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Taking the pulse of life sciences: Experts weigh in on whether Indiana is keeping up in the economic development race

June 27, 2005

IBJ: Is Indiana gaining ground against other states in the race to grow as a life sciences hub? What are some specific benchmarks that underscore your opinion?

JOHNSON: Indiana is gaining ground, but Indiana already starts on really very substantial ground. There are a lot of outside validations of that and I think it's important for this audience to hear a couple of them because there is nothing like having people on the outside pay attention to what we're doing here.

There are 40 states that currently have life science initiatives, and all 50 states have technology-based economic development initiatives going on. [Biotechnology Industry Organization] decided to publish a report in conjunction with the Battelle Institute listing all of the different life sciences initiatives going on in different states.

It found that of the states that are in this, Indiana-along with 10 other states-has a genuine life sciences cluster. They defined it as having a very significant employment base and at least two out of the four or five indicators of life sciences activity: medical devices, drug research and testing, so forth. Indiana actually had three because we have a very strong agricultural background as well in the state.

So we are already a life sciences cluster and that's important because many states are trying to be what we already are. The question we have is what we're going to do with that, with the help of BioCrossroads and the Health Industry Forum. All of the speakers here today are working full-time on taking advantage of the strengths that we already have.

We are leaders in the bio industry. In fact, next to New Jersey, we have the highest concentration of life science employment in the state, and we're projected to have the highest concentration of that along with New Jersey and a few other states for the next 10 years. So we start from a very strong base.

The question is, again, what we're going to do with it. In terms of whether we're gaining ground, I don't know if anecdotes tell the story. What we're talking about here is a long, long-term set of developments. But you've got to love it when people on the outside are paying attention to what we're doing and are a little bit envious.

Florida just put about a billion dollars out to try to attract a branch of the Scripps Medical Institute to come to Florida to establish a really wonderful 21st Century research park. The problem is the people in Florida don't want it. They have other things going on. It's not their strategy. And recently the Palm Beach Post down there has been publishing a series of stories bemoaning the fact that Florida, unlike other states-specifically Indiana in an article that quotes Mark Long-that Florida just can't seem to get into this game that we're already in.

So it's time for us to actually believe what we're doing, pay attention to it, and get a lot of business.

LONG: I think one of the other great things that shows that we're certainly gaining ground and getting some notoriety is when other people come to you and ask for advice.

Certainly at the IUETC, we've had representatives from 36 states, seven foreign countries and also the president of the European Union come and visit our facility to look at how it was built, how we've attracted companies, how we've built companies, and how they have grown inside our incubator facility. They recognize that Purdue Research Park is the No. 1 research park in the nation, and people are now coming to us and calling us for advice on how to build their own life sciences enterprise in their states and in their cities.

So when people start visiting our city and our state to ask us for our advice, I think we've certainly achieved a national notoriety as building the life sciences enterprise that already exists as a model for other people.

LANGE: Another metric is how many entrepreneurs are out there, how many companies are started without shots on goals, if you will, to borrow a sports analogy. When I started five years ago, you could count the number of startup companies; I'm not even sure if it took a full hand.

I don't have a count now because I'm not sure how you would actually count all the emerging firms. But there's more than I can keep track of. Hopefully, it's not Alzheimer's setting in that makes me not be able to track it. There is just a tremendous growth in the number of entrepre- neurial companies.

I met with a gentleman yesterday who is starting up a business developing some medical devices and he was a physician whose practice saw a need. Now he is working with an engineer and some others to create a business to focus on that. So there is a tremendous amount of startup companies.

David and I met with the two top guys at Bio last Thursday. They were in town visiting and we spent an hour with them talking about what our organizations were doing, what's happening within the state. These guys came away incredibly impressed. From their perspective, we are far ahead of any other region in the country in leveraging our assets and building a base of new businesses here and building upon what already exists.

IBJ: BioCrossroads recently closed Indiana Seed Fund I, a new $4 million seed-stage venture capital fund. Meanwhile, the Indiana Venture Center is trying to establish another seed fund. Why are these seed funds necessary in addition to the $73 million Indiana Future Fund? Does their formation indicate that the Future Fund was incorrectly targeted?

BATES: Well, for administrators and for small companies, you really need to have both seed investments as well as venture firms. Each plays a different role.

