Proprietary developments withering from recession

Proprietary developments withering from recession Lack of funding prompts companies to delay ideas

You know the fund-raising climate for companies is on life support when Joe Muldoon says it is.

The serial entrepreneur, who has worked with roughly a dozen high-growth and startup companies, is now CEO of life sciences
firm FAST Diagnostics LLC. Muldoon soon will shepherd its technology through clinical trials — without the capital he
expected.

"We’ll get through it," Muldoon said. "But I think there are going to be really good companies with promising
science that
will go out of business because they can’t get access to capital."

Financing is the lifeblood of companies turning intellectual property into a product or service.

But turbulent economic conditions have made it increasingly difficult to raise cash from investors who are content to wait
out the storm by concentrating on their existing portfolios, said Tony Armstrong, director of the Indiana University Emerging
Technologies Center, which houses FAST Diagnostics.

"Since the October-November time frame, things have gotten more challenging," he said. "It seems like everybody
is taking
a wait-and-see attitude."

Incorporated in 2006, FAST Diagnostics is turning an Indiana University discovery into a method to measure kidney function
faster and more accurately than existing techniques. While FAST represents speed, the name actually stands for functional
assessment and surveillance technology.

Last year, the company raised $4 million in seed capital from the state’s 21st Century Research and Technology Fund as well
as seed funds including BioCrossroads’ Indiana Seed Fund.

Muldoon hoped to ask some of the same sources for more this year. Now, though, he plans to delay the solicitation until 2010.
And he thinks he will land less than a third of the $15 million in venture capital he originally envisioned.

FAST Diagnostic has enough cash to start the regulatory approval process with the U.S. Food and Drug Administration next month.
If all goes well, the product could be on the market by the end of 2011. But if financing remains scarce, human trials could
be delayed, Muldoon acknowledged.

"We never anticipated this," he said.

Executives of Matrix-Bio LLC in West Lafayette can relate to FAST Diagnostics’ plight. It, too, is attempting to commercialize
research, except its roots are with Purdue University.

The startup was spawned by chemistry professor Dan Raftery, who discovered metabolite biomarkers that can diagnose cancer
at earlier stages than existing diagnostic equipment.

Raftery, who is interim CEO, has filed four patent applications and is leading the technology through human trials in the
hope of marketing a test next year.

Raftery expects to have raised money for the trials by early fall, but admits the goal is ambitious.

"I think that the investors that we have talked to have expressed quite a lot of interest, but it’s a time-consuming
process,"
Raftery said.

Venture capital funding for later stages of the startup process has become so scarce that Matrix-Bio plans to follow the lead
of other startups and rely more on "angel" investors — individuals and funds specializing in earlier stages,
which offer potential
for more return on investment in exchange for greater risk.

Still other companies are looking to existing investors for additional "insider rounds" of funding, said Trevor
Belden, a
partner in the corporate finance practice at Baker & Daniels LLP.

Scarce funding is forcing companies to choose between what they need and what they want, Belden said, and that mind-set carries
over to intellectual property.

Not all may be as gloomy as it seems. The $787 billion stimulus package approved by federal lawmakers last month provides
research and development funds for health care and life sciences.

Oscar Moralez, a consultant who will take over the CEO position from Raftery, said companies at a crossroads need to decide
whether to continue spending to commercialize a technology or license it to someone else.

"If you can’t raise the money, or it’s too expensive," Moralez said, "that may be a better decision."

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: IBJ is now using a new comment system. Your Disqus account will no longer work on the IBJ site. Instead, you can leave a comment on stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Past comments are not currently showing up on stories, but they will be added in the coming weeks. Please note our updated comment policy that will govern how comments are moderated.