NC Biotech Center Expanding Financing Capacity

Source: Rick Smith, WRAL Local TechWire Editor

Despite cuts in its own state funding, the North Carolina Biotechnology Center is doubling the size of loans it makes to early-stage life science companies. Why?

Lack of private-sector capital, says Peter Ginsberg, the Center’s vice president for business and technology development.

“In fact, in many cases, an NCBiotech loan is the first outside funding into a company at a time when no other funding is available given the dearth of early-stage funding options for life science companies,” he explains.

The maximum amount available has been increased to $500,000, the Center disclosed last month.

In an exclusive Q&A interview for WRAL TechWire Insiders, Ginsberg answers in detail a series of questions about the “SGL,” or Strategic Growth Loan, program which the Center has used for years to help jumpstart new and emerging life science companies across the state. North Carolina has one of the nation’s largest life science technology “clusters,” which is responsible for an estimated 237,000 jobs and produces an economic impact of $59 billion a year, according to Biotech Center statistics.

More than 200 companies have received some $22 million in loans. Current loans are repaid with interest plus 3 percent above the prime rate, according to the Center. There are at present 74 companies in the Center’s “loan portfolio.” Companies must meet a variety of credit-related criteria such as being able to secure an investor match. The Center also awards grants for a variety of programs and research.

The N.C. General Assembly and Gov. Pat McCrory cut Biotech Center funding nearly 27 percent for fiscal 2014, leading to job cuts and program reductions. But long-time CEO Norris Tolson, who retired effective June 30, and Center leadership resolved to expand, not cut, the SGL funding.

Recent venture capital statistics show that while institutional VC funding has soared nationally back to “dot com” era highs, in North Carolina the opposite is true. Funding has dropped despite a number of life science companies going public over the past 18 months.

WRAL TechWire’s Q&A with Ginsberg:

  • What are the reasons why the Biotech Center decided to increase the cap for SGL loans?

Our primary goal with this increase is to further help NC-based life science companies bridge the early-stage funding gap that exists between the time of company start-up to when it can attract major institutional investor and/or strategic partner funding. The larger loan is expected to catalyze additional company growth and job creation beyond the Center’s funding and programmatic activities already in place.

  • Are companies needing more money and if so why?

Yes, the cost of developing drugs and other life science products has continued to increase. At the same time, many VCs have increasingly focused their investments on later-stage companies, thereby widening the early-stage funding gap noted above.

  • Is an overall lack of funding from investors contributing to the need for a larger cap?

While we have experienced VCs in the area, we believe that the amount of capital available locally is far exceeded by the capital required to fund the promising products and technologies coming out of North Carolina’s start-ups and universities. To ensure that more of these promising products and technologies advance toward commercialization, NCBiotech provides loans to companies. The goal is to allow companies to create value at an early stage of technology development that is recognized by VCs and other technology investors for further investment.

  • Given that the GA has cut the Biotech Center’s budget, where is the capital coming from to support larger loans? Is this a separate fund?

When NCBiotech restructured following the budget reduction announced last summer, we indicated that we would prioritize those programs that generated the strongest success metrics. Our loan program remains one of NCBiotech’s critical programs since it has been able to avoid most of the bad credit loan fiasco and since it has consistently had a major impact on the growth of the state’s life science industry.

In fact, in many cases, an NCBiotech loan is the first outside funding into a company at a time when no other funding is available given the dearth of early-stage funding options for life science companies.

  • How many loans or how much funding (or both) does the Biotech Center make available each year?

The Center awarded 21 loans in our fiscal 2014, which ended in June. Our loans now range in size from $50,000 to $500,000.

  • Who at the Biotech Center determines the credit worthiness and/or potential of companies that apply?

NCBiotech’s loan evaluation team includes members with deep business, technical and investment experience having held previous positions in the life science industry, academic and financial communities. All loan applications undergo a formal technical and business evaluation process that often includes external reviews by subject experts.


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