Indiana life sciences leaders look toward the future

As part of IBJ’s Power Breakfast series, four leaders in the life sciences industry participated in a panel discussion July 13 at the J.W. Marriott downtown, moderated by IBJ reporter Chris O’Malley. Among topics were funding, growth trends and the evolution of Purdue University’s Discovery Park.

The panelists:

Richard DiMarchi. The Linda & Jack Gill Chair in Biomolecular Sciences at Indiana University helped found companies such as anti-cancer drug developer Marcadia. He was a vice president at Eli Lilly and Co.

David Johnson. President and CEO of BioCrossroads since 2005, Johnson also manages the Indiana Seed Fund and the Indiana Enterprise Fund.

Oscar Moralez. His angel investing firm StepStone Business Partners has raised $3 million for promising life sciences firms. He founded BioStorage Technologies.

Alan Rebar. A doctor of veterinary medicine, Rebar is senior vice president for research and executive director of Purdue University’s Discovery Park.

The following transcript has been edited for space. Videos from the panel discussion have been added where appropriate:

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Broad industry: David Johnson, BioCrossroads recently released a study on the state’s life sciences industry. It noted four primary sectors: medical devices and equipment, followed by pharmaceuticals, agriculture-related research, as well as research/testing/medical labs. Which are showing the strongest signs of promise?

Johnson: Indiana has an outsized proportion of people in all four of those areas. One of the things that the study makes clear is that, in terms of concentration and specialization, we are now up there with states like California, Massachusetts and New Jersey.

That said, the two of those four categories where we are absolutely large—not just relative to other places but just plain large—are first in the medical-device area, where we have some 20,000 people working in that sector.

A lot more companies are related to it than that, but some 20,000 people [work] in that sector. It is growing by, I think the report mentioned, almost 33 percent. There are very good jobs in that sector, too. They pay north of $60,000 a year, which, again, compared with the $38,000 that is the going wage for a number of Hoosiers, is a very good income.

The pharmaceutical sector, though, although it has not grown at the same rate in Indiana over the past decade, hasn’t shrunk very much, which is not the case in some states like New Jersey and Michigan, where there’s been a rapid loss of those jobs. Companies have merged or outsourced or simply laid off employees.

In that sector, we remain one of the absolutely largest of any state in the U.S.—just about 19,000 people in the pharmaceutical and biotech sector of business.

IBJ: Talent, capital and technology were named in the recent BioCrossroads report as key anchors for the industry here. Which of these needs the most help?

DiMarchi: I think if you only have technology, you’re going to have a really difficult time acquiring capital. The quality venture capitalists are overwhelmed with the number of technology opportunities they’re trying to triage. And as far as capital, it’s a commodity. I know some are struggling and trying to access that capital, but there’s more than enough capital out there for those that have quality ideas and a proven track record.

It’s all about people. And I was struck two weeks ago when I was in San Diego, where there were roughly a thousand people at this American Peptide Symposium. Just down the road, there were 25,000 people at the National Diabetes Meeting. I was told that the next week there would be 125,000 people at the Video Gaming Conference. When I think about where the future of medicine resides, it’s with those thousand people, it’s not with the 125,000 people. So finding a way to attract people to understand the potential for the things that they can do is a real challenge for us as educators.

The late Bryan Molloy was one of my mentors at Lilly. He’s the chemist that discovered Prozac—fluoxetine. He used to tell me, more than in jest: “In this large company, there’s only about 50 to 100 people that really make a difference in a differential sense, that are going to determine the future of this company.” And then he’d say: “The real difficulty is finding those 50 to 100 amongst 20,000. And more importantly, how do you treat them differently than the other 20,000 so you don’t upset the apple cart?” That is a real challenge in big organizations—to have those innovators, those iconoclasts, and to be able to manage them in the context of a big organization.

Orthopedics: Given the success of the orthopedics sector in northern Indiana, what are the odds of central Indiana becoming a bigger player in medical devices?

Johnson: These companies tend to go where they already are. So, for example, by “central Indiana” I would certainly include Bloomington. And given the base that we have down there with the Cook Group, that is obviously a real hot area for clustering. I think Bloomington is one of the most concentrated communities in the country when it comes to medical devices. Warsaw you mentioned.

In Warsaw, they cannot put a graph together to show you how concentrated it is. I think the number for it is 56 times more concentrated than any other part of the U.S. What that means is you have about 20,000 people who live in Warsaw—7,000 of them working in the orthopedics business, just to give you a sense of concentration.

It would be hard to imagine somebody competing with that to try to set up another center or sector of growth. On the other hand, what we need to be doing as a state increasingly is looking at the supply chain that works with those companies. And are there are a number of companies not only in Indianapolis but in Fort Wayne and South Bend and elsewhere serving that?

I think if you talk to Oscar here, who I understand is active in the Warsaw area with the StepStone group, they also are focusing on the fact that there’s entrepreneurial activity around that sector. I suspect what he’s finding is that it spreads. It starts in Warsaw but spreads far beyond it, both north and south.

