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Need for Products Seen As Driver

By THOM SENZEE, Contributing Reporter The good news for those who want the 101 Biotech Corridor to grow larger, with a richer mix of biopharmaceutical research and development companies as well as device makers and other life-science firms, is that capital is finding its way to the Conejo Valley and surrounding areas. Last year broke records for biotech funding. Venture capital funds invested 53 percent more in 2007 than in 2006 within the Los Angeles area, according to PricewaterhouseCoopers’ MoneyTree Survey. With more than $151 million in various stages of funding, biotech took a greater share of VC money than the region’s front-and-center industry entertainment and media which got almost $122 million. Only the region’s telecom sector received more venture capital than the biotech community. Of course, many startups along the corridor get their launch money from traditional business banks, Small Business Administration (SBA) loans, and personal investment. “There is a lot of activity in that area,” says William Furrell, president of Woodland Hills-based Furrell Financial Services. He helps small companies get start-up capital through all of the conventional, non-VC avenues. “The key is how much money they need to get started,” Furrell said. “They can borrow up to $2 million from the SBA. “Of course, then you’re going to need collateral and probably be putting in some of your own money too.” Furrell says there is no way to overemphasize the importance for biotech and medical-device entrepreneurs to have solid business plans with well-developed projections,as well as good credit and expert knowledge of the field. “That sector is no different than any other, except that it’s very hot at the moment.” He says it is important for all business loan applicants to know in the current environment they are probably not going to get approved by the first bank or lender they visit, and that they should just keep trying until they find the right one who will see the value in their biotech business plan. But for many fledgling ventures there is no substitute for the entrepreneur’s Holy Grail: securing venture capital funding or, perhaps even better, landing an angel investor. Novel ideas In addition to conventional funding sources, the money being invested along the 101 Biotech Corridor comes by means and ideas that are sometimes as novel as the therapies the promising young companies being funded are developing. Samuel D. Colella has been in venture capital since 1984. After 15 years as a partner at a large life sciences-focused VC firm, he formed Versant Ventures with six other partners. “According to the MoneyTree, 2007 was a record year for company formations,” Colella says. “VCs invested $9.5 billion in biotech.” The local portion of that money was divided into 209 deals throughout the county. But, according to Colella the market may have peaked. “I think for 2008 overall conditions will continue to be favorable for the industry,” he said. “We’re not directly impacted by what’s going on in the financial industry on the whole, but we are subject to some of the effects.” That’s why Colella expects this year to end with a leveling off of biotech funding at a more sustainable pace. When Versant opened its doors in 1999, the company shared the healthcare field with only a handful of other investment firms. Today, in Southern California alone, there are literally hundreds. The future of biotech Colella and his partners have seen a rapid evolution of their industry during the past nine years, a period during which the company made major investments along the 101 Biotech Corridor. Colella sees no reason for a bust in biotech and life sciences investment in coming years. “I still see a lot of positive fundamentals,” he says. “The demographics are solid. People are living longer and consuming more healthcare needs drugs and devices. And there are still a significant number of diseases we have no cure for.” The consensus is that, in addition to well established therapeutic sectors, certain diseases, technologies and needs will further drive the region’s biotechnology industry. In no particular order of importance they are: – Age-related illnesses, such as Alzheimer’s, ALS and Parkinson’s – Bio-neurological disabilities, such as autism-spectrum disorders – Stem-cell research – Next-generation micro-medical devices (especially for minimally invasive surgery) – Bio-analytics There are many subcategories of that last one, bio-analytics. One type is WindRose Analytica, a firm in Camarillo that provides biopharmaceutical makers with outsourced quality-control, drug-stability, and clinical-testing solutions. In just three years, WindRose has made a name for itself up and down the corridor for implementing quality-control programs that meet Food and Drug Administration and foreign regulatory requirements for protein-based drug therapies. But another kind of bio-analytics, which may help drive the biotech industry in the Conejo Valley and beyond is related to nanotechnology. Biochips are being studied that will be injected into patients’ bloodstreams and work like microscopic diagnosticians, potentially reading DNA in real time. Biochip technology is a good example of the blurriness of the line between biotech as drug therapies vs. biotech as drug therapies and medical devices. The evolving definition of biotech is examined in another article in this special report. But startups in these newer disciplines of biotech will need capital just as did those in the cancer and renal therapies arena that came before them. Venture capitalists such as Colella and colleague Steve Lazarus of Arch Venture Partners do not see those sectors contracting in the foreseeable future, quite the contrary. “There are going to be a lot of opportunities for startups,” Colella said. “The (Human) Genome project opened up a whole new world of genetics and genomics. At the same, time devices started to boom with the development of balloon angioplasty. Looking forward, we’re excited about devices related to minimally invasive procedures.” Such products, says Colella, have a very bright future from a venture-capital standpoint. For obvious reasons, the relationships among venture capital firms and biotech companies have shaped the landscape of the 101 Biotech Region. Since the time when U.S. Venture Partners and Asset Management Systems saw potential in a little shop called Amgen, the product of those interactions is a local professional culture that is collegial and a residential community that is affluent and close-knit. Dozens of companies, those companies’ employees, and those employees’ families can thank