No magic pill
Virginia’s got research centers, startups and even a biotech billionaire. But does the state have enough traction to become a biotech leader?

by Robert Burke
for Virginia Business
September 2007

For boosters of Virginia’s biotechnology industry, the story of Intrexon Corp. reads like a fairy tale. In 2000 it began as a tiny startup in Cincinnati. Three years later Robert Beech took over as CEO, and his search for capital to grow the business led him to Blacksburg. He moved his company there to be near investors. Carilion Health System, the Virginia Tech Foundation and a few others saw potential and gave the company a $925,000 cash infusion.

Fast forward to May. The privately held company received another major boost: a $25 million cash investment from New River Management, a private investment fund managed by Radford-based Third Security LLC. The firm is led by Randal J. Kirk, who earlier this year sold New River Pharmaceuticals to a British company in a $2.6 billion deal that made him a billionaire.

Now Intrexon is in the midst of a hiring spree. It’s filling lab space at the Virginia Tech Corporate Research Center with researchers bent on developing gene-based therapeutics against tough diseases such as advanced melanoma. Since spring, the staff has swelled from seven employees to 67, and there are plans to double that number by year’s end. Beech says the company wants to begin clinical trials by late this year or early next year. “We’ve got the right partners, the right investors lined up, that I think over time we’re going to have a great company.”

Of course, the real test for Intrexon is whether it can truly develop new and effective treatments. “We’ve got a lot of heavy lifting in front of us,” says Beech. Yet as a creator of jobs and investment, Intrexon is already a success. In fact, some say it’s the model for the future if Virginia wants to compete as a biotech state. Early-stage investment and support from a research university are key in moving technology from the lab into the marketplace.

The ability to pull that off may determine whether Virginia becomes a serious player. The state has about 175 biotech, pharmaceutical, medical-device and equipment businesses, according to the Virginia Biotechnology Association.
In 2002, the state began a major initiative to develop its biotech industry. It started offering more economic incentives, grants and business assistance for biotechs, and that appears to be paying off. Several major new R&D centers have opened — and others are planned — that have the potential to put Virginia solidly on the map with other biotech leaders, such as Massachusetts, Florida and North Carolina.

Burgeoning biotech clusters continue to grow in Northern Virginia, Richmond, Charlottesville, Roanoke/Blacksburg and Hampton Roads. If these centers can spin off companies from discoveries made there and at research at Virginia’s universities, then this emerging sector will not only boost the state’s R&D profile, but also lift local economies. Among the new centers:

• The $500 million Janelia Farm Research Campus of the Maryland-based Howard Hughes Medical Institute. The biomedical research campus in Loudoun County opened last year. It has 760,000 square feet of laboratory space and will have 300 scientists working there when it is fully operational next year.

• SRI International, a nonprofit based in Menlo Park, Calif., announced plans in December to build a Center for Advanced Drug Research in Rockingham County. It will collaborate with James Madison University and other Virginia schools. The center is expected to create 140 jobs and more than 100 new R&D positions by 2012.

• The University of Virginia broke ground last October on the 200,000-square-foot Carter-Harrison Medical Research Building, an $84 million project expected to open late next year. It will eventually house about 265 scientists and staff, who will focus on cancer research, infectious diseases and immunology.

• Philip Morris USA is putting finishing touches on its $300 million Research and Technology Center in downtown Richmond’s Virginia BioTechnology Research Park. The 450,000-square-foot facility will eventually house more than 500 scientists, engineers and support staff. The 34-acre park is home to more than 50 national and international bioscience companies, with many of them affiliated with nearby VCU Medical Center.

Robert Skunda, president and CEO of the park, says the Philip Morris facility has accelerated the park’s growth. “We see more folks kind of beating a path to our door,” he says. Sounds good, but how does that generate new, freestanding companies? Skunda acknowledges that a lot of the park’s space is occupied by nonprofits, government laboratories and small companies still working on big breakthroughs. He believes, though, that with so many scientists working in the same space, collaboration and innovation are likely to happen. “We want to encourage and create the situation where scientists can meet,” he says.

