Panel VI

The Industry Perspective on Illinois

Moderator:
Van Crocker
AuraSense Therapeutics

Mr. Crocker suggested that this panel would give three perspectives on industry development, featuring firms of short (AuraSense), medium (Nanosphere), and long (Motorola) time spans. “These will be three cases of how innovation can succeed in Illinois and how it can be the result of academic collaboration,” he said.

He began the discussion by giving the perspective of AuraSense Therapeutics, which he joined at its founding three years ago. “I like to think that AuraSense Therapeutics represents a terrific success story in Illinois Innovation,” he began. “I think we are a coalescence of industry, government, and academic participation. Our technology comes from Illinois, a huge chunk of our financing is from Illinois corporate and state sources, and the vast majority of our employees come from here. I think it’s the coalescence of all those things that gave rise to a company with a powerful technology, a good growth trajectory, and great prospects.” Of the core management team and the company’s advisor base, most were either educated in the state or continue their education there.

The company’s mission, he said, is to develop “the spherical nucleic acid platform, which is a revolutionary platform to target disease using gene regulation. This is an extremely powerful therapeutic class, one where AuraSense has a therapeutic advantage. Many consider gene regulation a fundamental advance in pharmaceuticals, and one that will give rise to a number of drugs across different therapeutic areas.”58

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58According to the company web site, “AuraSense Therapeutics' uniquely engineered Spherical Nucleic Acid (SNA™) constructs possess unparalleled biocompatibility and versatility as therapeutics. They hold great promise for combating the most threatening diseases, including heart



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136 BUILDING THE ILLINOIS INNOVATION ECONOMY Panel VI The Industry Perspective on Illinois Moderator: Van Crocker AuraSense Therapeutics Mr. Crocker suggested that this panel would give three perspectives on industry development, featuring firms of short (AuraSense), medium (Nanosphere), and long (Motorola) time spans. “These will be three cases of how innovation can succeed in Illinois and how it can be the result of academic collaboration,” he said. He began the discussion by giving the perspective of AuraSense Therapeutics, which he joined at its founding three years ago. “I like to think that AuraSense Therapeutics represents a terrific success story in Illinois Innovation,” he began. “I think we are a coalescence of industry, government, and academic participation. Our technology comes from Illinois, a huge chunk of our financing is from Illinois corporate and state sources, and the vast majority of our employees come from here. I think it’s the coalescence of all those things that gave rise to a company with a powerful technology, a good growth trajectory, and great prospects.” Of the core management team and the company’s advisor base, most were either educated in the state or continue their education there. The company’s mission, he said, is to develop “the spherical nucleic acid platform, which is a revolutionary platform to target disease using gene regulation. This is an extremely powerful therapeutic class, one where AuraSense has a therapeutic advantage. Many consider gene regulation a fundamental advance in pharmaceuticals, and one that will give rise to a number of drugs across different therapeutic areas.”58 58 According to the company web site, “AuraSense Therapeutics' uniquely engineered Spherical Nucleic Acid (SNA™) constructs possess unparalleled biocompatibility and versatility as therapeutics. They hold great promise for combating the most threatening diseases, including heart

