2000Annual Report

The North Carolina Biotechnology Center

CONTENTS1 The North Carolina

Biotechnology Center

2 Biotechnology at Work

3 Biotechnology: Why It’sImportant to North Carolina

4 Message from the Presidentand Chairwoman

5 Accomplishments in 2000

12 Grants and Loans Awardedin 2000

18 Program Structureand Task Areas

20 Board of Directors

21 Financial Statements

1

The Center’s mission is to providelong-term economic benefit to NorthCarolina through support ofbiotechnology research, developmentand commercialization statewide.A 48-member staff works towardfive goals:

• strengthen North Carolina’sresearch capabilities in its aca-demic and industrial institutions

• foster North Carolina’s industrialdevelopment

• inform and educate the publicabout biotechnology

• develop mutually beneficialpartnerships among all partiesinvolved in moving biotechnologyfrom research to commercializa-tion

• establish for North Carolina aleadership role in biotechnologyand its commercialization.

When scientists conducted the firstgenetic engineering experiments inthe 1970s, leaders in North Carolinapaid attention. They realized that apotent new technology was emergingthat could bring substantial eco-nomic and societal benefits. WantingNorth Carolina to be at the forefrontof this new industry, the State in1981 created an organization tostimulate the development of bio-technology: the North CarolinaBiotechnology Center, the nation’sfirst state-sponsored biotechnologyinitiative.

Initially a part of state government,the Center was reconstituted in 1984as a private, non-profit corporation,giving it greater flexibility. As a neu-tral, non-partisan organization, theCenter is well positioned to catalyzeinteractions among industry,academia and government for tech-nological development. Working withthese groups, the Center is active atall points in the movement of bio-technology from the laboratory tothe market.

THE NORTHCAROLINABIOTECHNOLOGYCENTER

Moving biotechnology from mind to market

Unlike many biotechnology initia-tives in other states, the Center doesnot conduct laboratory research. In-stead, it works to strengthen the re-search capabilities of NorthCarolina’s companies and universi-ties. This strategy avoids duplicationof effort and uses limited resourcesmore efficiently.

The Center is funded mainly by theNorth Carolina General Assembly,which appropriated $10 million forCenter programs and activities in the2000 fiscal year.

The Center is located in anaward-winning 40,000-square-footheadquarters building at15 T.W. Alexander Drive in ResearchTriangle Park.

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BIOTECHNOLOGYAT WORK

Company and university researchersthroughout North Carolina are usingbiotechnology to develop more nutri-tious foods, new drugs and diagnos-tics, more productive livestock, har-dier crop plants, better ways todetect and clean up pollution, im-proved household products, andmore efficient industrial processes.These innovations are improving ourdaily lives and our economy.

Look around North Carolina, andyou’ll see biotechnology at work. Amultiple sclerosis patient in Boonetakes a genetically engineered drug toslow the progression of her disability.In Greenville, a farmer plants engi-neered cotton that helps him controlweeds. In Charlotte a homemakeruses laundry detergent that containsstain-cutting enzymes produced bygenetically engineered microbes. InWinston-Salem a hospital patient’sblood is monitored with a diagnosticsystem to determine how well hisheart medicine is working. InWilmington, a cargo ship uses a bac-terial bioreactor to clean its contami-nated bilge water. And in Raleigh, acommunity college graduate lands ahigh-paying job with a newbiomanufacturing plant.

What is this powerful new technol-ogy that brings us these benefits?Contrary to its name, biotechnologyis not a single technology but a col-lection of new technologies bound bya common thread: they all use livingcells and the molecules within themto make new products, improve ex-isting products, and solve problems.Major techniques of biotechnologyinclude genetic engineering, mono-clonal antibody technology,bioprocessing, and cell and tissue cul-ture. Using these and other technolo-gies drawn from genetics, immunol-ogy, biochemistry, microbiology,molecular biology and other life sci-ences, researchers are able to im-prove the health, traits and productsof organisms for our benefit.

New products for a better quality of life

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Projected Biotechnology Growthin North Carolina

Innovation/Development Growth Maturity1975 1985 1995 2005 2015 2025 2035

$24B

$16B

$8B

$4B

$2B$1B

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North Carolina is well suited to gainfrom biotechnology. Its traditionalindustries — especially agriculture,food and medicine — are the veryones that biotechnology can most en-hance. North Carolina also has thenecessary resources to develop bio-technology, including a tradition oftechnological development, two largeresearch parks, leading research uni-versities, four medical schools, majorfederal research labs, a progressivebusiness climate, long-term govern-mental support, an extensive commu-nity college system, a highly trainedwork force, abundant natural re-sources and the nation’s first state-sponsored biotechnology center.

North Carolina is home to theSouth’s largest and most dynamicbiotechnology industry and is amongthe country’s top ten biotechnologystates. More than 120 companieswork in biotechnology and relatedbiosciences, about 65 companies pro-vide contract research and testing ser-

vices to the industry, and another150-plus companies provide goodsand services to these companies.North Carolina’s biotechnology in-dustry employs about 20,000 people,representing a payroll of more than$800 million, and generates annualproduct sales of about $1.8 billion.

Even greater returns await us. As theindustry matures, it is moving from a

BIOTECHNOLOGY

Why it’s important to North Carolina

research-and-development enterpriseto a product-manufacturing en-deavor. This transition is yieldingbeneficial new products and generat-ing thousands of new jobs. Withinthe next 20 years, biotechnology andrelated bioscience technologies areprojected to generate $20 billion inannual product sales and employ100,000 people in North Carolina.

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B O N DH A M N E R

Charles E. Hamner, DVM, PhDPresident and Chief Executive OfficerNorth Carolina Biotechnology Center

Enriqueta C. Bond, PhDPresidentThe Burroughs Wellcome Fund

nies, research univer-sities, foundations,and support organi-zations will share in-formation and re-sources, formalliances and estab-lish programs to en-sure that NorthCarolina is a major

player in the worldwide genomicsand bioinformatics industry.

Driven by genomics and otheremerging technologies, biotechnologywill become the dominant technologyof the 21st century, bringingenormous economic returns over thenext 25-plus years. North Carolina’sability to compete globally inbiotechnology will largely depend oncontinued State investment in theCenter’s programs.

The North Carolina General Assem-bly supports the Center on a biparti-san basis with an annual appropria-tion of $9.5 million, representingabout 75 percent of the Center’s totaloperating budget. The Center hasbeen able to leverage State fundsmore than 15 to 1 and help establisha rigorous industry of 120 biosciencecompanies supported by 65 clinicalresearch organizations and 150equipment and supply/support com-panies. With sustained State invest-ment, the future is bright for NorthCarolina to be in the top five statesfor biotechnology.

140,000 people,mostly in the ruralareas of our state.Through the excel-lent leadership of theCenter’s StevenBurke and the Advi-sory Committee onForest Biotechnol-ogy, an Institute forForest Biotechnology was conceptu-alized. This national, non-profit insti-tute, to be headquartered in NorthCarolina, will ensure effective and re-sponsible application of biotechnol-ogy to forestry, which will yield enor-mous ecological, societal, andeconomic benefits in years to come.

The next major technology opportu-nity will come from genomics andbioinformatics. Genomics is a rapidlygrowing field that discovers the func-tion of genes, and bioinformatics isthe management of that genomicsdata. These new technologies willrevolutionize agriculture throughvalue-added crops and greatly en-hance the chemical, pharmaceuticaland environmental industries. Ouroverall quality of life will continue toimprove through better health, morenutritious food and a cleaner envi-ronment.

