KALAMAZOO — Armune BioScience Inc.’s sale to Madison, Wis.-based Exact Sciences Corp. reinforces the reality that some West Michigan-based life sciences firms will have to move out of the region to grow.
That’s especially true for a startup pursuing a strategic buyer or seeking large capital rounds that are not readily available in Michigan. Companies fitting that bill often have to move away from Michigan to get what the business needs to grow and scale, according to industry experts.
“That’s the nature of the beast,” said Stephen Haakenson, executive director of Western Michigan University’s Biosciences Research & Commercialization Center in Kalamazoo. The BRCC invests in life science startups in Michigan.
Haakenson cites other situations in which a company began in Michigan and later moved away because of funding or an exit. Among them is ProNAI Therapeutics Inc. Formerly based in Kalamazoo and Plymouth, ProNAI moved its corporate office to Vancouver, Canada in 2015 following a successful initial public offering that netted $158.4 million.
While Michigan today attracts much more out-of-state venture capital than years ago — and the life sciences industry has grown steadily over more than a decade — the potential drawback is that investors elsewhere that provide large capital rounds may want a company to follow the money and move, Haakenson said.
“Even though we’re an investor and we want to do it in Michigan, we’re not going to stop that because you have to do what’s right for the company. If that’s definitely the right thing to do at that time, because they need the financing, we don’t want to see it, but we go, ‘Well, we’re not going to strongly discourage it,’” said Haakenson, noting that in instances where a portfolio company later moved out of Michigan, the BRCC no longer invests in it but does maintain a position.
“What we have to do is step up and find the investors that will allow them to stay here. We have to work harder on that (and) find investors who will invest in the state and keep those companies because there are great people who can help those companies, but the funds aren’t here,” he said.
In Armune’s case, the sale is an example of how a homegrown company backed by local investors will depart now that it’s been sold to an out-of-state strategic buyer that will integrate the asset into the business back home.
Armune CEO David Esposito said that’s the issue that leaders and investors at startups have to wrestle with if they decide to pursue a strategic buyer and record an exit through a sale.
“The downside is what we built slowly comes apart. That’s just the part of the life,” said Esposito, who hopes to connect with another Michigan-based health care startup “to help scale things up.”
A number of business factors combined for Armune and its investors to decide last year to pursue a sale. They range from a tough health care reimbursement environment, a competitive landscape, and venture capital investors that are steering money toward therapeutic startups over diagnostic companies. That latter issue made it hard for Armune to raise the capital it required to grow, Esposito said.
“Even if we raised a lot more money, it would have taken us considerably more time to be able to achieve what we think they can do,” he said. “You put it all together, (a sale was) the best option to see the technology survive, and for our shareholders.”
MiBiz reported last summer that Armune was close to finishing a $7.5 million capital raise. At the time, executives said the company planned to seek another $20 million in Series B capital to scale the business for growth and to fund R&D to further develop the Apifiny diagnostic test for breast and lung cancer.
Esposito declined to say how much capital the company had raised in total prior to the sale.