Successful State Initiatives That Encourage Bioscience Industry Growth

This is the third in a series of three articles on workforce development and quality jobs - with a focus on state and regional support for bioscience industry development. Read part one. Read part two.

By Peter M. Pellerito, BIO Senior Policy Consultant ; 
George Goodno, BIO Director, State Policy Communications

State governments in 2011 continued to see regional economic growth in the life sciences industry and in 2012 will increasingly focus attention on technology transfer and venture funding as mechanisms to increase private sector innovation related activities within their jurisdictions. Realizing that entrepreneurship is a key ingredient in economic development, states and localities are undertaking the support of programs that assist high technology businesses, and that capitalize on state regional presence of universities and federal laboratories.

Once research yields a new discovery from a university or federal laboratory, there is still a great deal of work in creating a company and funding that research before the technology can be incorporated into the marketplace. The following are state legislative examples of ways industry, universities, and policymakers are creating essential building blocks for bioscience industry growth in company creation and capital for success.

"Forty years of state government involvement and experience in science and technology and technology-based economic development have had considerable impact on the policies and practice of state economic development."
Walter H. Plosila, Battelle Memorial Institute
Economic Development Quarterly, May 2004

State Legislative Strategies

Forty-two states now support programs that provide commercialization assistance to technology companies in an effort to more smoothly transition invention into innovation in the marketplace.

  • The State of Washington has earmarked a portion of its tobacco settlement dollars to fund bioscience R&D through the $350 million Life Sciences Discovery Fund (SB 5581), and in 2006 began allocating $35 million annually to research projects with economic development potential, including recruitment and facility enhancements. The state projects to leverage $1 billion in additional external research funding over its 10-year lifetime and create 20,000 jobs with about 15 years. The fund adopts a broad definition of the life sciences, encompassing biotech, pharmaceuticals, biomedical technologies, life system technologies, nutraceuticals, food processing, environmental and biomedical devices. It is governed by an 11-member board of trustees that evaluates grants for their potential health-care impact, future employment impact, and geographic diversity. A 2-1 match from external sources is required.
  • CONNECT of San Diego, California, designed to link entrepreneurs with critical resources for success, provides networking opportunities as well as expertise to San Diego’s technology-based firms. Through the use of partnerships with the region’s industry-specific organizations and individuals, CONNECT since 1985 has assisted entrepreneurs and biosciences companies to commercialize ideas, patents and other opportunities surrounding university or private research institute R&D efforts.

    CONNECT’s initiatives include Springboard to assist aspiring entrepreneurs in transforming their business visions into reality: CEO CONNECT provides intimate peer group interaction to learn from and teach each other. CONNECT Entrepreneurs’ Roundtable, a monthly program designed for capital providers, CEOs, and presidents of San Diego-based early stage companies to nurture high technology start-ups.

  • The Texas Emerging Technology Fund was created by House Bill 1765 in an effort to speed up the process of commercialization within the state and create jobs and new companies in Texas from technology created in Texas institutions of higher education. The Fund is designed to boost eligible industries which will lead to the creation of high-quality new jobs in Texas and/or medical or scientific breakthroughs and includes biotechnology and the life sciences.

    One quarter of the Fund is dedicated to recruiting sought-after, top research talent to the state along with their team, patents, and portfolio of potential emerging technologies. Another quarter of the Fund is to be used as matching grants to help draw down federal dollars and help push a technology through the commercialization phase.

    The remaining one-half of the Fund is used by Regional Centers of Innovation and Commercialization (RCICs) to foster collaboration on emerging technologies between public and private entities and institutions of higher education. The legislation also contains provisions for failure to meet contract obligations or misuse of any grant money, and the amount given to the Texas Emerging Technology Fund is up for review each biennium and is subject to legislators’ discretion.