To prepare for this great opportunity,the Center is beginning to form apublic/private partnership called theNorth Carolina Genomics andBioinformatics Consortium. Compa-

An organization like ours has to havesound programs that build and serveits client community. Once the foun-dational programs are in place, it isessential that the organization’s man-agement keep the community at theleading edge of technology develop-ment and emerging issues. Early on,the North Carolina BiotechnologyCenter established programs thatwere crucial to economic growththrough biotechnology. The pro-grams were designed to:

• strengthen university research andtechnology transfer

• assist capital formation andinfrastructure development forbusiness and industry

• prepare an educated workforce

• improve public awareness ofbiotechnology

• pay attention to the future and itsrapid technological changes.

With the help of an outstandingBoard, a number of expert AdvisoryCommittees and a dedicated staff,the Center in recent years has antici-pated key needs and opportunitiesfor the continued growth of the bio-technology industry. The Center hasaddressed these needs and opportuni-ties through such endeavors as theGenetically Engineered OrganismsAct, recruitment of commercialbioprocess manufacturing compa-nies, the Advisory Committee on De-velopment and Transfer of Biotech-nology, Biovision 2000, theHistorically Minority UniversitiesBiotechnology Program Initiative andthe North Carolina Bioscience Invest-ment Fund.

This year the Center focused on anew frontier: forest biotechnology.Forestry is a major industry in NorthCarolina, employing more than

Message from the President and Chairwoman

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AccomplishmentsIN 2000The development of biotechnology is a

complex and long-term process that begins

with ideas and research and ends with

commercial products that improve our lives

and boost our economy. The Center assists this

movement at all points. Its programs, activities

and partnerships strengthen biotechnology

research, business and education throughout

the state and address the many issues and

opportunities presented by biotechnology.

Growing biotechnology from the ground up

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Science andTechnologyDevelopmentThe Science and Technology DevelopmentProgram strengthens the biotechnology re-search capabilities of North Carolina’s uni-versities through grants, intellectual ex-change programs and databases of researchfacilities and faculty. This year, the Program:

• awarded ten grants totaling $1,150,000to help North Carolina universitiesrecruit two outstanding faculty andacquire multi-user research facilities andequipment. These awards, made throughthe Institutional Development GrantsProgram, are listed on page 13.

• awarded 21 university grants totaling$1,106,762 to initiate innovative researchprojects with commercial potential. Theseawards, made through the AcademicResearch Initiation Grants Program, arelisted on page 14.

Following are highlights of the

Center’s accomplishments in 2000.• awarded $389,250 to support research

collaborations between nine biotechnol-ogy-related companies and five universi-ties and medical centers. The funding wasprovided by the Collaborative FundingAssistance Program, cosponsored by theKenan Institute for Engineering, Technol-ogy and Science. These awards are listedon page 13.

• awarded two grants totaling $499,288for multidisciplinary research at NorthCarolina State University. These awards,made through the Multi-DisciplinaryResearch Grants Program, are listed onpage 14.

• supported conferences, symposia andworkshops on the scientific aspects ofbiotechnology. These awards, madethrough the Biotechnology Event Spon-sorships Program, are listed on page 16.

• supported five intellectual-exchangeorganizations: the North Carolina PlantMolecular Biology Consortium, theNorth Carolina RNA Society, the Tri-angle Virology Association, the SmallerEukaryotes Group, and the North Caro-lina Tissue Engineering Group.

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Business andTechnologyDevelopmentThe Business and Technology DevelopmentProgram helps biotechnology companieswith financing, technology assessment, tech-nology transfer, business plans, networkingopportunities, venture capital placements,marketing strategies, strategic partnerships,site locations and professional referrals.This year, the Program:

• provided loans totaling $200,000 to twoyoung biotechnology companies forproduct research and development. Theseawards, provided through the SmallBusiness Research Award Program, arelisted on page 12.

• awarded loans totaling $50,000 to helpfive young biotechnology companies withtheir business-development activities,including business plans, market research,product regulatory submissions, andproduct testing. These loans, providedthrough the Business Development AwardProgram, are listed on page 12.

• cosponsored Biotech 2000, the annualmeeting of the state’s biotechnologyindustry, which attracted more than 600people for a day of networking, exhibitsand presentations.

BIOTECH 2000

Neil Coles, left, ofFresenius Kabi ClaytonR&D Inc. speaks withDamu Murray ofVizitek Inc.

Tracey O’Neal of IBAH PharmaceuticsServices enjoys a snack with VanceCaudill of O’Neal Inc.

Jan Turek of Bayer Corp. gives the keynote address.

More than 600 people attended Biotech 2000, a day ofpresentations, exhibits and networking for the state’s biotechnologycommunity. The eighth annual meeting, held in Chapel Hill onMay 31, 2000, was organized by the Biotechnology Center and theCouncil for Entrepreneurial Development. In the photos above, theCenter’s Paul Wood (left) networks with an attendee; andentrepreneurs Jim Skinner, Bruce Oberhardt, and Max Wallace talkshop (right).

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IMPROVING FORESTRYTHROUGH BIOTECHNOLOGYEvery year the averageAmerican uses enough paperand wood products to equala 100-foot tall tree 16 inchesin diameter, and consumptionis growing. But so are pres-sures to preserve trees andreduce logging on publiclands. These conflicting de-mands are squeezing an in-dustry that already facesgrowing competition abroad.

Forestry executives through-out the United States believebiotechnology will be an im-portant tool for meeting theirindustry’s challenges in the21st century. Biotechnologycan help grow more wood onless land, produce hardiertrees with better traits, helpreclaim polluted lands andpreserve endangered spe-cies of trees.

lina lieutenant governor.“We’ve been able to accom-plish wonderful things withsoybeans and corn, but thequestion is how do we dealwith trees? How do we do itfor industry, public and eco-nomic gain? And most impor-tantly, how do we get NorthCarolina out in front?”

To answer those questions,the Center created the Advi-sory Committee on ForestBiotechnology, chaired byJordan and consisting of 28forestry industry representa-tives, government officialsand university researchersfrom throughout NorthCarolina and the nation.The committee had fivemonthly meetings at the Cen-ter in 1999.

dress the issues it will raise.A Center-sponsored taskforce of national forestry lead-ers began planning the Insti-tute and searching for itsleader in 2000. The Institutewill be headquartered inNorth Carolina.

forest technology and forestproducts for Champion Inter-national Corp.

The forestry industry employs140,000 people in NorthCarolina and produces about6.3 percent of the state’smanufacturing revenue.

“North Carolina is an espe-cially suitable place for forestbiotechnology,” said Dr. RonSederoff, a committee mem-ber and professor of forestryat North Carolina State Uni-versity. “It is strong in forestryresearch and strong in bio-technology. We think we canuse the strengths tostrengthen and protect ourforest resources and to pro-duce economic gain.”

Dr. Charles Hamner, president and CEO of the Center,right, discusses the Center’s forest biotechnologyinitiative with North Carolina Governor Jim Hunt at abriefing in October 1999. “This is the right thing to do,this is the smart thing to do, and I want to see us do it,”Hunt said.

