Phoenix has grand ambitions of becoming a biotech hub – and now the money to make that happen.

Investment in the region's new research centers, particularly in genetics, over the last few years is paying off. Some big names in scientific research from the U.S. and abroad have already relocated to the area. Many small biotech companies are also mulling a move.

“They see a money pot,” says Terry Winters, a partner with Scottsdale-based Valley Ventures, who is one of few VCs in Arizona focusing on life sciences.

More than $130 million in public funds from the City of Phoenix, the State of Arizona, and Maricopa County (in which Phoenix is located) has been pledged to support the region’s biotech research capabilities. Additional tens of millions of dollars are coming from pharmaceutical companies as well as the Flinn Foundation, a Phoenix-based grant-making organization focused on improving the competitiveness of Arizona’s bioscience efforts. “The overriding objective is economic development,” says Mr. Winters.

The competition is stiff. A 2002 report from the Brookings Institution Center on Urban and Metropolitan Policy found that 83 percent of local development agencies listed biotech as one of their top two priorities, and 41 states had programs to promote it. But Greater Phoenix has an edge in the bioscience research race, thanks to its strong government and community support.

School spirit

The development of the Arizona Biodesign Institute (AzBio) in Tempe, part of Arizona State University (ASU) near Phoenix, is creating buzz in the bioscience world. AzBio is receiving around $15 million annually for its first five years through state Proposition 301 – an education funding initiative passed by Arizona voters in 2000 and supported by a 0.6 percent increase in the state’s sales tax – as well as funding through the university and state legislature. Some of the funds are coming from Arizona’s share of the tobacco industry’s settlement with states.

“We’re turning a lot of heads,” says Michael Mobley, AzBio’s associate director, who was previously director of healthcare R&D at Procter & Gamble and more recently ASU’s industry liaison. “We’re recruiting scientists from around the world. There is a commitment in the state to fostering the advancement of the biosciences.”

With its first of four buildings slated for completion later this year, AzBio is structured around 10 research centers in areas ranging from nanotechnology to infectious diseases and vaccines to technologies to combat neurological disorders. The organization has recruited George Poste – the former president of R&D at SmithKline Beecham – as its director, and aims for 1,000 employees, some from ASU's research division.

AzBio expects to develop partnerships with bioscience companies and foster spinoffs. To that end, Frederic Zenhausern, director of AzBio’s Applied NanoBioscience center, is launching a company called NanoBiomics, which is developing diagnostic technology to determine optimal cancer treatments. Mr. Zenhausern played key roles in research and product development at IBM and Motorola.

NanoBiomics’ research is an outgrowth of work conducted at AzBio and the Translational Genomics Research Institute (TGen) in Phoenix. Additionally, Mayo Clinic, a significant Phoenix area presence, is expected to assist in the company’s R&D efforts.

Funding trials

Mr. Zenhausern is optimistic about raising venture capital for NanoBiomics, despite the fact that VC funding for Phoenix area biotech firms is slim. Venture capital funding of biotech companies in Arizona was flat at $11 million in 2002 and 2003, according to PricewaterhouseCoopers’ MoneyTree Survey data compiled by the Greater Phoenix Economic Council. And most of that money now goes to biotech ventures in smaller Tucson, which has the benefit of a medical school, something Phoenix lacks. “It will probably be a long time until meaningful companies are spun out” in Phoenix, Mr. Winters says.

Still, Mr. Zenhausern points out that two years ago, Phoenix didn’t have the research and clinical capabilities that it does now. And he says that with the downsizing of local companies, such as Motorola, Intel, and Medtronic, a pool of highly skilled engineers is available. “It’s relatively easy to get good people to help us,” he says.

TGen, which was developed to advance previous genetics research, and the International Genomics Consortium (IGC), a nonprofit medical research foundation, round out the trio of the region’s major research organizations established this decade in Greater Phoenix. Jeffrey Trent, who was previously scientific director of the National Human Genome Research Institute at the National Institutes of Health (NIH), was tapped as TGen’s president and scientific director, and the organization has raised more than $100 million from Arizona’s universities, the City of Phoenix, and other sources.

For now, Phoenix companies are snagging some federal government funding through NIH. For example, Ribomed Biotechnologies of Phoenix announced in January that it had received more than $3 million in contracts from the Defense Advanced Research Projects Agency (DARPA) to use the company’s RiboMaker Detection System in a portable sensor for detecting biowarfare-related germs. The funds will support the development and production of a device that can quickly detect deadly bacteria, viruses like anthrax and smallpox, and other infectious organisms.

“The proximity to academic excellence is great” in Phoenix, notes G. Steven Burrill, CEO of Burrill and Company, a life sciences merchant bank in San Francisco. “The bioscience industry has grown up in locations where intellectual capital is rich, not where the pharmaceutical or agricultural industry is.”

But the top biotech regions have all been driven by a “key company that acted as a role model,” such as Genentech in the San Francisco Bay Area or Biogen in the Boston area, Mr. Burrill points out. “Phoenix doesn’t have one yet.”

A short history

The genesis of such hub companies and their satellites didn’t happen overnight. Back in 1973, Stanford researcher Stanley Cohen, M.D., and University of California, San Francisco scientist Herbert Boyer developed a technique for producing recombinant DNA that held the potential for the development of genetic engineering to diagnose and treat disease. But it wasn’t until 1980 that they founded Genentech to capitalize on their research. According to a 2002 Brookings Institution report, there are more than 3,000 life scientists in the Bay Area, and annual NIH funding totals $703.5 million annually. VC investment in Bay Area pharmaceutical firms reached more than $1 billion in 2000, while 21 of the 50 most active firms in biopharmaceutical investing were located in the region.

Similarly, Biogen was founded in 1978 by Harvard University and Massachusetts Institute of Technology researchers, and researchers at the region’s research and medical institutions have since started many of the area’s more than 140 biotech companies. Around $600 million in venture capital was invested in the Boston area’s biopharmaceutical firms in 2000, with around $1.5 billion from NIH flowing there annually, according to the Brookings Institution.

While in the more modest biotech hub of San Diego, researchers from the Salk Institute, Scripps Research Institute, and University of California, San Diego, which were founded between 1955 and 1965, gave birth in the late 1970s to the region’s biotech industry and the close to 100 biotech firms established through 2001, according to the Brookings Institution. More than 1,400 local life scientists fuel the area’s biotech engine that attracted $433 million in VC funds in 2000 and garners $680 million from NIH each year.

“There is no reason why this area shouldn’t be competitive in just about everything” in the life sciences, says Mr. Winters. “There are a lot of resources here.” Such resources don’t, however, include many life sciences VCs beyond Mr. Winters, a fact that doesn’t trouble him. “I don’t see a shortage of venture capital here,” he says. “San Diego is close. Silicon Valley is close. The good deals will get funded.” But the 2002 Brookings Institution report cautions that venture capital is “surprisingly localized.”

There is, though, one issue that does bother Mr. Winters. “Phoenix is the largest U.S. city that doesn’t have a medical school,” he says. All of the major biotech regions, from Boston to San Diego to Raleigh-Durham have at least one medical school. This will hinder efforts to generate startup activity. Phoenix is similar in size to Philadelphia, which – with a population of 1.4 million, according to the latest U.S. Census Bureau data – has four medical schools.

Mr. Winters wrote an opinion piece that was published in The Arizona Republic, Phoenix’s major daily newspaper, two years ago saying that the money going to IGC could better promote economic development and the benefits reaped from startup companies by going toward building a medical school. “I’ve been pushing people to do something about it for years,” he says.