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Capital key topic at forum: Fourth life sciences event grows with local industry

October 1, 2007

The pulse of Indiana's fledgling life sciences sector will be taken later this month at an annual conference featuring some of the industry's strongest advocates.

Experts will weigh in on several topics ranging from the discovery of technology to accessing capital, which is a growing concern for the earliest-stage companies that are riskier investments.

In its fourth year, the Indiana Life Sciences Forum will take place Oct. 22-23 at the Westin Indianapolis and will be hosted by Indiana business-development initiative BioCrossroads and San Francisco-based Burrill & Co., a venture capital firm that focuses on life sciences investment.

The preliminary prognosis from participants is that the state is gaining momentum, and corporate and government leaders should be pleased with the progress.

"The state is dominated by a few successful life sciences firms and yet, if you look at entrepreneurial growth and venture capital, it was kind of a wasteland," said CEO G. Steven Burrill recalling the forum's beginnings. "We wanted to get away from the belief that everything happens on the coasts, and if you're not on the coasts, you don't have a chance."

Indiana, indeed, has elevated its profile within the burgeoning life sciences community that is most prominent in San Diego and Boston. Indianapolis is the only city outside those regions to host a Burrill event this year. And, in May, it teamed with San Diego officials to co-host an invitation-only conference outside the West Coast city along with that region's most prominent life sciences economic development organizations.

In 2002, Indiana ranked 37th among the 50 states in terms of life sciences venture capital activity. It ranks 21st today, according to an annual MoneyTree survey.

Investment crisis?

When the forum launched in 2004, BioCrossroads and its $73 million Indiana Future Fund were still in their infancy. The fund, supported financially by local corporations Eli Lilly and Co., WellPoint Inc. and American United Life Insurance Co., as well as state institutions, since has distributed the investment funds to six professional venture capital firms, including Burrill. In turn, they have speculated on five promising Indiana biotech companies.

"We're attracting other national venture capital firms into this marketplace, even when the Indiana Future Fund is not involved," said Darren Carroll, chairman of the fund's advisory committee and senior managing director of Lilly Ventures.

Carmel-based Marcadia Biotech, a developer of diabetes therapies, and Indianapolis-based Colucid Pharmaceuticals Inc., a drug-development company spun from Lilly, are a few examples Carroll cited.

Yet capital, particularly for early-stage enterprises in which investors are vulnerable to greater risk, often is difficult to access. As returns began to decline at a greater rate early in the decade, venture capitalists sought less speculative and more mature companies.

To that end, Carroll will participate in a lecture addressing how pharmaceutical companies such as Lilly can collaborate with the biotechnology industry to limit that exposure.

Startups at least three years away from getting a product to the human-testing stage are the least likely to receive a large cash infusion. The phenomenon is referred within the industry as the "valley of death."

"What we will be discussing is the challenge of building a business in that environment," Carroll said. "This is the highestrisk phase of a very high-risk business."

In fact, certain areas of venture capital funding are experiencing turbulence. Other private-equity vehicles, such as buyout funds, are attracting capital from pension funds and endowments rather than new venture capital funds.

Burrill will touch on the issue during his "life sciences state-of-the-union address" that kicks off the conference.

"Capital is the beginning of the food chain for everything that happens," Burrill said. "But the capital is going through a crisis and is affecting the industry."

Investment remains strong, however, according to the Arlington, Va.-based National Venture Capital Association. Venture capitalists invested $7.1 billion in 977 deals during the second quarter-the highest level of deals reported in a quarter since the third quarter of 2001.

Of the 17 sectors tracked, 14 experienced an increase in the number of deals compared with the first quarter of the year. But the downside is that the dollar amount invested declined in 10 sectors, indicating lower average-dollar rounds, the NVCA report said.

Capital tax credit

John Mills, CEO of Indianapolis-based BioStorage Technologies Inc., is among those who will lead the "access to capital" session. The repository for biological samples announced in May that it had raised $8.3 million, led by Radius Ventures of New York.

Mills points to the state's Venture Capital Investment Tax Credit as an incentive to invest in local companies. Indiana doles out the tax credit to promising companies, which, in turn, dangle it in front of potential investors as a way to sweeten the pot. The incentive is meant to spur speculators to gamble on unproven high-tech ventures they'd otherwise pass over in favor of more certain bets. It allows investors to write 20 percent of their outlay off their state taxes.

"I think it would be great if they could increase that," he said. "I've campaigned for that, and there are some very sympathetic ears."

Introducing relevant topics like that to the forum is bringing it more credibility, said David Johnson, president and CEO of BioCrossroads. The first two conferences focused on the nuts and bolts of the industry. Presentations became more sophisticated last year, Johnson said, to keep pace with the sector's progress here.
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