This “is the time to merge trees and biotechnologyin ways we haven’t done before.”— Bob Jordan, president of Jordan Lumber

This “is the time to mergetrees and biotechnology inways we haven’t done be-fore,” said Robert B. JordanIII, president of Jordan Lum-ber and former North Caro-

One of its recommendationswas to create a national, non-profit Institute of Forest Bio-technology to accelerate theuse of biotechnology in theforest industry and to ad-

“The industry is just abso-lutely convinced we’re goingto have to have biotechnol-ogy to be competitive,” saidRobert Kellison, committeevice chairman and director of

“This is the right thing to do, this is the smartthing to do, and I want to see us do it.”— North Carolina Governor Jim Hunt

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• awarded five grants totaling $5,350 tosupport biotechnology business eventsincluding the Sixteenth Annual Confer-ence on Entrepreneurship, the Venture2000 venture capital conference, and theSoutheastern BIO Investor Forum. Thesegrants, provided through the Biotechnol-ogy Event Sponsorships Program, arelisted on page 16.

• cosponsored the BiotechnologyRoundtable, a monthly gathering ofbiotechnology executives who networkand hear presentations.

• provided dozens of biotechnology compa-nies and entrepreneurs with professionalreferrals, technical and business advice,relocation assistance, technology transferexpertise and other assistance.

Education andTrainingThe Education and Training Program pro-motes public understanding of biotechnol-ogy and work force preparedness throughteacher training, teaching materials, grantsprograms, needs assessments and other ac-tivities at all educational levels throughoutNorth Carolina. This year, the Program:

• partnered with the state’s CommunityCollege System and Novo NordiskBiochem to develop a 96-hour bioprocessoperator’s course that will prepareworkers for entry level jobs inbiomanufacturing plants.

FOOD FOR THOUGHTCenter gives consumersinformation on food biotechnologyAs more biotechnology-derived foods find theirway into supermarkets and restaurants, con-sumers need to know more about what they’reeating. To help inform consumers about thesefoods, the Center in 2000 produced a brochureon the topic and sponsored an exhibit at theNorth Carolina State Fair.

The four-page brochure, Considering the Natureand Issues of Food Biotechnology, describeshow biotech foods are produced, who they ben-efit, how they are regulated, and how they differfrom conventional foods. It also addresses com-mon questions about food safety and the envi-ronmental impact of biotech food crops.

The brochure is free and available to the publicand is also posted on the Center’s Web site atwww.ncbiotech.org/aboutbt/foodbt.cfm.

The Center’s State Fair exhibit provided informa-tion on the products and issues of agriculturalbiotechnology. Center staff and volunteers fromthe state’s biotechnology community answeredquestions and distributed literature to hundredsof fair-goers during the 10-day event.

Curious fair-goers watch the Biotechnology Center’s RandyHandwork, right, spool DNA at the 1999 North Carolina State Fair.The Center sponsors an exhibit at the Fair each year to informpeople about the science, products and issues of biotechnology,especially food and agricultural biotechnology.

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North Carolina Bioscience Investment Fund dealsCOMPANY LOCATION INDUSTRY INVESTMENTAmpliStar Winston-Salem Cancer screening tests $2.6M

Bloodhound Durham Health claims processing $1.5MSoftware

Blue292 Inc. Durham E-commerce/environmental $2Mtesting services and products

Cell Analytics Raleigh Cell biology research $1.8Minstrumentation

Cogent Durham Genomics $500,000Neuroscience Inc.

Encelle Inc. Greenville Wound healing, $500,000bioartificial pancreas

Alternative Control Charlotte Passive insect control $211,000Technologies Inc. technology

Point Diagnostics Inc. Winston-Salem Automation of radiology reporting $60,000

VENTURE CAPITAL FINDSNORTH CAROLINA’SBIOTECHNOLOGY COMPANIESThe promise of NorthCarolina’s biotechnologyindustry captured theattention of theinvestment community in2000. Venture capitalistsand other investors bothinside and outside thestate poured more than$200 million into nearly30 North Carolinabiotechnology start-upcompanies between July1999 and June 2000, andtwo other companiesraised $120 million ininitial public offerings ofstock.

The North CarolinaBiotechnology Centerplayed a major role inproviding early stagecapital for the industry.Through its loanprograms, it supportedtwo companies with

$200,000 for research and developmentwork. It also invested $850,000 in newventure capital funds launched by IntersouthPartners and Aurora Funds Inc., both ofDurham. In addition, the North CarolinaBioscience Investment Fund, a $28.5 millionventure fund created by the Center to financeearly stage life science companies in thestate, finished its first full year of investing.The Fund, professionally managed by EnoRiver Capital LLC of Durham, concluded theyear with eight company investments totaling$9.2 million.

“With approximately one year of full-timeinvesting activity behind us, we are pleasedat the development of the portfolio,” saidPaul A. Jones, a managing member of EnoRiver.

Raised from a variety of public and privatesources, including the state’s GeneralAssembly, the Fund provides $500,000 to$2 million in seed funding to promisingbioscience start-up companies, whichtypically have difficulty raising early stagemoney.

• awarded six grants totaling $192,945 tostrengthen biotechnology education andtraining programs at three universities,two colleges and one community college.These awards, made through the Educa-tion Enhancement Grants Program, arelisted on page 15.

• awarded six grants totaling $26,441 tohelp four high schools integrate biotech-nology lessons and labs into the biologycurriculum. These awards, made throughthe Biotechnology Education Mini-GrantsProgram, are listed on page 15.

• sponsored sabbaticals for three universityfaculty to spend the summer working andlearning at three commercialbiomanufacturing plants so they arebetter able to teach their students. Theseawards are listed on page 16.

• sponsored five summer workshops toprepare 66 middle school, high schooland community college teachers to teachabout the science, applications and issuesof biotechnology.

The North Carolina BiotechnologyCenter played a major role in providingearly stage capital for the industry.

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Historically MinorityUniversitiesBiotechnologyProgram InitiativeWith special appropriations from the state’sGeneral Assembly, the Center has workedsince 1993 to strengthen the biotechnologyteaching and training programs of NorthCarolina’s six public, historically minorityuniversities: Elizabeth City State University,Fayetteville State University, North CarolinaA&T State University, North Carolina Cen-tral University, Winston-Salem State Univer-sity, and the University of North Carolina atPembroke. Enrollment in bioscience coursesat these universities has more than tripledsince then, with more than 3,000 studentsnow taking courses in the life sciences.

This year the Center awarded grants total-ing $946,500 to help the universities furtherstrengthen their biotechnology programs.The grants are listed on page 16.

Conference andEducation FacilityThe Center’s 19,000-square-foot Conferenceand Education Facility is a local, state andnational hub for meetings on the science,business and issues of biotechnology. It alsoserves clients from outside the biotechnol-ogy community. This year the Facility pro-vided space, catered meals, audiovisual sup-port and videoconferencing for 25,000visitors at 1,600 meetings.

LibraryThe Center’s full-service library providespeople in business, academia andgovernment with the latest information oncommercial biotechnology. This year thelibrary responded to 1,424 requests forbusiness information and statistical data

about commercial biotechnology.Library staff worked on 90research projects during the year,arranged 55 interlibrary loans andprovided educational videotapeson biotechnology to 69 NorthCarolina teachers for use in theclassroom. About 400 visitors didtheir own research in the library.

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Small Business ResearchAward ProgramEnSolve Biosystems Inc., RaleighDr. Donald Kelemen • $100,000 •“Development of High-efficiencyBiotreatment System.”

Sicel Technologies Inc., Chapel HillDr. Robert Black • $100,000 • “ImplantableSensor for Radiation Therapy.”

