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Scarce funds for research cause concern for tomorrow's big ideas

Rochester Business Journal
October 12, 2012

Major breakthroughs come from medical research. Lately, however, procuring funds for that research has become difficult and is riddled with new challenges.
Though the University of Rochester Medical Center continues to be successful at attracting federal dollars, it has seen approval of its grants from the National Institutes of Health drop to 16 percent from 35 percent, notes Mark Taubman M.D., dean of the School of Medicine and Dentistry.
"Now with the stress being there, virtually every academic institution is losing money," he says. "We're not a money-making institution, and we don't have the money to support the research."
Sequestration would cut the NIH budget by $2.4 billion, which is an 8 percent decrease, forcing it to fund 2,300 fewer grants than are currently available, according to Rep. Henry Waxman, D-Calif. Waxman says biomedical researchers would likely feel the cuts the most. The impact on URMC concerns Taubman.
"We are seeing fewer physicians doing research and fewer doctors going into research," he says. "When all deans meet here, the discussion is often about how do we survive."
The average grant lasts for four years, and Taubman says NIH is spending 75 percent of its funding just to support the continuation of existing grants. The NIH Council likely will make a decision on how it will allocate its budget when it meets in February, Taubman predicts.
"What they do will have ramifications," he says. "To us, it means a potential loss of $15 million in a system that is already stressed."
NIH is by far the largest source of funding for medical research for the university. For example, it provides $180 million for cardiac research alone. The second-largest contributor in that category is the American Heart Association, which provides $1 million.
Roughly 20 to 25 percent of URMC research funding is not from NIH, Taubman estimates, but it is still federal funding, coming from the Department of Defense, the Centers for Disease Control and Prevention and the National Aeronautics and Space Administration.
"Funding is a major challenge, especially for biotechnology companies. We're constantly raising money for clinical trials," says Maurice Zauderer, president and CEO of Vaccinex Inc., a Rochester-based company that specializes in immune-related products used in clinical trials for the treatment of cancer and multiple sclerosis.
He adds, "We relied on grants in the early days, but it grew rapidly to a point where we needed to raise funding from private sources."
Today more than 90 percent of the funding for Vaccinex comes from private investors, Zauderer notes.
"In today's economic environment we face challenges, but we're optimistic, and if you're successful, you keep raising the bar, always trying to be more ambitious," he says.
Investors often have multiple motives when deciding to fund a company, Zauderer adds.
"They can be excited by a novel science, hopeful to make a contribution to public health, and they want a return on their investment," he says. "They have to balance the potential risk with the valuation of a company's gains and potential returns to them."
Most biotech companies partner with venture capitalists to fund their projects. In some cases the investors want to identify a specific product they want to support. The value added by investors could be more than financial.
"You hope venture capitalists bring a certain industry knowledge," Zauderer says. "But none of us have a crystal ball, and it's important to try to diversify."
Vaccinex has been in business for 15 years and has multiple projects under way. With a diverse portfolio of products, Zaud-erer says, his company is in a good position to cut back if funding gets tight.
"We are fortunate to have multiple projects, so we could reduce the number of projects we are working on if we needed to make cuts," he says. "Many biotech companies that have only one project would not be able to do that."
Another fairly young local biotechnology company based in Henrietta is taking a very focused approach to funding. Adarza BioSystems Inc. develops prototypes to be used in clinical research in curing diseases such as cancer.
"It's a challenge," says Randolph Henke, CEO of Adarza. "We have opted to focus on an approach that is more of a bootstrap philosophy. We have not gone out for investments until now."
Adarza has relied on its ability to win grants from NIH, other government agencies and a state program called Qualified Emerging Technology Companies. It also has won a grant from the U.S. Treasury Department. Much of Adarza's funding now is starting to come from a mix of industry and private investors.
"With industry being interested, they fund pilot projects, they take it to the next step and fund product development," Henke says. "The project leads to licensing technology, to ultimately product commercialization."
Adarza is at the stage where it is just beginning to seek capital. Henke is optimistic about its prospects.
"We believe we have a strong case to attract investment," he says. "We have de-risked the opportunity so investors will see the advantages and benefits."
There are differences between industry and private investors.
"Private investors don't target specific products," Henke says. "Industry investors often contract funding for a particular need."
Industry investors provide funding for the growth of the company and offer guidance as well by way of helping the research and development team at Adarza understand the requirements for a particular product as it is in development, Henke says.
"Years ago if you had a good idea, you took it to a venture capitalist," he says. "If they liked it, they bought in and gave you your cash. But times have changed, and today your investor may want to be more involved.
"Our company has been slower to develop because we have to address this properly. We're at a stage where we have lots of industry interest, so that's good."
As the potential for more and more innovations develops, funding is more critical than ever, Taubman says. He points to life-improving and cost-saving advances in medical care that have been discovered because of local research-for instance, the human papilloma virus vaccine; the influenza vaccine and treatments to prevent sudden cardiac arrest.
Taubman wonders what discoveries will be lost if funding is not available to continue research.
"In the next 10 years our ability to make inroads is unprecedented," he says. "It's a shame we have the technology to research and make great advancements but we may not have the money to fund it."
Lori Gable is a Rochester-area freelance writer.10/12/12 (c) 2012 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email

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