Utah has a vibrant life science community, which is expected to substantially grow during the next few years. Our group of life science leaders discussed new industry developments, including BiG—a life science and business incubator that combines education and industry efforts. The group also discussed ways to ensure the life science industry continues growing, how to enhance the state’s workforce, and financing issues.

A special thank you to Kirton & McConkie for hosting and sponsoring the event. We’d also like to thank Tami Goetz for moderating the discussion.

Our panel included:

Doug Fogg, Sorenson Genomics

David Robinson, TechniScan

Jeff Nelson, Nelson Laboratories

John Wirthlin, Allocure

Greg Jones, Moran Eye Center

Pratap Khanwilkar, WorldHeart

Deborah Eppstein, Q Therapeutics

Tamara Goetz, GOED

Suzanne Winters, BioInnovations Gateway

Why do so many life science companies start up in Utah?

EPPSTEIN: Utah was ranked No. 1 with MIT in the number of new companies that are started out at the University of Utah. I think that reflects on the ability of the university and its technology transfer program to put reasonable license agreements in place. Too many places put such high burdens that companies can’t start.

One area where I think there could be improvement is in continuing to support these companies during their formative years when they need a little extra help, which would allow the companies to continue to grow. One of the things that I have seen is companies grow to a certain point and then they leave Utah, and that’s what we need to foster not happening.

KHANWILKAR: I agree with what you are saying about the startup environment being very good—getting companies started is the easy part. I think the U and other schools are very good at getting technologies in startups, but then what happens after that is things fall off the cliff. But it’s a question of volume. Essentially the one thing that is a takeaway from me is you just got to keep at it. You don’t know what the heck is going to succeed and what is going to fail so you just got to keep doing it. And the higher you crank up the volume for startups, you’ll find that some of them will succeed, but most of them will fail. We should, as a community, try to crank up the volume and support them, and then let the marketplace figure out which ones succeed and which ones don’t.

I think we can do a better job of mentoring those companies, especially in life sciences. There’s the phrase “Valley of Death” that’s described the long and expensive process to succeed here. And that is the challenge for our industry. How do we help these companies once they have started up the great technology coming from the U or another university? And how do we get them to the other side of the promised land of profitability because the west desert is long and arduous?

EPPSTEIN: I believe funding is the key aspect there. There are some aspects that I think Utah could do to help companies in this Valley of Death region by achieving matching funding. I’ve talked to other companies in other states that are able to tie in, for example, to the California stem cell initiative because their states have programs that allow them to participate. And things like that could be set up within the state of Utah that would be extremely beneficial.

NELSON: I think in addition to funding is the availability of talent is a real issue at times. It’s maybe not so much of an issue in a down economy right now, but when things are going well for life sciences, finding the right talent can be kind of tricky.

I’ve noticed in our economy in this industry there have been a lot of anchor tenants, for example Deseret Medical and Ballard Medical. These companies bring in a lot of talent and develop a lot of talent and then gradually that becomes a feeder source for other businesses and other startups.

KHANWILKAR: I think you are right on. But essentially all these companies begin as startups in Utah. Look at Becton Dickinson, Desert Pharmaceuticals, Abbott/Hospira, Bard Vascular Access, Boston Scientific, Precision Vascular, Edwards Lifesciences. These companies started in Utah, they are born out by large companies and luckily the large companies chose to make the divisions part of them here. And that’s the reason why we have that base. I think we should keep doing what we are doing on startups because it leads to bigger and better things—especially life sciences. I think that companies that start up tend to stick to where they were started from because of clinical and other multidisciplinary connections. Sometimes it really works to Utah’s advantage. Take the case of WorldHeart. MedQuest was acquired by publicly traded WorldHeart, which was headquartered in the Bay Area. Not only have we grown what used to be the original MedQuest here, but WorldHeart is now headquartered in Salt Lake City.

FOGG: I do support the notion of startups and I think it’s fantastic that the University of Utah, through its technical transfer office, is able to commercialize new startups. But I think there is also an opportunity to involve existing Utah companies, companies that have good management, that have infrastructure in place, that have capital, have capacity, companies that are looking for new opportunities, new ideas. And I think that sometimes these ideas are fantastic ideas, but they fail because of a failed business attempt and not necessarily fail because of the idea. And so if there is an opportunity to perhaps involve more existing Utah businesses with these new ideas and technologies that are coming out of the university, find a perhaps more stable environment or home to be successful with these technologies and ideas, I think that perhaps more of them will be successful.

