A new roadmap aims to reboot efforts to build Michigan’s life sciences industry and compete with similar clusters around the U.S. and the world.
While the industry has come far in the last decade-plus and offers “strong assets,” it remains uncompetitive compared to other states and requires a renewed private- and public-sector effort to grow and meet its potential, according to a report by MichBio, an Ann Arbor-based trade group.
“Michigan must take seriously the opportunity to build its biosciences base, leveraging its already sizeable R&D, manufacturing and supply effort,” states the “Roadmap for Success” prepared by MichBio with Business Leaders for Michigan and the University Research Corridor.
“The state, including policymakers, should join with the private sector, and take bold steps to maintain and enhance Michigan’s capacity for bioscience innovation, commercialization, product development and manufacturing to create high-quality jobs and sustainable economic growth.”
The document outlines a number of short- and long-term of strategies for growing the life sciences industry in Michigan, which as of 2014 directly employed nearly 42,000 people at 1,760 companies in a variety of fields.
Among the key findings in the Roadmap for Success are:
- The industry’s strengths are in academic R&D and technology innovation, plus niche areas such as medical devices and contract research organizations for clinical trials.
- The industry needs to forge stronger ties between its own players “to fully leverage the state’s research, manufacturing and business strengths.”
- A “comprehensive, multifaceted approach is needed to align supply with demand, expand workforce education/development programs, and recruit experienced C-suite talent.”
- A larger pool of capital is needed “through innovative policies and better linkages with investment sources to benefit all phases of the business lifecycle.”
- The state needs to adopt “industry-specific policies and resources” that provide incentives for the formation, development and sustainability of companies. That includes bringing back an R&D tax credit that lawmakers eliminated in 2012 as they reformed the state’s business tax code. Michigan is now just one of six states that lacks an R&D tax credit, the report notes.
- Economic development needs to “aggressively promote” bioscience assets in the state to help grow existing businesses and attract new ventures. The report recommends development of a comprehensive marketing and branding strategy linked to the Pure Michigan brand to showcase the industry in Michigan.
‘A CALL FOR ACTION’
MichBio CEO Stephen Rapundalo believes all of the pieces exist to create a much larger life sciences industry in the state, but only if various players can execute a sustained, long-term strategy. He described the Roadmap for Success as “really a call for action.”
“Michigan is very well poised,” Rapundalo said. “We have a lot of the right ingredients, a lot of the right strengths that we need to grow the industry overall, but there’s quite a bit of work to do because it’s largely invisible to the outside world.”
Efforts to grow the industry have occurred in “bits and pieces” over the years, Rapundalo said. They date back to the 1990s when former Gov. John Engler first envisioned positioning the state as a life sciences hub and, using proceeds from the landmark federal lawsuit settled with tobacco companies, steered public funding to that goal.
The state’s efforts to build the industry waned after several years, particularly as Michigan fell into a deep economic decline during the 2000s and throughout the Great Recession — and as political winds changed. When former Gov. Jennifer Granholm entered office in 2003, she extended the Life Sciences Corridor to the Tri-Technology Corridor to include advanced manufacturing and homeland security, a move that diluted both funding and attention in Lansing for life sciences.
Of late, the Michigan Economic Development Corp. has had to adapt to funding cuts, and some legislators have wanted to end state support for programs that have seeded venture capital investments.
“What we haven’t had is sort of a cohesive vision and action plan to go out and do it — and most importantly, we haven’t gone out and done it,” Rapundalo said. “We’re hoping that this plan will be different. We’re not just going to let this thing sit on the shelf and collect dust. We want to see some implementation.
“We need to stop talking about it and actually start doing it.”
MichBio, working with Business Leaders for Michigan and the University Research Corridor, will push the agenda, both within the industry and to state lawmakers in Lansing who would have to decide whether to pursue some of the public and tax policy recommendations. Those include re-establishing the R&D credit, a tax credit for angel investors, and incentives for companies and talent to relocate to Michigan.
The state also lacks a small business investment tax credit that disappeared in 2012, according to the report.
One investor in Michigan’s life sciences industry views MichBio’s Roadmap for Success as aligning key players in the industry — the academic, scientific and business interests. What’s needed is more public-sector awareness in Lansing, said Dale Grogan, managing director of Michigan Accelerator Fund I in Grand Rapids.
“The other side of the equation is the legislators,” Grogan said. “I think we still have a ways to go in building understanding and, more importantly, convey the need for sustained investment. Sustained is the word I think we have to underline there because it takes a long, long time to build an industry, particularly one that has lots of regulatory necessities and lots of capital requirements moving into it. There’s still a long ways to go to get bona fide legislative support.”
The state’s universities such as the University of Michigan, Michigan State University, Wayne State University, and even Grand Valley State University are still developing “a lot of technology and doing wondrous works with innovation” that’s backed with federal grant funding. Michigan ranks ninth among the 50 states in innovation and research and eighth in education and talent, according to data gathered for the MichBio report.
Where the industry in Michigan may have lost focus is through gap funding to get innovations developed and commercialized with a business built around them, Grogan said. Michigan Accelerator Fund I, which started with backing from the state, has adequate investment opportunities to invest in life science startups, “but it’s an unquenchable thirst. You can always have more,” he said.
Grogan would like to see the state continue to seed new venture funds that can draw private investors and support startup companies in Michigan.
“That’s what we need — this continuous seeding of new funds, which can seed the new investors. Without some potential support from the state, like they’ve done in the past, it makes it a little tougher. You’re facing some headwinds, rather than having some tailwind support,” said Grogan, whose views contrast the prevailing political sentiment of late in Lansing.
“It’s not a function of picking ‘winners and losers.’ It’s a function of creating an environment where entrepreneurs are willing to take the risk, and if the state can share a small bit of it in a prudent, regimented fashion, then it should,” he said. “To have one of the greatest innovation engines in the country and say, ‘Gee, I’m not sure we should support that’ is shortsighted and foolish.”
He cites the growth in recent years in the presence of out-of-state venture firms that have established offices in Michigan to invest in the state as an example of the opportunity in the industry.
Venture capital investing in the state’s life sciences industry has grown substantially over the years, yet there persists a lack of capital, particularly for early-stage companies, Rapundalo said.
Second-stage companies also voiced frustration with a lack of access to capital and credit, as banks remain risk-averse toward the industry, unlike their counterparts in large biotechnology states such as California and Massachusetts, he said.
“Moreover,” the MichBio Roadmap states, “(banks) are perceived to have little understanding of the bioscience fields and markets.”
The state ranks 21st in venture capital investments despite strong growth over the past decade, 22nd in seed and early-stage investing, 33rd in second- and third-stage VC investing, and 44th in commercial and industrial bank lending to technology and science firms, according to a 2014 Milken Institute report cited by MichBio.
The Roadmap for Success suggests expansion of a state fund to provide higher matches to federal innovation grants, plus the possibility in the years ahead of forming a state fund to assist with bank financing or offer direct loans for bio-manufacturing and R&D infrastructure improvements.
Unless access to capital and credit for life sciences companies improves, there remains a risk those firms could eventually relocate elsewhere, the MichBio Roadmap states.
“Without proactive action in the short term, over time Michigan biosciences companies will migrate to more supportive markets that value the innovation and jobs created by the bio-industry,” the report states.