(Editor's note: This is the first of a two-part series on the state's life science/biopharmaceutical industry with this first article dealing with the challenges of getting the state to provide the financial tools necessary to grow the industry. The second article will deal with a couple of newly emerging companies that will help carry the hopes for the future of the sector in Washington.)
The apparent legislative disinterest in the state having a financial role in the future of Washington's life science industry isn't a fatal flaw for what has become the nation's sixth largest biopharma cluster. But it will send the wrong signal to biotech entrepreneurs and investors elsewhere in the country and will inevitably mean some startups won't make it across the early-funding challenge that's known as "the valley of death."
"Legislative disinterest" means the very real possibility that the 2015 Legislature may turn its back on key funding for startups, who represent the seeds that grow into players and job creators in the industry, by declining to keep the innovative Life Science Discovery Fund (LSDF) alive.
If LSDF, created to foster growth of the state's life science sector, went out of existence on its 10th anniversary because the Legislature decided not to fund it anymore, It would represent an ironic measure of the legislature's lack of commitment to the future of that industry in Washington.
Key states around the country are going to great financial lengths in their funding commitments to life science, both to foster growth of that industry within those states and also to send "come join us" messages to biotech innovators and investors elsewhere in the country.
LSDF was established in 2005 by then-Gov. Christine Gregoire and the state Legislature to guide investment dollars from the Master Tobacco Settlement Agreement into research and development grants to entities that demonstrate the strongest potential for delivering health and economic returns to the state.
It was only the intervention of Gov. Jay Inslee, a key proponent of a strong life-sciences sector, that saved LSDF at the end of the 2014 legislative session, but he couldn't prevent the demise of the research & development credit against the state sales and business & occupation taxes.
The R&D credit expired at the end of 2014. More than 2,000 companies had used the credit against the B&O tax since it was instituted in 1994, and about 400 have used the sales tax credit. The lost revenues through 2012 totaled about $950 million, but the investment the credits generated came to about $8 billion, and repaid the state several times over in overall tax collections, according to industry sources.
Washington is now is on a short list of companies that don't offer R&D tax credits, and perhaps the only state on that short list that actually hopes to see its life sciences fortunes be an important component of economic success.
The budget Inslee has submitted to the Legislature would make a $20 million investment for LSDF and re-establish a $70 million Research and Development Tax Credit program with the governor telling the life sciences industry he is "a strong supporter of the R&D tax credit and sales tax deferral."
To be sure, the industry, guided by the Washington Biotech and Biomedical Association and its president, Chris Rivera, himself a former biotech CEO, have friends in Olympia in addition to the governor.
But the myopic among lawmakers will point to this region's sixth-largest life sciences ranking and say "well, things are obviously going pretty well for us."
The fact that the Seattle area ranks third among cluster-cities in the total of NIH dollars, at $142 million for the most recent year calculated, is viewed as reflecting the fact the region is anchored more by academic and independent research institutions than by local companies.
In fact, those academic-independent institutions, like the Gates Foundation, Fred Hutchinson Cancer Research Center, PATH, Institute for Systems Biology and the University of Washington may well be the most prestigious collection of industry research players in the country.
But the startups spun out of those institutions need conventional financial support to become full-blown businesses and that has been a challenge for companies in this state.
And from a competitive-clusters standpoint, the fact that two of the cluster cities above Seattle on the list are in California, with San Diego third and the Bay Area a far-ahead number one, is something that the lawmakers and policy makers need to be continually focused on.
Indeed nothing points up the importance of competitive awareness than the experience of Chris Rivera himself.
Rivera recalls that when he sought advice on launching a biotech firm in Seattle that would focus on orphan diseases "I told a key industry leader I needed space, talent and money. The response was 'you won't find those here.'
So having been involved with firms in Boston and the Bay Area before moving to Seattle in the mid-80s, he headed for California where, in 2005 in South San Francisco, he launched Hyperion Therapeutics, a specialty biopharmaceutical company focused on the development and commercialization of therapies for gastroenterology and hepatology diseases.
Rivera guided his company through the usual ebbs and flows of early growth challenges, including downsizing when the IPO market dried up. He stepped down in 2008 as the company prepared for what turned out to be successful Phase II trials and a $69 million funding in June of 2009 in one of the largest VC raises that year. Hyperion went public in 2012. He remains an investor in the company, but it is a growing Bay Area firm, not the Seattle-area firm it might have been.
Thus it wasn't surprising that when the WBBA executive committee went looking for a new president in late 2008, they lured Rivera back to Seattle with one of his goals being to create a strategy to help keep companies in Washington.
"I think we've done a pretty good job of achieving that," he says.
Success for Washington's life science industry often seems a matter of two steps forward and two steps back, despite the best efforts of WBBA, whose strategies include a successful mentor program for entrepreneurs.
There was some of both forward and back in 2014. The steps back were the departure Amgen, taking with it the jobs of more than 600 biotech employees, and the demise of once-high-flying Dendreon, which had more than 700 employees, leaving perhaps the largest number of jobless biotech employees ever in this area.
But the steps forward were the emergence of Juno Therapeutics, a company less than two years old that surged into an IPO in late 2014, and the surge in interest for Omeros Corp., whose CEO Greg Demopulos jokes that it has taken his company 20 years to become an overnight success.
Ironically, the hiring mode for Juno, which develops immunotherapy treatments for cancer and has had remarkable results in small clinical trials, has benefitted from the availability of former Amgen and Dendreon employees.
Omeros, a Seattle-based biopharmaceutical company focused on developing and commercializing small-molecule and protein therapeutics for large-market as well as a variety of orphan indications, has become the best biotech story of 2015 and we will take a look next week at the company that celebrated its 20th anniversary last June.