Most venture firms do not make seed investments. There are some exceptions, but most do not. The seed funding is used for an entrepreneur who first has a good idea to do several things. One is to try to get some intellectual property associated with the technology so it's protectable, and then to begin to develop a business plan and hire some initial people and develop a prototype.

That usually takes in the life sciences six months to a couple of years and costs anywhere from $500,000 to a couple of million dollars. At that point, most venture capitalists would then be interested in looking for a possible investment, when they could see a prototype, some initial intellectual property plan that seems to make sense.

If you take a look at what's going on in Indiana, we are so excited-all of us venture people-with the BioCrossroads announcement. And meanwhile, the Venture Center has been continuing to work with the AngelNet that they have been developing.

At this point, I am aware of 14 seed or Angel-funded life science companies in Indiana. Those are really our pipeline for the future. Today's seed investments are tomorrow's venture investments. They have 14 and maybe more that I'm not aware of under way, which bodes very well for Indiana.

JOHNSON: When we began the BioCrossroads initiative several years ago, we certainly took notice of the strengths that we have here in terms of all the intuitions, the corporate strengths and university strengths. One thing I think we all agreed was that in the life sciences area we have a lot more entrepreneurial activity, as I think you know, and the IBJ has done a good job of covering this.

We have said from the beginning when the venture money was present, it was a help to really support moving a lot of that activity forward. Once that is your strategy, you have to keep doing it and you have to do it across many sectors and you have to have many, many people playing in that game. So what we have done really is try to take a leadership role in that as in other efforts, individual funding efforts, state efforts, all kinds of things across the board.

I was at a conference last week at the University of California Berkley where the dean of the medical school at UCSD described the current capital gap between innovation and getting a drug in this case to market as "the valley of death"-that this is the hardest money there is to raise. It is the toughest thing to do because everybody wants to see the product before they want to invest in it.

So we have our-I'm not sure it's to quite that degree here, but we definitely have our work cut out for us to be able to get the resources to fully pursue these opportunities. Hopefully, the firms like Carrie's that are active in this area are going to see enough successes that more people will try to get in the game.

SCOTT: I think Indiana has some real advantages because as you look at the drug and biotechnology business, it is a high-risk sort of business. It takes a long time and a lot of money to get there.

A lot of the expertise in pharmaceutical development is something that Indiana has a rich background in because of Eli Lilly and the other large companies that are here. I think that helps to form an investor base. Patient capital is also something that small companies need, certainly biotechnology companies in a volatile market.

LONG: Maybe "incorrectly targeted" wasn't the right term for the Future Fund. But incorrect expectations I think were probably built up in that the Future Fund was pointed to as a solution to the small, early-stage, short-term capital need here.

We are maybe not in the valley of death, but I think we are in the valley of choking half to death still, and in the need of that early $250,000 to $500,000 range type of capital for small companies.

The Indiana Future Fund is not targeted toward that, although a lot of people thought it was going to be. There's a need for this early pre-stage funding. We do need that and we will continue to need that.

SCOTT: In addition to the funding, we also need entrepreneurial leadership and that's the other place that you fall. There is always going to be a cap with the talent here.

As you are moving a business forward, having had the passion to run a race before, to get involved in these small companies in a different way, a leadership way, is very important.

IBJ: How is the sale of Guidant going to affect BioCrossroads?

LANGE: Well, I'm not sure I can answer specifically about BioCrossroads, so I am going to answer what impact it might have on life sciences growth in the city and state.

I think it is difficult to speculate. There are perhaps both positive and negative outcomes. Being the optimist that I am, I am going to look on the positive side. We have a potential to have some executives who are deeply steeped in the cardiovascular device marketplace who now have some money, [and] might choose to leave Guidant and start businesses here.

You can look at other places across the country. When you have buyouts of companies, that's quite often where the new leadership has come from. You have people who know the marketplace and have money to invest in their careers and businesses. Clearly, Guidant is a flagship company here in the state. We are sorry to have the headquarters leave the city but, you know, in terms of actual employment, it is not that many people.

So, again, I just don't know that it is going to have that much of an impact. I think the positives potentially outweigh the negatives.

JOHNSON: We have had literally the Guidant brain trust here at the corporate headquarters and we are very hopeful that many of these folks are very committed to living in Indiana. We hope very much not only that they will stay here, but they will try to make the next generation of Guidants.

