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Making Change: Investments, Athersys and NEO’s Biotech Future

Wednesday, April 16, 2003 at 4:09 PM

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Northeast Ohio boasts two high-tech, emerging industries whose growth is considered vital to the region: polymers and bioscience. With University Hospitals, Case Western Reserve University and The Cleveland Clinic within spitting distance of each other, it's no surprise that small bio-science firms are emerging. Recently, however, the region's most visible firm, Athersys, is rumored to be looking for another city to call home. As part of Making Change: Reinventing Our Economy, ideastream's Shula Neuman reports on what role Athersys-and the entire bio-tech industry-may fit into our local economy.

About eight years ago, Gil Van Bokkelyn and John Harrington left California for Cleveland, following their mentor, Huntington Willard - a researcher who assumed the chair of genetics at University Hospitals and Case Western Reserve University. Their cutting-edge research led to the founding of Athersys, a biotech firm working to developing therapeutic products that could help people with cancer, asthma or obesity. The company’s technology will make products for synthetic pharmaceuticals as well as protein, cell and gene therapy. Athersys even has exclusive license on an adult stem cell technology. It’s pretty sexy stuff. But, like most biotech companies, Athersys probably won’t have any product ready for market for another 5 to ten years.

Still, the financial prospects for Athersys are promising and the company’s needs are growing… so much so that it’s seeking 100-million dollars in investment for expansion capital. That’s on top of the 100-million they’ve already raised through venture financing, strategic partnerships and some government grants. However, it’s not clear that Northeast Ohio will provide that chunk of change. And lately other cities are beckoning with enticing financial deals. It doesn’t help that Huntington Willard recently took a position at Duke University… located conveniently close to a biotech hotbed called Research Triangle Park. To keep Athersys around, the city of Cleveland, Cuyahoga County and the state have put together their own package of tax abatements and incentives - the details of which they intend to keep secret until all bids are in. Cleveland Economic Development Director Tim Mueller explains why the city thinks Athersys is a good bet.

TIM MUELLER: We have done a lot of research to understand that they are what we call a foundation company - something upon which other companies can build. A company that would make acquisitions that others would spawn off of and actually would attract a number of companies to Northeast Ohio, just to be around Athersys.

That’s a fine thing to hope for, says Joe Cortwright, an economist based in Portland, Oregon. Cortwright authored a Brookings Institution study on the growth of bio-tech in U.S. cities. He found that very few cities have the right combination of assets for biotech to grow - these include a bevy of entrepreneurial researchers, a pool of talented people and plenty of LOCAL access to venture capital. Without those three things, he says, developing a rich biotech sector is an uphill battle.

JOE CORTWRIGHT: I think you have to figure out what it will take to develop those three things and figure out what you think its worth to you to invest in that, given the long odds of success, the lengthy time it takes to develop this kind of industry and the amount of competition that communities around the country are going to give you.

Cortwright says investing in biotech is a shaky prospect for those cities that aren’t already strong in the industry. He says biotech would have been a good investment 20 years ago, but now it may be a waste of money. Jeff Green, president and CEO of Datatrak, says he doubts Cleveland will ever hitch its wagon to the biotech star as long as local investors are uneducated about biotech. Datatrak provides pharmaceutical researchers with electronic data collection of clinical trials - replacing the need for reams of paper in three-ring binders. Green says his experience trying to find startup money proves the point: he raised only 600-thousand dollars from local companies; the rest came from elsewhere. Eleven years later, Datatrak is publicly traded and had earnings of 5 million dollars last year.

JEFF GREEN: That’s what I mean by saying the area around here just doesn’t get it. But aside from that, there’s a tremendous amount of activity going on and brainpower. The people here are every bit as good as they are in Cambridge or Silicon Valley or anywhere in the world. We’re running, we have operations in various parts of the world and I can clearly state that from an informed viewpoint.

Green says investors don’t know about the region’s advantages because of poor media coverage of Northeast Ohio’s bio-science industries - which include health care information technology, biopharmaceuticals and medical devices. These industries aren’t exactly small beans. According to Bio-Enterprise - the region’s bio-incubator - Northeast Ohio’s 100-plus bio-science companies saw their sales grow 41 percent between 1989 and 1997.

Medical consultant Sara Britting says losing Athersys would be as much of a symbolic loss as a financial loss since Athersys represents high-tech, high paying jobs and highly educated workers. Britting helped facilitate meetings between the Cleveland Clinic Cardiology unit and Athersys. She says 100-million dollars may seem like a lot to ask for now, but the payoff for the region could be huge.

SARA BRITTING: And so, if it’s 75-million, 100-million - ten years from now - and they do make the move to Research Triangle or Minneapolis-St. Paul - someone will be saying, “If we had invested that 100-million or 75-million or whatever resources, see what we could have had.”

Britting points out that the region was willing to fork over about 300-million dollars for a new Brown’s stadium - which serves about 500-thousand people a year. Compared to that, the price tag to keep Athersys here - with its potential to help millions of people - seems like a deal. Ultimately, Britting says, the region needs to decide how it views itself - and if bioscience is part of that vision.

In Cleveland, Shula Neuman, 90.3.

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Making Change, Regional Economy/Business - Analysis and Trends, Regional Economy/Business - News

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