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PROCEEDINGS 137 The technology, he said, was the result of a decade of work at Thaxton Laboratories of Northwestern University and at Merck, and the portfolio has grown to about 70 patent filings in multiple countries. “Because the platform is so powerful,” he said, “it addresses a large number of market opportunities, not just cancer or cardiovascular disease, but also dermatology, infections, and neurology. Industry interest has been high, and not confined to pharmaceuticals or biotech, but extending to cosmetics.” A series B financing round has been completed. It was led by Abbott Labs, and joined by the Illinois Innovation Venture Fund, “a powerful way for the state government to participate directly in growing companies here in the state.” The company has relocated to the new Illinois Science and Technology Park in Skokie, and increased the size of the staff. He offered a brief overview of genetic regulation as a therapeutic tool. Small molecule drugs have dominated pharmaceuticals for well over a century, he said, until about 30 years ago. Small molecules continue to be effective for many areas, but their drawbacks include side effects and lack of precise targeting. The next innovation, he said, was biologics, which were natural products that could be “exquisitely and naturally targeted.” They were also useful in reducing some side effects, as well as in countering disease in unusual ways. Some of the largest drugs in production today are biologic drugs. The enthusiasm around gene regulation, he said, is that it delivers genetic material directly into cells. This is important because so many diseases can be traced directly to the genetic and protein manufacturing components inside cells. This material is targeted at least as well as any biologic, and its side-effect profile could theoretically be at least as good. “Big pharma got excited about this,” he said, “and began investing lots of money. But they kept running into problems. Efficacy, immune response, and delivery were barriers that prevented such a promising new therapeutic class from getting into the market fully.” The AuraSense technology circumvented these problems, he said, by being easy to manufacture, use, and transport across natural barriers; accommodating across a variety of tissue and cell types; and effective without additional technology. “So with a single technology,” he said, “this industry, with all this enthusiasm, may be rescued from its lack of success. That’s the idea and the value proposition of the company.” One of the benefits of the technology, he said, is that it can be applied topically with a conventional over-the-counter ointment, allowing the drug to cross the stratum corneum59 and be effective through the skin. A potential target, disease, cancer, skin conditions and bacterial infection…SNA™ constructs overcome one of the most difficult obstacles to gene regulation: safe and effective delivery into cells and tissues. SNA™ constructs exhibit high stability, high binding specificity, and unparalleled transfection efficiency into numerous cell and tissue types. Needing no carriers or transfection agents, they provoke minimal immune response and no known toxicity.” 59 The stratum corneum is the outermost layer of the skin, consisting of dead cells, that forms a protective barrier.

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138 BUILDING THE ILLINOIS INNOVATION ECONOMY for example, is psoriasis, “where a topical target of therapy would be world changing.” Looking back over the development of AuraSense, he surveyed the partnerships and resources that had benefited the company. He identified four factors of importance:  Core technology: “The platform itself. We also developed a flexible licensing relationship that benefits not just Northwestern but also the company and our partners.”  Employee and advisory talent: “We have never had to look far afield for talented people, and we are growing quickly.”  Critical infrastructure: “This came at the right time. We had a basic lab facility available in Evanston, near the university, and now we have a much larger opportunity at the Illinois Science and Technology Park in Skokie. The state’s facilities grew with us; they didn’t confine us or make us move.”  Equity and other financial resources: “Financing was available largely within Illinois, which allowed us to stay where we want to be.” “This is a great story,” he said, “with great benefits and a lot of success. But we want to make sure we don’t remain unique in this regard.” He urged a good understanding of the benefits received by AuraSense, and available in the state, so that other companies would be able to take advantage of them and extend the region’s success. “We don’t want to be a one-off story,” he said. Among the features that can lead to success for companies such as his, said Mr. Crocker, were streamlining of technology transfer, minimizing the bureaucracy of licensing relationships, training talent locally for local employment, and easing access to critical infrastructure of real estate and instrumentation. He closed by reiterating the importance of partnerships between government, industry, and academia. “This is what worked for us. The ecosystem was favorable for state government, private institutions like Abbott Laboratories, and a number of individuals to come together and invest in a technology that was sourced here in Illinois. That can happen again here, and it can happen elsewhere. Our technology is great, but it’s not unique.” INDUSTRY PERSPECTIVE ON ILLINOIS Roger Moody Nanosphere Mr. Moody opened his talk by describing Nanosphere as a molecular diagnostics company founded by Dr. Mirkin and his colleague Dr. Robert Letsinger, also a professor at Northwestern. The founding science, he said, combined gold nanoparticles and nucleotides to create a powerful “Verigene”