Personalized medicine: David, one of your favorite topics is personalized medicine and the implications for not only patient outcomes but for the state economically. Of course we’re talking about medicine that involves using genetic and other information to tailor a therapy for a particular patient. Are you seeing much progress in this segment?

Johnson: We already have a pretty strong commitment. It starts with Lilly and their whole approach through their “fitment” strategy for what they call tailored therapeutics, which is exactly what you’re talking about here—coming closer to developing the right medicine for the right patient in the right amount at the right time.

We also, interestingly, have within WellPoint an insurer that wants to pay for that right drug in the right person in the right amount at the right time. And we have with Medco, which has moved here over the last few years and continues to scale its facility, a plan administrator that wants to do exactly the same thing. [Medco] in fact has made a substantial commitment through their therapeutic research center to working on oncology and other extremely patient-sensitive and individually oriented forms of medical treatment. Covance, which has come into an even larger presence here in Indiana after its deal with Lilly in 2008 … is matching biomarkers with basic early clinical and preclinical work to get to that kind of a tailored therapeutic approach.

We have startup companies like Fast Diagnostics here. We have other larger diagnostic companies—all of them are in that area of opportunity you’re mentioning.

The challenge is how the FDA is going to work with companion diagnostics and with new drug approvals in this emerging world [and] how they will be reimbursed.

Venture capital: Dr. DiMarchi, about a year ago at a BioCrossroads conference, you were recounting, if I recall, a rather bleak outlook for venture capital. It’s something you know well as an adviser to several funds. Are these funds loosening their purse strings?

DiMarchi: I don’t think the situation has changed much. The simple answer is, people want to invest in companies that have had a successful exit. I’m amazed at how many people still want to invest in Marcadia. It’s already gone [purchased by Roche in December]. But that is the primary consideration. What is going to be the exit? When will it come? And at this point, there really are only two avenues for exits. One is the public markets, and those have been few and far between and less attractive than they were historically by biotech standards. The second is mergers and acquisitions, and the pharmaceutical industry is struggling. I have a slide of the top 40 pharmaceutical companies just 20 years ago. Only 10 of them remain independent.

So when you remove that audience, that amount of buying power, it makes it all the more difficult for small companies. And so I think it’s going to continue to be a challenging environment with investors looking very judiciously to invest in things that they believe have a high probability of exits and likely with folks who have had successful exits.

Marcadia: Dr. DiMarchi, what made Marcadia so successful and what lessons can we learn?

DiMarchi: Marcadia was a spectacular success at all levels and I wish I could tell you how to replicate it. You’d be certain I would’ve already started that next venture if I were certain of the answer to that question. There are others in the room that were associated with it—Gordon Arbuthnot [and] I see Jaswant Gidda—that were central to the success. You know, I could give you all of the business-school textbook answers as to what we did right. Those who have known me longer than Marcadia know that there have been many failures along the way.

But I think a few of the things that I’ll always remember about Marcadia and try to replicate in the next venture is that it seemed as if no one needed employment. People were there because they wanted to do what Marcadia was attempting to do. We decided that we would in-source all of the work in the sense that everyone we hired was a world-class expert in what they were doing.

You had to do real work. And I think everyone willingly, gladly, did more than what they thought they were going to do simply because it was enjoyment.

The financing was always peripheral, tangential, tertiary. To see the molecules that Roche, Merck and Lilly are advancing that came from the fruits of our labor is an incredibly gratifying experience.

Startups: Oscar Moralez is looking for the next Marcadia. Oscar, your angel fund has been opening new chapters outside Indianapolis. I think the latest was up at the Flagship Enterprise Center in Anderson. What kinds of promising companies are you finding?

Moralez: One of the things David and Richard have talked about is the environment in Indiana I think continues to come closer together. There’s more cohesion. There’s more work together. And some of the things that we’re doing in StepStone in terms of creating a statewide network of angel investors hopefully will also blend in with some of the other initiatives. … That’s why we’re establishing chapters in these various communities. We’re applying practical business ideas and concepts to how we go about identifying these new opportunities, how we go about filtering these opportunities and then presenting them to our investors.

Certainly we’re looking at pockets that we think have opportunities to produce good deal opportunities for our investors. But the reality is that those are still isolated. When they pop out of some community, there still needs to be some sort of a network or a system that enables them to circulate throughout important stakeholders across the state.

Economic development: To what degree has Indiana been successful at–maybe I shouldn’t use this word–poaching talent and technology from other states? A couple of San Diego firms have moved here, for instance?

Johnson: BioCrossroads’ focus is on growing things here. But one indicator of our ability to do that is our capacity to attract talent or technology from other places. If you look at our Seed Fund Co. portfolio, I would say that at least half of those companies have either technologies or scientific founders or management teams that did not grow up in Indiana—who came here, who migrated here for opportunity.

If you look at AgeneBio, which is a very promising company in dealing with mild cognitive impairment, a precursor of Alzheimer’s disease—that technology started out as a Lilly drug that went off patent for a completely different purpose. It then ended up finding its way into a laboratory at Johns Hopkins University where a brilliant researcher realized it could have this new application and then ended up commanding a launch team composed of people from outside the state and also some veterans, including some people from Lilly, who brought the company back here.