Guidant is the ultimate success for corporate spin-out. We need to look for those every day as the model to follow. In addition to that, Guidant is also telling of the fact, coming back to your first question, that we have got the world-class assets here and every once in a while the world finds them and buys them. So we need to be constantly trying to shore up what we have and make more of it. It is not stable.

Interestingly enough, as the Guidant transaction was being announced last year, we sort of lost one and gained one because the WellPoint transaction occurred. WellPoint is definitely a life sciences stakeholder as well as financial services giant. That was a merger that could have gone to California and instead it came here. Another world-class asset that we now have in our midst. These companies are globally traded companies. They are precious and we need more of them. And when we lose one, we have to make some more happen.

IBJ: What role should the new Indiana Economic Development Corp. and Gov. Mitch Daniels' administration play in life sciences business development?

LONG: I think there is a tremendous role for them to play. With a new outlook and a fresh role on the horizon, the page is open for the IEDC to look at new avenues, particularly in the life sciences arena.

We have so many things in life sciences already here and I really think we should all smile because we have a good base of life sciences in Indiana already present. We have a lot of things going for us. We have some positive steps that have been taken by the Legislature. We have research investment credits and tax credits and venture capital tax credits. Many of the things that we have been speaking of have been positive steps.

The IEDC now has a chance to revamp the 21st Century Fund. They have a chance to revamp some of the commerce steps that have been in the past perhaps neglected or perhaps not taken in the right direction.

To look at life sciences as a definitive building block for Indiana, we definitely know that we have to look somewhere else besides traditional manufacturing. I mean, when you look at yesterday's [layoff] announcement from General Motors, that is pretty much a brick upside the head. We have no choice but now to look at alternatives.

We already have life sciences as a definite cornerstone in the economy here. So the IEDC should take some definitive actions in the plan. We have had good back-and-forth discussions with [Secretary of Commerce] Pat Miller, with [IEDC President and IBJ Corp. co-owner] Mickey Maurer, with people that are involved with the IEDC. They have been receptive, going out and asking the players in the life sciences "What do you need? What do you want? What steps can the IEDC take in the master plan for economic development to provide the tools that you need to advance life sciences?"

The tool analogy is going to be the key item. It is, what tools can they provide in terms of tax credits, in terms of abatements, in terms of research and development items and incentives and grants and SBIR assistance for small businesses to help them get off the ground? Fitting those types of things into that master plan for the IEDC is going to make a big dif- ference.

Getting a bigger piece of federal money pie is also going to be a huge difference. What steps they can help us take in that direction is also going to play a big part in the advancement of life sciences.

LANGE: For whatever reason, we tend to treat life sciences, advanced manufacturing, and information technology as separate and distinct initiatives here in the state. My personal perspective is that that's probably not the most efficient way to do it.

In a pharmaceutical company, you don't start to create value in your company until you start to make something. So by definition, they are manufacturing. There are opportunities that thoroughly integrate efforts and look across just those kind of pure solo sort of efforts and think about information technology and advanced manufacturing and life sciences as integrally related to each other.

What the IEDC and the state government generally focus on is infrastructure; however, the quality of education is absolutely critical to companies here to attract people to the state. Universities need to continue and absolutely have to have a stronger research base. It is very clear which areas of the country have strong research bases, as evidenced by NIH funding. Those regions are high entrepreneurial regions as well. So it is simply an infrastructure that is absolutely critical.

JOHNSON: We have had some extremely good discussions with Mickey and Pat and others in the IEDC leadership. Clearly, one of the early themes that they found coming in was the need for strategic recruitment of businesses to the state of Indiana, which is a very appropriate state function. It is something that we hope to help support any way we can.

In addition to that, we sense in our conversations with them and what they are sort of seeing firsthand, some of the entrepreneurial activity here, a determination that the assets that we have are not going to get away. The new companies that could be born here and could grow here will have a fertile environment in which to make that happen and that is obviously exactly what needs to occur.

Everybody has a role in this drama. We think we can be helpful in terms of helping to find some of the opportunities, pushing people forward, even find a few dollars to get them going. But it is going to take an engaged public strategy to make this all work. I think there is a strong determination on their part to do that.

IBJ: Biotech startups require years of patience, repeated investments, and regulatory approvals long before their products can be sold. What do entrepreneurs need the most in their early days and how can Indiana prevent other states from poaching its very best prospects before they take root?

