Lack of seed cash may drive out biotech firms
Phoenix Business Journal - by Angela Gonzales
With no seed financing in sight to help grow his biotech company, Joseph Sinkule may move C-Virion Corp. out of Arizona.
The two-employee Scottsdale company is working on a vaccine for hepatitis C, but it can’t get the support it needs to stay viable here.
C-Virion won’t be the first biotech to leave Arizona for lack of funding opportunities. It’s another sign of tough times for an industry reliant on millions of dollars to fund research to bring drugs to market.
Michelle Hanna took Ribomed Biotechnologies Inc. to California, followed by Dietrich Stephan with Navigenics Inc. Indianapolis-based Semafore Pharmaceuticals closed its Phoenix office last year because it was not economically feasible, said Sandi Yurichuk, chief business officer.
Brent Gendleman, president and CEO of 5AM Solutions Inc., moved to the Valley with high hopes for growth, but eventually relocated the company to Reston, Va., because he couldn’t get enough local contracts to keep the company in business here.
After giving up on Arizona, 5AM garnered a $1.2 million contract in February from the Arizona Biomedical Research Commission to create a virtual tissue bank in the state.
For four years, Sinkule has been trying to raise $250,000 to $300,000 in seed capital to fund his research with C-Virion.
“I’ve had no offers locally, so now I’m beginning to expand my search beyond the state of Arizona,” he said. “You’ve got to go where the financiers are.”
Sinkule said a New York investment banking group is waiting to give C-Virion between $7 million and $10 million, but he has to show he has seed money lined up first.
Since moving to Arizona nearly four years ago, when the state was abuzz about developing a biotech hub, Sinkule said he has not seen the promise materialize.
“I think we’re going to see an exit of several companies in the area looking for that kind of cash,” he said. “Half a million to $3 million just doesn’t exist.”
Jeff Morhet, president and CEO of Innexus Biotechnology Inc., said fear and speculation are rampant.
“The industry is afraid of its own shadow,” he said. “When that segment of the life sciences industry is hurt, halted or damaged or stalled, the entire health care system bears the burden.”
Morhet said patients will end up paying the price to have expanded options for medications in the future.
Earlier this month, Sinkule participated in Biozona 2009, the Arizona BioIndustry Association’s annual bioscience conference. He said he expected to present his company to investors, but there were none. Instead, he made connections with some of the 17 other presenters at the conference.
Bob Eaton, president and CEO of AZBio, said the event wasn’t meant to connect companies with investors, though he realizes it’s a difficult time for biotech companies to raise money.
“It’s one of the worst times they’ve seen in many years,” he said.
William Gartner, president and CEO of Provista Life Sciences LLC in Phoenix, said it takes a lot of hard work to get the attention of angel investors. He has been heartened by interest from Catapult Bio, a “virtual biotech accelerator” with $14 million to help commercialize bioscience technologies.
“While they’ll still focus to some degree on university startups and on (Translational Genomics Research Institute) startups, they made it very clear they weren’t limited to that, and invited us to submit a proposal,” Gartner said.
His company is preparing to launch a blood test for Alzheimer’s disease, but he needs money to finish the clinical trial. It’s a tough sell because there isn’t much direct investment in early-stage companies now, he said.
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