MINNEAPOLIS - As the FDA focuses on more rigid safety and regulatory guidelines, it is taking more investment capital and a longer time frame for investors to see returns, panelists said during a financing workshop, as the BIO Mid-America VentureForum got under way here Thursday.

Most of the more than 400 attendees filled a ballroom at the Hilton Hotel to hear opening remarks from Biotechnology Industry Organization president and CEO James Greenwood, as well as Tim Pawlenty, the governor of Minnesota, who expounded on the growing biotech sector in the Midwest, an area already known for its medtech and medical device industry.

"For the last three years, we've seen the exciting growth of life sciences in this part of the country," Greenwood said, adding that BIO's annual convention will be held in Chicago next year.

Pawlenty, who has supported the growth of the life science industry in his state, said it is "a strategic and economic opportunity," and equated the continuing discovery efforts in biosciences as "going to the moon" for the current generation.

But it is a discovery that does not come cheap, and over the past few years, it has become increasingly difficult for early stage companies to secure much-needed financing.

Bill Kauffman, of Minneapolis-based Oppenheimer Wolff & Donnelly LLP, who moderated the financing workshop, said it is taking significantly more money to reach an exit these days. In 1996, private biotech firms were raising an average of $26 million before filing for an initial public offering. In 2000, that figure increased to $49 million, and by 2004, it rose to $78 million.

However, total VC funds doubled in that time, and about 19 funds represented about two-thirds of the money raised: $80 million in 1996, $100 million in 2000 and $160 million in 2004. So far in 2005, funds have totaled about $185 million, Kauffman said.

And more money is going to fewer companies, he added.

Part of that is due to the more demanding regulatory requirements coming from the FDA, which is asking for larger clinical trials and longer follow-up periods, said Dale Spencer, who founded the medical device company ev3 Inc., of Plymouth, Minn., and has more than 30 years experience in the business.

He said the best bet is for firms to spend more time designing and executing clinical trials "instead of fighting" the agency's requests for additional data.

Tougher regulatory requirements translate into bigger risks for investors and heightened competition among young companies, particularly those that sport the most innovation.

Aron Knickerbocker, senior director of business development at South San Francisco-based Genentech Inc., said, "What we're seeing is that there's not a lot of venture money going into true venture. "We hope that changes because it's really dangerous for the industry," he added.

Partnership Growing Among Biotech

Though investors might be skittish these days about funding new technologies and therapies, biotech firms still have partnership opportunities, though it's no longer "just pharma tapping into biotech," said Dennis Purcell, managing director, Perseus-Soros BioPharmaceutical Fund, in New York, during a partnering workshop. He said that during the last year, 60 percent of the partnerships in the sector were formed between two biotech companies.

"It used to be that a partnership with a company like [Johnson & Johnson] would validate" a firm's product "before going public," he said. "But now, biotech is holding on to its products longer."

Wanting to preserve a larger share of product rights also is turning the traditional licensing deal into a thing of the past.

"You're in it together now," said Denise McGinn, vice president of licensing and new business development of Centocor Inc., of Malvern, Pa., a unit of New Brunswick, N.J.-based Johnson & Johnson. "No one wants to straight out license a product anymore."

Instead, the focus is on securing co-promotion rights, buying equity in a partnering firm or splitting the services and the profits.

McGinn said about 63 percent of J&J's pharma group consists of products that were either in-licensed or acquired. Some of the firms' most successful deals include its collaboration with Cambridge, Mass.-based Millennium Pharmaceuticals Inc. for its protease inhibitor, Velcade, and its partnership with Neurochem Inc., of Laval, Quebec, for Fibrillex, which is being filed as a rolling new drug application to treat amyloid A amyloidosis.

But the company has had partnership troubles, as well, McGinn said, referring to "a legend at J&J" that the firm spent a lot of money in the 1990s to gain a late-stage Phase III product, but made a "fatal flaw" by putting its top executives on the joint product committee rather than the people who were doing the day-to-day work. Now, the company sets aside a day or two at the outset to integrate the work.

"We have an all-hands meeting" to discuss work and plans goals for the collaboration, she said.

"It's hard to look ahead, but you have to be asking the what-ifs and be projecting into the future as much as possible," McGinn said.

And sometimes it's not even the technical or development issues that tear a collaboration apart.

Mark Ungs, vice president of new development and emerging technologies for Boston Scientific Corp.'s cardiovascular division, said trust is one of the biggest issues in collaborations.

"Honesty is the root of the deal," he said, adding that if there's any sign of dishonesty, "I'll just write it off. I won't take the chance."

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