Kansas Bioscience Authority halts new investment, lays off staff

The Kansas Bioscience Authority has stopped making new investments and has laid off half its staff in the face of reduced funding from the state.

The authority, established during Democratic Gov. Kathleen Sebelius’ term, invests public dollars in the biotech industry with the goal of incubating startups and attracting investment in Kansas for an industry with high-paying jobs. Its state funding has been reduced significantly since 2012.

The KBA decided last week to lay off seven of its 13 full-time staff members, said Duane Cantrell, the president and CEO. There is no longer a full-time scientist on staff, for example.

It will hold off on making new investments and scale back its operations.

“This is just a responsible response to the level of funding we’ve received,” Cantrell said. The short-term goal is to ensure that the KBA does not go into default before the Legislature reconvenes in January.

“Our objective is to certainly get us to a point where those who have the obligation and right to make those decisions are in a position to then fund it and rebuild the staff, or whatever they want to do, or if they choose to shutter the KBA, that’s a decision that the Legislature and the administration will have to make,” Cantrell said.

Late during the 2015 session, a bill was floated to enable the Kansas Department of Commerce to absorb the KBA’s assets and investment portfolio. No author of the bill came forward, and commerce officials would not talk about it.

Expenses surpass revenue

The KBA has a controversial history. A 2012 audit showed that its former president, Tom Thornton, had misspent funds and destroyed documents that had been subpoenaed by a taxpayer.

But it has also been touted by leaders of both parties for spurring growth in the bioscience industry and helping sway the federal government to place the National Bio and Agro-Defense Facility in Kansas.

A 2014 financial audit, the most recent available, showed that KBA’s operating expenses had surpassed its revenue each year from 2012 to 2014. It also showed that the KBA was primarily reliant on the state for revenue. The agency made only about $613,000 in income from its investments during that three-year period.

Cantrell said many of KBA’s investments are promising but are several years away from paying off.

Kansas taxpayers have put more than $200 million toward the KBA since its creation, but annual funding has been scaled back significantly since the 2012 fiscal year. The agency has seen part of its funding withheld or redirected toward other things.

Statute allows for the KBA to receive up to $35 million each year. From 2012 through 2015, it received less than $29 million total. The KBA would have received an additional $111 million during that period if it had been funded at the maximum amount.

That includes $22 million the governor swept from the KBA last fiscal year to help plug a budget hole.

Cantrell said these reductions have damaged the KBA’s ability to perform its mission.

Support but no money

Eileen Hawley, the governor’s spokeswoman, said in an e-mail that “While the Governor supports the mission of the KBA, its operations must be conducted within its budgetary constraints.”

House Speaker Ray Merrick, R-Stilwell, made a similar point.

“I’ve always been a fan of the Kansas Bioscience Authority and what their vision is and where they’re going. Unfortunately, we don’t have the money to keep putting in there,” he said last week.

“I hope they survive. There’s just not the money to keep propping them up,” Merrick said.

Rep. Melissa Rooker, R-Fairway, said that the Legislature and governor “have created our own budget realities” by prioritizing income tax cuts above all else.

“That’s a sad, sad story to tell that Kansas can’t invest in the future of the state,” she said. She contended that the KBA played a crucial role in economic development by helping connect research done at the state’s universities with the private sector.

An ‘enormous loss’

Nick Franano, the CEO of two Olathe-based companies that have received investment from the KBA, said that Kansas is in danger of becoming “flyover country for startups again” if the KBA ceases to exist.

“I think it’s an enormous loss for the state of Kansas to dismantle – to just dismantle that whole thing and not even under any really coordinated plan. The governor and the Legislature just withheld all of the money and starved it,” said Franano, who is CEO of Metactive Medical, which is developing a product to treat strokes, and Flow Forward, which is developing a product to prepare patients for hemodialysis.

Franano said Missouri will become more attractive to startups in the Kansas City area, because of potential investment from the publicly funded Missouri Technology Corp. He said other companies might look to biotech power centers, such as Massachusetts and California, where there are more investors.

“Essentially, the tool box is empty. The last four years, you took the tool box and just dumped all the tools out on the way down the road,” Franano said. “I guess there are lower marginal tax rates, but for startup companies, you know, marginal tax rates are just not motivating. We’re trying to build the companies of the future. We don’t pay taxes for a while. We need capital.”

This story was originally published July 21, 2015 at 7:18 AM with the headline "Kansas Bioscience Authority halts new investment, lays off staff."