Trial and Error 

On the cusp of becoming the anchor in the new Silicon Dominion, the great technology boom turned into a bust.

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In highly competitive academic circles, an annual survey by the National Science Foundation on research expenditures can mean a lot more to a university than its football or basketball rankings.

So a few weeks ago, administrators at Virginia Commonwealth University were happy to receive what seemed to be welcome news. The university's new president, Michael Rao, proudly announced that according to the foundation, the school's research and development expenditures had grown about 11 percent to $148.6 million in 2008, moving the school from 111th place nationally to 108th place. When industrial research is included, the school claims total research and development funding of about $225 million.

It was a better performance than dynamo Virginia Tech, which had stumbled from 42nd to 46th place in the nation with research of $373 million. The University of Virginia came in 70th with $257.6 million. The rest of Virginia's schools had a weaker showing than VCU. The College of William and Mary was No. 169; Washington and Lee was 653.

A good ranking helps when it comes to wangling more donations from alumni or attracting talented applicants, which reflect on not only the school but also its surrounding area and what that can mean for recruiting lucrative industries.

As for Richmond, the foundation's rankings reveal a chronic weakness with research and development here. Naturally, Richmond isn't in the same league as the Washington-Baltimore region, which is dotted with federal research institutes, and where Johns Hopkins ranks No. 1 in research spending. It can't compare with Silicon Valley, Los Angeles, Route 128 near Boston, Wisconsin or Michigan.

Richmond can't even rate with the otherwise comparable Raleigh-Durham area of North Carolina, home to the 50-year-old Research Triangle Park, and Duke University, which ranked No. 7, and the University of North Carolina at Chapel Hill, which came in at No. 26 in the foundation's survey.

Indeed, Virginia's capital region seems stuck in a research rut despite two decades' worth of drum-beating by politicians, college presidents and economic development officials to turn the region into a research center. 

Consider that during the administration of Republican Gov. George Allen in the 1990s, Motorola and Siemens promised to turn greater Richmond into the Silicon Valley of the East with chip-making plants and offices in eastern Henrico and Goochland counties. Touting a bright future, Allen put together the most generous incentive package the state had ever seen. A total of $3 billion in public and private dollars was spent expecting to make the region into a hub of technology and research. The money went to companies such as White Oak Semiconductor, which eventually became Qimonda. The incentives also helped establish a new School of Engineering at VCU and endowed a chair there with $2 million.

A decade later, Democratic Gov. Mark Warner promised to make Virginia and Richmond a tech center as well. Warner had cut his teeth and made hundreds of millions of dollars in the nascent cell phone industry and later as a venture capitalist.

All the while, the former VCU president, Eugene P. Trani, greatly expanded the campus. Although some of the faculty say that he neglected research and development for bricks and mortar projects, the local establishment hailed his accomplishments. Early this year, the House of Delegates celebrated Trani's retirement with a special resolution stating that thanks to him, “VCU-sponsored research has grown from $90 million in 1997 to nearly $230 million in 2008; research technology has resulted in more than 30 start-up companies, 230 patents, and annual revenue from royalties and fees of nearly $2 million.”

But how has it helped Richmond?

Motorola canceled its plant here along with its promised research facility. Qimonda went out of business early this year, taking with it not only hundreds of millions of dollars of chip-making gear but also Richmond's hopes of being an important silicon chip-making center. Warner's research expectations never really happened locally. And while Trani built VCU's research and development efforts, he did so from a very small base.

Last year Trani earned the university a national black eye when The New York Times revealed secretive research agreements with Philip Morris USA, which many prominent research schools shun because of its deadly products. Even a special committee of university faculty set up by Trani for a review concluded the contracts should never have happened.

Much of Richmond's scientific hope rests with a 34-acre tract of land downtown near VCU Health Systems that the state designated a gateway of sorts for life-sciences research and development in Richmond. VCU's nearby medical campus has long had the lion's share of the university's research funding, and that would be expanded by the Virginia Biotechnology Research Park, formed in 1991.