SCOTT: I will just give you some figures about costs of pharmaceutical development. Generally, before a drug even gets ready to go to the FDA, you have spent somewhere around five years and maybe $5 million to $6 million to get it into that first stage of normal human testing.

Then it will take another year and a half and probably add another $2 million, in Phase II or Phase III, before you really know if this compound will work, probably another $40 million or $50 million, just rough ballpark figures.

And the hit rate in pharmaceutical biotechnology is very vulnerable. There are about 18 new entities to get one out the door. So the hit rate is not very high. The risk is very high and the time periods are very long.

Having investments and community around them that understand the kind of risk, the time frame that these investments have to be made in is critically important. So is the BioCrossroads venture, how long that effort has been going on. To have an expectation that there would be another Eli Lilly and Co. in five or 10 years is wonderful, but it just can't happen that fast. The numbers and the amount of infrastructure and leadership that you need to make that happen is going to take a long time.

So I think my simple answer to that is you need patient capital, capital that can be invested with the understanding that it is risky and that you are going to make the best bets you can. A lot of that education comes from the pharmaceutical industry. They do this all the time. They manage huge portfolios and large amounts of dollars and they do that in very prudent ways.

We have a base of people in the state that understand how to do that and can supply board of director roles, CEO roles, and the sort of startup companies that could ultimately end up being something very useful. So you need both the capital that can be committed over a period of time and then you need the unit capital. And you also need the public support so that when you are having efforts like this that are multi-factorial and network in nature, there is a general sense of community.

I think Indiana is very successful in this. It is like when Indiana decided it was going to become the amateur sports capital of the world. It took a whole lot of people to make that happen. People will say that's actually the truth, so I think Indiana has a right sort of relationship between the public and private sector to pull this off. I just want to be sure everybody is patient. It will happen. It is happening now.

BATES: In thinking about how to keep companies from getting poached by other states, it is so important to have investment dollars available close by, particularly for early-stage companies.

Venture firms want to invest geographically close to themselves for early-stage companies. If you look at Endocyte, for example, even though they have raised money before, we just invested in them last fall. They are still very early, just beginning human clinicals. I know there were discussions about possibly moving Endocyte out of state because there were some coastal firms that wanted to invest but wanted to move them.

Fortunately, we were able to pull together a syndicate with Indiana investors as well as others to keep Endocyte in the state. What you will find with venture firms is investments-as the companies begin to develop and get further along in their development process, critical firms are willing to invest as long as they feel that there are good venture firms locally that can provide that day-to-day expertise that may be needed.

LONG: I don't want to sound too corny here, either, but we need optimism. It is great here. We have moved five companies here from out of state into our incubator from somewhere else. Bob was in San Diego and he is here now. It is great here.

People call up all the time and say, "It's really crappy in Florida," and I'm going, "Hmm, let me think-the beach, Disney World?" I say, well, it's great in Indiana. Things are happening here. There is a lot going on.

We have the life sciences effort here. We have a lot of things moving together with the BioCrossroads effort. We have big companies behind it with Lilly and Dow and Roche and everything and there is a lot of momentum here. So don't sell yourself short. That makes a big difference to people who are looking in from the outside rather than sitting here and saying things are not so good. Things are very good.

And compared to when you go other places and visit, which I do frequently, places you might think such as Virginia and North Carolina and traditional places that have large life sciences enterprises, you think things must be wonderful there. They are not necessarily. They are in a lull. They are in a low period. They are having just as hard a time finding capital as you are. So cheer up.

SCOTT: Just on a personal note, I came here in 1988 to join Lilly. I had interviewed with a lot of pharmaceutical companies. One of the reasons I came to Indiana was the Krannert Institute of Cardiology.

In 1988, molecular cardiology was just starting to take off. The Krannert Institute had echocardiography, a lot of which was founded right here in this state. A lot of the inventions that we do take for granted right now were developed here by researchers.

So there is a rich history, a long history of cardiovascular development and life sciences with Lilly and Guidant and Cook. Of course, on the orthopedic side, we are probably the best in the world. So there are a lot of good things going on here.

IBJ: In the late 1990s, central Indiana was flush with excitement about its chances to become an information technology hub. Those hopes have waned a bit in the years since. Why will BioCrossroads' effort to expand the state's biotech industry be different?