Business DevelopmentAward ProgramBioResource International Inc., CaryDr. Jason C.H. Shih • $10,000 • “CommercialDevelopment of Keratinase Technology.”

Centers for Innovative Care Inc., CarySamuel F. Yanuck • $10,000 • “C4IC StartupActivities.”

LeukoMed Inc., Research Triangle ParkRichard M. Mueller • $10,000 • “LeukoMedBusiness Development.”

Millennium Medical Technologies Inc.,CharlotteMichael A. Caracozza • $10,000 •“Preparation of Business Development Planand Implementation of Strategic CorporateAlliances.”

The North Carolina Biotechnology

Center awarded 103 grants and

loans totaling $4.6 million to

universities, companies and other

groups in the 1999–2000 fiscal year.

Grants andLoans AwardedIN 2000

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Paradigm Organics, Inc., RaleighCharles C. Orji • $10,000 • “MarketingDevelopment.”

Collaborative FundingAssistance ProgramCarolinas Medical CenterIn partnership with Sertoli TechnologiesInc., Tucson, ArizonaDr. Craig Reed Halberstadt, General SurgeryResearch • $30,000 • “Characterization ofSertoli Cells and Islet Co-cultures andTransplants.”

Duke University Medical CenterIn partnership with SkinCeuticals Inc.,DurhamDr. Sheldon R. Pinnell, Department ofMedicine • $30,000 • “Development ofTopical Anti-oxidants to Prevent UV Photo-injury.”

East Carolina UniversityIn partnership with PhytoMyco ResearchCorp., GreenvilleDr. Edmund J. Stellwag, Department ofBiology • $59,250 • “An ECU/PMRCCollaborative Program: Bioactive compoundsfrom endophytic and ‘non-culturable’microbes for pharmaceutical use.”

North Carolina State UniversityIn partnership with Blue RidgePharmaceuticals, GreensboroDr. Janice Benson Allen, Department ofAnatomy, Physiological Science and Radiology• $30,000 • “Role of TGFbeta-2 in CornealNon-healing Ulcers.”

North Carolina State UniversityIn partnership with Industrial MicrowaveSystems Inc., Research Triangle ParkDr. Brian E. Farkas, Department of FoodScience • $30,000 • “Lyophilization of Heat-labile Biomaterials in a Microwave CylindricalReactor.”

North Carolina State UniversityIn partnership with Novo NordiskBiochem, NA, FranklintonDr. Harold S. Freeman, College of Textiles •$30,000 • “Enzyme-assisted Dyeing:Reactions, Mechanisms and Structures.”

North Carolina State UniversityIn partnership with Insect BiotechnologyInc., DurhamDr. Russell J. Linderman, Department ofChemistry • $60,000 • “Non-peptide Analogsof Trypsin Modulating Oostatic Factor.”

North Carolina State UniversityIn partnership with Biolex Inc., PittsboroDr. Yuri T. Yamamoto, College of Forestry •$60,000 • “Duckweed Protein ExpressionLibrary System: Its Development andApplication for Gene Cloning.”

University of North Carolinaat Chapel HillIn partnership with Cato Research Ltd.,DurhamDr. John J. Lemasters, Department of CellBiology and Anatomy • $60,000 •“Development of Carolina Rinse Solution.”

Institutional DevelopmentGrants ProgramDuke UniversityDr. Fan Yuan, Department of BiomedicalEngineering • $125,000 • “Laser ScanningConfocal Microscopy for BiotechnologyResearch.”

East Carolina UniversityDr. Arthur Palfrey Bode, Department ofPathology and Laboratory Medicine •$200,000 • “First Core Unit in ConfocalMicroscopy for East Carolina University.”

North Carolina State UniversityDr. David M. O’Malley, Department ofForestry • $49,237 • “Enhancing DNAMarker Technology at N.C. State University.”

Dr. Bryon Sosinski, Dr. William F. Thompson,and Dr. Charles H. Opperman, College ofAgriculture and Life Sciences • $31,500 •“Instrument and Software Supplement for theGenome Research Laboratory, a Multi-userCore Genomics Facility at N.C. StateUniversity.”

University of North Carolinaat Chapel HillDr. Larry W. Arnold, Department ofMicrobiology and Immunology • $143,765 •“Laser Scanning Cytometry at UNC-CH.”

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Dr. Dwight Bellinger and Dr. VirginiaGodfrey, Department of Pathology andLaboratory Medicine • $75,848 • “UNCAnimal Models Imaging Core.”

Dr. William F. Marzluff, Department ofBiochemistry and Biophysics • $132,550 •“UNC Genomics Core: High-throughputGenotyping and Expression Array Analysis.”

Dr. William F. Marzluff, Department ofBiochemistry and Biophysics • 200,000 •“Exceptional Faculty Recruitment of Dr. TerryMagnuson, Genomics Center Director.”

Dr. Terry Van Dyke, Department ofBiochemistry and Biophysics • $96,100 •“Development of Genotyping andCryopreservation Capacities in the UNCAnimal Models Core Facility.”

University of North Carolina at CharlotteDr. Arthur Greenberg, Department ofChemistry • $96,000 • “Recruitment of Dr.Kenneth Gonsalves.”

Multi-Disciplinary ResearchGrants ProgramNorth Carolina State UniversityDr. Hou-min Chang, Department of Woodand Paper Science • $249,387 • “ExploitingGenetic Variation of Fiber Components andMorphology in Juvenile Loblolly Pine.”

Dr. Robert M. Kolbas, Department ofElectrical and Computer Engineering •$249,901 • “Intracellular Engineering.”

Academic Research InitiationGrants ProgramDuke UniversityDr. Michael C. Fitzgerald, Department ofChemistry • $55,000 • “A CombinatorialAssay for Protease Specificity.”

Dr. Mark W. Grinstaff, Department ofChemistry • $55,000 • “Carbohydrosomes.”

Dr. Jie Liu, Department of Chemistry •$55,000 • “Using Single-walled CarbonNanotubes in Scanning Probe Microscopy/Spectroscopy as Nanaprobes with ChemicalSensitivity.”

Dr. David Needham, Department ofMechanical Engineering and Materials Science• $55,000 • “Triggered Release of Contentsfrom Liposomes Using Ultrasound.”

Dr. Lori A. Setton, Department of BiomedicalEngineering • $55,000 • “GeneticallyEngineered Elastin-like Polypeptides forCartilage Repair.”

Dr. Kristine L. Willett, Toxicology Program,Nicholas School of the Environment •$53,107 • “Characterization of CYP1B1 GeneActivation in Fish for Use as a PossibleMarker of Cancer Resistance.”

Duke University Medical CenterDr. Michael Ehlers, Department ofNeurobiology • $55,000 • “DevelopingNMDA Receptor Inactivating Peptides asNeuroprotective Agents.”

Dr. Johannes Rudolph, Department ofBiochemistry • $55,000 • “Rapid andQuantitative Analysis of PhosphorylationStatus of Specific Phospho-proteins.”

East Carolina UniversityDr. Daniel W. Martin, Department ofMicrobiology and Immunology • $55,000 •“Analysis of an Inducible Peptide Synthetasein Legionella pneumophila.”

Dr. James Andrew McCubrey, Department ofMicrobiology and Immunology • $55,000 •“Isolation of Novel Genes that Synergize withBCL-2 and BCL-XL and Confer BreastCancer Drug Resistance.”

North Carolina State UniversityDr. Robert Rene Henri Anholt and Dr. CobySchal, Department of Zoology • $44,500 •“New Targets for Biotechnology-driven PestControl: Identification of CockroachPheromone Binding Proteins.”