Robert Skunda, a former Allen administration official who's run the park since its beginning, says the effort has been successful in terms of square feet of office and lab space available and in terms of funding. “We have 1.1 million square feet now and we could go to another 750,000 square feet more,” he says. Some 62 entities are located at the park, operated jointly with VCU. The park ranks well in terms of overall venture capital and money from other sources, such as federal Small Business Innovation Research grants, he says.

Such funds help nascent life science startups as they go through the typical stages of angel funding, venture capital money and then initial public offerings of stock. Usually, when a tech company incubated and hatched at such facilities becomes a success, which usually takes years, it makes lots of money going public and selling stocks, and then kicks some of it back to its incubator to help more hatchlings.

At least, that's how it's supposed to work. But asked if he could name one company that has done this, Skunda pauses. The only companies started in the park that have gone through the stages are bio-drug developer Insmed, Commonwealth Biotechnologies and a corporation called Allos Therapeutics.

All three are publicly traded, a measure of success in and of itself, but from there the history is less impressive.

Founded at the park in 1992 by three VCU professors, Commonwealth Biotechnologies has struggled to offer such highly specialized laboratory services in such areas as peptides, DNA and protein sequencing. The company planned to become a strong player globally in fast-growing sectors such as forensic DNA research. Coincidentally, the state's forensic labs — the source of many of best-selling author Patricia Cornwell's murder mysteries — is nearby.

But the company never overcame its chronic financial problems. This summer, Commonwealth Biotechnologies' stock was delisted on the Nasdaq exchange because its stockholders failed to keep enough equity in the company.

Insmed's stock was likewise delisted by Nasdaq Sept. 16 because it remained below $1 for 30 business days. The company specializes in treating children with growth hormone deficiencies and in cancer remedies. The delisting followed years and ups and downs for the company, which was founded in 1995 at the park and since has moved to Stony Point. At turns cash-rich and cash-poor, Insmed settled a patent infringement lawsuit from a competitor, forcing the company to focus on developing a drug for a rare growth disorder in children and other ailments.

Allos Therapeutics bolted to Denver after struggling to secure financing in Richmond, Skunda says.
 
While the park has had other successes, its history in research has been checkered as has VCU's. In 1999, for example, the university was banned by the National Institutes of Health from conducting tests on human beings — a massive blow — after privacy regulations were violated in a study involving twins. The university took emergency steps to correct the problem and hired Marsha Torr, a South African native and nationally known research physicist who had worked with the space program, to straighten out VCU's problems.

Meanwhile, the Biotechnology Park was struggling. To give it a boost, Trani and other Richmond movers and shakers, including economic development officials, launched a top-secret initiative to turn things around.

Encrypted “Operation Peat Moss,” with the “P” and “M” standing for Philip Morris, the plan was to entice the New York-based cigarette maker to move its headquarters to Richmond and open a major research facility in the downtown park.

But faculty members grew antsy when they noticed that more Philip Morris people seemed to be around the school. While a financial success, the company is so hounded by health-related lawsuits that it's enormously secretive about much of what it does, especially research. A handful of faculty knew that Trani was entering into so-called “research service agreements” with Philip Morris that gave the cigarette maker greater say over what could be published.

According to the contracts, if anyone, including news media, asked questions about the pacts, Philip Morris was to be notified immediately.

Some researchers, Torr included, were highly skeptical of the Philip Morris contracts, which totaled only a few hundred thousand dollars. In 2005, Torr left VCU but declines to say if the controversy prompted her departure. The next year, the university's research and development expenditures, according to National Science Foundation data, ended their positive run, falling from about $150 million to $134 million before bouncing back last year. VCU administrators said the falloff was due to peculiarities in the way federal bureaucrats distributed the funds that year. Notably by granting money in the last quarter, much money was carried over to next year's survey.

When the New York Times published a front page story in May 2008 about the cigarette money, VCU drew unwanted attention. Trani set up an internal committee to consider such contracts. It concluded that the school shouldn't have agreed to them.

