Session 7-3: The Texas Emerging Technology Fund: The Lone Star State Fills the "Gap"

M. D. Anderson Cancer Center
Date: April 2008
Duration: 0 / 13:46

Andrew A. Nat, Jr., Executive Director, Texas Life Science Center.

Narrator:

Okay, with that point I would like to introduce Andrew Nat, he is the director of the Texas Life Science Center. And again, you received the bio, and I would like to give him the opportunity here to move on.

Ah, excuse me. Was the AACR ever announced? AACR the one that it was yesterday?

Yes, I announced that about two and a half weeks ago, three weeks ago. And the reason why I did that yesterday is because we all gonna go, a lot of us gonna go to the AACR. And we need ten days internally to pass it through the Office of Research Administration, get the frat list done and all that. And we couldn't fit that, you know, after the ACR. There's not enough time until the submission deadline for the tiff  is coming up. So at this point we're gonna then reannounce the next round, which is round three.|

Two months from now.

Yeah. It's in two months from now.

Every, every, every two months.

That was in email?

Yes. I'm sending out email to all the faculty, research faculty, clinical faculty, postdocs,  I mean, everyone who has an email that we can reach gets this, this thing. If you're in this course, because you had an email announcing this course, you received the same email about this fund now for the second time. So don't delete everything too fast. All right,

Andrew J. Nat, Jr.:

Hi, I'm Andrew Nat, I'm the executive director of the Texas Life Science Center. My background is financial, deal structuring, I'm a former investment banker, was CFO and a principle at a venture capital accelerator here in Houston, and I'm here to talk about the Texas Emerging Technology Fund. I want to provide an overview of the fund for you. Bob Prochnow now is gonna talk a little bit more about the details. I'm gonna tell you a little about the purpose of the fund, why it's particularly relevant for life sciences, brief history, who the players are, a little bit about the process, and probably the more interesting thing is the results. Basically the language that you see here is in the legislation. And this is the motivation for forming the Emerging Technology Fund. Key ideas are; you want to expedite innovation and commercialization of research. You want high quality jobs in Texas. You want to increase higher education applied technology research capabilities. Those are the goals. So think disruptive technology, jobs, and university, and that's the key ideas behind this. In a life science situation, particularly, everybody talks about the gap, but there is quite a significant one here. Texas is a national leader in medical research. However, when it comes to commercialization it's in the middle of the pack. And early stage companies need access to funding, particularly life science companies. Why? Well it takes anywhere from around 800 million dollars, up to 15 years to develop a new drug out of thousands of candidates. There's a fair amount of funding from grants, such as the NIH, SCTR's, SBIR's, and then a little further along you can get venture capital, partnering deals with PHARMA.  But there's an area there in the preclinical testing, and in the phase one that's a gap. And so we're there to help fill that. The original legislation was in 2005, September, the fund was started, 200 million was authorized. Basically there were there three categories. One hundredmillion was for subchapter Ds, about 50%, which is commercialization.  Which is the area that's particularly relevant to what you're doing. They had 25% for research matching funds that's since been gone away, and then research superiority, basically is head hunting, commercialization, experienced faculty. The new legislation authorized up to 175 million of new funds, while we see here that it got subchapter Ds, Es and Fs. In reality, the state committee and the governor's office changed this. So basically 70% of this new money goes to subchapter Ds, and 30% to subchapter Fs, which are the research superiority grants. And of interest to you is there's a $186 million dollars left to be invested. One, one of the things that I understand is that this is being taped for other parts of the university system, so I'm gonna provide a little bit of an overview for people in this room, Bob Prochnow in the Gulf Coast RCIC is someone that you should know well. Texas Life Science Center is the statewide entity. We are the only ones that are in a functional area, and we specialize in life science. North Texas for people that'll be in the Dallas, Fort Worth area; central Texas is Austin; South Texas, San Antonio, Corpus Christy; the Rio Grand Valley would be McAllen, Harlengen;  West Texas, Lubbock;  Amarillo. So for other people in the system that see this, these are the groups that you would interact with. And these are also the contacts for these different regions if you're outside of this area. This is the Texas Life Science Center. It's got a board of 18 people. There's varied experience; Charles Cape, who's the chairman is in private equity, and he is the Chairman of Capital Royalty, which is a royalty drug investment company. We have people like Bob Orick,  who's a venture capitalist. We have people like Doctor Dennis Stone, who's in charge of tech transfer and commercialization at UT Southwestern in Dallas. We've got people like Warren Huff, who is a entrepreneur at a start up briatta. Dr. Mike Liberman,  who heads the Methodist Research Institute, and is the head of the Pathology Department; agriculture, such as Dale Swinberg.  So we've got a wide variety of expertise. And the life sciences cover everything from, you know, biotech, and PHARMA, medical devices, to basically agriculture, and veterinarian. So this is why we have a large board and large group of people. This is the state committee. This, this is the body that basically reviews all DL's  life science, and other wise, and makes a recommendation to the governors office. The reason I put this up here is there are 17 people here, but only four of them have life science experience. That's Jack Gill who founded Vanguard Venture Partners; Bob Pearson  at Dell, who was previously with a pharmaceutical company; Doctor Jerry Kagel  at Alcon; and Elsa Morano,  who has since stepped down, since she is now president of Texas A and M, and that has not been filled. So having only three people currently with life science experience, that's one of the rationales for the Texas Life Science Center. Because we bring a lot of expertise in that the other people may not have in the life sciences. And as you know the life sciences go miles wide and miles deep, unlike a lot of other disciplines. This is basically the process. Bob's gonna talk about this more in detail. Basically applications are received quarterly. You can send them to the regional RCIC, you can send them to us, but they gotta be reviewed by both the regional RCIC and the state committee. And then we send them on to the Emerging Technology Board, which were the 17 people we showed you before, and ultimately the leadership is the investment. The RCIC is the TLSC, and the Texas Emerging Technology Committee, or the ETF Board, are all advisors. It is the State of Texas that actually makes the investment. I thought that it would be interesting to see what some of the results are. This is through 10 rounds, and you can see the spread of the deals in the life science area. These are only life science. North Texas has 20; the Gulf Coast has more than double everybody else, 40 applications; South Texas 18; Central Texas 16. The results so far of the 19 companies funded, 12 are out of the Gulf Coast, three were out of the South Texas, two out of North Texas, and two out of Central Texas. To date the Texas Life Science Center has reviewed 128 life science applications for 102 different life science companies. Obviously the dipair, the discrepancy between the numbers is result that we allow people to resubmit. So if you're not accepted that's not the kiss of death. You'll get, you'll get constructive criticism, you'll get ideas on things that you may want to improve on, and we welcome people to resubmit. To date, people have requested 160 million in new funding, not counting repeat funding requests. So that's a significant amount of demand out there. If everybody was funded the money would go away very quickly. Little break down of where, the applications come from. About 52 of the deals or applications are from the biotech area. We got about 35 from devices, evenly split between diagnostic and therapeutic. We got seven that are vet and agricultural, so far, and six in others. Results, 57 entities were funded for 109 million. Subchapter D's are the, is the area to focus on for this group, because that's where you're applying. 38 companies were funded for 40 million. Of those, half, 19 were life science companies. Now that's incredible. There's 16 different categories. And I think part of this is a function of the excellent research and grants that are put into these companies as they're being developed early on. And the collaborations with the institution of higher education is critical. These are the companies that have been funded. I'm not gonna go into any detail about them, but I just wanted to show people. Yes this is real money going out there. These are the people that are receiving it. These are the universities throughout the state of Texas that submitted applications, or rather have collaborated with companies that submitted applications. So it's quite an extensive list. It's not an exclusive club. And I wanted to point that out to everybody, particularly the people that aren't in this room. And finally, this is my contact information. So if anybody has any questions you can feel free to call me, email me, I'm pretty responsive. Any questions? Yes sir?

