She's discovered a serious problem in Philacon Valley: The region's drive to build its economic development strategy around life sciences could be stalled unless local health-care venture capitalists are willing to step up to the plate.
So, Corner said, it's a good thing Gov. Ridge wants to pony up $60 million in state money over the next three years to seed a venture capital fund to invest in biotech companies like hers. The governor hopes the state's investment will help to leverage an additional $90 million from private investors and pension funds.
Now, there are only three local health-care venture capital firms in the Philadelphia region with capital under management in excess of $50 million, said Anthony Lopez-Ona, an investment banker who heads Janney Montgomery Scott's life sciences practice.
"There's an absolute dearth of funds in this area that invest in life sciences," Corner said.
That's odd. Several of the world's major pharmaceutical companies have major operations in the region. We have a clutch of world-class teaching hospitals within city limits. And even the federal government pours health-care research money into the region; Philadelphia ranked fourth in the nation in National Institute of Health grants in 1999 with more than $500 million.
Pennsylvania has more than 5 percent of the nation's biotech companies - most of them in the Philadelphia region. Only California and Massachusetts have more biotech firms.
That sounds good, but it doesn't mean that those biotech firms are getting the money they need to grow. Health-care companies in California and Massachusetts attract billions more in venture capital, according to an analysis of the overall health-care industry by Lopez-Ona.
And there are fewer biotechs here that go public, too.
This is bad news. Biotech companies need a longer duration of support - what's known in the industry as "patient capital" - than other companies. Not surprisingly, Lopez-Ona said the failure rate of venture-backed biotechs here is much higher than in California and Massachusetts.
BIOTECH START-UPS, of course, fail for a variety of reasons, but lack of financing is certainly one.
Consider the biotech life cycle: It costs as much as $300 million, and takes as long as 12 to 15 years, to develop and bring a new drug to market.
According to Lopez-Ona, the success rate of new drugs making it through clinical trials is only 1 in 5, and only 3 in 10 new drugs actually recapture their research and development costs.
In other words, investing in biotech is risky business, and the payoff - if it comes - won't happen overnight.
One local venture capitalist with a long track record of health-care financing said one explanation for the paucity of local health-care venture firms is that they don't understand the lengthy clinical trial-and-regulatory process that drug discovery takes or they are skittish about investing in local biotech entrepreneurs.
"People don't want to bet a lot of money on untested entrepreneurs. The West Coast has a history of experienced, entrepreneurial biotech management - been there, done that - and we don't," said Brenda Gavin.
Gavin is President of SROne Ltd., a wholly-owned venture arm of the global pharmaceutical giant, GlaxoSmithKline. Her venture capital firm is one of the top three locally-based health-care venture firms that has invested in a number of local biotech companies.
Both Gavin and Corner said entrepreneurs with biotech start-ups face a Catch-22 dilemma: You can't get financial backing without inspiring confidence among venture capitalists that you have the moxie to build a successful biotech firm, but you can't gain the experience without the backing.
"When you're starting out, you're pulling on your [local] network, and if you don't have the financial resources within your own network, you're going to fail before you can get enough of a reputation to branch out wider" to a more global investment community, Corner said.
And, she said, this region cannot count on venture capitalists based in California and Massachusetts to do what local venture capitalists won't. "They've got a thousand deals a week coming across their books, so in Silicon Valley, why troll the East Coast waters for deals? The same up in Boston."
She said it raises suspicions among venture capitalists that maybe there's something wrong with a deal if locals won't support it.
"You're always one step behind if you're in Philadelphia and you're trying to raise money in Boston or New York or the West Coast," she said.
ACCORDING TO Venture Economics and the National Venture Capital Association, Philadelphia-based venture capitalists invested just $8.5 million in seven local biotech firms in 1999 and 2000.
"That's stunning, absolutely stunning, how bad that is," Corner said. "That's absolutely incredible. Essentially they are not investing."
She said that lack of money contributes to a lack of opportunity and therefore "people won't start [biotech] companies here" or will go elsewhere or abandon life sciences altogether.
All told, 16 local biotech companies received $168.6 million from 54 venture firms from across the nation over the two-year period.
Venture Economics/NVCA does not include in its database angel investors or money from firms who don't publicly disclose their investments.
Nevertheless, Edward Abrahams, the executive director of the Pennsylvania Biotechnology Association, said he was confident that Ridge's initiative, if approved by the General Assembly, would help to pry loose more money from local venture capitalists.
Both PABIOTECH and Greater Philadelphia First recently announced a partnership and said more venture capital for life sciences will be their first priority.
"The governor's proposal will reduce the risk and a lot more [biotech] deals will get done," Abrahams predicts.
But Gavin said the important thing is the kind of deals that get financed. She said she recommended to some of the governor's top aides that the state's biotech venture fund have strings attached.
"If Pennsylvania wants to make itself different and grow more biotechs, they need to make more early-stage capital available," Gavin said.
Tim McNulty, the state's second-in-command at the Department of Community & Economic Development, said the state's biotech venture fund would be targeted at both early-stage and second-stage companies.
And that's important. Lopez-Ona said the issue is not simply money, but whether or not the state can "sustain" an industry that both "pushes science harder and creates new jobs."
"We want to make sure that when we create companies they stay and grow here, and don't migrate to other places where there's more patient capital," McNulty said.
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