Round two

Round two

Bonnie Baskin tries for second knockout with AppTec

by Liz Wolf  

Experience spoke loud and clear when Bonnie Baskin went searching for an angel investor in spring 2002 for her new biotechnology company, Mendota Heights-based AppTec Laboratory Services. Despite the sluggish economy, she actually made the process of raising capital look easy.

In less than a year after finalizing AppTec’s business plan, Baskin, 54, landed $14 million in venture capital to build a 75,000-square-foot, $21-million high-tech facility in Philadelphia where AppTec will manufacture bio-pharmaceuticals. The deal was Minnesota’s biggest biotech venture in 2002.

“It was a terrible time to raise money,” Baskin says today. “Could we have picked a worse time?”

However, her years of experience and credibility paid off in her quest for funding. AppTec is Baskin’s second company and a spin-off from ViroMed Laboratories Inc., a medical diagnostic testing firm she launched in 1982 in an 800-square-foot basement in St. Louis Park.

She sold ViroMed’s clinical testing business in May 2001 to Burlington, N.C.-based LabCorp and kept the industrial piece, which became AppTec. At the time of the sale, ViroMed boasted revenue of $36 million. When AppTec was split off, it already had revenue, a strong management team and a staff of 120.

“I was in a very unique situation, because I had a business already,” Baskin says. “What I realized was the importance that investment venture capital firms place on the management team. I think one of the most important things to them is that they have the people to be able to implement the business plan.

“I had a lot of credibility, just because I had done it. There’s nothing that takes the place of having done it before: I started a company, I grew a company, I sold a company. So to them, they had a lot of comfort in that they had someone who is, I don’t want to say old, but seasoned.”

In addition to a solid management team, Baskin says companies looking to raise venture capital need their business plans to be customer-oriented. “It’s not good enough to have a good idea,” she says.

“I think it’s really important to make it very clear to the investors reading the business plan who the customer is, how you’re going to access the customer and the avenue you’re going to take to ultimately have a profitable business. Investors look at companies that potentially will have a revenue stream, will be profitable and have an easy exit strategy through the IPO market or an acquisition.”

The fact that life sciences companies are attractive to venture capitalists these days also didn’t hurt Baskin’s mission. In 2002, both biotech and medical device companies experienced increases in venture capital funding nationally, according to the Money Tree Survey, done by PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association.

In Minnesota, capital investments historically have been much stronger in the medical device industry than in biotech. Baskin would like to see that change.

“We have a strong angel investment community in Minnesota that’s really geared toward the devices,” she says. “What’s really needed here to jump-start a biotech industry are angel investors willing to invest in biotech firms.” She says local investors typically want to invest in devices they’re familiar with. “People don’t understand biotech. We’re talking about these little things called genes.”

From an investment standpoint, biotech is very different from medical devices, Baskin continues. Medical device companies typically need three to five years from inception before new products are on the market. “On the biotech side, you’re talking about huge investments; 10-plus years for approvals,” she says. “But they have tremendous payoffs.”

Baskin’s lead investor is Thomas, McNerney & Partners in Minneapolis, a health care private equity firm that invests in life science and medical technology companies. Baskin finalized the term sheet with the firm in September 2002. “Then we started looking for other investors to fill it out. The final papers with all of the money committed were signed at the end of December 2002,” she says. The other two investors are Affinity Capital Management and Brightstone Capital, both in Minneapolis.

“AppTec was an appealing investment, because Bonnie had a prior track record of building and exiting a business,” says David Dalvey, partner at Brightstone Capital. “As a venture capitalist — if I’m doing my job — 90 percent of my due diligence and final decision is made on the people. AppTec was an existing business with revenue and some history. Also important, Bonnie understands the industry, has good industry contacts and a good reputation.”

Another reason Brightstone invested in AppTec is there’s a strong likelihood of an exit. “Several large conglomerates nationwide are buying companies like AppTec, and if Bonnie decides to sell, she could sell for an attractive multiple,” Dalvey says.

Following the sale of ViroMed, Baskin was eager to get behind the wheel of AppTec and nurture and grow another company. She sold ViroMed because she believed it had reached its greatest potential.

“I didn’t believe that without some sort of merger or acquisition that it would be able to continue to grow at the rate it was growing,” she explains. “I love building things. I have no interest in a company that’s going along fine, but is flat.

“What’s really interesting to me is to see where there might be potential and make it happen and grow it. I really like taking risks. To be an entrepreneur, you have to want to take risks. If not, you’re going to lose way too much sleep. Not that I’m not up at 3 in the morning sometimes, but it’s calculated risk. I don’t play the lottery. I don’t gamble in Las Vegas. My gambling is mostly on myself.”

“Bonnie is not a person to preside over status quo. She has to push the envelope,” says Robert Elde, dean of the University of Minnesota’s College of Biological Sciences. “Minnesota has not been a climate where there’ve been a lot of people who’ve taken this path. San Diego, the Bay area, Boston, Seattle are all hot spots for biotech. In those communities, there are models to follow and a network of people. These are powerful attributes to make it easier. To see that Bonnie has done it successfully twice over here is pretty amazing. She has great insight and savvy into business and bioscience.”

Despite her ease in getting AppTec off the ground, Baskin, like any new entrepreneur, faced some struggles with her first company. Her background was science, not business. Baskin, a virologist, was a research scientist in the University of Minnesota’s Department of Laboratory Medicine and Pathology’s virology lab before launching ViroMed. She came to the university directly from a post-doctoral fellowship at the National Institutes of Health in Bethesda, Maryland.