BATES: I can't answer the question about IT because I am not familiar enough with that industry to speak to it. But if I look at the life sciences in Indiana and compare it to what we had five years ago; we now have the foundation of all the critical elements that are needed to really make this life science hub happen.

It is simple to say and hard to implement, but there are literally four things that are needed. You need great ideas that are protectable. You need great people to run the companies. You need money to get the companies up and running. And you need a support structure.

We really have all of those and that's what we have been talking about today in terms of technology, our universities, our Roches, orthopedic companies, Guidants, Lillys. If you take a look at the money with the Indiana Future Fund, the seed funds; if you take a look at the people, we have life science experts both from small companies and also from large companies like Guidant.

A support structure is so critical and that's one of the things where I see Indiana coming together, whether it is through BioCrossroads, incubators at Purdue or Fort Wayne, IU, Mark's incubator, IHIF-there is really a groundswell of things. We now have all the pieces. Let's go forth and continue to implement.

JOHNSON: I am very much in agreement with Carrie. In a way, much of what we are involved in in our life sciences efforts here really is information technology.

I think about our two initial BioCrossroads spin-outs: the Indiana Center for Pharmaceutical Sciences, which makes tremendous dazzling use of information technology in the drug discovery and proteomics processes. And then the Indiana Health Information Exchange, which is really making a national difference in evidence-based and outcome-based medicine.

It is because of our information technology strength here already that we are really able to capitalize in today's life sciences, much of which is about information technology. So in a sense, I am not sure if the late '90s efforts were failures at all. I think they were simply emerging and waiting for some appropriate technologies to wrap themselves around and I think they found them.

IBJ: Increasing Indiana's share of federal research grants will be necessary to set more university technology on the path toward commercialization. How can Indiana improve its performance in Washington, D.C.?

JOHNSON: That's an issue we also have been wrestling with since the very beginning. But now, with federal funding for these purposes not going up these days, that's an increasingly big challenge.

BioCrossroads has very specifically in terms of working with the state, working with the city of Indianapolis here and others tried to work hard on some grant delegations to alert them to opportunities. They have been very responsive. The efforts of the emerging technology center wouldn't have happened without that.

In addition, we are constantly working on behalf of our universities to get more of a not just a fair share but a big share of the federal funding in this area. One of the ways in which states like ours can do better in the federal game is something I learned in this process over the last couple of years.

It's not a matter of simply going to the NIH and saying, "Oh, please give us more money." The relevant shares the states get in this by direct government grants don't change all that much. "Well, what about when the shares change?" is what we see going on in California right now. There is a $3 billion stem cell initiative.

At a conference I attended last week, Irving Weissman was the physician at the University of Stanford actually. He was doing a lot of the academic recruitment to meet that grant, that hoped for a state grant. It is about stem cells, but what it is really about is trying to attract $3 billion worth of research in California right now, to get something that may or may not have commercial viability in 10 years.

Someone asked them, so what is the upside for the state in having that kind of research and having those dollars being spent for research? That's a lot of money. And Irving Weissman's answer was, "You know, for every one of these researchers we can reach out and recruit to come to California, they bring with them $2 million to $3 million of federal funding in areas that have nothing to do with stem cells whatsoever. That affects the bottom line of the economy of this state."

It is a point we have made here from the very beginning. It is about buildings. It is about research strength. It is what Fred Riggs is trying to do with the medical school right here. It is about expanding your assets so you can attract the research talent that brings those federal dollars with them because these dollars travel.

LONG: This is another area of investment that we are asking the state to take a look at because we spend as little as onefifth as much as neighboring states in our SBIR program. That's an area that we put a lot of concentration on here: small business and research grants. Trying to train our small businesses to explore applying for these types of grants, because it is essentially free federal money.

Indiana has traditionally underperformed in that area. We have traditionally ranked in the lower echelon of receipt of those funds and applying for those funds on a yearly basis for the last five years. We don't have an accelerated program like Ohio, Kentucky, Michigan, Illinois, Wisconsin. We need to look at investing in that type of program so that we can reach those businesses, particularly in the rural areas of Indiana that would benefit from applying for those grants which can be from $150,000 to $1.5 million. Bringing that type of federal revenue into the state to benefit small businesses is something we are asking the state to look at investing in.

IBJ: Indiana has a wealth of established life sciences businesses like Eli Lilly and Co. What will spur would-be entrepreneurs to leave the shelter of stable companies and risk starting their own, and what is the best way to encourage development of more corporate orphan research?