Is this money the, the same as the money Cathy just talk about, that's a just grant. And this also

No. This is, this is not a grant. Basically, these are for companies in the D. And so you're basically gonna get at, you're gonna give the state equity for it's investment. If you're a preseed  deal, you're gonna get convertible debt. But basically, you're either gonna get debt or equity. So there is no free ride. And in the original legislation they refer to it as grants. They definitely changed that in the new version. Yes Evan?

Bite size community of the range, the, the range of investment size that ETF makes?

Basically, from 250 thousand to three and a half million. Most tend to be in the one to two million range. There's a new focus on preseed deals where the maximum is 250 thousand. So if you need 50 thousand, or 100 thousand, you can apply for that. Basically, when you're a preseed company you present milestones, you'll get your 250 thousand you're allowed. Once you complete those, to reapply for more money, and the state reserves up to a million dollars for those preseed companies.

Thank you. Yeah, Bob will tell us a little more in detail about how that goes. Thank you very much. I hope you see there is a little pattern. We fund early stuff in house, then we try to go, maybe, with your technology to the TRIFF,  get additional money. And once this is done we help you, hopefully, to get a company together, and then we bring you to the ETF. And we have now helped several companies to go through these steps. So there is, there is a kind of free ride for money for you guys up to that point. Now here we start talking bigger things, companies building, management teams, typically it's not you, it's somebody else, and the bigger deals. And when we have that in place then we're gonna talk about the, the next few speakers who come in with the larger amounts of money, you know, so there's a whole path for you to follow.