Skunda’s vision reflects in part the different dynamic that drives the life-sciences industry. When it comes to business success, oftentimes the driving force is a scientific breakthrough — the kind that depends on collaborations. “People don’t realize it takes a lot of time to build a biotech,” says Keith Oing, project manager for life sciences for the Virginia Economic Development Partnership. It takes money, years of research and plenty of brainpower. “Most of those states that have grown the biotech industry, it hasn’t been [through] relocations, it’s been home-grown biotech companies that became successful,” he says.

Economic developers love biotech, because it’s a clean industry with good-paying jobs. That’s why places like Janelia Farm or the Richmond biotech park spawn such hope. And yet the ground here isn’t quite as fertile as it could be for home-grown companies, says Mark Herzog, executive director of Virginia Biotechnology Association. Earlier this year, two George Mason University researchers started a company, Theranostics Health LLC, based on technology they had developed at GMU. They decided to locate the firm in Rockville, Md., not Virginia.

Herzog blames that on a lack of buildings in Virginia with wet lab space. Such facilities, where chemicals, drugs or other biological materials are tested and analyzed, require special ventilation and utilities. They are costly to build and for now, at least, Virginia’s supply is behind the demand.

What’s more, Virginia could use more venture funds willing to invest in life sciences. Most of the firms that do are based in Boston or California, notes Herzog, and investors like to be close to the companies they back. “It’s a recurring story,” he says. “Either the facilities or the money. We have great ideas. We have no problem sparking innovations. But when it comes to commercializing the company, that’s where we suddenly have difficulty.”

If anyone has perfected a model of how to invest in biotech and succeed, it’s Randal Kirk. And yet he contradicts most of what others say about how biotech can thrive. “I always laugh,” he says. Every time, he picks up a trade magazine, Kirk notices advertisements from states trying to recruit biotech firms by touting buildings, biotech parks and quality of life.

Most of that doesn’t matter, he says. “Even a casual perusal of a biotech company … will quickly demonstrate that the things these industrial development folks offer amount to something less than 1 percent” of what these companies require. What matters “is the value of the intellectual property.” If you’ve got a good technology — and he thinks Intrexon does, obviously — then you can plant that company almost anywhere. “People who are active in their scientific field will basically go to where something truly exciting is occurring.”

The availability of wet lab space, for example, is helpful, but its absence is not a major obstacle, he says. Virginia has important assets in its universities and biotech parks — Virginia Tech and its biotech park have been very helpful for New River and Intrexon, he says — and the university is producing graduates who can staff junior-level slots in a biotech company. But in large part, there’s a fair amount of luck and serendipity involved.

For example, Kirk’s Third Security fund last year invested $5 million in a Roanoke startup called Synchrony. Its CEO and president, Victor Iannello, who holds a doctorate in nuclear engineering from the Massachusetts Institute of Technology, founded the company in 1993 in his home in Roanoke County. Kirk thinks the company is in “the world’s leading position in the field of magnetic bearings … the work they’re doing is absolutely cutting edge.” The company is in Roanoke, Kirk points out, because Iannello already lived there.

One thing that could be done at the state level, Kirk says, is to change the state’s tax rules to shelter profits investors might get from sinking money into biotech firms. “In an indirect way, it’s about importing capital. You simply have to make the environment more attractive” for investors looking to maximize their return, he says.

What’s also true about the life sciences is that it’s not all about the money. This isn’t like making furniture or auto parts — researchers are striving for breakthrough medical therapies as well as new developments in agriculture and biodefense. Intrexon’s Beech is cautious not to overstate the potential human impact such breakthroughs could have, but he is excited by the possibilities. “There’re literally thousands of opportunities for us to use our technology for different types of diseases,” he says.

Virginia is still in the trial phase of becoming a national biotech leader. Reaching its promise may depend on unknown scientific wonders. Or as Kirk says: “I would imagine there are things going on that we don’t know about, in unlikely places, that are absolutely wonderful.”