Iowa invests millions of dollars to attract biotech businesses in the name of economic development. Just what is biotech and are we getting our money's worth? The Iowa Journal asks these questions and more of guests Mike Tramontina, Director of the Iowa Department of Economic Development and Doug Getter, Executive Director of the Iowa Biotechnology Association
Beck: Doug, let me start with you. How big is the biosciences part of Iowa economy? How much of a percentage or do you have a dollar figure?
Getter: Well, there is some recent data put out relative to research and development expenditures compared to state gross domestic products. And right now Iowa is about 1.5% going into research and development. That ranks Iowa 32nd nationally. So, we're kind of in the middle of the pack. We have tremendous opportunities ahead.
Beck: Mr. Tramontina, the legislature is in session currently. Is there something you need from them for this industry?
Tramontina: We have no specific ask in front of them now. One issue with this industry is always the fact that there could be a lot of start-ups and the state needs to find a way that we can help assure that some of these start-ups get a good two, three or four or five year run at making some of the breakthroughs that are necessary.
Beck: This takes a lot of money. One of the complaints that Governor Vilsack used to say was that we didn't have enough angel investors in Iowa, we didn't have the seed money, the capital money. Are there investors that can do this in Iowa or does it have to be state dollars?
Tramontina: Oh no, it's going to be a combination of angel investors in Iowa as well as the state putting some funding toward it. But also venture capitalists in the state and outside the state and major investors. This is really evolving, there is a lot of science, as you've described. And if somebody discovers a process that has really big potential sometimes there is going to be enough capital to be able to grow it in the state or enough of all the necessary ingredients to do that. Sometimes it's going to take investment from outside. But we have been having more luck with attracting venture capital into the state of Iowa and then to keep those companies. The trick of that is to keep once the venture capitalist finds it that the company stays here and grows here and adds employment here.
Beck: How many investors would you say, so-called angel investors, do we have in the state currently?
Tramontina: I believe there are 20 angel investor type clubs or these PappaJohn Centers starting up all across the state and they're starting to do a job of communicating with each other and diversifying investments across the state. So, we're getting a good start of investment at that level.
Getter: The other thing, too, that we're starting to see is success. For an investor to consider a second and third deal it helps when they have the first one win. I think we're going to look to the growing processing of Iowa commodities whether it's as soybeans or in corn that those investors that have gone into soy diesel, ethanol operations have done very nicely and they're going to be more open to take a look at the next round of investment ideas that comes up through local channels.
Beck: But this is a tough industry. Is the figure right -- about 9 out of 10 of these start-ups fail?
Getter: The challenge really is on the pharmaceutical side where your risk of loss is extremely high. You're trying to develop a new pharmaceutical, new drug many times can run anywhere from eight to twelve years. You can consume for top line drugs close to $800 million in upfront capital investment before you begin a nickel's worth of revenue. So, it's a very capital intense sector and on the pharmaceutical side I'd say your 9 out of 10 is probably realistic. But this is science based and it is extremely competitive. So, failure is going to run high but success is going to be equally high.
Beck: But when you talk about a failure rate like that this is state taxpayer dollars. Why should we get involved? What is the benefit to us?
Tramontina: Two things I would say. One is that it can add an awful lot of value to biomass and corn and beans, as Doug said, that we already have here. It can create a lot of jobs. All the money that we invested at Iowa State and the University of Iowa in research, all the investment that we have made in our community colleges to be able to have an excellent workforce and to be able to adapt them to breaking technologies we have already made major investments and what we need now are the entrepreneurs and the companies to make that pay off and that is the reason. But I want to be sure that we don't just focus only on the risk and the start-ups which certainly is true. But we also have some very established and our largest companies in the state of Iowa that are making major investments in this that are not similar to a start-up, names like Monsanto and Pioneer and ADM and Cargill and as you showed Trans Ova, Kemin Industries, many others all across the state. Those industries are adapting, innovating and changing and growing and we're going to see a lot of employment growth from those companies as well.
Beck: We want to talk about those but let me just ask one final question on the risk before we move on to that. And that is if Iowa invests in these companies, the feature talked about a company that said if we have to create this many jobs in a certain number of years is there a provision now, will Iowa see its money back if a company fails?
Tramontina: Yes, in the case of the Iowa Values Fund which is the fund from which this type of investment is made there is a requirement that the department calculate a return on that investment or a return in state dollars and we really work all the time to be sure that we've got at least a one to one, I think the total investments by the Values Fund in the last four years is over two times return on that investment. And yes, we calculate it for every company and every investment that we put in. We want to see the state's money at a minimum come back in some multiple of that.
Beck: Doug, he was talking about there are a lot of Iowa companies that are expanding into biotechnology. Is it better to invest in an Iowa company that is already here? Do we have a shot at keeping them versus these companies we lure in and then there is a fear they'll leave quickly?
Getter: Well, the Biotech Association does focus group sessions with life science companies every four years. The last piece of data was published in January of '07. Two out of three of our companies added employment in the last three years. The companies that are developing technology are, if they are successful, candidates for acquisition. That is a fact of life. So, we have to be able to adapt to that. But we have a lot of very strong natural resources from the educational strengths that we have to the productive soils that we have to the work ethic that Iowans bring to their task. And these are all things that are companies are looking for to have a place to live and grow and expand.
Beck: What do we not have that you hear from the companies that they are looking for? What does Iowa need to work toward to attract some of these companies that we're not currently attracting?