NELSON: I like the idea of that. Even getting those companies—the small startups and those established companies—together more often so there’s more cross-pollination that I can occur and a lot of mentoring that can occur with those companies—not to mention the possibility of partnerships.

ROBINSON: I came from outside of the state and one of the things that I found in Utah that’s different than Massachusetts or California or anywhere else that I have worked is everybody is accessible. You can pick up the phone and you can call the leaders of the life science community, leaders of the business community, the academic community and you can get them on the phone. If you live in California, you don’t get those opportunities. And I take that even to the level of venture funds. Entrepreneurs can pick up the phone and call someone who’s been through it or call somebody at Utah Venture Partners and they’ll give you guidance about what to do.

KHANWILKAR: I agree. Other places that I’ve been to don’t this. But here, people will definitely meet with you.

ROBINSON: That’s absolutely unique about Utah compared to everywhere that I’ve ever been.

WINTERS: Of course some of the newer people to Utah don’t even know where to begin. Because we all know each other, we know who has the expertise to help. But what about the new entrepreneurs who don’t know where to turn to? There is no formal life science infrastructure or association that provides life science-focused networking support. I think that is absolutely necessary.

JONES: I think the university outreach that has been done over the last three or four years has been great. There’s been a heightened job of getting the university’s inventors and the young entrepreneurs in front of other business owners. It’s a great model.

What does Utah’s life science industry need to experience sustained growth and success?

KHANWILKAR: We need an advocacy group and UTC needs to be that advocacy group. We are trying to do it and I’m looking forward in the coming year to working to get things done on the Life Science Advisory Council at UTC.

NELSON: I think what you’ve said is fair. I don’t think there has been a good advocacy group that’s dedicated to the life sciences. I do see some possibilities and I am really hopeful for where UTC is headed. They have hired [Dr. Michael Feldman] to focus primarily on life sciences. And they are going to take an approach where they are building value first. I think those routine meetings and those collaborations will really help the industry.

Previously when this has been attempted, it’s been about membership first and I think focusing on how to bring these companies together, how to really produce value, and putting together a strategic document that really outlines how life sciences can develop in the state—that’s going to enhance what we have and I’m excited about it. KHANWILKAR: I think the industry needs to operationalize. It’s one thing to meet and come up with great ideas, but ideas are placed on the back shelf and nothing happens. We need to operationalize it, execute it and make our ideas happen.

JONES: Industry is willing to help, but other commitments often get in the way. So as the leader, if you go out and you say, I’m willing to help, but I’ve got a day job doing this. It seems like people get involved, but then business interrupts them and that’s where these things die.

WINTERS: We all have to pay the mortgage.

NELSON: Having that leadership from industry is a big deal. Having people who are trained to run these companies and trained to do startups and who are looking for that collaboration—having those people involved is absolutely essential. But if you rely completely on that and there is no one to put the behind-the-scenes work into actually making it happen, the hard work won’t succeed. I think that’s been Utah’s challenge up to this point. But I see some good possibilities in the near term.

What can the State of Utah do to support the life sciences industry?

ROBINSON: I think the Governor’s Office of Economic Development is primarily concerned with bringing companies in from outside the state and that I think that outward focus bothers a lot of people here. They think, “Hey, wait a minute, we are a home-grown company here. We pay higher salaries and it’s really frustrating to read about how an investment bank gets a huge tax credit for bringing new people that make less than I pay every day. It’s really frustrating to me on that level.”

KHANWILKAR: The other thing is quite a few states that you mentioned are just matching SBIR grant monies. Some companies get a simple dollar-for-dollar match.

WINTERS: It wouldn’t cost a lot of money. Now, the U is doing that with some of the stimulus dollars that have flown through USTAR. The companies that they are starting up will get up to $150,000 on a competitive basis. They are now known as the TCG grants. That’s great if you are at the U, but what about all these other companies?

ROBINSON: I think that’s wonderful, but I think that’s where Utah is already really doing well. We do a great job at that very early stage of development and taking things from the university, from the laboratory, and getting commercial to look at it. Giving companies $150,000 is great, but we don’t have a $150,000 problem. We have $5 million, $10 million and $20 million problems—and that’s where we need the help. I think those early stages are great, but we need more money dedicated to companies in later stages. The benefits that you are going to bring to the state and bring into the tax base are going to more than offset the expense.

