The results of a Battelle/BIO State Bioscience Initiatives 2010 report released in May indicated that Wisconsin’s bioscience industry grew at approximately the same rate as the rest of the nation. The report indicated that the number of Wisconsin bioscience establishments grew by 28.4 percent to 752 from 2001 through 2008 and industry employment had grown by 15.8 percent to 24,694.

“The Wisconsin biotech industry continues to demonstrate promise despite facing a challenging economic environment,” says Greg Hartwig, partner in the intellectual property group at Michael Best. “According to the Battelle/BIO State Bioscience Initiatives 2010 report, Wisconsin’s biotech sector is continuing to grow at about the same pace as the rest of the nation, with growth especially in medical devices, research tools and bio-agriculture.”

For Wisconsin, biotech is now an $8.7 billion industry with 400 companies and 34,000 employees. In addition to its existing solid base, Wisconsin is seeing more pharmaceutical and biologic treatments undergoing development and evaluation at medical centers around the state. Wisconsin’s stem cell companies also continue to grow and develop new products.

The 2010 Battle/BIO State Bioscience Initiatives reported that Wisconsin ranks second in the U.S. for total bioscience industry employment, and also reported a significant increase in the number of bioscience-related patents obtained in Wisconsin in 2009.

“Wisconsin’s biotech industry continues to grow, although not exclusively in medical biotechnology,” says Wisconsin Technology Council President Tom Still. “The advent of advanced biofuels, bioproducts and agricultural biotechnology related to the production of food, fiber and other raw materials has driven much of the latest growth. The medical biotechnology sector continues to expand as well, particularly in terms of biotech tests and assays, drug development and technologies that involve a ‘blend’ between therapeutics and medical devices.”

Wisconsin is also lending a hand by offering tax breaks for Qualified New Business Ventures (QNBVs), and promoting new angel and venture capital funds.  These incentives have resulted in the launch of several new biotech companies and the relocation of biotech businesses from Minnesota, Florida, Colorado, Massachusetts and North Dakota to Wisconsin.

“Wisconsin’s biotech industry appears to be growing and strong,” says Hartwig. “Thanks in part to a skilled work force, strong university system and supportive business environment, Wisconsin has maintained a high level of innovation and employment.”

For Rod Hise, president of The Luminis Group, Ltd., and director at WisBusiness.com Tech Leaders Survey, it’s tough to make a blanket statement about the condition of the state’s biotech industry. 

“On one hand, some of the smaller biotechs have struggled to raise money in the current environment,” Hise says. “On the other, there are several of the more mature companies that have been able to raise money and are moving forward more quickly with their product development and commercialization plans.”

The most recent WisBusiness.com Tech Leaders Survey found that whatever biotech executives may feel about the state’s economy and their industry’s condition, they remain very optimistic about the prospects for their company.

“Seventy-four percent of executives who responded to the survey rated the prospects for their companies as good or excellent, and two-thirds said that things will get better for their companies during the next year,” Hise says. “We have great ideas in Wisconsin and a world-class tech transfer system that helps those ideas reach the private sector where they can be developed and commercialized. We have great people who generate those ideas and others who work to refine them.”

The Valley of Death

According to Hartwig, the Wisconsin biotech industry is facing the same challenges that are plaguing much of the country. “Given the uncertain economic climate, there is less venture capital to be had,” he says. “Nonetheless, as a percentage, more venture dollars are going to biotech than to software, health and renewable energy ventures combined.”

Access to capital is the primary challenge, especially for companies that have raised enough private equity and grants to get their products into a development stage — but not enough to push ahead with required clinical trials.

“The funding ‘gap’ for many biotech companies begins at roughly $2 million to $5 million and continues up to the $10 million level,” Still says. “It’s a so-called ‘Valley of Death’ that can be difficult to traverse.”

According to Hise, more than 80 percent of the biotech executives who responded to the most recent WisBusiness.com Tech Leaders Survey rated the availability of capital as only fair or poor; 18 percent rated it good. And they don’t see it getting much better any time soon with only 23 percent believing it will improve in the next 12 months.  Nearly 75 percent believe the availability of capital will stay the same — at poor to fair — in the coming year.

But financing successes are out there. In June, Madison-based Virent Energy Systems Inc., which created a process to convert plant sugars into sustainable advanced fuels for transportation, closed a $46.4 million third round of funding from Shell and Cargill. This will allow Virent take its patented BioForming process to commercial production volumes.

And in May, R&D LifeSciences, LLC, signed a technology and marketing agreement with Aova Technologies, a Madison-based agricultural biotech company, to market their patented, naturally produced micro feed ingredient, aPLA2 Technology.

While some biotech deals are being made, Still says that other challenges to the industry are largely regulatory in nature. “The backlog in the U.S. Patent and Trademark Office (USPTO)  is so severe that is becoming an impediment to innovation, not only in this sector, but other tech sectors as well,” he says. “Congress has thus far failed to renew the Small Business Innovation Research grant program, which has helped commercialize key discoveries for the past 27 years. The U.S. Food and Drug Administration needs to streamline processes that add time (and cost) to any med-tech product. Finally, the health-care reform bill has changed federal reimbursement rates in a way that could make it harder for doctors and hospitals to embrace new products that save and improve lives.”

And even though the USPTO is dealing with a tremendous amount of backlog, Hartwig points out that in recently more patents have met with approval, which should benefit the Wisconsin biotech industry.

In addition to the economic climate, several recent patent cases may drastically reshape the biotech industry as a whole, such as the Bilski case, which according to Hartwig, “will likely determine the metes and bounds for patentable method claims in all fields, including mechanical arts, software and business methods.”

Of particular importance to the biotech industry will be the effect on diagnostic method claims, i.e., patent claims that exploit correlations between biomarkers and disease. The current ACLU vs. Myraid case involves patent claims to the BRCA 1 and 2 breast cancer genes, could go all the way to the U.S. Supreme Court and result in the loss of all patents to isolated genetic sequences and tests directed to those sequences.

Economic optimism

With an improved economy, Wisconsin’s biotech industry’s outlook is certain to improve as more individuals will be capable and interested in investing. “Given the state’s commitment to the biotech industry visible through organizations like BioForward and the hotbed of biotech innovation that is Madison, the future looks promising for Wisconsin,” Hartwig says. “In the short term, the $5 million U.S. government tax credits for biotech firms of 250 employees or less who develop ‘promising’ new therapies or products (as deemed by the administration) may also work to combat the challenging financial climate.”

Still adds that biotechnology has the ability to heal, feed and fuel the world in ways only imagined a generation ago.

“Wisconsin is well-positioned to help in all three sectors through a broad array of research institutions, private companies and clinical settings; through a mature agricultural community that is embracing new technologies daily; and through advanced biofuels research and production,” Still says.

Overall, experts agree that the future holds great things for the state’s biotech industry.  “Hiring by biotech companies is expected to pick up in the next 12 months,” says Hise. “The real question is whether capital will be available to biotech companies of all sizes.”

By Maura Keller

Maura Keller is a freelance writer originally from Wisconsin.

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