Getter: Well, in the life sciences it really isn't an issue of attraction per say but building on your strengths. We shouldn't look to try to be Boston. In the same vein, Boston can't raise livestock. We can. So, we find our niches, we build on those niches and develop relationships with folks in Boston. Neither area really lose but enhance their strength. As we look to develop industry or see industry grow we look at our intellectual property base of our colleges and universities. And from there the natural elements come to the surface. The strength that we have seen in ethanol, in soy diesel were locally engineered and generated. We didn't have to go out and recruit somebody to do that. And that is your best value because those people come with a sense of ownership and once a $200 million plant is sunk in the ground you don't walk away from that very easily.
Beck: That doesn't relocate very easily?
Getter: No, but it does a nice thing for the tax base.
Beck: Do we know how many intellectual transfers we've had where we've had something start, a seed idea start at one of the universities and then grow into a company off campus? Do we know how many we've had of those?
Getter: There is data that was published about I'd say six weeks ago from the Board of Regents looking at the three regent universities on specifically the intellectual property, how it was transferred and where it is today. I don't have those numbers off the top of mind but there is that available.
Beck: Mike, are we putting enough money into the regents universities in this current fiscal year to make sure they can do this kind of research or train the next generation workforce that has to be pretty specifically educated to do this kind of work?
Tramontina: Yes, I think the state makes substantial investments there. One thing to keep in mind too is the level of federal investment. Remember that Ames Lab and the new federal lab which is being built at Iowa State for animal disease control those are $300, $400 million investments by the federal government which go into laboratory which brings the human capital which helps to build that then body of intellectual property that Doug was talking about. Those were major investments. Also keep in mind that both Iowa State and the University of Iowa amiably receive and process $250 to $300 million of either federal or corporate sponsored research. Those are gigantic research institutions, both of those fine institutions and there are a lot of good things that come out of that.
Beck: Doug, I spoke at a career day last week and you know what it's like to have to go into a room of high school students who give you that blank look. How do you excite young people about this field? And do you need to? You can't wait until they get to college, can you?
Getter: Well, we have to start really in the K-5 grade levels trying to excite individuals that science is indeed fun. We've put a couple of things into play to help that transition through Heartland Area 11 Education Agency several of our companies and Heartland came together and funded a mobile traveling research lab. This is an 800 square foot semi that travels down the road to a school district, sets up with state of the art. Kids walk in, they get their lab coats, it's CSI time. And it really helps to have some national recognition of science. And we're building on that but there's still more that could be done I think.
Beck: What do you do to also temper fears about terms that we heard at the beginning of the program, genetically modified, cloning, things that sometimes can sound quite scary? What is your industry doing to make sure that people are comfortable with this?
Getter: First of all, we want to use words that properly describe our industry. Genetically modified is one way of describing it. You could also say it's genetically enhanced as well. Now, which has a better ring to it? It's kind of the spin doctor approach as far as what is it. The key element is that in all the years that the world of science and applications have been in play we haven't had a single incident of a nutritional item, a human individual suffering from the advancement of science on agriculture. So, we think that is a real big positive. This year is the 11th year of having genetically modified, genetically enhanced seeds in the market space. Over 280 million acres worldwide are now planting genetically enhanced seed.
Beck: Is this an important project for the Governor? Are we going to see travels on his part continuing upon Governor Vilsack's work where he went and tried to lure people back to Iowa? Is this a field where he can say this state is going to grow and we want you to come here?
Tramontina: Yes, there's no question about that. Governor Culver and Lieutenant Governor Judge have both spent a lot of time on economic development matters and have done some travel. For the most part Governor Culver is specifically focused on renewable energy, ethanol and biodiesel particularly but also very much on wind. And so really the renewable energy aspect of the industry has really received the largest amount of his focus. It almost goes without saying that Lieutenant Governor Judge is a leader in this industry after a career as a farmer and a legislator representing a very rural area including the Cargill plant at Eddyville which is a prime example of what this industry can do for the state and then as a Secretary of Agriculture. She has been a spokesperson for innovation and value added agriculture for a long time. So, yes, this will continue to be a priority for this administration I'm certain.
Getter: The job recruitment front too both Governor Vilsack as well as Governor Culver are very active in the return to Iowa initiatives to bring former Iowans back to the state and I think there has been some nice storylines that have evolved from those as well where you're going to a San Francisco and you've got a young family formation that says I've been here seven or eight years, I want to raise a family. Well, where do you want to raise your family? Is there opportunity for both spouses to pursue something in the life sciences? And we're seeing a lot of that come into play.
Beck: We don't have much time left but let me ask you one last question. We talked about angel investors. What about the average Iowan that wants to see a return on their investment. Is there a place for someone to go and dabble in this or is it really for the big players, the big fish?
Getter: Well, it's not for the weak of heart. As I say, it takes anywhere from six to twelve years for the technology to ultimately evolve to where it needs to be. You've got to be patient and nothing against Joe Citizen but patience typically is not one and an understanding of what the investment risks are. The second thing is to have a support group if you will, financially as well as technically, that can work with our young companies. Mike described the Values Fund, the Values Fund is a nice package but it really doesn't speak to the young emerging company because part of the element with the Values Fund is it's got to create jobs or we're instantly bleeding to death.
Beck: Okay, well we'll have to get back to that. It sounds like a whole other show we'd like to do on that. Thank you both for being here.