SCOTT: If you are inside a large company and you are already an accomplished executive, what would entice you to leave the comforts and rewards of that position to enter an entrepreneurial environment?

One is I think just building an environment that is supportive for entrepreneurs. It is a risky thing to do. Certainly when one is looking at the opportunities, not just one opportunity, but the possibility of participating in two or three different types of enterprises over a period of time, such that the area is so ripe in opportunities-that's very helpful.

For instance, engineers out on the West Coast and [Silicon] Valley, engineering executives know that if they started one device company, in two or three years they could probably migrate down the road and enjoy another one. I think that is unrealistic in the pharmaceutical business and biotech just because of the time frames that we are talking about.

Still, knowing that that there are a number of these opportunities in the area will make [that idea attractive]-if you give people the opportunity to sit back and think, "Well, yeah, I am willing to take through the process.

I know BioCrossroads does this. Mark clearly does it in the incubator. Just continuing that kind of support is important.

The second part of the question was the spin-off opportunities from companies. That's a much more complicated one to give an answer to. Remember that the corporations are publicly traded and so they are actually developing assets on behalf of their investors. Talking about spinning off some of those assets, you better be pretty sure you are spinning them wisely and actually can do something.

It really requires organizations in the area that have the expertise and the capital and the commitment that can go to that risk because it is a less risky environment to move into." So that would be my answer to that one. And that is just continuing to do the sorts of things that you are doing for BioCrossroads. Companies need so much in the way of support, networking, particularly moving in from outside.

I am a little bit of a hybrid because I have lived in the state before and I understood some of the resources and people to talk to. But imagine if you are coming in from the outside and you need to plug into a network like this. It is almost like you need somebody to just sort of put their arms around you and lead you these companies and in a focused way say, "Here is an area of research that we are interested in"; we are interested in some target research for a cancer target, for example. We have got a whole system of people employed, mechanisms, backups, manufacturers that can manufacture this drug and take it through the regulatory process, and they have created reinforcement and they can form a partnership with a large company.

LANGE: For someone to leave-and there are three of us up here who have worked at Lilly or one of its divisions in the past; Mark's been in the device industry as well, health care. But I think for people to leave the security of a large company-there has to be a reasonable expectation of success.

Bob talked about it, having the companies there to join. My guess is most people who leave a Lilly or another large firm tend to go not to just start up their own company but to join an existing firm where they take a senior leadership role. We need that base of firms that are relatively substantial.

The knowledge that there is enough venture capital in the marketplace to support the growth of a business is another part of that. I think the people that I know who have left Lilly and have joined startup biotech firms are in Boston. Or they are in San Francisco, San Diego, Toronto. They are in places that have a rich heritage of 10 or 15 years of growing businesses in the sector.

So first we need to develop the business here that would make people want to jump ship. When I left Lilly, I was 30, so it was a little bit different story when you don't have children and you are married to a working spouse. It is a little bit easier to make that shift. So it gives you a different set of drivers with a little higher risk profile, the younger employees of Lilly. But a big bang for us would be when some senior executives join startup companies here.

IBJ: Let's move into the audience portion of the questions now. What, if any, are the plans to train and prepare the future generation of workers in the life sciences industry? With the projected shortage of employees for the growing life sciences industry, what is the plan there?

LANGE: I have spent a fair amount of time working in the work force development sector. First up, the projected shortages are primarily in health care, so I think we can keep that a little bit separate. At least I am not aware of any projections of shortages of workers in life sciences, pharmaceutical, medical device, and that kind of area.

We worked hard with Lilly, Roche, Baxter and Dow the last three or four years to develop an associate degree in biotechnology. Lilly and the other three companies identified that they needed laboratory manufacturing technicians who are interested in biotechnology work in that area so we are seeing that. IUPUI stepped out to develop very innovative programs that are actually, back to an earlier comment, that we are moving ahead.

This program has gotten incredible national attention. I and three others are going out to Philadelphia to make a presentation to a national audience about our learnings for developing this collaborative educational program. So there are exciting things happening here in the state.

When people are saying where the jobs are, what the requirements are to get there, you know, by and large they are jobs that require a fairly significant level of education. High schoolers working on the manufacturing floor is a day gone by and, you know, some form of post-highschool education, whether it is an associate degree or certification or advanced degree, is important and critical.

