Inside Biotech Spending A look at how Kansas and Missouri are leveraging their successes to drive additional investment in the life sciences.

1. If you look at the numbers without context, the two-state region enjoyed a mixed year of venture
capital funding success within the biotechnology sector in 2011. According to a new study by
Pricewaterhousecoopers and the National Venture Capital Association, venture capital funding
for the sector soared in Missouri—to $133.7 million—compared to 2010 levels, while the figure
in Kansas declined by nearly 19 percent.
Those figures compare with a healthy 21 percent increase in life-sciences VC funding
nationwide. Missouri’s performance is welcome news to those who are trying to build a nascent
business sector here. But, as with the revenues of many a start-up company, it’s easy to gin up
bigger percentages when the baseline is low.
And, as Jeff Boily notes, it’s important to “put things in perspective so we don’t start drinking
too much of our own Kool-Aid here.” The president and CEO of the Center for Animal Health
Innovation in Olathe, Boily delves a little deeper into the numbers and notes that funding related
to the animal-health firm Aratana Therapeutics had accounted for much of the Kansas-side
activity “and that, to me, distorts the overall data,” he said.
In the fourth quarter of 2011, for example, venture capital spending on the Kansas side involved
a handful of deals, all related to mobile-application software development, but nothing in the
biotechnology realm.
Across the nation, more than $7.5 billion in venture capital poured into 785 deals involving
biotechnology and medical device firms, the financing study said. That’s significant, because
venture-backed companies account for more than 11 percent of private employment in the U.S.
—more than 12 million jobs—and life sciences accounts for nearly a fourth of that investment.
Even more significantly, many of the companies in that sector are the kinds of small high-growth
companies that Kauffman Foundation studies have shown account for a vastly disproportionate
share of job creation.
The bi-state share of that national figure came to about 4 percent of the total. In terms of
investment deals that were struck, the two-state region accounted for only a little better than 1
percent of all deals consummated. Those figures offer a sobering assessment of the region’s place
relative to biotechnology investment nationally.
New England, by comparison, attracted $1.4 billion, and the real center of biotech funding
gravity in the country, Silicon Valley, commanded more than $2.2 billion. Combined, those two
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2. relatively compact geographical areas accounted for nearly half of all biotech venture capital
invested in 2011.
That leaves Kansas City fighting much of the rest of the nation—including the New York metro
area, the Chicago region and such big-name centers as the Research Triangle in North Carolina
—for the other half. The upside for this region is that there’s a large, and growing, pool of
financing available if it can effectively make the case that investments here can be more
attractive than in other markets.
But the issues facing efforts to build a life sciences sector here go beyond mere concerns about
securing financing, say those involved in life-sciences fields. While the area boasts some
significant venture capital and super-angel investor groups, Kansas City as a region is trying to
tap into the bigger pool of VC dollars nationally. That, say experts in the field, carries inherent
risks that out-of-market money could indeed fuel start-ups here—only to see successful young
companies relocated to coastal markets or larger financial centers and population bases.
Not only could that effectively thwart efforts to create long-term job growth, it could sap the top-
tier talent that the region has been working hard to attract from other, sometimes bigger, centers
of life-science research.
“There is a presence; we are getting some traction,” Boily notes. But for the early-stage
companies, he asked, “how do we incite entrepreneurship, how do we get it going?”
The challenge we face for attracting serious players among venture capitalists from outside the
region, he said, is that “they don’t have to leave their chair—there are so many opportunities
right around them, and there is a preference for proximity to your investments.”
One other challenge facing the region is the potential for fewer public dollars being committed to
biotech-related economic development. While his calls for a restructured Kansas tax code would
attract more businesses, says Gov. Sam Brownback, the Angel Tax Credit shouldn’t be a part of
the package. He’s asked the Legislature to eliminate that financing tool, which cost the state $5.7
million in 2010.
On top of that, Brownback has withheld $22 million slated for the Kansas Bioscience Authority,
pending further review of the agency’s practices for encouraging life-sciences growth in the
state.
The angel credit and the KBA have been considered keys to giving the Kansas side of the
metropolitan area an infrastructural advantage relative to Missouri. The timing of both
developments, coming on top of Brownback’s elimination of the Kansas Technology Enterprise
Corp., could serve to deter interested investors from outside, biotech executives say.
“I believe we are entering into an era of uncertainty and that will impact the momentum that this
community has created from a regional standpoint and a national perspective,” said Kevin
Sweeney, chair of the Life Sciences Group with Polsinelli Shughart, who works in that sector.
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3. Patrick Woolley, who works with Sweeney on related issues at the firm, noted that the state
risked losing valuable momentum.
“The public private partnership is invaluable,” Woolley said. “What we see is with the startup
companies we represent, they get KBA money … that is typically matched by private equity
money or angel money or venture capital, which is critical. A lot of venture capital people will
not invest unless there is some sort of state fund to help smooth out their investment. So I think
that’s critical, especially the tax credits. The ability to sell and transfer those tax credits has been
significant to startup companies in Kansas.”
On top of that, Boily said, the region simply needs to do a better job of marketing its
achievements if it hopes to attract more outside dollars.
“The reality is that we are competing against a lot of other very potentially appealing deals”
nationwide, he said. “We have a lot of marketing to do, talking about the talent and innovation
here, from academic institutions to companies starting up.”
by Dennis Boone
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