria for exploiting those, for new purposes. That's a novel area. We can compete with anyone in.

Ted Simons:
Dr. Trent, where are we and where should we be?

Jeffrey Trent:
I think a great picture is 16,000 new jobs since 2002 in the bio-sciences. Over 175 million dollars are of annually in N.I.H. support at this time. We're up about 140 entities, enterprises in the actual commercial sector since 2002. We've made progress. It's not everywhere we want to be in this regard, but absolutely we've taken the first steps.

Ted Simons:
How does bio-science funding differ from other industries?

Jeffrey Trent:
Well, there is an important component with the federal government. That N.I.H. funding is sort of our gold standard, that $40 billion entity in Washington, D.C. that provides the overhauling of majority of research funding. But to capitalize new company is really venture funding, and that's an Arizona that Arizona has not been a leader in without any question.

Ted Simons:
Venture funding, different beast when it comes to bio-science as opposed to other enterprise?

Michael Mobley:
Venture funding in the bio-sciences is different than it has been in the I.T. or communications area, because investors have to generally wait longer periods of time for the payout, simply because of the development times are longer and often times you have regulatory constraints or F.D.A. approvals required. So there's a different level of patience required. Nevertheless, the payouts are very large also in the area because of the importance of the benefits. Again, new pharmaceuticals, new diagnostics, new medical devices have significant impacts, and these are the things that we're trying to promote.

Ted Simons:
Why does venture -- I've heard this in other industries, why does venture capital money in Arizona seem to lag?

Marty Schultz:
I think it seems to lag because at this stage we've viewed ourselves as very collaborative. We're not relying only on venture capital, we're relying on state funds, we're relying on federal funds as Jeff mentioned through the national institute of health. We're relying frankly on University projects, and it is much more collaborative. Also, I think that we need to further develop a whole body of work in order to attract various venture capitalists. But before the downturn in the economy, we actually were beginning to attract venture capital, and we suspect that will increase as the economy turns around.

Ted Simons:
I know science foundation Arizona was designed to get that kind of thing here. Capital companies, the whole nine yards. The funding for science foundation Arizona has been cut big-time, impact.

Marty Schultz:
The entire business community is in support -- and the bio-community, and so many other constituencies around state, the impact could be very devastating. The state gave its commitment through its elected officials, the legislature passed commitments, and in fact at this point they have not lived up to those commitments. If we're not a state whose word can be relied upon, the commitment in the future as this international, if you will, industry looks around for places to land and do business, it could be a big problem.

Ted Simons:
That reputation for not living up to commitments, I know it affects a project you've got going at the University regarding algae and jet fuel. First of all, what's the project, and how does the lack of funding stall this thing out?

Michael Mobley:
Well, it's a major project, learning how to take the lipids produced by algae and convert them into beneficial things, for instance, jet fuel. There's tremendous efficiency by using an organism like that in terms of recycling carbon and also using waste for growing of these bacteria. So there's great opportunities here, particularly for environmental sustainability. But again, a lot of work needs to be put into that development effort and these are the kind of things that science foundation Arizona provided important funding to demonstrate commercial viability of these ideas that then allow translation to, for instance, a commercial company that can take it and turn it into jet fuel or power, or some Thorpe commodity that's useful.

Ted Simons:
Commercial viability is the key here, is it not? And how best do you convince lawmakers when it comes to science foundation Arizona, and venture capitalists in other areas, that what you're doing is working, and we can get start-up companies going. Who do you do you that?

Jeffrey Trent:
Part of it is results. Return on investment is important for our legislators as it is important for the citizens of Arizona. T.GEN has spun out seven companies in the six years it's been here, two have had -- we've sold those and been able to November on to others quickly. Notices another one, the Universities of course have a major component and technology transfer. I think again, it was building that critical mass. T.GEN, the bio-5 institute at the University of Arizona, the bio-design institute. It's building that critical mass, and I believe we are beginning to see a return on investment. That will make a difference, I believe, going forward.

Ted Simons:
Is that return on investment and the going forward that's happening now, how much is in jeopardy if something like science foundation adds and other funding just isn't there?