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PROCEEDINGS 139 detection system for nucleic acids and proteins. The system, mounted on a simple glass micro-array, enables hospital labs to achieve rapid sample-to-result molecular tests for critical diseases. Based on that discovery, he said, Nanosphere had been able to raise more than $100 million privately, and more than $180 million in public funding. The good news,” he said, “is that we’ve just entered the rapid growth stage after an extended period developing the invention so that it works reliably; passing through the regulatory process; and introducing it to hospitals.” Nanosphere matters, he said, because it “addresses critical unmet medical needs resulting in saving lives and reducing healthcare spending.” A test had been approved that week, he said, for detection of bloodstream infections. The nation spends some $15 billion on these infections each year, making them the leading inpatient cost in hospitals. The technology can save approximately $21,000 per patient, he said, by reducing the time required to detect bloodstream infections from 2.5 days to 2.5 hours. Through partnership with Northwestern, the company has been awarded 170 patents, and has 25 patents pending. This creates an “important defense against other people coming into the market,” he said, “and doing things similar to what we do.” The company also benefits from continuing innovations from Dr. Mirkin’s lab, he said, that not only allowed Nanosphere to capitalize on investments already made, but also to make use of discoveries that may be significant catalysts to future growth. The company now employs 140 people, mostly in Illinois. Employment is growing significantly in its manufacturing operation, in Northbrook, Illinois, and in sales and customer support. Over the past four quarters the customer base has grown by 156 percent. “With the recent FDA approval of the bloodstream infection test, plus other tests for infectious diseases we hope to bring to market in the next 12 months, we expect that growth rate to accelerate.” He predicted that the company finally has a clear path to profitability. This follows a period when investors and others have seen the large amount of money raised by the company and asked, “When’s the good part going to start? Now it’s starting, and with that cash we will produce more investments and development activities.” Sustaining the company’s momentum, he said, depends on ideas and innovation. “Not only do we have our internal research efforts,” he said, “but we continue to collaborate with the nanotech institute here.” He also said that “leadership is critical” to this effort—not just the top few people, but in people throughout the organization. “Funding, leadership, and innovation all drive growth, and from that yields cash flows that we can reinvest in future growth.” Local innovation has been critical for Nanosphere, he said. “The company has hired people out of the lab who were actually part of discovering the science and technology. In fact, a couple of ex-lab people on our team, who are still here after eight to 10 years of service, might be the only people in the company who know the nuances of the technology.”

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140 BUILDING THE ILLINOIS INNOVATION ECONOMY Investor interest is also critical, he said, for companies in the early stage when “it’s not clear what’s going to make them work, if they do work. We’ve known for five years that we had great technology, but we haven’t been sure which application was going to take off. We now know, but we need local investors who can understand the business well and don’t just fly in for board meetings.” He added that they did need public capital as well, “because VC funding in Illinois is not as high as we would like.” Finally, he said, the company counted on global partnerships as well. “We don’t have the money or people to get investments overseas. We have been fortunate in establishing a partnership with Thermo Fisher, which distributes our products in Europe, and others that have helped us expand.” He concluded by saying that Nanosphere was “lucky to be part of an improving start-up environment in Illinois. Nanotechnology has reached an inflection point, and we are finally growing at a rate we have long hoped for.” MOTOROLA SOLUTIONS Heidi Hattendorf Motorola Solutions Dr. Hattendorf, the third speaker in giving the industry perspective for Illinois, reviewed the large-company experience from the point of view of Motorola Solutions. She said it was an exciting time at her company, with substantial changes that amounted to a “reinvention of the company.” Motorola Solutions was formed as a new company in January 2011 when Motorola, Inc., a multi-national firm with an 83-year history, spun off its Mobile Devices and Home businesses. These became Motorola Mobility Holdings, Inc., which then changed its name to Motorola Solutions, or MSI. “It’s exciting to see it get back to its roots,” she said. The other part of the business was its cellular division, which “we had developed,” she said. That division became Motorola Mobility, and was then acquired by Google. The other part of the cellular business—“the infrastructure”—became part of the new Nokia Siemens. Motorola has also been a pioneer in the semiconductor industry, “where we fostered many innovations.” This division was spun off several years ago as Freescale. “We’ve had a history of fostering innovation, creating industries, and moving them to the next level,” she said. It has also been a pioneer in radio, which is still part of its mission, blended with its data business. For example, one of its major markets is first responders and public safety. Motorola products are designed to “provide these people with the right data they need to be safer and do their job effectively. Motorola acquired Symbol Technologies several years ago, which brought the technology of bar code scanning into the company. “This is critical for the retail segment that tracks inventory, runs the purchases, and organizes warehousing and management. “Once we combine those two technologies,” she said, “it gives

