WA Life Sciences Industry Faces Future of Diminished State Support

Xconomy Seattle — 

[Updated 7/1/15 4:58 pm with comments from Gov. Inslee. See below.] There was no last-minute veto by Gov. Jay Inslee this time, and so Washington state’s 10-year-old program to support early stage life sciences research and commercialization is coming to an end.

The defunding of the Life Sciences Discovery Fund (LSDF) combined with the failure to renew a long-standing research and development tax credit was a disappointment—and, some say privately, a shock—to the state’s biotech industry, particularly at a time when others in the Northwest, including Montana and Oregon, are committing state funds to life sciences research.

“As a state we need to take a step back and make a commitment,” said Chris Rivera, head of the Washington Biotechnology & Biomedical Association (WBBA), a trade group. “Do we really want jobs like these in industries like life sciences here for a long time to come?”

Some $11 million in funding for the LSDF was siphoned to the state general fund as part of the $38.2 billion, two-year state operating budget signed late Tuesday by Inslee (pictured above at a WBBA event in 2014), narrowly averting a government shutdown. Lawmakers enacted historic tuition cuts at public universities and channeled hundreds of millions of dollars to teachers and schools in an attempt to fulfill the state constitution’s mandate to adequately fund education.

Inslee “is disappointed that the Legislature could not come to an agreement regarding new funding for the Life Science Discovery Fund. LSDF is an important component of Washington’s life science ecosystem and has produced substantial economic and health benefits to our state,” according to a statement provided to Xconomy by his spokeswoman. “While the governor was unable to preserve LSDF funding, he was able to veto budget language that would have eliminated the LSDF’s grant making authority on July 1 (today). He believes keeping the fund alive to fight another day is important while his administration and supporters find a way forward given the challenging nature of the budget environment.”

While existing LSDF grant commitments will be completed, the state agency will not be making any new ones unless a new funding source is found. It is assessing the way forward given that the same Legislature that saw fit to take its funding also assigned it new responsibilities during the same session. It is to advise the Liquor and Cannabis Board on granting licenses under a new marijuana research program.

“We need for all the legislative budget dust to settle,” said LSDF executive director John Des Rosier in an e-mail. “We have a lot to think about as we transition away from being an active granting agency.”

As of late May, the LSDF had administered 111 grants worth $105 million since 2007, supporting more than 3,500 jobs, 40-plus startup companies, and helping attract $510 million in additional funding.

The end of the LSDF comes after a string of disappointments for Washington biotech, beginning with Amgen’s departure and the subsequent sale of its Helix campus to Expedia, and more recently with Bristol-Myers Squibb’s transfer of about 40 research and development jobs out of Seattle.

Meanwhile, the state of Oregon committed $200 million to fund research and clinical facilities as part of the $1 billion fundraising campaign for the Oregon Health & Science University Knight Cancer Institute. And Montana recently committed $15 million to early stage research and development collaborations, Rivera said.

The biotech industry in Washington “is not going to wither away overnight,” he said on the sidelines of a WBBA innovation expo buzzing with the LSDF news. “But it sends a very strong signal to investors, collaborators, entrepreneurs that there’s a lot of other places on the West Coast and in the Pacific Northwest that are willing to help facilitate you coming there to start these companies and grow those jobs.”

There are still bright spots, however. Juno Therapeutics, a spinout from the Fred Hutchinson Cancer Research Institute, is soaring, most recently thanks to a $1 billion investment from Celgene. It has dozens of job openings in the state. And there are promising efforts in healthcare IT and personalized medicine.

“That should be a reason Olympia wants to keep things like LSDF and R&D tax credits in place,” Rivera said.

He said the industry is now discussing a sustainable funding mechanism for applied research and commercialization of new medical treatments—possibly a nonprofit aligned with the WBBA. “We don’t think it should be a state entity because we don’t want to be at the perils of the state government every legislative session,” Rivera said.

Inslee’s spokeswoman added, “While the Legislature did not produce a budget that includes LSDF or R&D incentives, Governor Inslee remains committed to our state’s goal of becoming the global leader in life science innovation and health delivery and will continue to work hard to realize this vision for our state.”