Dr. Linda Hanley-Bowdoin, Department ofBiochemistry • $55,000 • “An Aptamer-basedInterference Strategy for Eukaryotic Single-stranded DNA Viruses.”

Dr. David E. Malarkey, Department ofMicrobiology, Pathology and Parasitology •$19,155 • “Microarray Gene Expression ofLiver Tumor Regression in B6C3F1 Mice.”

University of North Carolinaat Chapel HillDr. Ralph S. Baric and Dr. Christine Moe,Department of Epidemiology • $55,000 •“Molecular Approach to Detect and ControlHuman Calicivirus Infections.”

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Dr. Roy A. Hopfer and Dr. Gary M. Cox,Department of Microbiology and Immunology• $55,000 • “Adapting Antisense Repressionto Candida Albicans.”

Dr. Joseph Kieber, Department of Biology •$55,000 • “Use of a Cytokinin-inducible GFPReporter Line to Dissect the CytokininResponse Pathway.”

Dr. David G. Klapper, Department ofMicrobiology and Immunology • $55,000 •“Synthetic Gonococcal Vaccine.”

Dr. Aravinda de Silva, Department ofMicrobiology and Immunology • $55,000 •“A Transmission Blocking Lyme DiseaseVaccine Based on Borrelia burgdorferi OspAand Attenuated Venezuelan EquineEncephalitis Viral Vectors.”

Dr. Nancy L. Thompson, Department ofChemistry, • $55,000 • “Total InternalReflection - Fluorescence CorrelationSpectroscopy for Screening the Kinetics ofDrug-target Interactions.”

University of North Carolina at CharlotteDr. Joanna K. Krueger, Department ofChemistry • $55,000 • “ProteinConformational Changes Associated withRegulation of the Actin Cytoskeleton asStudied by Small-angle Solution Scattering.”

Wake Forest University School of MedicineDr. G.L. Prasad, Department of GeneralSurgery • $55,000 • “Regulators of Cell Cycleas Novel Markers of Breast Cancer: Studies onHME1.”

Scientific Meeting Grants ProgramUniversity of North Carolinaat Chapel HillDr. Timothy C. Nichols, Department ofMedicine • $2,500 • “Etiology and Treatmentof Coronary Arterial Thrombosis: BasicScience and New Clinical Approaches.”

Education EnhancementGrants ProgramDavidson CollegeDr. David Wessner and Dr. Karen Bernd,Department of Biology • $23,430 •“Development of DNA Sequencing and RNADetection Protocols for the UndergraduateLaboratory.”

Duke UniversityThomas B. Mezloff, School of Law • $20,000• “Biotechnology Law Curriculum.”

East Carolina UniversityDr. Jean-Luc Scemama, Department ofBiology • $76,404 • “Development of a CellCulture Teaching Facility for BiotechnologyEducation.”

Lenoir Community CollegeDr. John M. Sherman, Biology Department •$23,079 • “General Biology I: EnhancementThrough Molecular Biology andBiotechnology Principles Laboratories.”

Livingstone CollegeDr. Sashi Sabaratnam, Mathematics andSciences Division • $2,500 • “ FacultyDevelopment and Training.”

North Carolina State UniversityDr. Steven W. Peretti, Department of ChemicalEngineering • $47,532 • “BioprocessTechnology Teaching Laboratory.”

Biotechnology EducationMini-Grants ProgramCatawba Science Center, HickoryMark E. Sinclair • $4,535 • “High SchoolBiotechnology Programs at the CatawbaScience Center.”

Enka High School, EnkaCarmela Blankenship Blackwell • $3,326 •“Examination of Contemporary Issues inBiotechnology in an Advanced BiologyCourse.”

Fred T. Foard High School, NewtonThea Sinclair • $4,813 • “Incorporation ofHands-on Activities in Introductory-level andAdvanced Placement Biology Courses.”

Northwest Cabarrus High School,ConcordJoni Driscoll • $4,349 • “Enhancement ofAdvanced Placement Biology and AppliedBiochemistry Courses with Hands-on DNA-based Activities.”

Raleigh Charter High School, RaleighAmy Koch • $4,766 • “Mystery of theCrooked Cell.”

16

Waynesville Middle School, WaynesvilleAleasa S. Glance • $4,652 • “Comparison ofPlant and Animal Cells in the Eighth GradeExploring Biotechnology Class.”

Faculty Sabbaticalsin Industry ProgramBarton CollegeIn partnership with Apex Bioscience Inc.Dr. Paul Demchick, Department of Biologicaland Physical Sciences • $5,000

North Carolina A&T State UniversityIn partnership with Ajinomoto USA Inc.Dr. Keith Schimmel, Department of ChemicalEngineering • $5,000

University of North Carolinaat GreensboroIn partnership with Biogen Inc.Dr. Karen Katula, Department of Biology •$5,000

Hurricane Floyd Relief GrantsChowan CollegeDr. James B. Dewar Jr., Science Department •$205

East Carolina UniversityDr. Edmund J. Stellwag, Department ofBiology • $1,800

Historically Minority UniversitiesBiotechnology Program InitiativeElizabeth City State UniversityDr. Ronald H. Blackmon and Dr. Gary L.Harmon, Department of Biology • $160,000 •“ECSU Biotechnology Program Initiative:Phase VII.”

Fayetteville State UniversityDr. Valeria P. Fleming, Department of NaturalSciences • $152,500 • “BiotechnologyProgram Enhancement: Phase IIContinuation.”

North Carolina A&T State UniversityDr. Marihelen Kamp-Glass, Department ofNatural Resources • $147,774 • “EnhancingBiotechnology Capabilities.”

North Carolina Central UniversityDr. Goldie S. Byrd and Dr. James M. Schooler,Department of Biology and Chemistry •$160,000 • “Enhancing MinorityRepresentation in Biotechnology: An NCCUInterdisciplinary Approach.”

University of North Carolina at PembrokeDr. Leonard Holmes and Dr. David Maxwell,Department of Chemistry and Physics •$158,000 • “A Comprehensive BiotechnologyProgram at UNC Pembroke: Year Seven.”

Winston-Salem State UniversityDr. Kim H. Tan and Dr. Ann Weigl, ProjectStrengthen • $156,000 • “AdvancingInterdisciplinary Biotechnology Programs: AWinston-Salem State University Approach.”

Biotechnology EventSponsorships ProgramCouncil for Entrepreneurial Development,Research Triangle ParkDan Allred • $300 • “Information SharingMeeting with Pat Snider of BIO/START.”

Monica Doss • $250 • “Sixteenth AnnualConference on Entrepreneurship.”

Cathy Trask • $1,500 • “Venture 2000.”

Duke UniversityDr. David R. McClay, Cell and MolecularBiology Training Program • $1,500 •“Conversations that Matter: MolecularMechanisms of Cell Communication.”

Duke University Medical CenterDr. Daniel P. Kiehart, Program in Genetics •$1,500 • “Genomics and Proteomics: FromSequence to Biology.”

Licensing Executives SocietyF. Michael Sajovec • $300 • “Seeking Partnersand Funding from Europe: The Basics.”

National Institute for EnvironmentalHealth SciencesDr. Heather Cross • $2,000 • “Third AnnualNIEHS/NTA Biomedical Science and CareerFair.”

North Carolina Academy of ScienceDr. Susan Stephenson, Secretary • $1,250 •“Ninety-seventh Annual Meeting of the N.C.Academy of Science.”

