Md. tech fund expects a big return from Johnson & Johnson's $250,000

February 08, 2006|By TRICIA BISHOP | TRICIA BISHOP,SUN REPORTER

When Google Inc. and an eBay subsidiary lent their names and considerable funds to a Spanish technology startup called Fon this month, it provided a stamp of approval for the fledgling company and put it on the radar screen of thousands of investors.

Maryland hopes to gain a similar lift by association through an agreement it signed yesterday with the world's largest health care products company, Johnson & Johnson, to invest in technology companies based in the state.

Johnson & Johnson has promised to invest $250,000 in early-stage Maryland technology companies and help guide their development.

The amount is being matched by the state's quasi-public Technology Development Corp., or TEDCO, which will manage the joint fund.

The deal is "cutting edge, which is where we would like to be," said Gov. Robert L. Ehrlich Jr. at a news conference yesterday.

Maryland has spent the past decade promoting its technology and life-science industries as economic engines for the future. But as competition has increased in the country, the state has had to find new ways to draw attention to its resources.

"They bring a lot of credibility to [the state's] process," Steve Tobin, an analyst with Frost & Sullivan, a California market research firm, said of Johnson & Johnson. "[Maryland needs] good partnerships for this to work ... and they've got that with Johnson & Johnson."

Big names tend to bring cachet with their cash. For example, when Microsoft founder Bill Gates invested $1 billion in Comcast Corp. in the mid-1990s, the added credibility in the market helped the company become the nation's largest cable provider.

"We need the big boys with the big money," said Aris Melissaratos, secretary of the state's Department of Business and Economic Development, which oversees TEDCO.

The deal will provide much-needed financing for early-stage technology and science companies, which tend to be overlooked by more traditional investors seeking more proven businesses.

The General Assembly created TEDCO six years ago to fill that investment gap, said Frank A. Adams, chairman of TEDCO's board and president and chief executive of Grotech Capital Group, a venture capital firm in Timonium.

TEDCO's mission is to take good science from universities and laboratories and help turn it into products that produce jobs, Adams said.

That's not easy to do on a state budget of about $5 million, which pushed TEDCO to begin looking for pharmaceutical partners several years ago, executives said. It took the organization two years of discussion and six months of negotiation to woo Johnson & Johnson.

"This is a new one for us," said Youseph Yazdi, corporate director of science and technology for Johnson & Johnson. "This is all about building a bridge between human knowledge and human need."

The companies associated with the fund will likely receive attention from others "because Johnson & Johnson has corporate expertise and due diligence of early-stage ventures," said Bruce M. Nudell, an analyst who follows Johnson & Johnson for Sanford C. Bernstein & Co. LLC in New York. "If J&J says something's OK, it implies that the underlying technology has merit."

The company stands to benefit as well, with a potential new pipeline of products it could license or acquire. TEDCO representatives said they are in talks with other companies to create similar arrangements, but it's not a model for everyone.

"In this case, it works to the benefit of the companies, to the benefit of the state," said Alex Euler, a spokesman for MdBio Inc., a biotechnology advocacy organization in Frederick.

The group merged yesterday with the Tech Council of Maryland Inc. to form a joint trade association serving the interests of both industries.

"As a general rule, I don't know if you want to necessarily marry corporate interests to public [bodies]," Euler said. "But the region has had a problem attracting investors for quite some time. This brings hard dollars to the region, but also forces other investors to sit up and take notice."

tricia.bishop@baltsun.com

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