News Life Sciences West Michigan’s stock rising in the life sciences despite funding challenges
West Michigan’s stock rising in the life sciences despite funding challenges
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By Nathan Peck | LabWork
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WEST MICHIGAN — Looking around the country, John Woodhouse is seeing stock in West Michigan’s life science industry on the rise.
As sales and marketing manager at Medbio, a contract manufacturer for the biotech and life sciences industries, Woodhouse is finding that the growing reputation for the region is helping his company gain new business.
“Business is good, it is really good. I attribute it to getting the name out there. We have our own little medical device Mecca here in town, but we’re nowhere near the size of Minneaplolis, Boston or L.A.,” Woodhouse said, noting that partnerships with other companies in West Michigan give the area some momentum. “With the West Michigan Medical Device Consortium, Southwest Michigan First, and The Right Place Inc., we have all these little consortiums, and we have always as a group promoted West Michigan. We have the capacity here to do it all. I can’t do it all myself, but I can do it all here in West Michigan.”
The region is gaining in its reputation nationally due to the willingness of companies to partner to provide broader services to the medical original equipment manufacturer base, said George Bosnjak, business development manager for The Right Place Inc. Bosnjak has recently taken West Michigan manufacturers to trade shows in Anaheim, Calif. and Minneapolis.
“We have everything here to take a product from R&D to testing, get it production-ready and take it to market here,” Bosnjak told LabWork. “Our biggest strength here is the variety of products we make. We handle everything from injection molding to embedded systems design.”
The region is building a strong base of companies who are making their names in the medical device industry, drawing on ties to research institutions and healthcare systems in West Michigan, and is starting to build the apparatus to fund early-stage life science companies in the region. The last two years have not made the funding of early-stage companies any easier, but those later-stage companies are well-funded and are capitalizing on opportunities in the marketplace, said Birgit Klohs, president and CEO of The Right Place Inc. Well-established companies such as Autocam Corp. are growing their medical device divisions and later-stage companies are finding mezzanine financing, but until recently the early-stage financing question had been a nagging one for the region.
“For the small companies, they need a very different type of financing. We really have three tiers, (and) we see positive stuff at all levels,” Klohs told LabWork. “The funding question for the latter is still not easy. We had a real lack at the front end, sometimes the angel investors come in, sometimes they did not. With the (Michigan Accelerator Fund I) there is finally a place to go. They are a very-early-stage fund, something we don’t have right now, looking at the ideation stage to the other end.”
The challenge of raising money for early-stage companies is by no means a phenomenon unique to West Michigan, said Ron Kitchens, CEO and president of Southwest Michigan First.
“Money is hard to come by — it’s always been hard to come by. If we went to Boston, you would hear the same thing there as you’ll hear here,” Kitchens told LabWork. “In any year, we’ll see 400 to 500 ideas needing funding — there is no way that this region can support all those ideas alone.”
So Kalamazoo, and West Michigan as a whole, must look further afield for financing. The region is attracting interest from venture funds and early-stage investors, Kitchens argues, pointing to the Michigan Accelerator Fund I that was formed last summer in Grand Rapids, and the fact that a Midwest-based venture capital firm, Open Prairie, is opening up an office in Kalamazoo. Founded in 1999 and headquartered in Effingham, Ill., Open Prairie closed its second fund with $30 million of capital in September.
Still, Kitchens sees uncertainty in the wake of the collapse of the financial sector and of big pharma pulling out of discovery-stage research as acquisitions and consolidations shake out. Changes to the regulatory and approval processes for medical devices from the Food and Drug Administration is leading to a bottleneck in the funding stream that is just now beginning to work itself out. Kitchens is focused on building the capacity for helping connect investors with entrepreneurs and early-stage companies, as well as leveraging assets in the region such as Western Michigan University and its fledgling medical school in efforts to attract federal research grants from the National Institutes of Health and National Science Foundation.
“Good ideas are being funded. Good businesspeople find a way to succeed in good markets and bad,” he said. Nimble companies are finding diverse funding sources to grow their businesses. “If we get better at garnering (research) dollars, we’ll have more than our share of opportunity.”
Venture funds are increasingly becoming “location agnostic,” following the good ideas wherever they might be, be they in Boston, Grand Rapids, or Kalamazoo, said Michael DeVries, managing director with EDF Ventures, a Michigan-based venture capital fund with offices in Ann Arbor and Grand Rapids.
“If a company is competitive on a national or global scale, the only thing that separates them from venture funds is a plane trip. From the entrepreneurial standpoint, it comes down to the quality of the deal, and how you stack up to peers on the national level. If you have something that is way superior, you will find the funding,” DeVries said. “Yes, it’s not growing as fast as some would like here, but we’re lacking some of the legal and accounting infrastructure. Look at how deals are structured. If you talk to a patent attorney, who can he help set you up with in finance? We just don’t have that here like you do in Silicon Valley or Boston.”
That venture capital can choose to be picky, investing in later-stage companies with products closer to market means that early-stage companies will continue to struggle to find financing. There is a risk, however, that a lack of a coordinated strategy from the state and life sciences industry will mean that the industry will struggle to make its voice heard nationally, said Stephen Rapundalo, president and CEO of MichBio.
“If you have the right product, the right technology and it shows potential, investors will come to you. They certainly are more picky. They want to invest in things closer to market. Nevertheless, the dollars are there if you market yourself. If there are that many more hands in the air, you have to make yourself visible amongst all that,” Rapundalo told LabWork. “On the economic development side, we still don’t have a game plan, and so we’re not sure of where we want to go, what strengths are, what our opportunities are. We have been asking for that for 5 years now. We need to know what we have, what we don’t have, and how we stack up. If we want to regain our leadership role we had 10 years ago, it should be a major goal for us, especially if we no longer wish to rely on other sectors of private industry to dominate our economy here.” LW
