Biotech firms lured by Ohio's rich incentives

BYLINE: Katharine Grayson

For Dan Miller, building a biotech company is a business without borders. The hunt for funding and research partners simply can't stop at the Minnesota state line.

So it was an easy decision for Miller, CEO of Excorp Medical, to take a short trip last year to Ohio, a state whose mix of funding and research opportunities is increasingly catching the attention of bioscience firms in the Twin Cities.

"All emerging companies have to look at every possible opportunity to try and be successful," said Miller, whose company is developing a bio-artificial liver. "There are no similar arrangements in Minnesota. There wouldn't be any way to compare."

Minnesota has made a push in recent years to build its biotech industry, but Ohio's enticing programs pose a challenge. In 2005, two firms, Symphony Medical Inc. and Sinus Rhythm Technologies Inc., expanded to Ohio's atrial fibrillation center. The Cleveland Clinic is now in discussions with as many as five Twin Cities companies that could place employees in Ohio, according to an official there.

Ohio's programs are also what led Harlan Jacobs, who runs business incubator Genesis Business Centers, to take companies seeking seed capital out of Minnesota. He brought Excorp Medical and other companies to Ohio for a venture conference he organized there last year. Overall, Ohio is more friendly to companies who need seed funding, Jacobs said.

"[The companies] can come out with a report card that they've been vetted by the Cleveland Clinic, and they didn't have to get millions in equity to do that," he said. "What's not to like about it? Our incentives are woefully inadequate. Minnesota has to come to grips that there are competitive economies."

In Ohio, Minnesota companies can get access to capital and research partners through the state's Third Frontier program, a $1.6 billion initiative launched in 2002 that backs research and promotes innovation through technology transfer. Not all that money goes into biotech and med tech, with funding also for research into nanotechnology and other industries.

Programs administered through the Cleveland Clinic are of particular interest to Minnesota's biosciences companies. The clinic is administering grants as part of a $250 million cardiovascular research program. Minnesota companies do not have to relocate to Ohio through the program, just place some employees at a satellite office there.

While leaving Minnesota is not a requirement, some observers worry that once companies get enough employees out of state, their headquarters will inevitably follow.

"If you put enough key people in one location, jobs will migrate," said Dale Wahlstrom, CEO of the BioBusiness Alliance of Minnesota, an organization that works to build and support the bioscience industry in Minnesota.

Excorp's Miller said he would be willing to bring jobs to Ohio in order to get funding, though no such deal is in place yet.

Other companies seem willing to do the same. Chris Coburn, executive director of the Cleveland Clinic Foundation's technology-commercialization arm, said the clinic is in talks with as many as five Minnesota companies that would like to participate in the cardiovascular program. Anoka Biomedical Inc., which is developing a mechanical device that would help physicians perform heart surgery without using traditional sutures, said in March that it was close to working out an arrangement for a $500,000 grant through the program.

The Cleveland Clinic looks at Minnesota, with its strong medical device industry, as fertile ground for research partners, Coburn said.

"We're trying to engage fast-growing companies that might wind up having a relationship with the Cleveland Clinic and ideally operations in Ohio," he said. "Minnesota is a logical place. It's got a high concentration of companies that we're interested in and it's not that far away."

The medical device industry in Minnesota has the support of local venture capitalists and opportunities offered by large corporate partners, such as Medtronic Inc. But it's a lot harder for biotech companies here, said Gary Johnson, president of Immunochemistry Technologies, a Bloomington-based firm that's developing a biomarker that can measure cell death. Johnson also sent a representative to Ohio last year, as part of the conference organized by Jacobs, in hopes of getting funding for clinical trials through a partnership with the Cleveland Clinic.

"We're a pure biotech company. There's just no program for us [in Minnesota]," he said. "We just can't find anyone here who understands what we're doing."

Johnson said he continues to be in discussions with Ohio, but he is unwilling to leave Minnesota. He also said he doesn't have the resources to place enough permanent staff out-of-state. That's likely to leave his headquarters here, even as he struggles to find the capital he needs to get through clinical trials.

Immunochemistry Technologies needs up to $5 million in capital to get its product prepared for commercialization. That level of funding is difficult to find in Minnesota.

To address that issue, the BioBusiness Alliance is working with angel investors and other groups to boost investment in the state, Wahlstrom said. It also hopes to develop a plan to help build up the industry overall.

Minnesota state officials also want to address the issue of finding seed capital for startups, said Kevin McKinnon, who focuses on the medical device and biosciences industry with the state's Department of Employment and Economic Development. The governor's proposed budget includes a $6 million program that would give tax credits to angel investors who make smaller investments in growing companies.

Minnesota already has some advantages, with research institutions such as the Mayo Clinic and a skilled work force, Miller said.

No matter what Minnesota offers, however, many biotech companies will continue to look anywhere they can for opportunities, he said. "Any company started today is automatically a worldwide company. Without friends and allies and investors worldwide, there's simply no way to succeed."