“The role of viruses in human diseases is fascinating to me,” she says. At age 33, she opted to leave academia and become an entrepreneur. “It wasn’t a scary move. I was prepared to leave the U. The whole concept of starting and growing and running a business was tremendously appealing to me.” However, she says it was a big step and there were challenges along the way.

“Deciding the concept was worthy of a try was one hurdle,” she says. “It’s easy to come up with an idea for a business, but putting pen to paper and seeing whether you can generate some revenue is a different story.” She financed the start-up on her own through personal loans. “I had no idea what a business plan even was. No one would have invested in me,” she says.

“The biggest hurdle in running my company, and in retrospect something I would do differently, is I didn’t understand the importance of sales and marketing in business,” she says. “I’d never done that before. In the beginning, I had confidence that I had a service to sell, but making those cold calls is not easy. And when it’s your own company, you take it very personally when someone hangs up on you.

“What I realized was that ultimately the responsibility of selling this thing was 100 percent on my shoulders. Two women came with me from the U, but I was the one who had to ‘make the bacon.’ As the business grew — for a significant period of time — I was the only salesperson. I just didn’t understand the importance of the sales side.”

The third hurdle in launching ViroMed was the tremendous amount of hours Baskin put in; she was the mother of two young children at the time. “I always tell people, ‘If you only want to work 40 hours a week, go work for someone else.’ When it’s your business, it’s almost 24/7. It’s a tremendous commitment. But at the same time, it was the most exciting and fun time in my business career.”

Part of her risk-taking and entrepreneurial spirit comes from her father, Sy Baskin, who owned his own chemical company. “I draw inspiration from him, and I really value his opinion. I discussed a lot of things with him in the beginning of my business. He was tremendously helpful to me in running through strategies. He’s incredibly bright and caring and a very interested person. We have similar philosophies.”

In 2003, AppTec had revenue of about $17 million. Baskin anticipates revenue to soar to around $35 million in 2004, following a portion of the new Philadelphia facility opening in the second quarter. The facility will allow AppTec to move from solely providing laboratory testing for medical device, bio-pharmaceutical and biotech firms to also providing manufacturing services for businesses with products moving into clinical trials.

AppTec has 800 medical device and 200 bio-pharmaceutical clients across the country. It has 160 employees in three facilities: Mendota Heights, Atlanta and Camden, New Jersey. The Camden facility will relocate to Philadelphia in April.

“The city of Philadelphia offered us a wonderful package: tax incentives, no state income tax, no sales tax, in addition to grants and low-interest loans. It’s a really nice package. We’re clearly the poster child for the new park,” Baskin says.

Philadelphia is excited to land the growing business. “They fit the profile: a growing company in a sector where Philadelphia is strong,” says John Grady, senior vice president of the Philadelphia Industrial Development Corp. “We’re the center of the pharmaceutical industry. With our universities, hospitals and medical research, we can provide clients and a workforce for AppTec.”

Also important to the city was AppTec’s history and commitment. “The principals have a well-established track record and a proven ability to raise capital and run a business,” Grady says. “They more than met the equity requirements. Bonnie is also very hands-on. She’s committed to making sure AppTec is a good corporate citizen.” AppTec will provide the city with 200 high-paying jobs.

Baskin considered Minnesota to develop the new manufacturing facility, but she says the state doesn’t have a strong biotech community, at least not yet. And specifically, she says it doesn’t have experience in contract manufacturing.

There’s tremendous desire and impetus around growing a biotech industry in Minnesota, Baskin says. “I think we have a lot of potential to make it happen. Gov. Pawlenty seems to have made this a priority with the creation of the tax-free biotech enterprise zones.” Pawlenty has called biotech the next frontier of the technology revolution and is pushing for Minnesota to take a lead.

“The state needs to invest resources in biotech and bioscience if we hope to be competitive with other regions of the country,” Elde says. “The world of business and academia are very competitive. We’ve missed some opportunities, but there are more out there. We need to capture the next wave.”

Ralph Weinberger, partner at PricewaterhouseCoopers, agrees. “It’ll take some patience, commitment, the right focus, a strong academic institution — which we have — and the right inputs from big companies like Medtronic, St. Jude’s and Cargill, and there’s potential to develop a biotech cluster.”

What biotech start-ups need, Baskin adds, are cash and resources. “We have to create an environment to allow these companies to take off.”

She continues: “We’re in a terrific place. We’re looking at being a leader in testing and manufacturing for devices and biologics.” Future outsourcing opportunities for biotech, Baskin says, will be huge. Outsourcing is expected to grow to more than $3 billion by 2010, and she’s ready.

William Smith, AppTec executive vice president, is impressed with Baskin’s ambition. “Bonnie brings a classic entrepreneurial drive to the business. She’s a scientist with a Ph.D., but also a builder of business. She not only has a business drive and a vision to build, but she has a strong practical sense to go with it. Sometimes folks have a great vision, but have difficulty putting it into practice.”

bo***********@******ls.com. David Dalvey, Brightstone Capital: 612.313.0738; da***@***********vc.com. Robert Elde, University of Minnesota’s College of Biological Sciences: 612.624.2244; el**@*mn.edu. John Grady, Philadelphia Industrial Development Corp.: 215.496.8164; jo***@*****pa.org. William Smith, AppTec Laboratory Services: 651.675.2045, ext. 2040; wi***********@******ls.com. Ralph Weinberger, PricewaterhouseCoopers: 612.596.6422; ra****************@****wc.com.