St. Louis BioBelt Lures VC Money With Tax Breaks and Universities –

St. Louis and life sciences aren’t quite as synonymous as Silicon Valley and technology. But if St. Louis community leaders and venture capitalists have their way, they soon will be.

Calling itself the “BioBelt,” Missouri is offering tax credits to biotech and other new health-care ventures, and it is promoting the resources of St. Louis’ local universities and corporations. Local VC firms are getting into the act, with at least five funds in the process of raising possibly as much as $500 million. Indeed, during the second quarter, St. Louis VCs raised $311 million, much more than that raised in all of 1999: $242 million, according to a PricewaterhouseCoopers Money Tree survey.

“It is a perfect time to be raising money,” says Brian Clevinger, one of three managing directors at St. Louis-based Prolog Ventures, which is in the process of raising $40 million for early-stage investments. Bolstered by genome research as well as the approaching expiration of many drug patents, life sciences has taken over the investment spotlight from technology and telecom, sectors that have lost their allure.

Prolog won a competitive bidding process to be able to award $20 million in state tax credits for the investors in its Prolog A fund, which will raise $20 million, and will fund only Missouri companies without any revenues.

The $20 million Prolog B fund will mostly invest in Missouri companies. Since it isn’t restricting the investments to local companies, it won’t get the state tax credits.

Together, about two-thirds of the funds are expected to go to health sciences companies, with the remaining one-third going to information technology companies in the health sciences area.

About four years ago Missouri also introduced another tax credit to lure VCs. These tax credits are given to insurance companies that invest their funds through certified capital companies into Missouri companies without any income, but, which are just about ready to launch products. So far Missouri has pledged $140 million in tax credits since the program was created in 1997.

“We really believe we have the financing at home,” says Bill Simon, vice president at the St. Louis Center for Emerging Technologies. “We can’t rely upon the East and West coasts for our investment dollars.”

But it isn’t just the tax breaks that are luring investors. State civic leaders are proving their case through a state-commissioned study by Battelle Memorial Institute. It concluded that St. Louis has the attributes to be a global leader in the plant and life sciences area.

World-class university research centers, representing $362 million in research funds, are part of the city’s appeal, the study concluded. In particular, Washington University has $235 million available for plant and life sciences research, including its Genome Sequencing Center. In addition, St. Louis’ Donald Danforth Plant Science Center conducts research on cell and molecular biology, plant cell and tissue culture, and computational biology.

“There really is a community-wide effort to develop this life sciences cluster area. With the stimulus of the Danforth Foundation and Washington University, all of this has really taken off,” says Spencer Burke, managing director in investment banking at A.G. Edwards, which is based in St. Louis.

A.G. Edwards serves as a strategic partner, or helps raise funds for several funds. It is a placement agent and the largest investor in Oakwood Healthcare Investors 3, which is raising $30 million to $50 million for middle- to late-stage ventures in the medical devices and pharmaceutical areas. The firm also is working with Discovery Life Sciences Fund, which is a multistage fund being formed that intends to raise $100 million for companies in the life sciences areas: plant, biotech, medical devices and pharmaceuticals.

Another one is Auxyn/Pegasus Biotechnology Ventures, a $250 million fund, which focuses on multistage investments for companies in the nutrition and health-care areas.

“We want to be a catalyst for this kind of activity in the region,” says A.G. Edward’s Burke, who points out that $70 million to $80 million of life sciences venture funds have started within the past 10 months. Burke is also the chairman of the capital formation committee of the St. Louis Regional Chamber & Growth Association’s technical gateway committee.

“By this time next year, the amount of money will look different,” says one local venture capitalist. “Money begets money. We are an early-stage venture capital firm and hopefully we will attract other firms to syndicate with us, which will in turn attract even more money.”