JOHNSON: On a more general note, the work force and recruiting at all levels, whether it is the technical assistants, the health care delivery side, or laboratory, is probably the primary motivation behind all the efforts we are doing.

The human part is the hardest area to have a deliberate strategy. Of course, we talk about money and buildings and everything else. But, in the end, what we are really trying to do is to create a recognizable cluster of multiple opportunities so that people can pursue jobs in one hospital or one company or one university. They don't have to leave here to go stay in that same profession. They can go somewhere else and do the same kind of thing. If their spouses are in that area, which they often are, they can be employed. They don't all have to work in one place, one hospital, at one time.

IBJ: We have a couple of audience questions that seem related. They are wondering how you would compare Indiana's biotech companies with companies internationally, particularly in South Korea and China, as well as they are wondering what the impact in the future of life sciences is going to be by the cur- rent policy of the U.S. on stem cell research?

JOHNSON: That's a multi-part question. I think it is worth noting that, first of all, life sciences and biotechnology are not the same and we are trying to establish a life sciences center that has components of biotechnology.

There are some areas of biotechnology which are a life sciences proposition and what we are talking about here is much broader than that. It is important to be pursuing what you are good at. We are good at devices, not biotechnology. We do, however, have some very considerable biotechnology strengths here. We see them within our traditional companies such as Roche and we definitely see it with Lilly, which in itself has made a historical commitment to insulin, the large molecule development. They are right at the forefront of biotechnology.

With regard to the stem cell component, let me say two other quick things. Asian countries, particularly Singapore and to some extent South Korea, are trying to buy their way into these opportunities. Again, our taking the talent and taking advantage of a research platform and trying to make ground-breaking discoveries, that's a competition. But probably even more so we need to be looking at our strengths and trying to build on them as quickly as we can.

In the stem cell area, the science has been publicly oversold. It is exciting. It is dynamic. There are a lot of things going to happen in that area. Whether embryonic stem cells or adult stem cells will be the most effective in treating human disease is a very big question. But no venture capitalist on the planet right now is planning on making a dime from any of this yet. This is all theoretical.

LONG: I think you have to look at exactly what Dave said: Stem cell research is just exactly that, stem cell research. It is not stem cell medicine at the current stage.

So when you look at things such as a stem cell research topic, you are arguing about something that in 10, 15, 20 years as Bob said at $50 million, $60 million, $120 million from now may turn into something. Certainly it's a topic of debate and a topic to discuss. But it is not necessarily something that we can discuss right now in terms of economic development.

As far as foreign countries, as I said, we have had a lot of foreign delegates visit our incubator to talk to us-particularly from Europe, actually, rather than Asia-to talk about actually establishing a presence in the United States in Indianapolis through an association with our incubators. So I think there is some interesting cross-fertilization there.

SCOTT: This is an area our country has had a leadership position in for decades, certainly since the 1980s. We talked about how much money is being spent on these things, but if you look at the other side of that, [it] is the reduction in human suffering because of technologies brought about in the last couple of years.

My personal experience, when I graduated from medical school in 1978 there was no such thing as a CT scan or MRI. If someone wanted to know what was going on inside your body, they would have to open you up through surgical procedure to take a look. The life expectancy for patients with coronary artery disease-remember, FDR died of hypertension and heart failure, diseases that we essentially take care of now through medication, we didn't even know about before [the National Heart, Lung and Blood Institute].

So we established a critically important asset for the country. The reason other countries are looking at it is they understand the value of that asset. We shouldn't let ours be eroded for any particular reason.

IBJ: How does Indiana's reputation as an unhealthy state as in its obesity and smoking issues affect our ability to attract life sciences investment and talent?

LONG: There is a great pool of clinical study prospects. (laughter)

We are fat. I don't think it really has an effect, so to speak. I think really what attracts people here more is the pool of talent that we have in terms of the med school and the people coming out of it.

Obesity and smoking kind of give a negative connotation in the media more. It is more of a sensationalist thing.

JOHNSON: I do think that many of the people that we want to attract and retain here are people who have many options and many choices. So factors-not necessarily obesity and smoking-but factors such as K through 12 education and hav- ing good schools for their kids, good places to live, creative communities like Mark has down there at the canal, those are probably pivotal points for getting and keeping the kind of talent we are looking for.

