Montgomery County's incubator-born firms have good chance of survival

Daily Record, The (Baltimore), Oct 24, 2003 by Robyn Lamb

The aim of Montgomery County officials when they created the county's first technology incubator four years ago was not to make money.

They opted instead to add to the growing number of high tech and life sciences businesses for which the county has since become known.

The game for Montgomery County would be from a company's success, from their expanding and creating new jobs in the county. That would be where we would make our greatest return, said Department of Economic Chief Operating Officer Henry Bernstein.

Now, as the incubator graduates its fourth class of five startup companies, all of which plan to stay in the county, incubator officials can point to a track record of viable businesses that were born inside the 60,000-square-foot facility at the Shady Grove Life Sciences Center in Rockville.

If the number of companies that have both graduated from the incubator during the past four years and stayed in the county are any measure, then the Maryland Technology Development Center is a success.

Of the 24 graduates, all but two have relocated in Montgomery County, most of them along the I-270 technology corridor, said Duc Duong, the program's director.

Most of the graduates left the nest in two years - before the three year limit for IT companies and four-year deadline for biotech businesses - and all but two are still alive and kicking.

Some are even thriving.

Graduates

In November 2000, Avalon Pharmaceuticals Inc. moved out of the incubator into a modest 9,000-square-foot home in Gaithersburg. It was born in the incubator 11 months earlier as a four-employee biotech startup, occupying just one wet lab.

The following year Avalon landed $70 million in venture funding, one of the biggest venture investments of 2001.

Today, in its 55,000-square-foot Germantown Seneca Meadows Corporate Center, the firm employs 56 workers and is using computer- based genetic research to produce drugs aimed at stopping cancer from attacking new cells.

In June 1999, father and son team Hossein A. Ghanbari and Kasra Ghanbari came to the incubator with a business plan that would become Panacea Pharmaceuticals Inc.

The company graduated in December 2002 and struck a deal with MedImmune Inc. of Gaithersburg worth up to $80 million plus royalties. Panacea sold MedImmune exclusive worldwide rights to commercialize any cancer drugs it co-develops based on Panacea's technology, which targets an enzyme that is associated with 18 different cancers.

As part of the deal MedImmune gave Panacea up-front cash and will pay for research and development for three years. Panacea now occupies 11,000 square feet in Gaithersburg and has room to grow.

Graduates don't receive incentives for relocating within Montgomery County but they do make a myriad of connections, from funding contacts to real estate leads, during their tenure at the incubator.

And the center does not take equity in the growing companies.

We don't want to put too many roadblocks on them, Bernstein said. On the backend they'll want to expand and stay here.

Thin resources

Despite its successes, the incubator is still saddled with debt and a lack of staff. The $8 million center was paid for by $4 million in state funds, the rest was a loan that will take 20 years to repay.

There's one big difference between us and other incubators in the state. And that is they are 100 percent paid for. Their capital investments are paid, Duong said.

The incubator is working under an annual budget of $1 million, part of which is subsidized by the county.

The lack of funding spreads what resources there are thinly. A recent survey by the National Incubator Association found the average 30,000-square-foot facility, which serves about a dozen companies, is staffed by a secretary, a director and a business assistant.

In Rockville, the 60,000-square-foot incubator serving 30 companies or so employs a full-time secretary and Duong part-time.

More could be done in terms of business assistance, said Duong.

And with the changing economic times, as venture capital funding has dried up and research grants have become more important, grant proposal assistance would be a good thing to bring in-house, Duong added.

The county is in the process of hiring an incubator manager to work with the Maryland Technology Development Center and two other centers evolving in the county.

One is the Silver Spring Innovation Center, 20,000 square feet of office space in a four-story building at the corner of Georgia Avenue and Blair Mill Road. The center, which just broke ground in September, could house 14 or more startup or early stage information technology businesses.

The other is part of the East County Center for Science and Technology in White Oak. Modeled after the Shady Grove Life Sciences Center, the center will be 800,000 square feet of development including laboratory and bio-manufacturing buildings, the technology business incubator facility, a higher education facility, a telecommuter center, and several built-to-suit sites that the county will use to attract strategic technology companies.