17

North Carolina State UniversityDr. Robert Anholt, Department of Zoology •$750 • “NCSU Program for BehavioralBiology 1999-2000 Seminar Series.”

Dr. William Holton, Department of Electricaland Computer Engineering • $2,000 •“Intracellular Engineering Workshop.”

Dr. William L. Miller, Department ofBiochemistry • $1,500 • “Triangle Conferenceon Reproductive Biology: Breast and ProstateBiology.”

Dr. H. Troy Nagle, Department of Electricaland Computer Engineering • $1,000 • “TissueEngineering Interest Group Meeting.”

Dr. Neil Olson, College of VeterinaryMedicine • $2,500 • “Animal Genomics 2000Symposium.”

Small Business and TechnologyDevelopment CenterKay Etzler • $2,000 • “SBIR/STTR RegionalConference.”

Southeastern Life Sciences AssociationRebecca Gessner • $1,000 • “SoutheasternBIO Investor Forum ’99.”

University of North Carolina at AshevilleDr. John G. Stevens, Department of Chemistry• $1,000 • “Biochemistry and theUndergraduate.”

University of North Carolinaat Chapel HillDr. Albert S. Baldwin and Dr. H. SheltonEarp, Lineberger Comprehensive CancerCenter • $2,000 • “Annual Symposium —Cell Signaling in Human Cancer: Membraneto Nucleus.”

Dr. Stephen Crews, Department ofBiochemistry • $2,000 • “PAS Proteins:Sensors of Environmental and DevelopmentalSignals.”

Dr. David A. Fenstermacher, Program inMolecular Biology and Biotechnology •$1,500 • “UNC-CH/Glaxo WellcomeSymposium: Bioinformatics and FunctionalGenomics.”

Dr. Lee M. Graves, Program in MolecularBiology and Biotechnology • $2,000 • “Celland Molecular Biology Symposium.”

Dr. Barry R. Lentz, Department of Biophysics• $2,000 • “Third Annual Triangle BiophysicsSymposium.”

University of North Carolinaat GreensboroDr. Neal Stewart, Department of Biology •$1,000 • “Novartis Biochemistry/Biotechnology Symposium.”

University of North Carolinaat WilmingtonDr. Ned H. Martin, Department of Chemistry• $2,000 • “Fourth UNC-W Symposium onChemistry and Biochemistry.”

Wake Forest University School of MedicineDr. K. Bridget Brosnihan • $2,500 • “Promiseof Alcohol Research for Treatment andPrevention.”

Visiting IndustrialScientists ProgramNorth Carolina A&T State UniversityDr. Mary A. Smith and Dr. Doretha Foushee,Department of Biology • $2,500 • “Visit byDr. Harold Davis, Senior Director ofToxicology and Laboratory Animal Resources,Amgen Inc.”

Program Initiation GrantsFisheries Development Foundationof North CarolinaKarla L. Gwaltney • $20,000 • “SustainableOyster Aquaculture Study.”

Greater Triangle Regional CouncilPam Wall, Executive Director • $2,500 •“Clusters of Innovation Project.”

North Carolina Associationfor Biomedical ResearchKaren S. Hoffman, President • $6,600 •“The Economic Impact of Bioscience R&D inNorth Carolina.”

North Carolina Associationfor Biomedical ResearchKaren S. Hoffman, President • $5,000 •“A Celebration of Bioscience Research inNorth Carolina.”

North Carolina Department of CommerceJim Nichols • $1,000 • “State of NorthCarolina/U.S. Ambassador to Canada Fourthof July Event.”

18

Science &BusinessDevelopment • Genomics &

Bioinformatics

CORE PROGRAMS

Library &InformationServices

CorporateCommunica-tions

Conferenceand EducationFacility

Graphic DesignServices

• Public Affairs• Government

and CorporateRelations

• CorporateDevelopment

• Conferences andWorkshops

• Video Services

• InformationCollection

• InformationRetrieval

• InformationDissemination

• Graphic Designfor Print andWeb

• CorporateIdentity

• Print Purchasing

Corporate Affairs& ExternalRelations • Special Projects

• Internationaland StrategicPartnerships

Board of Directors

President & CEO

Science &TechnologyDevelopmentProgram

Education &Training Program

Business &TechnologyDevelopmentProgram

• UniversityDevelopment

• Grants Programs• Intellectual

ExchangePrograms

• Grants Programs• K-12 and

UndergraduateEducationPrograms

• WorkforceDevelopment

• Public Education

• TechnologyTransfer

• EconomicDevelopmentFinance Program

• BusinessDevelopment &Recruitment

• Business Services

CORPORATE SERVICES

ManagementTeam (COO)

Assistant to thePresident forManagement

HistoricallyMinorityUniversitiesProgramInitiative

19

The North Carolina Biotechnology Center

PROGRAM STRUCTURE AND TASK AREAS

FinancialOperations

AdministrativeSupportServices

HumanResources &Compensation

• Finance andAccountingManagement

• Purchasing andMaterialManagement

• BudgetDevelopment &Monitoring

• Audits &Compliance

• Word Processing• Project and

LogisticalSupport

• DatabaseManagement

• TelephoneSystem

• NetworkAdministrationand Maintenance

• Training• Internet• Database

Services• Application

Management

Contracts& FacilityServices

• Grants andContractsAdministration

• FacilitiesMaintenance& Security

• Audits &Compliance

InformationSystems

• PersonnelManagement

• Compensation& BenefitsManagement

• Legal &RegulatoryCompliance

CORPORATE ADMINISTRATION

CorporateAdministration& CFO • Coordination &

Oversight• Fiduciary

Management• Subsidiary

Operations

20

John AtkinsPresident and Chief Executive OfficerO’Brien/Atkins Associates, PA

Robert M. BellVice President of ResearchGlaxo Wellcome, Inc.

Joseph BonaventuraResearch Director, Professorof Cell BiologyDuke University Medical Center& Marine Lab

Enriqueta C. BondPresidentThe Burroughs Wellcome Fund

Molly Corbett BroadPresidentUniversity of North Carolina

Rick CarlisleSecretary, North CarolinaDepartment of Commerce

Richard H. DeanSenior Vice Presidentfor Health AffairsWake Forest UniversitySchool of Medicine

Mark D. DibnerPresidentInstitute for BiotechnologyInformation, LLC

Robert EubanksPresident and Chief Executive OfficerFranklin Street Partners

Adele FinePrincipalAccess Development Group

Heinrich GuggerPresident and Chief Executive OfficerNovartis Crop Protection, Inc.

Charles E. HamnerPresident and Chief Executive OfficerNorth Carolina Biotechnology Center

Victoria Franchetti HaynesPresidentResearch Triangle Institute

Jeffery L. HouptDean, School of MedicineUniversity of North Carolinaat Chapel Hill

John Jackson HuntFormer Legislator

Robert B. Jordan, IIIPresidentJordan Lumber Company

Martin LancasterPresidentNorth Carolina CommunityCollege System

James G. MartinCorporate Vice PresidentCarolinas HealthCare System

William F. MarzluffProfessor and ExecutiveAssociate Dean of ResearchUniversity of North Carolinaat Chapel Hill

John MaselliRetired Senior Vice PresidentPlanters LifeSavers

William O. McCoyInterim ChancellorUniversity of North Carolinaat Chapel Hill

Leo MercerSpecial Assistant to the GovernorState of North Carolina

Charles MorelandVice Chancellor for Research,Outreach & ExtensionNorth Carolina State University

Paul V. Phibbs, Jr.Professor and ChairmanEast Carolina University

John ReillyDirector of Engineering TechnicalServicesGlaxo Wellcome Inc.