the University of Chicago’s queasiness about turning a profit for enabling them to live “the good life” in the Conejo Valley. “We came to the 101 geography and into the biotech venture industry at kind of an odd angle,” explains Arch Venture Partners co-founder Steve Lazarus. “We were created as a nonprofit affiliate of the University of Chicago, to help find ways to commercialize some of the innovative technology coming out of its partnership with Argon National Laboratories.” That was in 1986 and the Argon National Laboratory had a $600 million budget from the Department of Defense, a third of which was focused on biotechnology research. “The funny thing about faculty types is that they are conflicted by profit-making research, so they spun us out when we became profitable, and we became a regular venture partnership,” Lazarus said. “The first interesting deal we did in your area was Aviron, which was later acquired by Medimmune,” he says. ” Aviron is famous for the aerosol flu vaccine.” Advantages and challenges Now in its seventh fund, the company Lazarus co-founded manages more than $1.5 billion in capital. He credits the 101 Biotech Corridor for some of its investment success, and believes the area still has a lot going for it, but must also face some glaring challenges. “I think one of the biggest advantages you have is that you might be able to recruit a combinatorial chemist to a company because he or she knows there will be other opportunities in the area if something doesn’t work out,” Lazarus says. “Not a lot of other areas can say that.” That, he says, also makes the region attractive to venture capitalists. But Lazarus believes the area’s challenges are concrete and must be dealt with if new funding is to be secured. “The problems that go along with success are infrastructure,” he says. “It has gotten very crowded, and housing is a problem Amgen ran into.” Steven Lazarus was also a member of Amgen’s board of directors for more than a decade. But he believes business and government leaders can meet those challenges if they want investment in life science industries to flourish in the region. Both Versant and Arch are investors in a new type of biotech firm. Kythera is a well-funded start-up in Calabasas focused on bringing biotech-quality R & D; to clinical aesthetics, i.e., youth and beauty pharmaceutical products. Both Versant and Arch have multi-million dollar stakes in the firm, run by former Amgen-Europe head, Keith Leonard. Both venture funds are expecting big things from Kythera. “In five years we should have revenues north of $100 million,” Leonard says. “I don’t know if it will be $100 million or $300 million. Those may seem like tiny numbers compared to someone like Amgen, but that’s a big number for a startup in a short amount of time.” Kythera’s Series-B (second-round) funding came mostly from Arch Venture Partners. Leonard was attracted to Arch because of Lazarus’ reputation for bringing a substantive partnership to funding deals. He says getting capital from companies like Arch and Versant is a good thing, not only for the money, but also because of the relationships they bring to the table. In the case of Arch Venture Partners, those relationships include intimate rapport with university-based research scientists and finesse in working with academic institutions. “The difference between Sam (Colella) and Steve (Lazarus) and the MBA fresh out of Harvard would blow you away,” Leonard says. “They’ve spent decades building relationships that are invaluable.” With 25 employees, Kythera also has funding from Prospect Venture Partners, Wilson-Sonsini-Goodrich and Rosati (a biotech-specialized law firm), and Altitude Life Science Ventures, all of which are located in Northern California. Many funding options Startups along the corridor can look to a growing number of firms wanting to find and fund innovative life-science companies. Locally, the most active firms in 2007 were Redpoint Ventures, Clearstone Venture Partners, Rustic Canyon Partners, Palomar Ventures, Steamboat Ventures, GRP Partners, and Amgen, which now has its own VC funding unit. In addition to those companies, former Amgen CEO, Gordon Binder has a firm in West L.A. called Coastview Capital, which is small but growing. With Binder at the helm, Coastview has a unique perspective and access to people that would be the envy of any venture capitalist. Mega-VC firm Kleiner Perkins Caufield & Byers of Menlo Park is a longtime investor in the 101 Biotech Corridor. KPCB is still “In search of the next big idea,” according to the company’s marketing slogan. Of course, startups have the option that Alan Herman, co-founder of WindRose Analytica, exercised. Self-funding may not be as popular as traditional or venture-capital funding, but, says Herman, it does have advantages. “The advantages are the ownership not diluting it and much more fundamental issues of knowing our industry very well and being able to focus more closely on the client’s needs rather than the partners,” Herman says. The disadvantages he says are obvious. “Aside from the obvious, it also means we can’t always grow as fast as we want in this capital-intensive business,” Herman says. “For every new employee there’s also an investment in state-of-the-art equipment.” Nevertheless, WindRose Analytica has grown from three employees to nine, and Herman expects that number to double in the next 12 months. Regardless of the kind of funding individual or groups of entrepreneurs are interested in, there are resources to help them find a path to launching their brainchild into the world of biotech commerce. One local source is The Biotech Forum, a group founded by local business leaders Brent Reinke, and John Dilts. Reinke is an attorney with the Westlake Village office of Musick, Peeler & Garrett LLP, who also founded a networking and business-development organization known as the Gold Coast Business Forum. Dilts founded Maverick Angels and Dilts Ventures. Maverick Angels is a so-called next-generation investor network based in Agoura Hills, which invests in biotech firms, as does Dilts Ventures. The Biotech Forum hosts monthly “deal line-ups” and “Maverick Angels arenas,” where startups can present their idea to potential funding sources. The group also presents educational forums throughout the year and has a “bootcamp” for entrepreneurs. The Biotech Forum’s URL is http://thebiotechforum.com The Valley Economic Development Center has several programs aimed at helping startup businesses find funding. Visit http://vedc.org for information. Of course, there is always the Small Business Administration (sba.gov), which offers loans from $5,000 to $2 million.

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