SWANSEA, Wales - This seaside city, once the hub of heavy industry such as coal mining and steel production, is now home to a burgeoning life sciences community, replete with innovative potential, university and government support and plans for a life sciences institute anticipated to help create about 30 new spinout companies.

In fact, the one thing missing from the story is an adequate source of seed and venture capital funding. But Wales, located on a peninsula in the central-western part of Great Britain, is determined to attract interest from European and global markets.

"We have a cocktail of R&D collaborations with companies, spinout opportunities and a whole spectrum of entrepreneur activity," said Marc Clement, professor and senior executive in the vice chancellor's office at the University of Wales at Swansea.

Yet to date, nearly all of the financial support has come from the Welsh Assembly Government, which is working in tandem with the Swansea university, along with academic and research institutions in other areas, to build a knowledge-driven economy in Wales that can replace the declining industrial sector. While that approach has yielded early success, outside funding has been hard to come by.

"The difficulty is that there are no cornerstone seed funders," he said, and "it's that first round that is most important" to move from the "high risk start-up phase" to a full-fledged development company.

"But we hope with the opportunities we're [building], we can bring that culture here," Clement said.

The most significant endeavor is the construction of the Institute of Life Sciences at Swansea University, a £50 million (US$94.4 million) investment by the Welsh government, expected to draw scientists from fields such as biotech, medical devices and nanotechnology. Expected to open in the early part of 2007, that institute is estimated to increase spending in research and development and science training in Wales by about £70 million during its first five years of operation, Clement said.

The institute also will house Blue C, a supercomputer obtained through a strategic relationship with IBM. About the size of a tennis court, Blue C is one of the fastest computers in the world dedicated to life sciences research.

Once the institute is up and running, it's anticipated to provide incubator space and lead to the development of about 30 spinout firms. The facility's target goal will be about 35 companies, with upward of 400 to 500 employees. And with the introduction of new start-up firms and the anticipated expansion of existing companies, the region can begin trying to attract venture funding.

"VC follows the deals," said Robert Wallis, the bioscience sector manager of the Welsh Development Agency, part of the Welsh Assembly Government, "so you have to build them together."

Looking For Venture Financing

South of Swansea lays the coastal city of Cardiff, the capital of Wales and home to Cardiff University, which has spun out firms such as Cardiff Biologicals Ltd.

Founded by Professor Wen Jiang, Cardiff Biologicals is a drug discovery firm focused on cancer therapies, as well as prognostic and predictive test kits to identify appropriate treatment regimens for individual cancer patients. Its platform technology is designed to identify hybrid and natural biomolecules aimed at cancer pathways, such as angiogenesis.

Hoping to reach the clinic with its first compound within the next two years, the company has started actively seeking financing. As of last month, the company was "out fund raising and talking to potential partners," said CEO Joan Devine.

Cardiff Biologicals' lead compound is based on the KVE702 protein, which has demonstrated dual action on angiogenic and endothelial cell regulating pathways, Devine said, adding that the compound appears to have better activity compared to early models of Avastin, the anti-angiogenic drug developed by South San Francisco-based Genentech Inc.

VC funding hasn't been required for tools company BioStatus Ltd., another Cardiff University spinout, which uses florescent probe technology and small-molecule chemistry to develop bioreductive agents for cancer and technology for the growing high-throughput screening market. Instead, said Co-founder and Director Paul Smith, the company focuses on "organic growth through sales."

BioStatus also continues to collaborate heavily with Cardiff University, where Smith is on staff as a professor of cancer biology at the Wales College of Medicine. In fact, Smith is working with colleagues to research an approach for small-molecule-based therapies in cancer.

The Only Show In Town'

While the Welsh government commits funding and encourages public and private collaborations, it is the academic and research community that's driving life sciences growth.

Most of the start-ups, such as Cardiff Biologicals and BioStatus, emerge from university research programs, and the rate of spinouts has increased over the last few years.

"The only show in town is the university sector," said Swansea University's Clement, which means Wales also is looking to encourage existing companies to expand into the region to build a stronger business base.

On the plus side, however, the fact that most companies stem from universities ensures continuing innovation and new approaches to drug development.

One example of that is Cardiff ProTides Ltd., a spinout of the Welsh School of Pharmacy at Cardiff University founded by professor Chris McGuigan in May 2005. The company is working on an approach to improve the activity of anticancer nucleosides, which make up about 20 percent of cancer drugs and include gemcitabine and clofarabine (New York-based Bioenvision Inc.).

Cardiff ProTides was founded on the ProTides technology platform, the same platform used by New York-based FermaVir Pharmaceuticals Inc. for antiviral drug development.

The company, which started operations in January 2006, received a £200,000 grant from the Welsh government as well as a spinout loan. CEO Jon Dickens said those funds, plus two deals - including a research and development agreement with London-based NuCana Ltd. in September - makes the company "well placed for fund raising next year."