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Financial Lifeline for Biotech Companies in Florida

The Public Sector: It's All About the Feds

[Photo: Jason Nettle]

"If you look at states we are competing with like California and Massachusetts, many of them have identified biotech as an industry they would like to cultivate and have a long list of programs supporting these businesses at an early stage. The state of Florida doesn't have much at all."

— Ray Johnson, president, Cytonics

AxoGen, a 10-year-old regenerative medical company in Alachua, makes products and technologies that help repair nerve damage. These days, the company, which had $3.5 million in revenue through the first three quarters of 2011, gets its investment capital through the stock market.

As with most biotech companies, however, the basic research that underlies AxoGen's technology was funded by the federal government. Some $1.4 million in grants from the National Institutes of Health paid for the research that produced the technology that AxoGen licensed from the University of Florida.

While private companies continue to fund the lion's share of research and development activity in the U.S., only about 4% of private R&D funding goes for basic research. The federal government funds nearly 60% of basic research in the U.S., with foundations (10%), colleges and universities (10%) and state and local governments (3.5%) accounting for much of the rest. State government provides some funding through special programs aimed at research or companies in their earliest stages ["State Programs"].

Last year, NIH — the federal agency that accounts for more than half of all federal spending on basic research — awarded $493 million to scientists at Florida universities, research institutions and businesses, a 26% increase over 2010 and a 35% increase since 2007.

Top Florida Recipients of NIH Funding (2011)
1 University of Miami Miller School of Medicine, Miami $118,731,107
2 University of Florida, Gainesville 108,629,959
3 University of South Florida, Tampa 81,337,599
4 H. Lee Moffitt Cancer Center and Research Institute, Tampa 41,810,382
5 Florida International University, Boca Raton 19,621,969
6 Jaeb Center for Health Research, Tampa 19,592,591
7 Scripps Florida, Jupiter 18,472,431
8 Florida State University, Tallahassee 17,524,805
9 University of Miami-Coral Gables, Coral Gables 10,226,325
10 Mayo Clinic, Jacksonville 9,262,254
Source: National Institutes of Health


The growth in NIH funding largely reflects the recent presence of powerhouse research institutes in Florida, such as Jupiter-based Scripps Florida. Scripps alone saw its NIH funding more than quadruple from $4 million in 2010 to $18 million in 2011.
Despite the increases, Florida ranked 13th among states in NIH funding in 2011, trailing Texas, North Carolina and Illinois, as well as research powerhouses such as California and Massachusetts.

Going forward, competition for grants from the NIH and other agencies will likely grow more intense. After doubling in the five years up until 2003, NIH's budget has remained relatively flat over the last five years. And, says Harry Orf, former Scripps Florida vice president for scientific operations: "The number of people doing research and the number of grant applications has grown."

Top Florida Business Recipients of NIH Funding (2011)
1 Altor BioScience, Miramar $2,504,093
2 Saneron CCEL Therapeutics, Tampa 1,569,916
3 TissueTech, Miami 1,121,882
4 Cytonics, Jupiter 882,440
5 Optima Neuroscience, Alachua 744,779
6 Banyan Biomarkers, Alachua 646,640
7 Firebird Biomolecular Sciences, Gainesville 644,620
8 Converge Biotech, Miami 450,290
9 HeartWare, Miami Lakes 385,813
10 Convergent Engineering, Newberry 358,494
Source: National Institutes of Health


NIH Grants: U.S. vs. State
Year Nationwide Florida
2007 $23 billion $365 million
2008 $23 $418
2009 $24 $424
2010 $22 $391
2011 $24 $493
Source: National Institutes of Health

The Private Sector: Less Pharma, More Selective

[Photo: Dan Gaye]

"The basic problem we are seeing universally is the venture capital community is more restrictive in using their funds. The risk tolerance is lower than it used to be."

— Russell Allen, president/CEO, BioFlorida

The recession has forced many venture capitalists and angel investors to be more selective when it comes to making risky biotechnology investments. Many investors in and out of state are shifting their focus from drug development, considered slow and costly, to biomedical and medical device startups.

"On the device side, there is a clear path to commercialization, and it is less costly and risky and it's better understood to investors," says Aaron Solomon, a controller with venture firm Athenian Venture Partners, which has an office in Fort Lauderdale.

In the last three years, venture capital investments in Florida medical device startups have risen from $7.5 million to $26 million in the first three quarters of 2011, says Michael Schmitt at the Sid Martin Biotechnology Incubator.

In total, VC firms invested $78 million in Florida life science companies in 2011, a category that includes drug development as well as medical devices. That is almost triple the $27 million the year before and up 12% from the $69.8 million venture capitalists spent on biotech and medical devices in the state in 2008.

Florida has bucked the national trend of decreased investments in life sciences, but it still remains far behind other states. Of the $5.8 billion invested in life sciences nationally in the first three quarters of 2011, according to the National Venture Capital Association, Florida only received 1%.

Even as the number of biotech companies increases to more than 170 in the state, "We aren't there yet" in attracting venture capital compared to biotech hubs like Boston, says David Day, director of the Office of Technology Licensing for the University of Florida.

David Day

[Photo: Jeffrey Camp]

"What I am telling almost all of our startup companies, no matter what technical space they are in, when you put together a company, you don't need to think investment right away; you need to think boot-strapping."

— David Day, director of the Office of Technology Licensing, University of Florida

Biotech entrepreneurs point to a lack of early-stage capital. And venture capitalists say the relative immaturity of Florida's biotech industry means there are few deals to invest in. "The perception in the community tends to be there is a lot of activity on early-stage development companies, but the number of late-stage opportunities is not as great," says Spencer Smith, an associate with New York-based private equity firm Aisling Capital. Investors also say they would like to see more experienced management teams.

A key area of concern remains the so-called "valley of death" between research and product development. Florida offers several programs designed to encourage research and investment in biotech, but the capital isn't substantial.

"What I am telling almost all of our startup companies, no matter what technical space they are in, when you put together a company, you don't need to think investment right away; you need to think boot-strapping," says Day.

State Programs

» Florida Growth Fund: In 2008, the Legislature created the Florida Growth Fund, a portfolio within the Florida Retirement System. The fund — which has invested $176.5 million to date — is required to invest in Florida companies and private equity funds likely to invest in the state. Last year, it gave $3 million to a Miramar-based biotech company and $15 million to a Florida venture capital fund focused on biotech.

» Florida Opportunity Fund: Started in the spring of 2009, the program invests in venture funds that are likely to target industries such as biotech. To date, the fund has committed $27 million to seven venture funds. One of the firms, 5AM Ventures, has invested in a Scripps spinoff company.

» Institute for Commercialization of Public Research: Created by the Legislature in 2007, the institute has spent $3 million on a matching grant program started in 2010 that is aimed at startups developing technology from state universities. Thirteen companies have received matching grants. The institute also has a Seed Capital Accelerator Program, which lends between $50,000 and $300,000 to companies developing technology from state universities.

» The state spent $2.3 million in 2011 to attract and encourage growth of biotech and medical device companies through programs like the Qualified Target Industry Tax Refund, the Quick Action Closing Fund and the Innovation Incentive Program.