James O. RobersonPresidentResearch Triangle Foundation

Lewis M. SiegelVice Provost and Deanof the Graduate SchoolDuke University

Sam R. SloanSenior Vice PresidentBank of America

Carl J. Stewart, Jr.Attorney, Private Practice

Robert S. TimminsRetired President andChief Executive OfficerOrganon Teknika

E. Norris TolsonFormer Secretary of Commerce& Transportation

Philip R. TracyOf CounselSmith, Anderson, Blount, Dorsett,Mitchell & Jernigan, LLP

James R. TrotterRetired Attorney

Tim ValentineAttorney, Former US Representative

Richard T. “Stick” WilliamsVice PresidentDuke Energy

Johnny WynneAssociate Dean for ResearchNorth Carolina State University

Sandra YankwichManager, New Product PlanningGlaxo Wellcome Inc.

Staff to the BoardLori L. GreensteinAssistant Secretaryand Assistant TreasurerNorth Carolina Biotechnology Center

Robert SpearmanCounsel and Assistant SecretaryParker, Poe, Adams & Bernstein

Board of Directors

21

CONSOLIDATEDFINANCIALSTATEMENTS

We have audited the accompanying consolidated state-ments of financial position of the North Carolina Bio-technology Center and Subsidiary, a component unit ofthe State of North Carolina, as of June 30, 2000 and1999, and the related consolidated statements of activi-ties and changes in net assets and cash flows for theyears then ended. These consolidated financial state-ments are the responsibility of the Center’s management.Our responsibility is to express an opinion on these con-solidated financial statements based on our audits.

We conducted our audits in accordance with auditingstandards generally accepted in the United States ofAmerica. Those standards require that we plan and per-form the audit to obtain reasonable assurance aboutwhether the financial statements are free of material mis-statement. An audit includes examining, on a test basis,

evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing theaccounting principles used and significant estimatesmade by management as well as evaluating the overall fi-nancial statement presentation. We believe that our au-dits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements re-ferred to above present fairly, in all material respects, thefinancial position of the North Carolina BiotechnologyCenter and Subsidiary at June 30, 2000 and 1999, andthe changes in their net assets and their cash flows forthe years then ended in conformity with accounting prin-ciples generally accepted in the United States of America.

August 4, 2000

Independent Auditors’ ReportThe Board of DirectorsNorth Carolina Biotechnology Center and Subsidiary:

22

See accompanying notes

to consolidated financial

statements.

June 30, 2000 and 1999

Totals

Assets 2000 1999

Cash $ 1,464,085 874,878Investments (note 4) 28,791,022 25,730,345

Receivables:Accrued interest receivable 254,282 164,719Miscellaneous receivables and other assets 33,665 82,879Receivable from North Carolina Bioscience

Investment Fund, LLC 27,850 27,850Grants/contracts receivable 25,666 1,706Loans receivable (note 5) 75,000 3,040,000Notes receivable (notes 2 and 5) 1,975,901 2,026,803Allowance for uncollectible notes receivable

(notes 2 and 5) (790,361) (810,721)

Total receivables 1,602,003 4,533,236

Property, plant, and equipment, net (note 6) 5,441,216 5,687,821

Total assets $ 37,298,326 36,826,280

Liabilities and Net Assets

Accounts payable and accrued expenses $ 87,593 132,015Grants/contracts payable (note 7) 6,954,162 7,009,850Note payable (note 3) — 3,000,000Deferred revenues (notes 2 and 11) 1,839,177 1,498,832

Total liabilities 8,880,932 11,640,697

Net assets:Unrestricted net assets:

Designated for specific purposes 22,211,010 20,544,916Undesignated 6,107,368 4,577,161

Temporarily restricted 99,016 63,506

Total net assets 28,417,394 25,185,583

Total liabilities and net assets $ 37,298,326 36,826,280

Consolidated Statements of Financial Position

23

See accompanying notes

to consolidated financial

statements.

Years ended June 30, 2000 and 1999Totals

2000 1999

Unrestricted revenues, gains and other supportGrants and contracts:

State of North Carolina (note 11) $ 9,328,287 17,884,403Note repayments 355,235 179,551Interest (note 8) 1,580,906 1,462,952Conference and educational facility 481,430 429,948Other 481,504 138,429Realized and unrealized gain on investments 189,380 3,071Net assets released from restrictions 32,340 32,013

Total unrestricted revenues, gainsand other support 12,449,082 20,130,367

Expenses and losses:Science and technology development:

Academic research initiation grants 1,058,369 772,742Institutional development grants 1,116,676 1,270,141Multidisciplinary research grants 499,349 —Collaborative funding program 432,340 270,352

Education and training program grants 196,649 178,866Public HMU program initiative 701,496 1,175,690Economic development 258,472 647,067Scientific and biotechnology event grants 32,650 33,576Conference and educational facility 482,452 552,878Library 241,465 174,787Workforce training project 132,456 73,735Intellectual exchange activities 40,154 48,640Forestry biotechnology initiative 27,911 24,921Other programs 39,608 5,799Program management 2,280,288 2,170,726General and administrative 1,712,446 1,750,004

Total expenses and losses 9,252,781 9,149,924

Change in unrestricted net assets 3,196,301 10,980,443

Temporarily restricted revenues:Contributions 67,850 20,400Net assets released from restrictions (32,340) (32,013)

Change in temporarily restricted net assets 35,510 (11,613)

Change in total net assets 3,231,811 10,968,830

Net assets, beginning of year 25,185,583 14,216,753

Net assets, end of year $ 28,417,394 25,185,583

Consolidated Statements of Activitiesand Changes in Net Assets

24

See accompanying notes

to consolidated financial

statements.

Years ended June 30, 2000 and 1999

2000 1999

Cash flows from operating activities:Change in total net assets $ 3,231,811 10,968,830Adjustments to reconcile change in total net assets

to net cash provided by operating activities:Depreciation 348,026 353,633Loss on sale of property and equipment 574 1,042Realized and unrealized gain on investments (189,380) (3,071)Equity in loss from affiliate 223,816 196,875

Increase (decrease) in cash due to changes in:Grants/contracts receivable (23,960) 1,470Notes receivable 50,902 (526,548)Allowance for uncollectible notes receivable (20,360) 210,619Accrued interest receivable (89,563) 7,050Miscellaneous receivables and other assets 49,214 19,039Receivable from North Carolina Bioscience

Investment Fund, L.L.C. — (27,850)Accounts payable and accrued expenses (44,422) (15,942)Grants/contracts payable (55,688) (385,403)Deferred revenues 340,345 (7,389,405)

Net cash provided by operating activities 3,821,315 3,410,339

Cash flows from investing activities:Proceeds from sale of property and equipment 630 —Purchase of property and equipment (102,625) (74,769)Proceeds from sale of investments 55,082,504 89,410,317Purchase of investments (58,177,617) (92,581,334)Payment of note payable (3,000,000) —Issuance of loan receivable 2,965,000 (40,000)

Net cash used by investing activities (3,232,108) (3,285,786)

Net increase in cash 589,207 124,553

Cash, beginning of year 874,878 750,325

Cash, end of year $ 1,464,085 874,878

Supplemental disclosure of cash flow information:Cash paid during the year for interest $ 167,217 240,289

Consolidated Statements of Cash Flows

25

(1) Organization and Summary of SignificantAccounting Policies

(a) Organization and PurposeThe North Carolina Biotechnology Center (the “Center”) wasincorporated on August 30, 1984 for the purpose of further-ing economic development in North Carolina through edu-cation, research and commercial development in biotechnol-ogy. The Center aids the biotechnology-related efforts ofresearchers, businesses, state and federal governments, andother agencies primarily through awards of research grantsrestricted to specific programs.

