Massachusetts Biotech Program Gives $ for Equity Stake

This is a great idea that could help make the case to reluctant legislators.

State looks to get in on biotech ground floor
By Jay Fitzgerald | Wednesday, April 23, 2008 | http://www.bostonherald.com | Business & Markets

The state of Massachusetts could one day be part-owner of the next Genzyme or Biogen Idec.

A little-noticed provision in the $1 billion life sciences initiative bill passed by the House earlier this year calls for a future quasi-public agency to become an equity partner in a biotech firm if state funds are used to help a small company get started.

The equity clause only applies to young firms that otherwise can’t get venture or angel-investor capital.

The equity stake would be limited to no more than 3 percent ownership - in return for small grants of about $150,000, said state Rep. Dan Bosley (D-North Adams), chairman of the House’s economic development committee, which pushed the concept.

Bosley said it’s not unusual for universities to negotiate similar deals with young start-ups with exciting but yet-unproven scientific potential.

The hope is that one of the young companies might hit it big via profits from a state investment, allowing the state to have a “revolving loan fund” to help other companies, said state Rep. Tom Conroy (D-Wayland), a major backer of the provision that was inserted into the final House bill.

Conroy, a former management consultant, said he used to be involved in similar deals when he was in the private sector.

Some within the biotech industry have expressed queasiness about the state getting involved in ownership of firms, according to one industry source.

Meanwhile, John Regan, executive vice president of the Associated Industries of Massachusetts, said there’s some “possibility for conflicts of interest” if a firm makes it big and the state has a stake in it.

But he said rules can be written to avert any future favoritism.

He noted that the Massachusetts Technology Development Corp., a quasi-public agency, cuts similar equity deals. The state’s constitution bans direct state investments in firms, so an arms-length quasi-agency would have to be created, he said.

The Senate has passed a similar life-sciences bill - but without the equity clause in it. Sen. Jack Hart (D-Boston), who could not be reached for comment, will be meeting soon with Bosley to hammer out a compromise bill.

A spokesman for Gov. Deval Patrick, who originally proposed the life sciences initiative, said “we are pleased with the revisions made in both” the House and Senate bills.
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