Building biotech in Ohio, You can if you think you can

Dan Eramian, Vice President Communications
Biotechnology Industry Organization

Athersys
Cleveland, Ohio
July 13, 2001

Let me start by telling you a little about the Biotechnology Industry Organization, or BIO.

We are the national Washington, DC, trade organization representing more than 1,000 biotechnology companies, academic institutions and state biotechnology centers in every U.S. state and more than 30 countries around the world.

We are the industry's "voice" to Congress, the media and to the public. When I started at BIO eight years ago, reporters and most members of Congress used to say "Biotech-what?" Now they say "Biotech-WOW!"

Today our legislative issues are some of the most visible on Capitol Hill:

• Medicare reform
• The debate on embryonic stem cells
• The debate on cloning
• Genetic privacy and discrimination
• Gene patents
• Taxes
• FDA reform

And let me add that BIO has also taken on a major leadership role in the promotion of using biotechnology to help improve agriculture and our food supply.

We are still a young industry, but we have grown-up issues. Despite these legislative challenges which we enthusiastically accept as part of being a technology and science pioneer – our industry continues to flourish!

And so far, it's been a great summer for biotechnology. I am just back from our annual meeting in San Diego. We had a record 15,000 attendees from all over the U.S. and 44 other countries. We also had 500 members of the media registered.

I remember the first BIO annual meeting I attended, in Toronto, in 1994. I had to hire a PR firm to get reporters to come. Times have changed.

"Dolly" the cloned sheep and the mapping of the human genome have put biotech on the radar screen of investors, reporters and the public worldwide.

You may have heard about massive demonstrations by anti-biotech activists planned for San Diego – it never happened. Protesters didn't show up and when the media saw that the anti-GMO-food demonstrations had fizzled, they turned to the meeting itself for stories. And we were ready.

We had patients who had benefited from biotech medicines and farmers who had prospered using biotech seeds. We brought in scientists from all over the world who could talk about research across the spectrum with the potential to improve or save human lives. These are our industry's messengers.

We flew in a Kenyan scientist named Florence Wambugu, who passionately argued that biotech could save millions of Africans from malnutrition and starvation.

Prince Andrew, George W. Bush and Naomi Judd all delivered speeches supporting biotech. The meeting generated a tsunami of coverage in the national media.

And the good news kept on coming. This week the UN released a study on biotech foods and crops that triggered very pro-biotech pieces in the Washington Post and New York Times. The Post called proposals to ban genetically modified foods "murderous nonsense."

The headline in the New York Times story said the "Move to Curb Biotech Crops Ignores the Poor." From my perspective, it just doesn't get any better than that.

So, we've got the so-called top-echelon media on the side of biotech – for the moment – but what about the rest of America? Well, their impressions are largely favorable as well.

As an example, BIO recently conducted a focus group with a group of middle-income, deeply religious Americans in Fredericksburg, Virginia, and we were pleased to learn that, even though they didn't know a lot about the science involved in biotechnology, their impressions about biotechnology were overwhelmingly positive.

They associated our industry with breakthrough medicine, improving lives and curing disease.

As the discussion progressed, though, and we brought up subjects like stem-cell research and therapeutic cloning (the cloning of cells or tissues, not of whole human beings), they did become more uncomfortable, but most were receptive when they learned the impact of the technology: that it holds the potential to treat or perhaps cure diseases like Alzheimer's, Parkinson's and diabetes.

In a nutshell the public hopes and wants biotechnology to be a big word that does mean hope.

BIO has conducted many different focus groups on many different subjects. And as you can see, some are controversial. We do this because we believe it's important to have a dialogue with the public. Building trust with the public makes good business sense – for any industry.

We need to manage our public affairs. Ignoring the public would ruin our industry's business plan.

As your biotechnology hub here in Cleveland grows, you'll find it's an industry unlike any other. It sometimes raises profound questions about the nature of life and humanity, and make no mistake, a local reporter will call a local company or biotech association for comment on these issues, so biotech CEOs and high-ranking officials have to be prepared.

With my VP of communications hat on, I urge the scientists and CEOs in the audience to not forget the public is also an audience. Just as important as investors.

What does all this mean? The industry's public profile and public expectations are at an all-time high. It's a good time to leverage that good will and momentum to build your industry here in Cleveland.

BIO is also unlike other industry groups, we work hard to help our emerging companies make that leap toward profitability.

Let me offer some road signs to success.

The nation's three most concentrated biotech centers – the Bay Area, Boston/Cambridge, and San Diego – share many traits that led to their emergence as leaders.

First, they all boast world-class academic institutions and biomedical research facilities, which produce the initial intellectual property for start-ups and supply the technically nimble workforce needed to advance novel products through development and market launch.

And you've got the same ingredients here with the Cleveland Clinic (the nation's No. 1 center for cardiovascular care), Case Western Reserve University and its hospitals, and the Metro Health network of research facilities.

Your region ranks 12^th in the nation in total NIH funding.

Especially encouraging is the BioPark initiative in which the Cleveland Clinic, Case Western Reserve and University Hospitals of Cleveland are joining forces to encourage entrepreneurial activity and spawn companies.

This initiative could be a giant step toward eventually becoming a top 10 region for total biomedical economic activity.

The second key ingredient for a biotech hotbed is money. It takes tens of millions of dollars to get a company off the ground and advance the technology to the point at which the public markets will be receptive to an IPO.

That means you've got to have access to both seed funding - - startup funds from universities, government or individuals, corporate collaborations and venture capital.