WIRTHLIN: I think that the State has done a few things that have been very good that we have benefited from. USTAR has been mentioned, but also the Utah Fund of Funds has really helped bring VCs to just take a look at companies in Utah. And that’s been very helpful. Where I think the State can take it to the next level is with the companies that are already here. I agree with their out-of-the-state recruiting approach, but I think the State also needs to look at companies already here and bring them together and find out what they need. I’ve never had a call from the State saying, “What are you up to? What are you doing? How can we help you?” I think tax credits are very helpful. I think a sales tax exemption, like there is for manufacturing, would be extremely helpful. There should be one for all the research companies that are doing research.

WINTERS: One of the hardest lessons I ever learned is business speaks with a very loud voice. So if you want something passed, you get business to talk. I think we need to get a whole bunch of companies to work together to educate the legislature.

NELSON: I think it’s a good idea to have more collaboration and to get the industry together more often to talk about these things and have a consensus. Right now it’s been hard to have a consensus together about what the most important issues are. I have started to see some investment in the state with EDTIF money, for instance. We are a benefactor of that to some extent. And I’ve also seen the state start to turn the focus away from strictly outside-in recruiting to actually trying to build some incumbent industry. I think that’s been a very positive start. I would agree with what you are saying, though—more of that is going to really make a difference. Because if we can build these companies in Utah and help them get past the infamous Valley of Death, we all will benefit and it becomes self-perpetuating. When you have great companies that achieve a certain size, they create more industry around them. Big companies draw other companies in and you start to build a really strong industry that self-perpetuates.

JONES: I think we have quite a bit of device talent, especially in the vascular access places and some in the cardiology places. If you talk with the leaders of those divisions, they’ll say there are a lot of ideas in their plants that are too small for their companies to act on but would make a great side project. At some companies, you would see those side projects come out. Unfortunately, Utah is not quite to the place where those ideas can spin out into an environment where they are supported—we’re a step away from that. So how to build that infrastructure and accelerate the set of events happening is a really interesting question that we think the State could look at.

WINTERS: There are opportunities for companies with back-burner projects. There’s a program where students work on projects that may have been put on the back burner or on the “eventually” list of companies. The question is how do you move those projects into a product development cycle and into a company? If the company wants it who originally has the contract, that’s great. If they don’t, is there an outlet and how can we create the outlet?

ROBINSON: There are funds out there that specialize in looking at those kinds of business plans, whether it’s an existing profitable business or it’s a spinout with any kind of support at all. I would imagine they could find that financing relatively easy. Those are considered safe bets for many venture funds.

What can be done to help startups reach long-term success?

WIRTHLIN: We have a university that’s spinning out lots of companies. I think that’s a tremendous accomplishment, but I think the next step is to then take a look at those companies and think about what happens next. Are they companies in name only? How many jobs have they created? What are the funding levels of those companies? Creating the companies is a great and noble goal that we should target, but I think the next step is figuring out what we do with those companies when they come out? Is the company ready for prime time? Is the company ready for major funding? What’s the stage of the technology? A lot of times professors want to have a little company on the side, but a real live company is a different thing.

What I think might help is more technology aggregation. VCs have pulled back—they are not funding early stage deals the way they used to. So how do you take these great companies that have spun out and have good technologies and get them to the point where they can get funding? I think part of the solution might be technology aggregation, where you bring a few of these companies that have similar technologies and you build a platform that then you can progress forward and you do it in a virtual way, where you do it with very little money and you do it with some of these matching grants. There are things like that that you can do to get the technology advanced enough, where then you can go out and say, “OK, now we are ready.” Aggregating these companies together and getting really fundable projects that you can take forward is key because otherwise you spend a lot of time and though you get some good companies, there is too much wheel spinning.

WINTERS: Another idea that we tried to figure out how we could fund is called a Roving Launch Team, where you have a CEO, you have a COO, you have a CFO. It’s a team that goes into a company and helps manage it for awhile. They are funded outside somehow because the company can’t afford this kind of expertise. The group goes into a company for a year to 18 months and they really put in the business savvy of what it takes to get the technology out. The technologies we have are great, but what we don’t have are the people who can afford to live with no salary for the five years that it takes to move a business forward. But during that 12 to 18 month period, they are also mentoring and bringing behind them the management team that can replace them when they leave.

Some of us from USTAR looked at how we could fund something like that. I talked to a number of the venture companies, but they wouldn’t touch it—they said there was no way they could fund it. So the question is: How do you come up with enough money to pay these seasoned people who are highly skilled to go take those technologies and be successful?

