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San Antonio’s Life Sciences Industry: BUILDING THE INNOVATION ECOSYSTEM
September 21, 2013

By Texas CEO Magazine

In the past, business incubation depended on real estate to succeed those who were close in proximity connected and thrived and those who weren't - lost out.

Today, the rules of success in incubating new businesses have changed, and innovation ecosystems have taken the place of real estate. In this instance, an ecosystem can be defined as a structure that promotes a culture of innovation.

At an Enlightened Speakers Series event in San Antonio, five experts at innovation in the life sciences sector contributed their views on building such an ecosystem. They were: Art Markman, Ph.D., the Annabel Worsham Centennial Professor of Psychology and Marketing, The University of Texas at Austin; Phil Faris, Executive Chairman of Innovative Trauma Care; Randy Goldsmith, President & CEO at The Texas Technology Development Center (T3DC); Ed Davis, Executive Director, San Antonio Economic Development Corporation; and Paul Castella, Ph.D., Co-founder, Incyte Venture Partners.

Creating a Culture of Innovation
Markman, who developed the idea of the innovation ecosystem, set the table for the discussion by explaining why such systems are so important.

Art Markman, Ph.D. The University of Texas at Austin
Art Markman, Ph.D. The University of Texas at Austin

"If you think about any kind of a community that wants to support innovation, you're never going to have all the talent you need inside a single organization in order to make that happen," he said.

He explained that an ecosystem can be viewed as a coral reef. The reef protects small fish, which attract larger fish, which attract larger fish.

"In fact," he said, "the successful communities have a lot of factors that look like that reef. The incubators create a way of protecting the newest organizations, but because there's a common theme, you can create interactions with networking events like this."

As an example, Markman cited the Austin Technology Incubator and its informal coffee shop talks. The directors of the incubator hold office hours at coffee shops around town, and people show up to meet other people and share experiences.

"As a result, you get groups that organize themselves and come together to help particular companies in ways that end up being very successful," Markman said.

Building the Ecosystem
Randy Goldsmith described himself as a practitioner who builds those types of ecosystems. He said it's important to understand the four key components of an innovation network.

"In my judgment," he said, "it starts with research."

Randy Goldsmith Texas Technology Development Center (T3DC)
Randy Goldsmith Texas Technology Development Center (T3DC)

In San Antonio, Goldsmith's T3DC works with the UT Health Science Center, the Southwest Research Institute, and UT-San Antonio, but it also works with UT-Austin and Texas A&M.

"The research doesn't have to be local, it just has to be good and able to support the type of ventures we're involved in," he said.

The second element is entrepreneurs. "Entrepreneurs are the change agents in an economy," Goldsmith said. They take the risk and introduce the innovation into the community. T3DC helps them mature their ideas into commercial ventures.

Then, there's investment capital. It takes millions of dollars to bring a medical device or a drug to market, and banks view those ventures as too risky, Goldsmith said. In San Antonio, Goldsmith said capital comes from high net worth individuals and venture capitalists.

"The fourth factor in an innovation network is the quality of place," he concluded. Entrepreneurs are attracted to places with resources to support that ecosystem and the ability to attract the talent required to work with those companies. He said San Diego, Boston, and Austin are obvious examples of strong innovative communities, and there's no reason San Antonio can't join those ranks.

"Five years ago if you looked at the number of companies in biosciences in San Antonio, you couldn't fill a room and today, it's completely changed. Today we bring together over 200 entrepreneurs together on a quarterly basis."

The San Diego Model Moves East?
Phil Faris said he was a consumer who shops the elements of an ecosystem as well as being an entrepreneur. His first experience as a CEO was in San Diego, where he revived a failing company that now has a 45 percent market share in its sector. As he and a key investor looked for other opportunities, the need for an innovative ecosystem became apparent. The research facilities were already there.

"We had excellent research facilities in UCSD, Scripps, The Salk Institute and San Diego State and a core of technical companies that had a tremendous repertoire of

Phil Faris Innovative Trauma Care
Phil Faris Innovative Trauma Care

scientists and technical people who could feed and carry out the innovative process," he said.

