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Friday, April 4, 2003 - Page updated at 12:00 AM

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Guest columnist

Seattle as biotech center? What a capital-intensive idea

Special to the Times

A COLLEAGUE — a long-time biotech investor — often reminds, "Hope is not a strategy." That crossed my mind when Mayor Greg Nickels outlined his action agenda for South Lake Union.

The mayor's vision of Seattle as a bioscience center is heartening and he clearly grasps the importance of this initiative to the city's future. However, his first draft is a partial solution that fails to address a substantial obstacle.

Investment capital is the critical ingredient for a robust bioscience industry. For Seattle, it is the starting point for commercializing the world-class bioscience technologies emerging from our local research laboratories. When Nickels broadens his strategy to address capital formation, his vision will become more achievable.

The commercial bioscience industry began and remains anchored in Boston and the Silicon Valley. Several other regions today aspire to host the substantial growth opportunity this industry is poised to deliver over the next quarter century.

The mayor would do well to acquaint himself with the calculus that determines where bioscience companies locate.

Seattle's substantial competitive advantage — in the form of nearby world-class research institutions — is, in itself, insufficient. Forward-looking political leaders across North America also covet this prize.

Several areas, including the Research Triangle in North Carolina — with nearby established research centers at Duke University, the University of North Carolina and Wake Forest University — benefit from substantial state-sponsored capital arising from tobacco-settlement proceeds. Those financial arsenals, combined with the locales' own world-class research, make for very stiff competition.

Competition will play out in four primary dimensions, none of which alone is sufficient to assure success. A fifth dimension — the attractive physical facility envisaged by Nickels — is certainly a plus, but is not enough to ensure Seattle a premier position in the commercial bioscience world.

A more competitive strategy will incorporate these four factors:

• First and foremost is a strong bioscience research base. Fortunately, this foundation is well-established here. Efforts are needed to maintain its long-term health.

• Second is a proactive bias toward the commercial development of bioscience research. This begins with pragmatic thinking at originating research institutions — the ultimate beneficiaries of subsequent commercial success. The recent appointment of James Severson as vice provost for intellectual property and technology transfer is a clear signal that the University of Washington grasps this fact.

• Third is a pool of experienced entrepreneurial talent. Today, Seattle is beginning to benefit from earlier commercial bioscience success. With Amgen's acquisition of Immunex, a new wave of entrepreneurial scientists is seeking its next opportunity.

• Fourth, but most problematic, is capital formation. Today, there is an absolute shortage of early-stage venture capital for bioscience entrepreneurs. As a result, most bioscience companies — particularly those seeking initial private financings — will not receive the investments they need to proceed.

Despite Nickels' laudable intentions, the South Lake Union action agenda is simply a city-sponsored real-estate play. Moreover, several other tracts could also compete as a host for this development. The city of Renton imagines a biotech cluster on South Lake Washington; the Port of Seattle has a large parcel of land to the north of the Immunex property near Pier 90; and the Canyon Park area in South Snohomish County is a third contender.

As venture investors, we are indifferent to these alternatives. While a clustered campus would be convenient, this consideration would be, and has been, immaterial to our decisions to invest.

To succeed, the mayor must understand the peculiar nature of the industry that he envisions on South Lake Union.

Bioscience companies consume enormous amounts of capital and have long gestation periods. Startup companies often have to raise a half billion dollars. With this in mind, the mayor, along with the two other principal beneficiaries, Paul Allen and the University of Washington, should insist on tangible evidence of early-stage capital investment as a precondition for going forward with the South Lake Union plan. Not only will this provide earnest money in the form of new jobs, but also offer assurance that longer-term tenants are forthcoming.

Unfortunately, with today's depressed capital markets, the timing may be off. Unless there is an unusual and unexpected flow of private investment for early-stage bioscience, the mayor would be wise to pause and focus the city's money and his energy elsewhere.

Ultimately, the capital markets will right themselves and at that point, it makes sense to proceed.

While the companies the mayor has in mind tend initially to locate near a spawning research institution, their ultimate location is most determined by available capital.

Until it is clear that local institutions are investing private capital, the mayor, with his vision of a streetcar-serviced South Lake Union, runs the risk of developing a "Trolley Called Hope."

Donald J. Elmer is the managing general partner of Pacific Horizons Ventures, a Seattle-based venture-capital firm focused exclusively on the life sciences. He is a board member of Koronis Pharmaceuticals, Illumigen Biosciences, Selective Genetics and Novocell.

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