IBJ: We have several questions related to how the life sciences effort will impact the whole state. Should Indiana's life sciences effort be limited to the corridor between Purdue University through Indianapolis and down to Bloomington?

JOHNSON: It is not limited to that right now and I think that's an important point.

First of all, there are several parts of the state that have very rich life sciences clusters and opportunities. Frankly, even if you take some of our inherent strengths, [such as] pharmaceuticals, there are significant pharmaceutical presences not only in Indianapolis but in Terre Haute and Bloomington and Evansville.

Likewise in the device area. Devices are not just in Indianapolis; they are also in Bloomington and they are certainly in Warsaw, Indiana. There are all kinds of opportunities in this area. Maybe not in 92 counties, but in the development side, there is definitely a statewide proposition here.

In addition, there are some things that we are doing and there are some ways to help industry-wide that have a definite statewide impact. Our agriculture and biotechnology area, I believe, is frankly one that has a 92-county applicability throughout the state.

Likewise, the Indiana Health Information Exchange, which is designed to ultimately link up every physician group at every major hospital in the state of Indiana, will provide better medical care in one amazing data base in, in fact, a 92-county strategy.

So it depends, as it always does in this conversation, on what you are talking about. But many of these resources are nicely distributed across the state.

LONG: We have been working on the Forum over the last year with the old Department of Commerce, now IEDC, across the state. It is a real look at the cluster around the industry.

Clearly, we know about Lilly and Zimmer and Roche, the major pharmaceutical and medical device companies here in the state. But there are a vast number of companies in the supply chain that are dispersed across the state.

There was a nice article in-I hate to reference another magazine-but [in] Indiana Business maybe a year ago that talked about a company in Whitley County called MicroPulse. They were a machine tool company focused on the automotive industry. They saw their business going away to China and other places offshore.

They essentially shut the company down and re-created it to focus on orthopedics and now their business is growing dramatically, employing more people than they did before with a much higher output. So the supply chain around it, which maybe is not in 92 counties, but it is a pretty good part cross-section of the state. There are opportunities to be key suppliers to the pharmaceutical and medical device and health care companies.

IBJ: I think we have time for one last audience question. Some of the folks are wondering about physical capacity and construction, particularly in the real estate sector. How do you see the growth of the life sciences industry affecting the local real estate market?

LONG: I think it does very dramatically. I have got one company in my building now that has been there for two years and three months and they have gone from four employees to 32. They are going to have to move out pretty soon.

In fact, where is Mike Herbert? I'm kicking you out. They are a high-growth company and that is what you want. That's what an incubator is for: to build these companies up and give them the capital, give them the time to raise the capital that they need to go out and buy, build and lease their own building.

It is in our lease that they are to stay in Indiana and to build businesses here because we are not here to build businesses in San Diego and Boston or anywhere else. That affects real estate. They are going to be doing it and the churn that's going on at Purdue and in Fort Wayne and here in Indianapolis and in Richmond and in other places is definitely going to affect the real estate market a great deal.

Indianapolis may attract other businesses here from the outside as well, so it is definitely going to have an impact. You can see that downtown, in the head of the Canal area and in the 16th Street/Stadium Drive corridor and the other places where the construction is going on. A lot of that is going to be affected by the life sciences businesses, businesses that we are attracting from out of town.

As I said, we have attracted five businesses from out of state. We have another one coming Aug. 1 from Columbus, Ohio. And the businesses that we are growing here that are our own businesses are hiring local people who are very unlikely to uproot themselves because they have deep roots here. They have hired local people and they have attracted local capital. They are paying local taxes. They are buying local homes. It is a trickle-down effect, you know, that affects everything. It certainly affects the local real estate market a great deal, all the way down to I think the home real estate market as well as a commercial real estate market.

JOHNSON: The universities clearly have a huge role in that development as well. And there are a number of emerging life sciences related projects right in this city today. Most of them have a university strategy somewhere embedded in real estate strategy trying to get real estate that can be used for wet lab development or development for university research.

Both IU and Purdue have demonstrated themselves to be pretty aggressive partners, again, seeking for that kind of space development because this is a spaceintensive business. It does require a lot of square feet of lab space, a lot of places to house people to make this thing move ahead. Ideally, we will see the folks doing the research and folks doing the applications leaving and working side by side in some of these developments.
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