  • The Pennsylvania Life Sciences Greenhouse Initiative was created through Act 77 of 2001 as part of a larger plan to ensure continued growth in Pennsylvania’s life sciences. The one-time investment of $100 million from the Tobacco Settlement into this initiative represents one of the largest technology-based economic development investments the state’s history. The program actively invests in early-stage life science companies and offers relocation and expansion incentives. The three regional organizations that comprise the initiative offer connections to angel investors, strategic partners and resources, along with business consulting services.
  • The Georgia Research Alliance Eminent Scholars Program was created by business and university leadership to attract the world’s pre-eminent scientists to Georgia’s universities to lead programs of research and development in areas with the most potential for generating new high-value companies, helping established companies grow and creating new high-wage jobs.

    With the financial backing of the state legislature in 2010, the state’s research universities, private foundations and other supporters, the Eminent Scholars Program is marshalling the required talent and resources and driving an effective strategy for achieving these results.

    To date, the Alliance has invested some $400 million, which has helped to attract more than 50 Eminent Scholars, leverage an additional $2 billion in federal and private funding, create more than 5,000 new technology jobs, generate some 120 new technology companies, and allow established Georgia companies to expand into new markets.

    To support the development of technology prior to company formation, the Alliance created VentureLab, a strategy for enhancing and accelerating the process of spinning new technology-based enterprises out of university research. The goals of VentureLab are to provide earlier and increased awareness by the business and investment community of university commercialization opportunities and to provide an easier and more efficient process for turning these technologies into new companies or new markets for established startups.

  • The Kentucky Innovation Act established the Department of Commercialization and Innovation (DCI) in 2000 within the Cabinet of Economic Development, which provides pre-seed funding to develop promising technologies.

    Under the Kentucky Innovation Act, the General Assembly directed the Kentucky Science and Technology Corporation (KSTC) to invest in research and development activity to promote innovation and build a pipeline of new ideas and technologies that could add value to the scientific and economic growth in the Commonwealth.

  • South Carolina's 2005 Innovation Centers Act led to the creation of SCLaunch! to aid Clemson University, the Medical University of South Carolina, and the University of South Carolina in their commercialization efforts. SCLaunch! provides funding, mentoring and support services; an SBIR/STTR Phase I matching grant program; and a range of other smaller programs.

    In 2004 and 2005 action by the General Assembly established the Venture Capital Investment Act to increase the availability of venture capital funds to help strengthen the state's economic base and to support South Carolina’s economic development goals. The legislation created the Venture Capital Investment Authority to oversee the program that provides tax credits for private investment companies offering equity, near-equity or seed capital for companies in the state that are emerging, expanding, relocating or restructuring.

State bioscience trade associations advocate to lawmakers and government agencies at every level in favor of public policies that support the responsible development of the bioscience industry. These associations are often the driving force behind state initiatives that address the need for expanded worker training and technology transfer programs. As such, they are a critical component of the mix in both established and emerging bioscience clusters.

Supporting Bioscience Industry with Venture Capital and Discovery Funds

A significant number of state governments over the past 15 years have legislatively endorsed measures that pro-actively promote the formation of venture capital and discovery funds that benefit targeted technology sectors, especially at early stages that are underserved by existing capital markets. Understanding that if they are to effectively compete to create and retain biosciences companies, states have modified their supportive investment structures to more accurately reflect the changing nature of the industry and competitive funding techniques.

From encouraging pension fund investments and quasi-public investments mediated by privately managed venture funds to funds of funds mechanisms, several useful capital formation initiatives were created by the states that provide vital “deal flow” funding for companies at various stages of research and development.

  • Michigan’s 21st Century Jobs Fund is a $2 billion, a 10-year initiative to accelerate the diversification of the state’s economy and devotes approximately $800 million for technologies in the targeted sectors of life sciences, alternative energy, advanced automotive materials and manufacturing, and homeland security/defense. The annual awards are administered by the Michigan Economic Development Corporation (MEDC) with contracts that establish conditions and mileposts for receipt of receipt for funds.

    The Competitive-Edge Technologies Program within the broader Jobs Fund invests in funds or alongside qualified private equity funds, qualified mezzanine funds, and qualified venture capital funds and a commercial enhancement program to assist small companies

  • Maryland’s Biotechnology Investment Tax Credit program provides income tax credits for individuals, corporations and qualified Maryland venture capital firms that invest in qualified Maryland biotechnology companies. The value of the credit is equal to 50 percent of an eligible investment made to a qualified Maryland company during the taxable year. The maximum amount of the credit cannot exceed $50,000 for individual investors and $250,000 for corporations and qualified Maryland venture capital funds.

