Outside San Diego, Illumina Looks to Wisconsin for Key R&D

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a skilled biotech workforce in Madison fostered in part by the talent coming out of University of Wisconsin-Madison and a critical mass of life sciences companies in University Research Park. The lower cost of doing business in Wisconsin compared with California certainly didn’t hurt Illumina’s decision, he adds.

“I think there’s a lot of good reasons to do business in Madison if you’re a biotech company,” Malloy says.

Illumina certainly isn’t the first life sciences giant to take notice. Madison’s biotech community has proven ripe for the picking over the years, with some acquirers maintaining operations there, often using the Madison location as a key R&D site.

Luminex (NASDAQ: LMNX) and Arrowhead Research (NASDAQ: ARWR) are two other examples. Luminex, an Austin, TX-based diagnostics company, acquired Madison-based EraGen Biosciences in 2011 for $34 million in order to own the company’s molecular testing kits. It intends to grow its Madison staff of 40, Xconomy reported in January. Pasadena, CA-based Arrowhead set up its main R&D team in Madison a couple years ago, out of the ashes of the former Mirus Bio, which Roche bought in 2008 for $125 million but divested in 2011 after it decided to get out of the RNAi game.

“These industries certainly are changing rapidly all the time, but again, we seem to be able to have some talent that’s been able to adapt and have relevance for the larger company,” says Greg Hyer, interim director of Madison’s University Research Park.

Madison has a “proven track record” of companies developing desirable technologies that lead to business partnerships or M&A activity involving big players in life sciences, Hyer says, rattling off additional examples like Roche’s $272.5 million acquisition of NimbleGen Systems in 2007 and Takeda’s $35 million purchase last year of Fort Collins, CO-based Inviragen, which has a Madison facility.

“There’s been a pattern, particularly over the last several years,” of high-profile acquisitions, Hyer says. “It gives credibility to early-stage biotech companies that are being created here in the community. That reputation gets out into the industry. It makes it easier for these newer companies to attract talent, attract money, or attract partnerships with larger companies.”

But some Madison acquisition targets haven’t been as fortunate as Epicentre, instead finding themselves downsized or shut down. Five years after the NimbleGen acquisition, Roche said it would cut nearly half of its 100 staffers in Madison, the Wisconsin State Journal reported. (Hyer says Roche NimbleGen still leases about 30,000 square feet of office space in the research park.) More recently, Bedford, MA-based Hologic (NASDAQ: HOLX) said it would transfer its molecular diagnostics operations in Madison to San Diego, home of its subsidiary Gen-Probe, which would mean the loss of about 130 Madison jobs, according to various media reports. Hologic acquired Madison-based Third Wave Technologies in 2008 for $580 million.

Those situations are “painful” for the affected employees, Hyer says, not to mention the blow to the local economy. But there are silver linings, Hyer says: an exit creates wealth for company founders and executives who often go on to invest in other Wisconsin startups (or start new companies of their own), and the laid-off employees frequently land new jobs with other Madison biotech firms.

On balance, Hyer says most of Madison’s biotech buyouts have been positive for the community, as operations usually continue for another 10 years or so—a long time in the industry, he says.

“We need some patience in continuing to work on supporting the new startups and not get too discouraged,” Hyer says. “I think we have a higher probability than other places in the U.S. at succeeding at some level.”

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