Seed funding takes a company through initial setup and development of a business plan, and the venture community comes in and provides both money and, through seats on the board, the business expertise.

Corporate collaborations, particularly with larger companies, can validate a previously unknown company's technology while providing a revenue stream.

With the endorsement of Lilly or Abbott, or any of the other major pharmaceutical firms, venture capitalists trust that much of the due diligence has already been done for them.

The participation of those venture firms is crucial to the success of an individual company and of a region.

The venture capitalists really drive creation of marketing plans, and indeed that whole bumpy transition from an academic mindset to a business one.

It also helps to have a local cadre of venture capitalists experienced in biotech. A venture capitalist wants to meet with management face to face and, more importantly, to see the actual scientific work.

You've already got the basic infrastructure in place to nurture companies at this still-fragile stage, with organizations like the Ohio Venture Association and the Greater Cleveland Growth Association.

You've also got a few firms in this region making investments in biotech – such as CID Equity Partners and North Coast Technology Investors – and the Access to Capital Initiative is a good start toward expanding the local base.

Investment conferences, such your own Innovest, can also you get visibility. Venture capitalists love these events because in a single trip they can see a blitz of 15-minute business presentations from dozens of companies.

Your companies should also be aggressive in seeking slots at investment conferences conducted by BIO and other national-level sponsors.

One such event is the BIO VentureForum, which will take place in Washington, D.C., Oct. 3-4. We are positioning this to be the largest national biotech venture conference in the U.S.

Successful biotech regions also have strong entrepreneurial networks, both formal organizations and informal networks that keep the ideas and energy flowing.

Veterans of early Bay Area companies like Genentech and Chiron have spawned biotechnology companies throughout the region. If you're a CEO, these networks are invaluable.

You might call a fellow biotech CEO with whom you've chatted at breakfast meetings of the local biotech association and ask him or her who's the best person to talk to at Alta Partners, or how he landed a partnership with Pfizer, or how their company got featured in the trade press.

These kinds of interactions help build momentum for a region as new startups benefit from the experience of those who've gone before, and best practices get shared among established companies.

You've already got a core of biotech entrepreneurs from companies like Athersys, Gliatech, NetGenics, Copernicus Therapeutics, Quark Biotech and others.

Veterans from these firms, along with experienced executives recruited from outside the region, will help you attain that all-important critical mass of know-how.

It's also important to enlist the support of state government. Ohio already has an R&D tax credit and biotech incubators in place, but you need to have your state legislators and administration officials recognize the economic benefits of nurturing biotech in this state as part of building the new economy. And competition between the states to attract biotech companies is heating up.

Twenty-five states had booths or were part of larger pavilions at BIO 2001 in San Diego. Kentucky's governor, Paul Patton, even worked the Kentucky booth in the exhibit hall for the entire opening day. Wisconsin Governor Scott McCallum also came and worked the Wisconsin booth.

The reason why it makes sense for states like Ohio, Wisconsin and Kentucky to make high-profile efforts to establish biotech hubs is that this is an industry that's clean, generates high-paying jobs, and is still very much in its infancy, whether you're in Ohio or San Francisco.

Even Genentech has been around only 25 years; Amgen, the industry's largest company, is even younger. What Cleveland and Ohio in general may need to do is look 10, 25, even 35 years into the future, into technologies that have yet to be developed and in which the region can gain an early foothold.

So you have the seeds of a biotech community here – stellar academic institutions and research facilities. A budding venture capital community and committed economic development and growth organizations.

Our host today, Athersys, could serve as a model for the kind of approach I've been discussing. Every region needs a success story, and Athersys is a good one.

This six-year-old genomics company originated in a biotech incubator – indeed, this year was named Incubator Graduate of the Year by the National Business Incubator Association.

Its founders came here from California to work with a researcher from Case Western Reserve.

The company raised $47.5 million in a mezzanine private placement last year, one of the largest biotech venture financings. Athersys has been aggressive in seeking spots at investor conferences, including BIO AsiaPacific and BIO 2001.

The company's collaborations include a hometown functional genomics initiative with the Cleveland Clinic, as well as partnerships with several biotech companies and big pharma players like Bristol Myers Squibb and Elan. The company has gone from 5 to 132 people in four years.

In addition to leading his company with such success, Athersys' president and CEO, Gil Van Bokkelen, is key to the budding biotech entrepreneurial network here, and we at BIO are grateful for the leadership role he's taking in this region as both a mentor to other companies and a spokesman for the industry.

I'm happy to report his appointment to the BIO Emerging Company Section Governing Board.

We are looking for great things to happen with his company, for other emerging companies represented in this room right now, and for the many companies yet to be created here in Cleveland.

It won't happen overnight, but biotechnology is an industry with momentum with the public and Wall Street. Our industry delivers jobs and products that people want. You have the building blocks here in Cleveland to go forward. All you have to do is believe you can. Let me close by putting this in a national perspective.

When I started at BIO eight years ago, the critics said the technology didn't work. We now have more than 110 new drugs and vaccines on the market, 350 in clinical trials, and we have helped more than a quarter billion people worldwide.

Eight years ago the critics said Wall Street would not invest in us. Last year we raised more than $40 billion, a record.

And eight years ago the critics said there would be no biotech industry, and that all these biotech companies would be bought by large drug companies. This week's issue of Fortune magazine there is a front page story that tells a different story. It says the only thing that will save the big drug companies is biotechnology.

Thank you.