By Kathryn Grayson
About a decade ago, Minnesota’s political and business leaders campaigned to refashion the state into a growing hub for biotech companies. There were task forces and a 20-year plan. The Legislature created special Bioscience Zones as executives joined state officials in meetings to lure out-of-state startups to Minnesota.
Not long after those efforts — a trend among states nationwide at the time — started to fade, something else happened: Minnesota’s biotech industry started showing signs of life.
Lee Jones is the CEO of Rebiotex. Her company is developing a product to treat severe… more
Funding for Minnesota biotech and pharma startups last year was three times what it was in 2009, according to research from Medical Alley Association. Over the same time period, the number of companies landing investments rose from five to 13. While small, some of those companies aim to become big players in one of biotech’s hottest niches — genome editing — and in innovative areas outside of traditional drug development.
There’s also action on the big-company front. For instance, Takeda Pharmaceutical Co. Ltd. — Japan’s largest pharma company — early this year bought an idled 215,000-square-foot biologics manufacturing facility in Brooklyn Park. The plant now has 100 workers making a drug that treats ulcerative colitis and Crohn’s disease, a company spokesman said.
Nobody expects the next Merck & Co. to pop up in Minnesota overnight, and issues like a lack of biotech-ready real estate could constrain expansion. However, industry players say there’s plenty of room for growth.
Angels back growth
Laura Brod, a Republican state legislator during Gov. Tim Pawlenty’s administration, is today CEO of RoverMed Biosciences, a Saint Paul-based drug-delivery startup focused on the cancer market. She argues that the biotech initiatives launched years ago at a minimum raised awareness about the industry’s potential in Minnesota.
However, one policy change made a big difference, executives say: the angel-investor tax credit program, passed in 2010, which provides income-tax credits to angel investors who back startups. Many young biotech companies have gone on to raise large funding rounds from angels rather than traditional institutional investors, such as venture capital firms. Examples included Roseville-based Rebiotix, which reeled in $25 million from individuals in 2014, and Recombinetics Inc., which recently wrapped up an $11 million raise.
The tax credits remain controversial in some circles, with critics saying they subsidize investments people would have made without them. (The legislation passed partly out of fear that Minnesota biotech startups were fleeing to Wisconsin to benefit from that state’s tax credit program; two startups at the center of those discussions have since shut down.)
Still, many entrepreneurs argue that the incentives are important because Minnesota investors are more familiar with the medical-device industry than the biotech sector.
“I understand the debate around the angel tax credit, but it does a couple things,” said Brod, whose company has raised about $750,000 from angels. “It helps people feel more comfortable investing when they’re not experienced in pharma or biotech. It also gives investors a bit more security because [a tax credit] reduces the cost of the investment.”
While the uptick in biotech investment is recent, Minnesota’s biotech sector has long been stronger than many realize, said Rebiotix CEO Lee Jones, citing successful businesses like Maple Grove-based Upsher Smith Laboratories Inc., which predominately manufactures generic drugs.
Jones came to Rebiotix after spending years working in medical technology. Her company is developing a product to treat severe infections using microbes harvested from human stool.
She went through an accelerator program, Springboard Enterprises, to “learn how to speak drugs” and discovered both big opportunities and new challenges in biotech.
“Everything about this is different than the medical-device side,” she said. “If you start thinking in terms of numbers and investment, you have to add a bunch of zeros to what you would have [in med-tech]. I think in billions, I don’t think in millions anymore.”
Also, there are many more strategies for building a successful biotech business, including technology-licensing arrangements, uncommon in med-tech, she added.
Other traditional med-tech executives moving into biotech include David Kaysen, long-time CEO of device-maker Uroplasty before joining Waconia-based Sun BioPharma as CEO last year. That company, which is developing drugs to treat diseases affecting the pancreas, closed on nearly $2 million in financing earlier this year.
Cutting and pasting genes
One of the most-watched fields within biotechnology in recent years is gene editing, a term that covers techniques for cutting and pasting DNA. The process is different from what most people think of as genetic engineering because it doesn’t call for combining DNA from different animal or plant species.
In the past year, three gene-editing companies nationwide have gone public despite a broader industrywide IPO slump.
The University of Minnesota’s research into the field spawned the launch of several businesses in recent years, including Minneapolis-based B-MoGen Biotechnologies Inc., Recombinetics and Calyxt, a division of Paris-based Cellectis.
B-MoGen is headquartered inside one of Minnesota’s largest biotech companies, Bio-Techne, which also is an investor in the startup. The company has developed gene-editing techniques for medical research, validating antibodies and other purposes. It already has more than 10 customers and expects to be profitable by the end of next year, said CEO Jeff Liter. A University of Minnesota fund and Mayo Clinic’s venture capital arm also invested in the business, which has raised about $1.6 million.
Recombinetics, meanwhile, uses gene-editing to tweak animals for the agribusiness market and biomedical research. The company has 35 employees today and expects that number to double next year, said CEO Ian Friendly, a former General Mills Inc. executive. It’s brought on an adviser to raise another round of funding.
“We’re in the early innings of what will be a very big industry,” Friendly said.
Calyxt, meanwhile, is designing a new headquarters in Roseville with a greenhouse for growing gene-edited plants. The firm uses its technology for purposes such as making wheat more tolerant of disease, creating healthier cooking oils and reducing browning in potatoes. It has 30 employees today and will staff up as it prepares to launch its first commercial products in 2018, said CEO Federico Tripodi.
The company’s ties to the University of Minnesota, plus the state’s strengths in agriculture and food manufacturing, have made the Twin Cities a good home base for the business, he added. “Gene editing is going to be transformational technology for food, agriculture and human health. There’s really two leading technologies in the world today, and one was invented in Minnesota.”
While Minnesota has broad strengths in life sciences, there are some issues that could hold back further biotech development. One of those is space to operate, said Ping Yeh, CEO of startup StemoniX, which is scouting for a manufacturing site in the Twin Cities. The company has developed technology to make mini organs for research and has its research-and-development operations at Johnson & Johnson’s JLabs facility in California.
There are smaller labs for young companies in the Twin Cities, like those inside St. Paul’s University Enterprise Laboratories. However, in cities like San Francisco, there are many buildings built out to fit biotech companies’ needs, and businesses can easily move from one to another as they grow, Yeh said. In the Twin Cities, companies must make big up-front investments in equipment in spaces they’re not yet large enough to fill.
“If you’re a hermit crab, you don’t want to move into a really big shell that you can’t drag around. You want to move from one shell to other shells,” Yeh said. “In Minnesota, there are only big shells, and carrying around that burden is dangerous from a burn-rate standpoint.”
Beyond space, there are other needs harder to fill locally. Jones has had to go to the East Coast to find regulatory consultants familiar with Rebiotix’s field, for instance. And some CEOs wish for more venture capital firms with biotech expertise.Overall, however, many see cause for optimism.
“We as Minnesotans underestimate the work that’s going on here. It’s kind of a hidden gem,” Jones said.