JONES: I think you see that modeled in a couple of the angel funds here. They take a significant stake in the company, so they’re really part of the company. They bring money and their management expertise.

Does Utah have the venture capital infrastructure needed to grow companies?

ROBINSON: When I came to Utah four or five years ago the joke was, “What does it take to be sexy to a VC?” And the answer was, “To not be from Utah.” And that’s changed fundamentally in the last five years. Venture funds are now looking inside the state and have been very active in investing, but to some degree we are going to become victimized by the life cycle of a venture fund. 5AM is a great example. When 5AM raised their first sign, the fund was small enough that they were called 5AM ventures because they invested in very early stage deals around $2 million to $5 million. And that’s where funds in Utah were a couple of years ago. Well, if you close on $100 million or even $2.5 billion, you can’t make a $5 million investment. So by necessity you are looking at later stage companies with bigger market caps and they leave a gap in the market that then takes some time to fill. I think we are seeing that now in Salt Lake.

JONES: I think as a result of that money not being there Utah also has a pretty significant gap in the companies that need $10 million to $30 million.

WINTERS: We have a lot of gaps.

JONES: That gap is where people really get seasoned in what it takes to take a product or device to market.

ROBINSON: That’s the so-called Valley of Death. It starts after you come out of the university and you get your initial funding.

WIRTHLIN: I think that’s actually more on the VC side because the VCs are willing to put one round in. They better have a game plan that gets them to the finish line and that means bringing in bigger VCs, international VCs from out of the state. If you are going to accept that initial round, you need to make sure you have a team that can go the distance because there is no point in taking the $5 million when you are going to need $30 million.

Does Utah’s life science community have the critical mass needed to sustain the industry? How do we grow that critical mass?

JONES: There are really two ways to build a critical industrial mass. One is to grow it in state, of course, which we are working on. Two is to recruit some of it. And both of those are limited by how much workforce you have. Certainly when you talk to companies about recruitment, the largest single question is not about tax rates or property values, it’s, “Can I get the talent to actually staff my company?” In life sciences, we have a workforce shortfall when you talk to big life science companies, because we don’t have other life science companies that are trading personnel back and forth. Building a workforce is important. These incubation programs that help students is a huge piece of the puzzle. You have got to have that workforce eventually created before you can grow internally or recruit from the outside. So that critical mass is the chicken/egg problem, and workforce is right in the middle of is.

EPPSTEIN: It is, again, the chicken and the egg, because one of the big challenges to recruiting from the outside is potential employees say, “Well, if your company fails, where am I going to go? I have uprooted my family and I’ve got maybe one or two other companies in this field to choose from.”

WIRTHLIN: I think that’s where you really need to take advantage of local talent who have been successful. A major investor is going to say that there is going to be a discount in Utah if the company’s headquartered there because it’s not a hot spot. Statistically, there are much better chances of being successful in hot spots, so the question is: How do we become a hot spot? I think what we do is we really take advantage of companies that have been successful. And maybe they are sold. Well, then what’s the next step? How do we take advantage of that talent pool that now is maybe looking for the next thing or can take advantage of the next step? Then the idea is that you get enough shots on the goal and you are going to start scoring. Then as you get more and more of that talent, you have more and more people going through that cycle of growing companies. And maybe they do sell and go to another state, but then you do it again. Pretty soon the perception is that Utah can grow some really great companies and you get a few that stay around and you grow it that way.

NELSON: The problem goes back to the investment in those companies that are already starting to do pretty well because if we can keep those anchors here, if we can keep those successful companies around and flourishing, then there are options for these people that come in to where they can jump to different companies.

WIRTHLIN: This is where the interconnections within Utah are very important, because they know that there have been companies that have been sold and the CEO would love to stay but they are looking for the next deal. Well, where do they find that in Utah? How do we keep that talent in? Some of us are driven by market; there is not much you can do about it. But oftentimes you have the connection that people know the talent is out there. There may be opportunities for that CEO to say, “I don’t want to move; I love it here.” Everyone knows that once people get here, they don’t want to move and so they would be willing to take a lesser salary, possibly, just to be able to stay. But they’ve got to have those opportunities. And that’s critical when you are trying to grow something for the life science community.

