Kansas Bioscience Authority halts new investment, lays off staff in Olathe

The Kansas Bioscience Authority has stopped making new investments and has decided to lay off half of its staff in the face of reduced funding from the state — possibly marking a coming demise of the agency.

The authority, which was 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. But it has seen its state funding scaled back significantly since 2012.

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

It also will hold off on making new investments for now and scale back its operations at its Olathe headquarters.

“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,” Cantrell said. “If they choose to shutter the KBA, that’s a decision that the Legislature and the administration will have to make.”

Late during the 2015 session, a bill was floated that would have enabled the Kansas Department of Commerce to absorb the KBA’s assets and investment portfolio. No author for the bill ever came forward, and Commerce officials refused to comment on it at the time.

The KBA has a troubled history. A 2012 audit revealed that its former president, Tom Thornton, had misspent funds and destroyed documents that had been subpoenaed by a taxpayer. The audit also found two cases of potential conflict, both involving board members associated with entities that received money from the agency.

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

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 KBA has seen portions of its funding withheld or redirected toward other things.

Statute allows for the KBA to receive up to $35 million each year, but from 2012 through 2015 it received less than $29 million. 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 irreparably damaged the KBA’s ability to perform its mission.

Eileen Hawley, the governor’s spokeswoman, said in an email that Brownback supported the KBA’s mission, but that “its operations must be conducted within its budgetary constraints.”

House Speaker Ray Merrick, a Stilwell Republican, said last week that “we don’t have the money to keep putting in there.”

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

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

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

“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 both Metactive Medical, which is developing a product to treat strokes, and Flow Forward, which is developing a product to prepare patients for hemodialysis.

Franano argued that 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 that other companies might look to biotech power centers such as Massachusetts and California, where there are more investors to find.

“Essentially the toolbox is empty. The last four years you took the toolbox 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 11:10 AM with the headline "Kansas Bioscience Authority halts new investment, lays off staff in Olathe."