When Dr. Eric Oster-tag began looking in 2007 to relocate his biotechnology company from the costly Philadelphia area, a Kentucky state matching funds program immediately caught his attention.
Ostertag’s company, Transposagen Biopharmaceuticals, had just been awarded a $1 million Small Business Innovative Research (SBIR) Phase II grant from the National Institutes of Health. The company also was applying for a $100,000 Small Business Technology Transfer (STTR) Phase I grant. If Transposagen were to relocate to Kentucky, the state’s SBIR-STTR matching funds program would almost double its grant money.
No other state offered a similar incentive that matched both phases of both grants.
Ostertag had created Transposagen in 2003 to do research on a new mobile DNA technology that rendered certain genes inoperative in rats. After a few years of successful research, the company had begun marketing these “knockout” rats to universities and labs across the country and in Japan to use in drug research and development.
“We use only the commercially viable technology to create knockout rats, which are animals with single genes disrupted, causing the animals to closely mimic various human diseases such as diabetes, Alzheimer’s and cancer,” said Ostertag. “We call these animals MutaRat knockout rat models, and they are crucial tools for drug discovery and development.”
When Ostertag visited Kentucky to further investigate relocating his growing company here, he said he was impressed by the cooperation among the state, the University of Kentucky and Commerce Lexington, which is the city’s chamber of commerce.
“The cost of living was relatively low, the quality of life was good, and there was across-the-board support,” he said. The only choice he said he had to make was between Louisville and Lexington. Ostertag said he decided on Lexington because of the emphasis on research at UK, where he is now an adjunct professor and where Transposagen’s lab is located at the college’s Advanced Science and Technology Commercialization Center. The company’s headquarters is downtown.
Deborah Clayton, commissioner for the state’s Department of Commercialization and Innovation (DCI), which is part of the Kentucky Cabinet for Economic Development, said cooperation from the very beginning is imperative in attracting companies to Kentucky.
When relocation candidates visit Kentucky, Clayton said state officials organize a meeting at which the company’s representatives can get together with everyone from whom they’ll need information.
“It’s a one-stop shop where all questions can be answered up front and a plan devised,” she said. The questions and planning usually include sources of funding, site options, potential investors, and help with licensing agreements and intellectual property rights. All available resources are clearly laid out for the company. “We want to help companies relocate and grow as best we can,” Clayton said.
The state has put much time and money toward attracting bio-tech companies, both startups and existing, that can bring the commonwealth stable, high-paying jobs that, in turn, generate state tax revenue. The state’s matching federal SBIR/STTR awards program has been the biggest boon so far in this mission, awarding $15.6 million to date, with 71 matches going to 44 companies, said Clayton.
The U.S. Small Business Administration Office of Technology administers the SBIR/STTR awards, which are funded by several federal agencies, including the National Institutes of Health, the Department of Defense and NASA. Through SBIR and STTR, a total of $2 billion has been awarded to qualified applicants, ensuring innovative, small high-tech businesses are a part of the federal government’s research and development efforts.
State recruits eight tech companies
Kentucky’s matching program, launched in November 2006, is unique in that it matches both Phase I and Phase II federal awards. Phase I federal awards allow up to $100,000 to support exploration of the technical merit or feasibility of an idea or technology. Phase II federal awards, which support full-scale research and development, are matched by Kentucky up to $500,000 a year for up to two years.
The matching program has aided in the relocation of eight companies: Advanced Dynamics, NeoCytex Biopharma, Turbo Wheelchairs, Bexion Pharmaceuticals, 3H Company, ATI, Louisville Bioscience and Transposagen. So far, those companies have created 87 new jobs, established five licensing agreements and filed 29 patents.
The program’s popularity and its limited funds have made it increasingly competitive, and instead of being awarded on a first-come, first-served basis this year, applicants must go through a peer-review selection process, during which an outside panel of scientific and business experts recommend which projects should receive the state’s matching SBIR and STTR funds.
“This program gives us the opportunity to take something from a light-bulb idea and see it through to a product coming off the assembly line,” Clayton said.
This past August, Transposagen announced a new rat model that has no functioning immune system, which will allow for more realistic testing of transplant techniques and cancer treatments, Ostertag said. They are more closely related to humans than mice, which had been the only animal previously available without an immune system.
The company’s ultimate goal is to produce a model representing every gene in the rat genome within years.
George Ward, Transposagen’s director of development, said Transposagen also was approved last year for a forgivable loan of $325,000 from the Kentucky High-Tech Investment Pool, which is administered by the Cabinet for Economic Development’s Department of Commercialization and Innovation.
Transposagen anticipates adding a minimum of 13 full-time high-tech and technical support jobs at an average salary of approximately $57,500 by the end of 2012.
“We are still growing rapidly,” said Ostertag. “We’ve gone from development to selling our products and now would like to expand our facilities.”
Ostertag would like to add space for a vivarium to breed research rats to work with and to sell. Right now, he said, the company depends on universities with vivariums and spends a lot of money sponsoring research in other locations. Having a small vivarium could lead to an additional two dozen jobs, while a large vivarium could mean up to 100 jobs.
“Bio-technology is a good area to get into as we lose our manufacturing base,” he said. “Sometimes people can’t see the value in it during the early stages, but these investments pay off manyfold.”
The Advanced Science & Technology Commercialization Center, better known as ASTeCC, is a new business incubator and research and development center. University of Kentucky faculty, staff and students use the $17 million, 80,000-s.f. ASTeCC building in the heart of campus as a hub for intellectual property and technology commercialization activities. Since it opened in 1994, more than 30 companies have “graduated” from ASTeCC.