Cash-starved biotechs eye new cash source

Biotech and pharmaceutical firms, desperately short of venture capital, are looking to the Department of Homeland Security as a potential source of funds.

By Daniel Rosenberg
Dow Jones Newswires The Seattle Times

"Industry needs the funding and the government needs the technology," said Monica Medina, an attorney and a specialist on government funding at the law firm Heller, Ehrman, White & McAuliffe in Washington. "The time is ripe."

But before startups rush to Washington with their hands out, they should know that government funding comes with some built-in obstacles and isn’t always the best way for a company to advance development plans, venture-capital experts said.

This isn’t the first time government money has become available for companies in this sector, but the opportunities are bigger than ever.

The National Institute of Allergy and Infectious Diseases will have more than $35 million to dispense in small-business grants to biotech companies. It will award grants for projects aimed at developing therapeutics, vaccines, diagnostics and other resources for biodefense.

Meanwhile, the U.S. Army’s Soldier and Biological Chemical Command is seeking proposals from biotech companies for the next generation of reagents, or substances used to detect the presence or amount of another substance.

But the Department of Homeland Security is the most obvious new source of money, and has its own Advanced Research Projects Agency aimed at defending the U.S. through research and development. Congress has authorized $500 million for the agency to spend this fiscal year.

The government will be looking for ways to treat victims of chemical or biological attacks, as well as for vaccines. The main threats it sees are anthrax, ebola, plague, smallpox and botulin, the neurotoxin responsible for botulism. Other threats include ricin and sarin — a toxic nerve gas that terrorists used to kill and injure numerous commuters on Tokyo’s subway in 1995.

"There are segments around the world hostile to the U.S. that have been known to catalog a host of deadly toxins — all kinds of different nerve agents," said Matthew Lyons, director of government relations at the Biotechnology Industry Organization.

Jonathan Root, a partner with U.S. Venture Partners and founder of Embol-X, a company that developed an intra-aortic arterial blood filter, said a government contract can be alluring for small companies, but also can get in the way of their goals.

"It’s appealing as another source of dollars to help the biotech startups (that) are cash-starved, but it’s not a long-term business solution," Root said. "I worry that biotechs will look to the government as a source of financing — which it will be as long as the problem exists, but at the end of the day won’t be for the long term."

A few companies, he said, will be able to use government money and the projects it funds as a leverage opportunity.

For instance, the company that develops an anthrax vaccine and supplies it to the government may be able to use the money it makes and its research to develop a continuing source of revenue — such as a vaccine for AIDS or herpes.

Copyright © 2003 The Seattle Times Company

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