Mississippi biotech startup moves to Baltimore

Ken Malone and the board members of his startup biotech company gathered in a conference room at the University of Southern Mississippi last October to make a gut-wrenching decision.

Ablitech Inc.'s funding was slowly drying up, and it couldn't find new sources in Mississippi. If the company stayed, it would wither away. The only option left for Ablitech, they decided, was for the fledgling company to move.

"We called our shareholders together and said, 'Look, if we stay here, we're going to die,'" Malone recalled recently.

For months, Malone and one of the firm's co-founders scoured the East Coast, from North Carolina to Boston, for a new home. They chose Baltimore.

Ablitech's choice this year was a modest win for the still-growing University of Maryland BioPark on the west side of downtown, where about 500 people work. The company brings only a handful of jobs, and its cancer-stopping technology is years — and millions of dollars — away from animal and human trials, let alone commercialization.

Ablitech's short history — it began in 2006 — shows how states and universities have used federal and state funds to help launch small biotech companies and encourage private investment. But as these startups grow, they sometimes need to move to other parts of the country, to be near investors, major customers and industry peers.

Ablitech's choice shows that startup companies outside the region are noticing the young Baltimore research park, officials there said. Ablitech moved there from farther away in the United States than any other tenant, BioPark officials say.

The BioPark, which opened in 2005, now has 20 small companies spread among two buildings. The University of Maryland's long-term development plan for the research park includes several more buildings on the campus.

The park hopes to continue to attract small companies such as Ablitech as they grow. James L. Hughes, the BioPark's vice president and chief of enterprise and economic development, said the university has been striving to build a research park with its own system of services, talent, and office and lab space.

"Six years ago, we would've just given them office space and our university connections," said Hughes. "Now, it's all that, plus the 20 other companies we have here."

The state has a long-term development plan for the biotech industry, anchored in Baltimore by the University of Maryland and the Johns Hopkins University. Three years ago, Gov. Martin O'Malley unveiled a plan to spend $1.3 billion to fuel the industry through 2020.

But for now, the BioPark — together with a similar Hopkins effort in East Baltimore — is smaller than the biotech clusters in Boston and California. The two Baltimore parks, however, complement a larger cluster of more established biotechnology companies in Montgomery County, state officials said.

Many small biotechs rely heavily on federal research dollars to fund their early growth, but they also need outside investment to propel them.

Venture capital investment, which had flagged during the recession, is on the rebound. Nationally, investment in biotech has expanded significantly since the mid-1990s. In 1995, nationwide investment totaled $747 million. Last year, biotech companies attracted $4.7 billion in venture capital — up from $3.9 billion in 2010, according to the National Venture Capital Association

A lot of that capital and growth has been concentrated in places such as Boston and San Diego, which have decades-long records of scientific research and commercialization.

Maryland has tried to keep pace and, by some benchmarks, is doing well in science and technology. The Milken Institute's State Science and Technology Index, which ranks states' capacity to turn science and technology resources into industries and jobs, ranked Maryland No. 2 in 2010, behind only Massachusetts.

Mississippi, where Ablitech started, ranked 48th.

Peter Abair, director of economic development and global affairs at MassBio, a biotech trade association in Massachusetts, said he routinely talks to small biotech startup companies that want to move to Boston from other states where the industry is less developed.

These companies typically seek to be closer to potential investors, customers and the large talent pool connected to the major universities in eastern Massachusetts, he said.

"Maryland, no doubt, has a very strong biotech cluster that's younger than ours," Abair said. "It's very research-based but probably less balanced with commercialization."

Ablitech is years away from commercialization. Moving the company to Baltimore, its founders believe, will help the company survive.

Coming from Hattiesburg, Mississippi's fourth-largest city, with 50,000 residents, Ablitech was looking for a denser, more urban environment. Malone said he wanted a location near near big-name universities and a good labor market that retains the feel of a tight-knit startup community.

Boston was too big, and the Research Triangle Park near Raleigh, N.C., was too spread out, Malone said.

Baltimore, it turned out, was just right.

Ablitech didn't receive any tax breaks, credits or subsidies to move to Maryland, according to Malone and BioPark officials. But Malone expects to apply for the Maryland Biotechnology Investment Tax Credit when the company becomes eligible.

The tax credit is a popular tool for biotech startups to encourage investors. It gives investors an income tax credit up to 50 percent of their investment — as much as $250,000.

The tax credit wasn't a major reason behind the company's move to Maryland, but it was part of what made the state and Baltimore attractive, Malone said. Other states offer similar tax incentives.

"There were other places that offered incentives, but they didn't have all the pieces we wanted," said Nick Hammond, the Ablitech co-founder who conducted the search with Malone.

Early in its life in Mississippi, the company did receive some government financing, in the form of seed funding. Ablitech was the fruit of a years-long effort at the University of Southern Mississippi and the University of Mississippi to jump-start high-technology companies with a combination of school, state and federal funding.

While Mississippi lost one of its own most promising biotech startups, Ablitech's move may yet pay off for that state. If Ablitech brings to market what it's working on — a way to turn off cancer cells and stop their replication — several local investors, the University of Southern Mississippi's research foundation and a state-based seed fund, which own minority stakes in the company, could reap a financial benefit.

That's what the University of Southern Mississippi was hoping for when it hired Malone from his job with a French oil conglomerate in Philadelphia to launch an entrepreneurship program in the sciences. Malone had graduated from the school with a doctorate in polymer science.

In Hattiesburg, Malone brought together the university's polymer science expertise with the University of Mississippi's medicinal chemistry department. The Mississippi Legislature pumped money into the push to create early-stage biotech companies.

One of the first startups to emerge was Ablitech, led by two graduate students. They had won a business plan competition and developed their first product, a biodegradable stent that lab tests showed might not be rejected in a human body.

But larger competitors had their own versions, and the Ablitech stent was too late to the market, Malone said.

So Malone and the student scientists behind Ablitech —Hammond and Lisa Kemp — shifted to a new technology that turned off disease cells, such as cancer, in early lab tests.

Called Versadel, the technology stopped the growth of cancer cells in human serum, the company said. But the company needs millions more in funding to conduct animal trials.

Ablitech had raised $750,000 from private and university investors in Mississippi, in addition to the state and federal grants it received. As Congress cut back on federal earmarks, Ablitech's federal funding tied to appropriations eroded, Malone said.

But the company received another federal lifeline, winning a $2 million grant from the Department of Defense.

Under that grant, Ablitech is working with scientists at the Army's Telemedicine & Advance Technology Research Center at Fort Detrick in Maryland to develop a way to stop the human bone growth in soldiers who have lost limbs. Even after surgery, amputees' bones continue to grow and often require more surgeries and further amputation, Hammond said.

"Currently there's no treatment for it," he said.

Ablitech's move to Maryland puts it closer to Fort Detrick and other federal agencies.

Making the move was hard, Malone and Hammond said, but rational.

Their small company is seen as a trailblazer on the campuses of Southern Miss and Mississippi. It has won business awards and received media attention. Other student entrepreneurs are emerging to launch their own medical and science-based businesses.

Moving "was exceptionally tough for me because I spent eight years helping the state and university create the physical and human infrastructure to foster the growth of tech companies," Malone said. "So I had a large personal stake in seeing it work."

But Baltimore, he said, "this is the place for opportunity."

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