Likewise, there was venture capital looking for deals in biomedical and med-tech industries. "We also had a group that I helped form focused on solving the problems of talent acquisition, taxation, availability of water supply, infrastructure and other things," he said. "We had service providers that flocked to the industry to offer their expertise."

He said that community grew from just a few companies to hundreds. "That's what we're trying to do in San Antonio," he said.

The Role of Government
Government can play an important role in developing an innovative ecosystem. Ed Davis of the San Antonio Economic Development Corporation said SA 20/20, a vision of what the city can be, has targeted life sciences as one of its growth industries. The SAEDC worked with Bexar County and local universities on a package to lure InCube Labs from San Jose to San Antonio. Three InCube Labs companies made the move - and two more have started up since.

"By doing that deal through the EDC," he said, "we took an equity position in InCube Labs with five percent of the founder's shares and any company created during this five year period."

When the UT Health Science Center needed money to cover a funding gap in its South Texas Research Facility, the SAEDC invested $3.3 million. "In exchange for that

Ed Davis, San Antonio Economic Development Corporation
Ed Davis, San Antonio Economic Development Corporation

investment over ten years, we would get some net equity proceeds from any startup company in which the university takes out an equity interest generated by their intellectual property," Davis said.

A third investment was with Innovative Trauma Care. For a $300,000 grant, the SAEDC helped establish the company's marketing and distribution operations in San Antonio. It created jobs, and the SAEDC now holds 187,000 shares of the company.

"I see my role as trying to connect the dots to bring people together and help folks to create more venture capital funds here," said Davis.

It's Almost Always About Money
This missing element in building ecosystems is often capital. Paul Castella said his interest is in starting life science companies in San Antonio and funding them. He turned Markman's coral reef analogy around.

"In nature, an ecosystem is a network of species that are actually trying to eat each other, which is a lot less friendly, warm and fuzzy that what we've talked about today as an ecosystem," he said. "If you want to draw those analogies, then a coral reef is the carcasses of millions and millions of companies that have died."

Castella said he's proud of being part of the development of the first fund in San Antonio dedicated to life science. "People think of VC's as the sharks in the system and being predatory and eating whatever pops up," he said. "I view VC's as the source of the food." Without that funding, the ecosystem will collapse, he added.

He pointed to ILEX Oncology, which is no longer in San Antonio. ILEX was purchased by Genzyme Corporation in 2004. "It's a carcass that many things have grown

Paul Castella Incyte Venture Partners
Paul Castella Incyte Venture Partners

from," he said. "Many of the companies we've created were founded or managed by people who came out of ILEX."

The challenge in funding life sciences is overcoming a lack of knowledge about the sector, Castella said. "If you're not familiar with something, it's hard to invest - especially start up life sciences companies." As funders become more aware of successes in that sector, they'll have the confidence to invest there, versus oil and gas. Davis said the SAEDC doesn't have a lot of money for investment right now - perhaps $200-300,000 for two to three investments per year.

"What we bring to the table, by the city investing, sends a signal to other investors - particularly local investors - that the city is interested in this project and others should be interested in it," he said.

Markman had two takeaways from the morning's session. "If you want to create a good ecosystem for supporting companies, there are two things you need to do," he said. "One is to try to organize the communities you create around a common theme. Then, you need to create a series of events that are going to have value for people to bring them together to have these kinds of seemingly random conversations that ultimately provide value."

Ann Stevens of BioMed SA & San Antonio City Councilman Ron Nirenberg
Ann Stevens of BioMed SA & San Antonio City Councilman Ron Nirenberg

The second takeaway: to build an innovative ecosystem effectively people are needed who help to bind together the community. Markman calls these people "expert generalists."

"These expert generalists are the ones who are really good at seeing the thing you are struggling with, knows it was solved by this person over here," he said. "If you want to create this kind of healthy ecosystem, bring people together, find the expert generalists, and what you'll have is a community that shares information. Regions survive when there's a tremendous amount of cooperation, because that brings together the community."


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