Few area venture capital funds or angel investors are familiar enough with the biotech sector to have the confidence needed to invest their capital. That's why the state needs to demonstrate initial interest in keeping the biotech talent and entrepreneurial energy within the state's borders, a panel of Nashville-area experts said here Friday.
Vanderbilt's Owen Graduate School of Management sponsored a conference to find ways of attracting funding and fostering biomedical startups in the Nashville and Middle Tennessee area.
"We've looked at Cincinnati, St. Louis and Nashville before coming here [from New York], and chose Nashville strictly for personal reasons," Sam Lynch, chairman and chief executive of BioMimetic Pharmaceuticals Inc. (BMPI), told a session of "Entrepreneurship on the Technology Frontier," the single-day conference held Friday at Caterpillar Financial's West End Avenue offices.
After BMPI settled in Brentwood three years ago, the Kentucky officials approached the company with a $1 million deal to relocate to their state from Tennessee as part of a state government-run biotechnology startup program, said Dr. Lynch, who holds a doctorate in medical sciences from Harvard.
Where biotech money comes from
With a staff of seven people and hopes of recruiting 23 more in the next year, BMPI focuses on a relatively new field of tissue engineering to design treatments for the healing of bone and other tissues. While the company's first applications are for jaw, head and orthopedic bone defects, BMPI intends to develop technologies for the treatment of osteoporosis and various soft-tissue wounds.
BioMimetic attracted $10 million in institutional investments from Burrill & Co., a San Francisco-based biotechnology investor with $250 million under management, a Denver life sciences investor Holden Capital, which is funded mostly by families of the founders of G.D. Searle & Co., and Novo A/S, a financing arm of Novo Nordisk Foundation based in Denmark.
As a result of these agreements, venture capitalists hold three seats on BMPI's seven-member board of directors. Stock options are the primary compensation tool for board members, and "we also pay our scientific advisers $750 to attend a meeting," Dr. Lynch said. The federal portion in BMPI's funding is "tiny," he said, because it could take 20 years to get the actual money from the government.
Even so, federal money could be used in the biotech industry to support long-term projects, said Elizabeth Clarke, head of business development at Cumberland Pharmaceuticals, which was founded here in 1999 to acquire, market and grow niche pharmaceutical products. The company plans to close at least one acquisition per year and generate around $10 million in annual sales of each drug to physicians in critical care, emergency room, pulmonology, and gastroenterology markets.
Cumberland Emerging Technologies, a division of Cumberland Pharmaceuticals, would rely on federal grants to develop early-stage products through alliances with Vanderbilt University, various state schools and private companies. Led by chief executive A.J. Kazimi, former president of Therapeutic Antibodies Inc., Cumberland Pharmaceuticals has been through three stages of funding.
The initial $200,000 of seed capital came from private investors across the Southeast and Texas. It was followed by two rounds of venture capital infusions of roughly $1.3 million and $3.5 million, said Larry Catlett, vice president of finance.
The company chose not to build a manufacturing facility, instead opting to ally with F.H. Faulding & Co., which maintains four manufacturing plants, and Cardinal Health to develop domestic distribution and sales.
With representatives in the New Jersey, Japan, France and Australia, Cumberland Pharmaceuticals is seeking lucrative acquisition deals worldwide.
The company is now developing Amelior, an intravenous drug with an estimated market of $34 million. The drug is expected to get FDA approval in 2003, Ms. Clark said. Another intravenous product called Acetadote, with anticipated $5 million in annual sales, could get faster approval next year.
What Nashville lacks
In the biomedical-biotech industry, companies live and die by what the FDA says, Dr. Lynch said.
"Nashville lacks people with regulatory FDA experience," he said.
Among other negative factors for Nashville is the fact that it is little known among investors dealing with biotech companies.
Dr. Lynch said the New Jersey group of venture capitalists that initially agreed to fund BioMimetic when it was still in New York, pulled out of the agreement when the company decided to move to Nashville.
"They asked us to give them an example of a successful biotech startup in here," he said. "And we couldn't do that."
While local venture capitalists need to be educated about the benefits of investing in biotech companies, it promises be a tough sale because a successful Nashville biotech company has yet to emerge, the panelists said.
Nearly 25 such companies locally need a unified entity to lobby for their interests in the state and among private investors. That sort of activity is unlikely to come from the Nashville Technology Council because it is so heavily involved in the local telecommunications industry, said an executive with a biotech company who attended the conference.
"Vanderbilt University is at the top of the list," said Ms. Clark when asked why Cumberland Pharmaceuticals was formed in Nashville.
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