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Minnesota banks on biotechnology
by Laura McCallum, Minnesota Public Radio
September 24, 2003

Julie Kirihara runs a small biotech company called ATG Laboratories. She has eight employees, who do various cloning services for clients such as drug companies. (MPR Photo/Laura McCallum)

Minnesota Gov. Tim Pawlenty leads a trade delegation to Montreal this weekend to focus on biotechnology, as the governor tries to promote Minnesota as a place for biotech companies. Pawlenty and other biotech boosters say Minnesota is well poised to compete in the rush for biotech business. Skeptics say the state doesn't have the resources to become a major biotech player.

St. Paul, Minn. — Gov. Pawlenty says Minnesota has the people and ideas to be a leader in biotechnology, which involves using living organisms to make everything from medicines to plastic. He's made biotech a major priority. He created a Biosciences Council, and got the Legislature to approve $2 million in state seed funding for a biosciences research collaboration between the Mayo Clinic and the University of Minnesota. Pawlenty also held a biosciences summit in May, when he addressed critics who say Minnesota's efforts are too little, too late.

"Let's not go around with our tail between our legs, saying 'southern Califorina's already beat us, Boston's already beat us.' That's a loser's attitude. And if you want to be losers, then just concede and go back to doing other things. But the choice is to do nothing. That's not a good choice."

	Cures via fish?

Pawlenty is competing with about 40 other governors who view biotechnology as "the next big thing," according to economist Joe Cortright, who wrote a report for the Brookings Institution last year concluding that many places trying to become biotech hubs will fail.

Cortright says Minnesota doesn't have the necessary critical mass of research activity, successful biotech companies and venture capital. He says if Minnesota wants to join the nine leading centers of biotech activity, it will require time and money.

"As a practical matter, hoping that the investment of a few million or tens of millions of dollars in biotechnology is going to fundamentally change your economy is probably not realistic," according to Cortright.

Cortright says biotech companies tend to be small, and don't create many jobs. State officials say about 60,000 Minnesotans worked in biotechnology and related fields in 2000, and the typical biotech company has fewer than 10 employees.

One Minnesotan who has challenged Cortright's conclusions is Dr. Stephen Oesterle, a senior vice president at Medtronic. Osterle says he wouldn't be in Minnesota if he didn't believe the state had a future as a biotech leader. He spent about a decade in San Francisco and Boston, where the biotech industry began in the 1970s, before coming to Minnesota last year.

Hoping that the investment of a few million or tens of millions of dollars in biotechnology is going to fundamentally change your economy is probably not realistic. - Joe Cortright

He believes biotech needs the medical device industry, and that industry is based in the Twin Cities. Oesterle says biotech advances in cell, gene and protein therapy won't help people without a way to deliver those therapies to organs in the body. He says that's where medical device companies come into play.

"I believe that these large device companies that exist here in the Twin Cities can legitimately act as lodestones to attract small biotech companies into this area, so that they can realize the application of their technologies which otherwise will never be done; you have to get them there, again -- and these companies aren't experts at local delivery."

Oesterle says Medtronic is already making products that combine drugs and medical devices, such as insulin pumps. He says medical device companies are also profitable businesses -- unlike most biotech start-ups -- and have the cash flow to invest in new technology.

Lack of capital is one of the biggest hurdles for biotech companies. Just ask John Haaland, president of Discovery Genomics in Minneapolis. Haaland's company was founded three years ago to study gene functions and potentially deliver gene therapies for blood diseases. Some of the company's work involves zebra fish.

Haaland says zebra fish have 90-percent of the same genes as humans, which he says makes the fish ideal for the study of most human gene functions. But he says educating potential investors about the zebra fish work has been a challenge, and persuading venture capital firms to invest in the company is even tougher.

"We pitched it a lot of places, we got zero bites. So we know this is a very, very tough investment market... But I'm not unfamiliar with that; it took me 84 contacts to get the first round," says Haaland.

	A believer in biotech in Minnesota

Haaland says if the company continues to struggle to attract investors, he'll consider moving it to another state. Haaland says he doesn't need a tax break from the state, he needs capital.

Venture capital experts acknowledge there's been little investment in biotech in Minnesota. Pete McNerney, a managing partner at Thomas, McNerney and Partners, an investment firm with offices in Minneapolis, New York and San Francisco, says the company invests about a third of its portfolio in biotech, but hasn't invested in Minnesota companies.

"We don't have the supply of people here that we do in other parts of the country who have that experience of taking good science and turning it into a successful company. And where do those people come from? I actually think they come from one of two places. And they come from either a university setting or they come from industry. What's missing here is we don't have people from industry, we don't have an industry," according to McNerney.

McNerney says the bright spot is the University of Minnesota, which has made biotechnology research a priority. His advice to Gov. Pawlenty is to invest in the U, even during a budget crisis. Yet the governor proposed cutting the university's budget 15 percent over the next two years when the state faced a projected $4.5 billion deficit. Eventually the Legislature cut about eight percent of the U's budget.

Sen. Steve Kelley, DFL-Hopkins, says funding for the University of Minnesota is crucial, if Minnesota hopes to become a biotech leader. Kelley authored legislation this year creating a tax-free biotech zone, and serves on the governor's biosciences council. He believes Minnesota can be successful in certain niches of biotechnology, such as agriculture, energy and health care.

	The U is key, Kelley says

"Another area that Minnesota has the potential to get a lead in is adult stem cell research, and the potential for the regeneration or growth of replacement organs, so if somebody's knee goes bad you can grow a new cartilege disk. It sounds like science fiction, but we have the beginnings of that in Minnesota, and nobody else is ahead of us," says Kelley.

Leading the state's stem cell research is Dr. Catherine Verfaillie, who directs the University of Minnesota's Stem Cell Institute. The university also announced this week it's hiring Duke University scientist Doris Taylor to develop a cellular research center dedicated to repairing damaged hearts.

The state's biotech trade association -- MNBIO -- recently analyzed Minnesota's biosciences strengths and weaknesses, and listed the U and its research as the state's top strength. MNBIO President Julie Kirihara says she's also encouraged by the interest among political leaders, including Gov. Pawlenty and the mayors of Minneapolis and St. Paul, even during tough economic times.

"It is an industry that's going to alter our future ... The biosciences will certainly impact medicine and agriculture and food and ... not to invest, I think, would be really short-sighted," Kirihara says.

Kirihara runs a small biotech company called ATG Laboratories. She has eight employees, who do various cloning services for clients such as drug companies.

Kirihara says she started the company because she didn't find many jobs in her field of biochemistry. She says Minnesota probably won't persuade biotech companies to relocate to the state, but she believes the state can grow its own biotech businesses.

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