Financial boost helps research company stay alive
BYLINE: Jim Stafford, The Daily Oklahoman
Apr. 17--Riley Genomics won a $5 million investment round from a West Coast venture capital firm earlier this year, but the money brought some fallout for the Oklahoma City-based biotechnology company.
The company's headquarters is moving to the city from which the venture capital was raised.
"We are putting an office on the West Coast, and we will officially call that headquarters," said William Hagstrom, founder and president of Alpha BioPartners and now chief executive officer of Riley Genomics.
It's a trade-off that founders and management were more than willing to make as they work to move the gene-based technology developed by Oklahoma Medical Research Foundation scientist Michael Centola toward commercialization.
"I view it as a huge positive that we are able to get a top-tier West Coast venture investor to put money into the company," Hagstrom said. "This is extremely high-quality money with a great deal of expertise with our kind of business model."
It's not Oklahoma money, and that is an issue that has challenged the state's core of technology-based economic development professionals.
Hagstrom said he could reveal the identity of neither the venture capital investors in Riley Genomics nor the city in which they are based.
Early-stage technology companies, especially those based on the life sciences, struggle to raise capital that will help them emerge from what is known as the "Valley of Death."
That's a term that Tom Walker, executive vice president and chief operating officer of i2E often uses when discussing the status of Oklahoma-based startups. i2E is a nonprofit corporation that mentors many of the state's technology-based startups.
The Valley of Death is the stage of development where so-called "preseed, seed capital and venture capital" are needed to carry development through the long and expensive Phase 1 and Phase 2 clinical trials that must be negotiated.
In the case of Riley Genomics, Centola developed a technique to quickly identify patient response to drug treatments for inflammatory diseases. It has lab and office space at the Presbyterian Health Foundation Research Park, but its move to commercialization was slowed by access to capital.
"The issue is we have been in the Valley of Death from the prospective of a lack of access to seed capital and early-stage venture capital," Hagstrom said. "You can have the best of ideas and the best of early data, but if you can't get seed or you can't get early stage venture capital, these companies are likely to die on the vine. We were just very fortunate with this one deal to get this early-stage venture capital dropped into place."
Alpha BioPartners is itself a new venture that focuses on company formation and consulting in the city's life sciences community. It helped create Altheus Therapeutics and Biolytics Pharmaceuticals from technologies developed at the University of Oklahoma Health Sciences Center.
Hagstrom and Alpha BioPartners senior associate Adam Payne work closely with OMRF, OU and the researchers who develop intellectual property to help create spin-off companies and help them negotiate the treacherous territory that is the Valley of Death.
Since startups generally have no cash, they work for equity in the companies. Both Hagstrom and Payne bring years of management experience with startups to the business. Hagstrom was chief executive officer of Oklahoma City-based biotech startup UroCor Inc., while Payne brings 15 years of international management experience to the partnership.
"We go through a very rigorous process of evaluating the technology, forming the company, helping them to get their jump-start capital, punch through the milestones," Hagstrom said. "We can put very high-quality business plans together, but this is where we are done: the capital gap is terrifically challenging."
Financing options for Oklahoma life science startups have been limited. One plus has been the Technology Business Finance program administered by i2E provides $100,000 in capital if matching funds are obtained. Another has been a hit-or-miss network of angel investors. Otherwise, startups remain deep in the Valley of Death unless a round or two of venture capital is raised.
Some are successful in raising money and remaining Oklahoma-based, such as InterGenetics, which is commercializing a genetic breast cancer risk test for women. Though slowed by a Federal Drug Administration ruling that halted a widespread rollout of the technology last year, InterGenetics raised an additional $5 million in investment dollars last year to carry the business into wider commercialization.
But Zapaq, the company built on OMRF researcher Jordan Tang's research into the cause of Alzheimer's disease, won investments from a California-based company and lost both its headquarters and its name.
Zapaq was bought by San Francisco-based Athenagen Inc., which changed its name to CoMentis Inc. in February. The former Zapaq's research laboratories remain in Oklahoma City, however.
"I think if you had to pick one issue that you would want to fix to try to secure the future of a robust biotechnology industry, you would fix access to capital," said Dr. Stephen Prescott, OMRF president. "The next question would be, 'Do I mean angel investment, do I mean early round, do I mean late round?' Yes to all of them."
Recent endeavors include the Seed Step Angels program developed by i2E, and a state-funded seed capital fund that was launched earlier this year with $5 million in state funding in addition to capital from private partners. "Those are really helpful," Prescott said of the new funding efforts. "The problem is the next stage. Rigen (Riley Genomics) is an example of our own particular experience, and they are going to California. R&D is staying here.
"Zapaq is the exact same issue. When you need to get to that state of multimillion-dollar investment, there was no capital market here for them."
For Hagstrom, opening a West Coast headquarters for Riley Genomics will require a commute for him every couple of weeks. It comes with the territory, he said. "That's absolutely how the game works," he said. "If you can't support your own deal locally and are fortunate to attract coastal venture money, they are going to want some kind of access to what's happening within the company above and beyond five or six hours of airplane rides."
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