    A qualified Maryland biotechnology company has its headquarters and base of operations in the state, has fewer than 50 employees and has been in active business no longer than 10 years. A qualified venture capital firm has at least two principals who each have at least 5 years of venture capital experience and has its principal place of operation in Maryland.

  • Missouri’s New Enterprise Creation Tax Credit through their Department of Economic Development offers a $20 million pool of 100 percent tax credits to individual and corporate investors in venture funds that are approved by the statutory Missouri Seed Capital Investment Board. The board in turn has selected Prolog Ventures as the (to date) sole eligible investment, based on Prolog's commitment to invest in Missouri-based seed- and early-stage companies, primarily in the life sciences.
  • The Kentucky Investment Fund Act provides a 40 percent tax credit capped at $3 million a year is available to certain personal and corporate investors in approved venture funds. After credits are allocated to a fund, they are proportionately granted to the fund's investors upon completion of the fund's investment program. They must invest in qualifying companies that are Kentucky-based small businesses half of whose assets are in state, with net worth less than $5 million or net income less than $3 million, and fewer than 100 employees.
  • Oklahoma’s CAPCO Tax Credits Act, rather than direct or indirect investment of appropriated funds, uses tax credits as levers to increase the level of indigenous capital that is invested in¬-state in various kinds of targeted enterprises. The Oklahoma Capital Investment Board has set up as a state-beneficiary public trust, and uses contingent tax credits to guarantee $30 million generated from public utility corporations operating in-state by the Oklahoma Capital Formation Corporation.

Incubators and Economic Development Centers

By the early 2000s, governors and legislators in almost every state recognized commercialization of university research and support for small business innovation as a valuable means of economic development. Through the recent economic downturn, lawmakers and state agencies have continued to appreciate and support a broad range of initiatives that foster bioscience industry growth.

Some states have established and funded privately-run organizations dedicated to promoting bioscience investment, entrepreneurship and new product development. Such organizations are often supported by, or operate, as an extension of state economic development agencies.

Other states and regions have adopted more modest strategies while maintaining a broader tech-focus. Despite the variations of strategy, virtually every state recognizes the financial payoff from fostering the unique conditions needed to attract and grow biotech innovation - generally known as the "incubator model."

Biotechnology incubators support early stage companies in a number of ways - providing access to investors, managerial support, and often laboratory and office space. The incubator facilities generate a return on their investment through equity shares in the sponsored companies.

More broadly speaking, states and municipalities eventually see a benefit in the form of tax revenue that come from both company profits and the expanding workforce needed to staff successful ventures. Furthermore the bioscience industry creates a higher than normal indirect employment ripple in terms of jobs generated by essential service industries.

Here is a listing of several state-supported organizations that are singularly focused on supporting bioscience industry development:

  • The Maryland Biotechnology Center was created in 2009 by Governor Martin O'Malley as one of the first initiatives of BioMaryland 2020 - the State Strategic Plan for Life Sciences delivered by the Maryland Life Sciences Advisory Board. The Center connects researchers with service providers and investors to minimize the challenges associated with developing scientific discovery into a commercial product.
  • The Virginia Biosciences Commercialization Center focuses on commercialization of later-stage bioscience companies looking to launch their product in the U.S. The program provides consultation from scientific, clinical and industry experts - along with access to financial support opportunities.
  • The North Carolina Biotechnology Center is a private, nonprofit organization created by the North Carolina legislature in 1984. It is the oldest organization of its kind in the world. The Center provides business loans, support for collaborative research projects, assistance aimed at connecting early-stage companies with larger corporations andaccess to investors along with other services.
  • The New Orleans BioInnovation Center provides support and guidance to emerging biotechnology companies primarily derived from New Orleans-based universities. The facility caters to a broad scope of companies, ranging from pre-startups to maturing and expanding businesses. The center is a 66,000-square foot biotech business incubator containing wet-labs, office and conference space.