Jeffrey Trent:
Well, there's no question, where they also provide a stimulus as mentioned by Dr. Mobley, that air when you've taken a discovery, moved it into the earliest phase, like you showed earlier today in your segment, yet they need that critical funding that just advanced them further out of what is called that valley of death, really, that lack of funding to just get across towards really adding value. And that's an area where I think science foundation has played an important role in their investment. And our state should continue to invest -- some states provide a focused fund in that area.

Ted Simons:
I know Arizona State University has this impact accelerator. Talk to us about this, and how this helps move the process along.

Michael Mobley:
This is designed to meet that need that Dr. Trent mentioned. In fact, our new director has a real passion for moving things out of the University into commercial application. He has this vision for our impact accelerator. It differs from the traditional technology transfer model out of the Universities where we have very inventive faculty members who patent their ideas, but we have challenges in getting them into commercialization. They may look good, but they don't have that first proof of concept, that commercial viability demonstrated. The impact accelerator will actually create an investment opportunity for the University foundation to invest in the early phase of development of some of these technologies, demonstrating their commercial amicability, and then finding someone else, another company or another party, to invest in them further, take them to commercialization. So that valley of death that we talked about, we're finding ways to move through that to accelerate commercialization.

Ted Simons:
Sounds like collaboration is the key. Talk about how Arizona, Phoenix, whatever, the state, let's keep it at the state, how collaboration is here compared to some of the older areas that have been in this business for a little longer.

Marty Schultz:
I think that's all great opportunity for us, and I think we have capitalized on it. The bio-science road map steering committee actually is the collaboration if you will, or the bringing together of all the parties. That's university, that's private sector, that's the TGEN and the great organizations we have, science foundation Arizona, in order for us to not only share organization, but to build on the strengths of each other. Great examples of collaboration in Arizona, for a long time Arizona, here we have in downtown Phoenix the University of Arizona medical center. In collaboration with Arizona State University, Ted, these are words that typically do not roll off the lips of many as many people know about the competition between the Universities. But this -- what this really means is that kind of training of medical students means doctors in Arizona, researchers in Arizona and others, to do the important work not only of the research, but also of the personalized medicine that was partially shown in your package, but is really so much a part of this to improve the health status of people in Arizona. That really is personal to me, to my company, and that's really a big motivation for this whole effort.

Ted Simons:
Give me a wish list as far as bio-sciences in Arizona. What do you want to see?

Marty Schultz:
A couple of things. One, I do wish that our leaders would demonstrate that economic development generally in bio-science kinds of economic development strategies would be top on their list, because this would be huge for the knowledge-based economy, huge for our education system, it would be a big motivator to bring our education system forward. It would be huge for the Universities, and that would be important to personalize medicine. So it impacts my family and your family, and it really makes a difference.

Ted Simons:
How about a wish list? What would you like to see?

Michael Mobley:
When I serve as chair of the bio-industry association, the members of the association have their wish list, and one as a long-term wish list in Arizona, and that is that Arizona would elevate its level of education in the bio-science and bio-technology, or basically stem cell education. A critical thing for a lot of companies is access to the work force and/or trying to recruit people to Arizona and education is a very important thing for them. So long-term my wish is strengthen education. Short-term for most of our members is access to pre-revenue capital in the state that we already talked about. That valley of death that, sometimes the small companies, that's what they are concerned with.

Jeffrey Trent:
The sustained recognition over time. There's almost a 20-year investment in San Diego before really that seed time turn in addition harvest. So I think sustained investment. The second is the recognition that we really have to operate -- George post used to talk about the 3M projects. Multi-investor, multi-institution, multimillion. Those are really where we need to be competitive. These are areas in which TGEN places most of its effort and emphasis, and that's certainly true in the bio-design institute as well. And that takes collaboration, the ability for people to continue to work together, the lowering of those barriers between institutions, that's the critical wish list for me, to sustain that over time.

Ted Simons:
I wanted to ask you in particular, the campus downtown, Phoenix union high school never looked so good. Is it working? Are you getting what you need out of that campus?

Jeffrey Trent:
There's no question its beginning and it's a great first step.

Ted Simons:
OK. Very good. I think we'll stop it there. Gentlemen, thank you so much for joining us.

In this segment:

Jeffrey Trent: President and Research Director of TGEN; Marty Shultz: Chair of the Arizona Bioscience Roadmap Steering Committee;Dr. Michael Mobley: ASU's Biodesign Institute and Board Chairman of the Arizona Bioindustry Association;