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PROCEEDINGS 141 us much more we can do with other companies, universities, and research institutes.” The two key areas of the company now, she said, are government and industry. Government includes public safety, but also municipalities and utilities. On the enterprise side, the company provides “business critical solutions, enabling retailers to do their jobs better by having the right information, knowing what’s going on, and being able to serve customers. This is a lot of the technology that you wouldn’t see when walking into the retail space.” In the same way, she said, much of the MSI technology is “technology out of view”—helping people be the best they can be, providing a video feed of a store that has just been robbed, providing the most relevant technology as well as the most up to date. She gave an idea of the company’s scale and global presence. It now has some 23,000 employees, 5,000 of whom work in Illinois. Motorola’s headquarters in Schaumberg just announced creation of 400 new jobs in Chicago. It supports research and development in six countries, manufacturing in three, and sales in more than 100. Last year the company spent $1 billion on R&D, and maintains an IP portfolio of thousands of patents, many for mission- critical and wireless tech. It is a world leader in supporting standards development and driving mission-critical technology. Revenues for MSI come both from governments (65 percent) and enterprise customers (35 percent), with 57 percent coming from North American customers and the rest from Europe, APAC countries, and Latin America. She said that the company takes pride in its customer focus. “We need partnerships and relationships, because we can’t do it all. “We ride along with the police, and with the first responders, looking at everything. Where should the buttons be so an EMT can reach them easily in an emergency?” Motorola also invests continually in innovation, including organic CTO technologies, incubation campuses, and the MSI Emerging Business Office. It invests in companies through MSI Venture Capital. “We don’t just make acquisitions, or focus on large firms; we invest in SMEs and bring partners together through incubation centers.” The company is also concerned with equipping the next generation of public safety personnel. The emphasis is on developing the technologies that make their jobs safer and more effective, including integrated communications, smart devices, and systems that bring only essential information. “We are there with the officers on duty to prevent data overload. We are designing the police car of the future, here in Illinois, so that officers can spend more time actually solving crimes instead of working with technology.” Finally, a core objective is to improve the retail experience for both purveyors and customers. “For the next-generation enterprise,” she said, “we are working for the connected consumer, who is carrying a smart phone and wants to know more about prices than the sales person. We are also working for that

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142 BUILDING THE ILLINOIS INNOVATION ECONOMY same sales people, so they are able to track every product and price through simplified analytics and data handling opportunities.” In closing, she said, “we’re proud to be a leader in markets we serve. We are well positioned for growth, with steady investment in R&D and a vision for where it is moving us. We work better together by bringing more investments into the community. We want students to have a place to go after they finish the STEM programs and fantastic schools in this region. We’re in it for the long term, and prepared to make investments that enable market forces and continue good collaboration.” DISCUSSION Dr. Mirkin asked Mr. Moody what, “in an ideal world, might be removed or added that would make a substantive difference to your business.” Mr. Moody addressed this at “three different levels.” For a small, prototype manufacturing plant, he said, each time it grows a little larger the company has to spend time with the local municipality on the same basic things, such as applying for permits and gaining permission to use substances they are not familiar with. This burdensome process could be made much easier, he said. Local authorities don’t seem to understand, he said, “what we do is bring people into the community and hire them. If they could be more responsive, it would be a big help.” At state level, he continued, “I would talk about cost, in particular the franchise tax. Usually a CFO doesn’t even think about that, and in every state where I’ve worked, the franchise tax is an afterthought. In Illinois it is a significant expense. You are essentially penalizing these small growth companies for raising money that is being used to employ people and grow the business.” At the federal level, he said, the list of potential improvements is long. He cited one example, the company’s experience at working with two groups within the FDA. One is “extremely responsive,” he said, often bending over backward to help. The other is “the polar opposite. No matter what we present to them, the answer is no. We need consistency from agencies if we are to move viable medical products into the market. “ Mr. Crocker said that as a start-up company, AuraSense was not as sensitive to issues at the state and federal level, but very sensitive to the local environment. For example, any small firm can benefit greatly from incentives to make real estate investment for R&D or R&D infrastructure. “This lowers the costs of an organization,” he said. Mr. Moody said that his company was not yet paying income tax, but pays a great deal in other taxes. “When a company wants to relocate,” he said, “a lot of states offer tax incentives. If they could translate those incentives into grants instead of tax breaks, they could help emerging, fast-growing companies.”

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PROCEEDINGS 143 Mr. Crocker added that the Obama administration had offered a grant program in 2011 that benefited small firms. “That improvement made it relevant for organizations in our position.” Mr. Moody said that his firm, too, had participated. Another helpful incentive, said Mr. Crocker, was the angel tax credit that “indirectly benefits us through our investors. This is an example of a common-sense innovation to reward people who invested in innovation here in the state.” Ms. Hattendorf said that a large multi-national company like Motorola looks for a stable tax environment when selecting a site a facility. “Having a predictable environment is critical for us,” she said.