DiMarchi: You know, this is such an important point—probably the most important question that you’ve asked us this morning. I don’t think that this is a winning strategy for Indiana. It should be a part of what we do. I was part of recruiting David Giedroc, the chairman of chemistry in Bloomington, from Texas. He then recruited [others].

But let’s be honest. I don’t want to offend anyone, [but] living in Indiana is an acquired taste. We don’t have beautiful arches. We don’t have mountains. We don’t have the cultural diversity. We don’t have the ethnic cuisine. The things that attract us to be here is the lifestyle. And you have to be here for a period to really appreciate the virtues of this location. So when I’m traveling on the East and the West Coast, people aren’t clamoring to get in. They’re asking me why I’m here.

Consequently, I think we will always be a net exporter of talent, which means that we have to invest in growing our talent. I just believe that the 40 or 50 kids that we bring into the chemistry department each year as graduate students—and they do it at Purdue; they’re equally important—are more important to the economic growth of this state than the recruits we bring in for basketball and football. And yet people know of those and they don’t know the others.

I’ll give you an example of just five or six kids who arrived with me when I came to Indiana. I couldn’t have told you at that point back in 1974 whether Indiana was the east or the west coast of Illinois. But I came because you had world-class protein science. That’s what brought me here. I went to Indiana University, not to Indiana. Dan Hayes was here. He now heads the breast cancer center up in Michigan. These were six graduate students in one class that were with me. Those are the people that you have to bring here.

The only way you’re going to get them is by having outstanding faculty. But you have to have that kind of horizon. We keep thinking that we’re going to recruit this talent because they’re going to bring a company in and we’re going to immediately get a return. I would just encourage you to have a longer horizon because this is the century of biology. The things we will be doing medically at the end of the century will make what we’re doing now look like bloodletting with leeches. But you have to invest in it and it’s very possible to do this. The greatest assets this state has are Purdue University and Indiana University.

Discovery Park: Dr. Rebar, what are your priorities these days for Discovery Park?

Rebar: One of the things that’s really important is having high-tech facilities that are state of the art. In addition to the Bindley [Biosciences Building] addition, which will be focused on cancer and disease research, we also have going up on the Purdue campus hopefully over the next five years a drug discovery building.

In addition to that, a health and human sciences building to house our new college which has been formed out of the amalgamation of a number of successful programs on campus. Those will certainly drive and serve a basis for many of the research programs we hope to foster over the next five years.

Just from a thematic point of view, I would say areas of targets for us would be the nano-bio area. Certainly we’re interested in the biosensor, the biomedical device area. We have a relatively new program in biomedical engineering, which really is just coming into full bloom. In addition, we’re moving heavily into biofuels. There are many innovations in the form of new catalysts that are likely to be developed there.

One of our key partners is represented in the room today, the CTSI [Indiana Clinical and Translational Sciences Institute], which is an Indiana University project with Purdue. Anantha Shekhar is with us today and I want to recognize that’s one of the things we want to do is build our relationships with Indiana universities.

One of the initiatives we fostered in the Legislature was the Indiana Innovation Alliance, which would’ve brought together Purdue, IU. It would also make resources of the university more available to industry. It got a lot of support. But economic times being what they were, it didn’t pass. That’s one of the priorities we’d like to push.

We want to look at global consortia. We’ve established a couple. We this year established an eco-partnership with China, particularly in the sustainability area. That’s a project endorsed by the U.S. State Department.

IBJ: In terms of business collaborations, is there anything that has worked out favorably that you’d like to replicate?

Rebar: We generally have about a hundred companies a year that we’re working with through these large centers. In addition, we established the Burton D. Morgan Center for Entrepreneurship. On the one hand, the large centers work for the most part with big companies. But we were also interested in how we could interface better with smaller companies and how we could take our technologies and actually form companies. So over the last 10 years, Discovery Park has helped facilitate somewhere in the neighborhood of about 45 company launches.

Much of that has occurred in the last four or five years. It took us four or five years to get up and running, but the Burton D. Morgan Center really focuses on partnering with the Purdue Research Foundation to try to create a seamless relationship from the bench all the way to commercialization.

Over the last few years, we’ve launched the Alfred Mann Institute for Biomedical Development. It’s a private foundation, but its goal is to, again, work with those promising technologies and take them through kind of the valley of death, get them further along the road to product development.

We’re now trying to decide how we could apply this in other areas. We have about four or five technologies in development in the Al Mann Institute. Just in the last year or so, we formed a West Coast partnership. We now have an office on the West Coast and the purpose of that office is to connect us to venture capitalists out there so that they become more familiar with what we’re doing here at Purdue, also to connect with some of those companies [in case] there’s an opportunity to do complementary work.

Purdue [also] we wanted to make ourselves more accessible to industry. One of the problems that we know businesses face when they come to the university is, [whom] do I talk to? There are so many points of entry. So we formed this summer an Entrepreneurship Launch Task Force to take a look at how we could create a more unified approach, put all of the business-oriented and entrepreneurial ventures under one umbrella. A report’s been formulated; it’s now being considered by the university.•