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12:00 AM
Mar 23, 2009
 |  BioCentury  |  Finance

Ebb & Flow

A proposal written by Washington attorney Leslie Platt that up to $50 billion of TARP money be invested in biotech and other innovation industries was based, in part, on Germany's BioRegio contest in 1996, which awarded government money to support biotech startups. But while the German plan resulted in too much money chasing too many companies with too little due diligence, Platt maintains there would be significant differences this time around.

Platt is an attorney at Pillsbury Winthrop Shaw Pittman. Previously, he was chief of operations at NIH and also was HHS deputy general counsel.

His white paper, called "Addressing the Financing Crisis in America's R&D Innovation Sector: Creating an Innovation Sector TARP Program," has been presented to both the Obama administration and members of Congress. It proposes to co-invest federal funds from the Troubled Asset Relief Program with "a significant amount and percentage of private sector financing" from banks, VCs or fund managers.

Under the proposed plan, investments would only occur if there were a minimum of a 20% co-investment from private sector sources

The money would go to public or private companies in the "innovation sector," including biotech, nanotech, IT, cleantech and alternative energy.

"The material difference versus what happened in Germany is that these companies already exist and have proven their stripes," Platt told Ebb & Flow. "It's not that there isn't a market or potential customers for their technology," which he said was the case with some of the German startups.

Platt thinks another difference between his scheme and the BioRegio experience is that due diligence would not decline in the face of government co-investment.

"I've asked every venture capital fund, hedge fund manager and investment banker that I've spoken with whether this plan would make them less careful," he said. "Right now, they say they're so risk averse that they're out of the market. If the private sector has to put money in alongside the government, they won't do it unless the investment has appropriate scale and structure. It's not like everyone who comes courting for money will get it."

Careful readers of the white paper may have raised their eyebrows upon seeing the bankruptcy of Orchestra Therapeutics Inc. as an example of the biotech sector's woes brought on by the current economic climate. Orchestra (formerly The Immune Response Corp.) filed for Chapter 7 last October, but the writing had been on the wall for almost two decades, given the multiple failures of the company's Remune HIV vaccine.

Platt conceded that Orchestra might not be the best example of a company that's suffering because of the economic downturn. Rather, the demise of an HIV vaccine developer was intended as an attention grabber. "Congressional and administration decision makers are stretched very thin - you have to grab them in their district and on critical issues, and you have to do it in primary colors" to warrant their attention, he said.

Dollars down under

While Platt's plan to use TARP money to fund U.S. biotech and other innovation-focused companies is taking shape, Australia's government last week allocated A$83 million ($54.7 million) for its innovation sector. The money from the Innovation Investment Follow-on Fund will go to more than 20 VCs and will be invested in startup biotech, clean tech, IT and communication companies.

The government did not give a timeline for when it hopes to deploy the money, but did say that "funds will flow to companies as soon as possible."

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