In the late 1990s, bioscience was creating a buzz New Haven. Start-ups were forming, multi-million dollar deals were being made and the community was embracing biotechnology as an engine of economic growth. But when stock market woes hit the country in 2001, the prospects of raising venture capital weakened, and growth within the industry decelerated.
But in spite of the national economic slowdown, none of the state’s relatively young bioscience companies failed, said Amy Enders, director of communications for Connecticut United for Research Excellence.
New Haven may have weathered the downturn better than other areas of the country, managing director of the Yale Office of Cooperative Research Jon Soderstrom said. While investment did not reach levels of the late 1990s, some of the largest rounds of bioscience venture financing occurred in New Haven. Rib-X Pharmaceuticals, for example, secured over $60 million in second-round financing in the spring of 2003.
Since the end of last year and particularly over the summer, investment in the bioscience industry has picked up, Soderstrom said. In the past 12 months, the Office of Cooperative Research alone has helped spawn four new bioscience companies, he said.
Bioscience remains an important asset for the state and local economy, Enders said.
“I think looking forward, it’s not going to be a boom period like it was in 1999 or 2000, but I think we will see measured growth,” Enders said.
The risk factor
The differences in venture capital opportunities for bioscience between this year and last have been vast. In 2003, bioscience companies in Connecticut raised $185 million in public and private financing, according to data from CURE.
They have raised more than twice that figure — $410 million — in 2004.
A majority of those resources are flowing into companies located in and around New Haven. Of the 43 bioscience companies in Connecticut, 35 are located in the New Haven region and 22 operate in the city.
But raising venture capital in the bioscience industry can be a risky business, Enders said. Because companies often spend several years doing research before commercializing a product, some may have to reevaluate their plans if they cannot immediately produce results.
“The fact that all these companies are raising money is wonderful, and means that their business model is attractive. But they don’t have a product on the market yet, and it will be a while until they do,” Enders said.
And a fluctuating economy can always prove troublesome for young companies, Soderstrom said.
“It’s nothing unusual to the biotech industry, which is well known for its boom and bust cycles,” he said.
Startups are not entirely dependent on an open venture capital market, said Jonathan Lewis, chief executive of the bioscience company Ziopharm, Inc. He attributed much of his company’s funding success to an innovative business model and a determination to commercialize its product as soon as possible.
“There’s no question there’s a lot of money in the stock market right now. It’s always tough, but for good ideas in general there is money,” Lewis said.
Last month, two new companies announced their move into New Haven. Ziopharm, cancer drug developer founded in January, has relocated from its New York City offices to space at 300 George St., and HistoRx, a startup that evolved out of Yale research, recently raised $1.5 million in initial financing and moved into 25 Science Park.
Gino Pereira, vice president of business operations at HistoRx Inc, said the intellectual capital of a major research university is essential.
“I think we’re heavily dependent on Yale brains, to put it crudely,” he said.
But while Yale may not be unique in its dedication to the bioscience industry — many universities invest heavily in the life sciences — some argue that New Haven offers its own advantages, including access to capital centers in New York City and Boston, newly renovated facilities at 300 George St. and Science Park, and an established pharmaceuticals industry.
“The idea of being able to interact with researchers at Yale has to be a major inducement. But I think it goes well beyond that. It’s a good place to do business,” Soderstrom said.
He added that the city provides a rich array of cultural opportunities, as well.
Additionally, a greater number of companies without strong ties to the university have been moving into the area, Soderstrom said.
Lewis, a former researcher at the Yale Medical School, said Ziopharm’s relocation to New Haven was ideal due to the city’s proximity to New York and Boston, relatively cheap rents and recruitment opportunities. He said while the future of bioscience in New Haven might be uncertain, the city itself is steadily improving.
“As I see things, it’s a place that’s going to grow a lot in the next several years,” Lewis said.
Until the mid-1990s, much of New Haven — still troubled by the loss of the city’s manufacturing base — was skeptical about investing in bioscience, said William Ginsberg, president of the Greater New Haven Community Foundation. Over the last decade, the city has embraced the change, he said.
“I think the community feels that there’s been a huge amount of progress made,” Ginsberg said.
Economic Development Administrator Henry Fernandez said the city remains dedicated to growing the industry.
“What’s important to us in the city is that we have a diverse economy that creates a wide diversity of jobs. Biotech has been an important part of the renaissance of the city,” Fernandez said.
In 2003, Connecticut’s bioscience industry, including the big pharmaceuticals, directly employed about 18,000 people.
But Enders said the industry produces a ripple effect as well. CURE data suggests that every one job in the bioscience sector supports 3.1 jobs in the overall economy. She said while new companies tend to hire only five or 10 people, they have the potential to grow exponentially in only a few years.
Joel Schiavone ’58, a local developer and 2001 mayoral candidate, said he thinks Yale and the city overestimate the extent to which bioscience plays a role in the local economy.
“Yale, uniquely among major research universities, hasn’t created a viable economic environment [like the ones] MIT and Harvard have created out of the remains of the manufacturing economy,” he said.
Schiavone said most of the jobs being generated are restricted to Ph.D.s, while few employment opportunities are created for current residents. He said he supports the industry, but Yale lags behind other research universities.
But Soderstrom said the difference between the number of inventions and patents produced by Yale and its peer institutions is “trivial.”
A knowledge-based economy presents certain challenges, Office of New Haven and State Affairs Vice President Bruce Alexander said.
“It puts a strong imperative on our educational system to produce people who can function in this sort of an economy. It’s a different world than the manufacturing world New Haven and the rest of the United States left behind,” he said.
Soderstrom said the market has flattened out somewhat after a strong summer performance, but he is optimistic about the future of bioscience in New Haven.
Fernandez agreed. Five years ago, he said, pharmaceutical giants such as Pfizer and small companies such as Ziopharm probably would not have chosen to relocate to New Haven. He said biotech will play a significant role in New Haven in the long-term.
“Is it going to grow overnight? No, I don’t think so. But I don’t think it’s grown overnight anywhere,” he said.