ROBINSON: I think it goes back to our earlier conversation. I am not a believer in the chicken and the egg. If you want to get eggs, you buy the chickens, right? And that’s what the state needs to do. The state needs to invest in the infrastructure, invest in the companies to be able to help us lay those eggs. The point is that there are some very basic things that would allow us to recruit. Utah has such a wealth of attractive things to it that we have some things that I think the legislature could fix relatively easy with some investment. I try to recruit people from outside the state and the first thing that they’ll say is, “Well, I looked at the state and you guys are number 51 out of 50 states in terms of per pupil education spending.” So how do you sell that?

There is also a knock to Utah about the perception of intolerance. Whether that’s true or not, I’m not making a statement, but there is a perception outside the state that there is a level of intolerance here. And these sorts of things that Utah has that work against us are things that could be easily solved by readjusting our perception of where investment ought to be made in the state. That’s something that the legislature can drive.

Business speaks with a loud voice. If you want to recruit people and you want businesses here, there must be investments made. We have everything else—the natural resources, the lifestyle, the cost of living. When I came to Utah, I felt like I’d gone to heaven and I would stay here no matter what. But I think the perception that we’ve got to change outside the state has to start with some of the very basic things that people look at when they are making those quality life choices. I do think we are very much in control of that, we are just not really doing anything about it.

KHANWILKAR: I had a similar experience. I was trying to recruit a manufacturing/operations manager here but he would not come because of public education. On the other hand, when you do get them here they like it. I did recruit a Ph.D. electrical engineer from Boston. In that case, after his move, he said, “Every time I drive on the freeway here, I feel like I’m on vacation. You’ve got the mountains and this and that. This is great. I don’t want to leave.” I think once you get them here they stay, but getting them here is not easy.

JONES: I don’t think the public education thing is actually fixable funding-wise. If we leveraged our tax base more aggressively than any other state in the nation, we would still be in the 30th percentile. We wouldn’t even get halfway to being the highest per pupil funding. We have our tax base problem in the public education that with money is not fixable.

ROBINSON: What I am suggesting is that if you look at the way that the legislature allocates dollars in the five years, we are going the wrong direction. Every single year it goes the wrong direction. And every single year when we prioritize that, that number goes down relative to other states. So there is something that we can learn from other states. I think the perception of schools is different than the reality of schools in Utah. Utah is not at the bottom in terms of per pupil testing.

WINTERS: We are right smack in the middle.

ROBINSON: Perception changes when you get people here and they evaluate the situation.

JONES: But getting them here is a tough sale.

WINTERS: The only way to change the problems we have in Utah education is to get really creative and develop programs outside the traditional education model. And here is my self-promotion advertisement. You have to do things like the BioInnovations Gateway, where you work completely outside of the box. And doing that in a very regimented, very pedantic education system is very difficult. Now, we’ve done that with the Granite School District. And the Granite School District is way out on the limb on this kind of thing. But we can do more creative types of educational opportunities that are meeting the needs of industry because industry is involved in writing the curriculum, in hiring the kids, etc. Then with our very limited dollars we can help that problem. We are not going to solve the education problem in the state.

FOGG: I think curriculum is really important. Our company obviously is a laboratory that’s involved with DNA analysis and what’s interesting to me is, is where is the talent coming into our laboratory. Most of the talent is coming from our universities. And as you look at the resumes of these individuals I’m always impressed to learn that even at the high school level they are learning DNA extraction, DNA amplification and DNA analysis. It’s remarkable for high school kids in Utah to be learning that level of science. They are well along the way to becoming a wonderful asset to an organization such as our company. From my experience, I’ve been very impressed with the public education and caliber of students that are coming out and available to the workforce.

NELSON: The idea of innovating from within the system and really trying to make small adjustments that will result in big outcomes is going to be a more successful approach.

What other ideas do you have in regards to growing Utah’s life science industry?

WINTERS: I think industry needs to be involved. I have, though, seen that industry is absolutely willing to step up to the plate. We had 150 people at the BiG grand opening and it was 90 percent industry. The key is going to be finding the right individuals and the right districts and with the right resources because education is so self-contained, they don’t even think about the rest of the world out there. If we can just find those people that have the vision, then we can put in innovative models and get industry-guided education.

NELSON: That really requires a lot of industry participation. It’s easy to throw money at it from an industry standpoint, but it’s about time and it’s about donation of in-kind materials or supplies. Working within the system in small ways has a lot more potential.

ROBINSON: When I came to Utah one of the things that surprised me was there was a lot of networking for networking’s sake. And I think one of the reasons that USTAR has been so successful in such a short period of time is because they were looking at specific actionable agenda. I think out of those meetings need to come specific, measurable, and achievable objectives.