BIO 2010: Minnesota faces crossroads in its high-tech future

To BIO or not to BIO? That’s the question confronting Minnesota as it ponders its economic future.

In some ways, the answer is obvious. The state boasts a lot of expertise and money in medical technology. Lawmakers have already earmarked millions of dollars to build a “Biomedical Discovery District” in Minneapolis and an “Elk Run BioBusiness Center” in Pine Island. Mayo Clinic and IBM are crunching data from millions of patient records to develop “personalized medicine.”

But as the world’s biotech community comes to the Midwest this week for the annual BIO conference in Chicago, Minnesota faces a crossroads of sorts. For all of  its resources, the state has yet to demonstrate it truly even wants to embrace biotech.

“We’re at an inflection point,” said Jay Schrankler, head of the Office for Technnology Commercialization at the University of Minnesota. Schrankler was referring specifically to Miromatrix Inc., a promising biotech startup spun off from the university, but it’s a good way to describe Minnesota’s biotech prospects. Half of the six startups incubating at the university are biotech companies, he said.

Unlike other Midwest states just trying to replace lost manufacturing jobs, Minnesota already has the ace in the hole: medical devices. The state is home to Medtronic Inc. (NYSE: MDT) and St. Jude Medical Inc. (NYSE: STJ), two homespun Fortune 500 companies, not to mention countless emerging companies and startups. Most of Boston Scientific Corp.’s (NYSE: BSX) annual revenue originates from its plants in Arden Hills and Maple Grove, Minn.

But that very success is arguable the biggest impediment to developing a viable biotech industry. After all, why mess around with something that’s not your bread and butter?

Medical device companies roughly command two-thirds of the state’s annual share of national venture capital dollars. Schools like University of Minnesota and St. Cloud State University offer programs on medical device design, clinical trials and reimbursement. Local entrepreneurs and investors like Glen Nelson, Mike Berman and Dale Spencer are all medical device veterans.

Howard Root, the CEO of medical device maker Vascular Solutions Inc. in Maple Grove, says no amount of government money can create a biotech industry.

“The government has got to get away from this magic wand philosophy,” Root said. “If you don’t have a core group to build around, government money is going to be wasted. We don’t have enough people in biotech to build around. We need luck, or someone to move into Minnesota.”

But some experts say Minnesota has no choice but to pursue biotech. With the convergence of medical devices and biotechnology, such as drug-eluting stents or tissue-based replacement heart valves, the state needs to develop a biotech industry to preserve its dominance in medical devices, said Peter Bianco, director of lifescience business development at Nilan Johnson in Minneapolis.

“We’ve waited too long,” said Bianco, who is leading efforts to create a science research park and related-accelerator/venture fund to support the Biomedical Discovery District. “We have no choice. We just have to suck it up. To maintain leadership in medical devices, we need to do this.”

One former medical device executive who declined to be identified because he’s raising money for a biotech startup takes the argument even further. Given medical devices make up only 2 percent of national  healthcare spending, Minnesota should develop biotech not to complement devices, but as a long-term replacement to the industry, he said.

For all of the economic prowess of Medtronic and Boston Scientific, the companies have cut more local jobs in recent years than they have added. Beyond the numbers, though, there is a sense that Minnesota is relying too much on a well-paying industry created decades ago.

“We’re getting too complacent,” said Sen. Kathy Saltzman (D-Woodbury), a major supporter of the recently passed angel tax credit. “We’re drinking out of the well that we didn’t dig.”

So what will it take to build a biotech industry? Money is one obvious answer. Taking a drug from lab to market costs billions more than medical devices and takes far longer. And then there’s talent. Minnesota does not have much of either.

From 1995 to 2008, Minnesota’s average annual share of biotech venture capital dollars was $4.32 million, nearly half  of the national average, according to data from the National Venture Capital Association.

In addition, “Minnesota continues to experience a loss of pharmaceutical and biopharmaceutical companies as they are sold and move out of the state to be consolidated with larger operations in other states,” according to the Destination 2025 report commissioned by the BioBusiness Alliance of Minnesota.

BioBusiness Alliance CEO Dale Wahlstrom believes Minnesota can’t build a biotech industry from scratch, so it must tap its expertise in other core industries like medical devices, agriculture and animal science.

Others hope startups like Miromatrix, which is developing tissue and organ replacement technology, will eventually create a blockbuster product that will help ignite a biotech revolution in Minnesota.

More likely, though, the former medical device executive says, the state once again needs Medtronic to step up. If Medtronic purchases an outright biotech company and moves its operations to Minnesota, then the state has a shot, he said.

For all of these challenges, Minnesota is still light years ahead of where it used to be, experts say. Venture capitalists who once dismissed the state as flyover country for biotech deals, will now at least take a look if there is a promising technology,  Wahlstrom says.

“We still have a long ways to go,” he said. “But we’re getting there.”