But while the university and Richmond might have lost Torr and part of its reputation, they did gain something else: a shiny new Philip Morris research building worth $350 million at the Biotechnology Park.

The company has brought 600 researchers and staff, boosting the total at the park to 2,000. By way of comparison, North Carolina's much larger Research Triangle Park has 39,000 employees. A Philip Morris spokesman says only that the research center is engaged in “product development and harm reduction.” Skunda says that research there “is mostly product related,” focusing on cigars and snuff following recent acquisitions at Philip Morris. 

Drawing on its expertise with using animals such as beagles to test the effects of cigarette smoke, Philip Morris is also believed to be looking at ways to make better inhalators that can dispense medicine through human lungs to fight diseases such as asthma.

Otherwise, research at the park is seeing lean times. David Lohr, executive director of the biotechnology park's bio-science development center, says that life sciences companies have been hurt by the recession and its effects on angel and early-stage financing. “There's no question we're growing much more slowly,” he says. “Anyone in venture capital is facing some pretty strong headwinds.”

One reason is that the stock market plunge last year shrank university endowments by as much as 40 percent, making them less likely to invest money in new companies. Venture capital investors have likewise seen their portfolios decimated and cannot respond to calls for more capital, Lohr says.

Even though the stock market started to recover in March, the effects haven't improved the venture capital situation, Skunda says. “The funds have to continue investments in existing companies,” he says, and are reluctant to start new ones.

After years of empty chest thumping about the region's growth as a technology and life sciences center, economic development officials have gone back to the drawing board. One problem is that after all the attention put on research, especially in biotechnology in Richmond, the region still remains unknown nationally. “We don't have a pool of companies that have gone forward, cashed out and brought money back,” Lohr says.

At the moment, adds Lohr, investors favor projects that pay off more quickly, such as telecommunications, rather than life sciences, in which new drugs and developments often require rigorous testing and Food and Drug Administration approval, which adds years to the process.

Moreover, venture capitalists are skittish about how the Obama administration's health-care reform efforts might impact research. For example, rules could be changed that allow companies to sell generic drugs much sooner. That might make pharmaceutical companies less willing to develop their own breakthrough, brand-name drugs because they won't be able to earn as much in profits to cover the research cost. “That kind of legislation can be a turnoff to investors,” Lohr says.
Besides touting the Philip Morris research facility, Richmond's economic leadership is putting high hopes into advanced manufacturing as a new sector where the region can shine.
Their expectations are tied to a new Rolls Royce factory that broke ground Oct. 19 just east of Petersburg. The state has provided a $56.8 million incentive package for the Rolls Royce project which will initially employ 140 people at a $170 million facility that will make engine parts for the Airbus 280 and Boeing 787.

The plant has spawned the new Commonwealth Center for Advanced Manufacturing, which focuses on aircraft research. It will work with Virginia Tech and U.Va., and the region's community colleges will help train highly skilled blue collar workers for the facility. (Curiously, VCU is not involved in the Rolls Royce project.)

With a new president at VCU, there is hope on the horizon. The great buildup that Trani oversaw has largely reached its limit, which may lead to more attention on academics and research. And a proposal this summer to build a medical complex in Shockoe Bottom, which would include a research component, has gained traction at City Hall and VCU. Meanwhile, the University of Richmond, known more for its business and law schools than science, spent $37 million to open the new Gottwald Center for the Sciences in 2006. 

Curiously, there's plenty of potential money available in general in the Richmond area, Lohr says. One venture-capital firm, Harbert Management in Shockoe Slip, makes investments in research in Richmond and in other parts of the Southeast. The issue for Richmond is how to take advantage of the assets it has, such as its location, available brainpower and overall wealth. Despite current problems, Lohr says that “the pool of money in this region is better than it's ever been.” The trick is to find the smart place to put it.

Correction: In the earlier print and online versions, Style mislabeled VCU's research and development funding and expenditures. The university reported expenditures of $148.6 million in 2008, and including industrial research, received $225 million in research funding.

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