The Plant Fund is used to account for all property, plant andequipment transactions.

The Economic Development Investment Fund is used to ac-count for financial assistance awards made to young andgrowing biotechnology / bioscience companies (see note 2).The Economic Development Investment Fund also makesloans to established companies (see note 5).

The North Carolina Bioscience Ventures LLC (“Ventures”)is a wholly-owned subsidiary of the Center which is used toaccount for a special $10 million appropriation to the Centerfrom the State of North Carolina. The purpose of the appro-priation and establishment of Ventures is to promote devel-opment of the bioscience industry in North Carolina. Theappropriation remains in Ventures until funds are drawn downby the North Carolina Bioscience Investment Fund LLC(“BIF”). The BIF is responsible for investing funds of theCenter along with funds from other investors into portfoliocompanies.

(b) Basis of Accounting and PresentationThe financial statements have been prepared using the ac-crual basis of accounting.

Net assets and revenues, expenses, gains and losses are clas-sified based on the existence or absence of donor-imposedrestrictions. Accordingly, net assets of the Center and changestherein are classified and reported as follows:

Unrestricted net assets — Net assets that are not subject todonor-imposed stipulations.

Temporarily restricted net assets — Net assets subject to do-nor-imposed stipulations that may or will be met either byactions of the Center and/or the passage of time.

Revenues are reported as increases in unrestricted net assetsunless use of the related asset is limited by donor-imposedrestrictions. Expenses are reported as decreases in unrestrictednet assets. Gains and losses are reported as increases or de-creases in unrestricted net assets unless their use is restrictedby explicit donor stipulation or by law. Expirations of tem-porary restrictions on net assets (i.e., the donor-stipulatedpurpose has been fulfilled and/or the stipulated time period

has elapsed) are reported as reclassifications between the ap-plicable classes of net assets.

(c) Principles of ConsolidationThe consolidated financial statements include the financialstatements of North Carolina Biotechnology Center and itswholly-owned subsidiary. All significant intercompany bal-ances and transactions have been eliminated in consolida-tion.

(d) Significant Accounting PoliciesThe following significant accounting policies have been usedin the preparation of the financial statements:

Cash and InvestmentsThe Center invests funds not immediately needed for day-to-day operations in short-term investments consistent withguidelines established by the Board of Directors. These guide-lines require that the Center invest only in certain financialinstruments considered to be both conservative and adequatelydiversified. The Center records its investments in equity se-curities with readily determinable fair values and all invest-ments in debt securities at fair value with gains and lossesincluded in the statement of activities and changes in net assets.

A cash management advisory committee periodically reviewsthe Center’s investment portfolio.

Grants/Contracts Receivable, Loans Receivable and NotesReceivableAn allowance for uncollectible receivables has been providedfor notes receivable. All of the Center’s other grants, con-tracts and loans receivable are considered to be fully collect-ible.

Property, Plant, and EquipmentProperty, plant, and equipment are recorded at cost. Depre-ciation is provided using the straight-line method over theestimated useful lives of five years for furniture, fixtures andequipment and thirty years for the Center’s permanent head-quarters.

Recognition of Grant Awards and Grants PayableGrant awards and the corresponding grants payable are rec-ognized at the time the grant award letter is sent to the recipi-ent.

ContributionsContributions, including unconditional promises to give, arerecognized as revenues in the period received. Conditionalpromises to give are not recognized until they become un-conditional, that is, when the conditions on which they de-pend are substantially met. Contributions of assets other thancash are recorded at their estimated fair value.

Notes to Consolidated Financial StatementsJune 30, 2000 and 1999

26

Temporarily Restricted Net Assets Releasedfrom RestrictionsBy holding consortium events, purchasing teachers’ trainingsupplies, and holding biochemistry and enzymology club andvarious other meetings, the Center released $32,340 of tem-porarily restricted net assets from donor restrictions in 2000.By holding a biotechnology reception, purchasing lab dem-onstration supplies, and holding a triangle virology program,the Center released $32,013 of temporarily restricted net as-sets from donor restrictions in 1999.

Recognition of FundingFunds are granted periodically from private and public agen-cies for specific purposes or to aid the Center’s general opera-tion and sustain its continued existence. Funds granted forspecific purposes are deemed to be earned and reported asrevenue when the Center has incurred expenditures in com-pliance with the grant agreement. Such amounts received, butnot yet earned, are reported as deferred revenues.

The Center received 75% and 89% of its unrestricted rev-enues from the State of North Carolina in 2000 and 1999,respectively.

Functional Allocation of ExpensesThe costs of providing the various programs and activities ofthe Center have been summarized on a functional basis in thestatement of activities and changes in net assets. Certain gen-eral and administrative expenses totaling $657,253 and$595,792 for years ended June 30, 2000 and 1999, respec-tively, have been allocated among the programs and activi-ties benefited.

Income TaxesThe Center is exempt from payment of income taxes underthe provisions of Section 501(c)(3) of the Internal RevenueCode, except for any unrelated business income. Since therewas no unrelated business net income during 2000 and 1999,no provision for income taxes has been made. Ventures, awholly-owned subsidiary of the Center, is exempt from in-come taxes except for any unrelated business income. TheCenter has applied for a determination letter for Section501(c)(3) tax status for Ventures.

Use of EstimatesThe preparation of the financial statements in conformity withgenerally accepted accounting principles requires managementto make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statementsand the reported amounts of revenues and expenses duringthe reporting period. Actual results could differ from thoseestimates.

ReclassificationsCertain prior year amounts have been reclassified to conformto 2000 presentation. These reclassifications had no effecton the previously reported total net assets.

(2) Economic Development Investment FundThrough its Economic Development Finance Program, theCenter supports research and development projects of youngand growing biotechnology / bioscience companies that maynot yet qualify for conventional forms of financial assistance.Since 1988, most awards to companies have been in the formof notes, and all amounts, including interest, are to be repaidin full within one to seven years of the date of the note.

The Center accounts for these awards as expenses in the yearthe award is issued and as revenue in the year the award isrepaid because the likelihood of collecting the awards is un-known. Interest income is not recognized for financial re-porting purposes until it is collected. Notes receivable arereported net of an allowance for uncollectibles with a corre-sponding deferred revenue for the estimated collectible bal-ance, since the companies’ ability to repay the amounts iscontingent on their ability to survive as profitable entities.The net receivable and related deferred revenues at June 30,2000 and 1999 were $1,185,540 and $1,216,082, respec-tively.

(3) Note PayableIn 1995, to facilitate a $3,000,000 BioProcessing Facility Fi-nance Loan (note 5) to Covance Biotechnology Services, Inc.,the Center obtained a $3,000,000 note with a lending insti-tution. Interest, at an annual rate of 7.9%, was payable quar-terly. The principal was repaid on December 30, 1999.

(4) InvestmentsThe aggregate values of investments at June 30, 2000 and1999 were as follows:

2000

Gross GrossUnrealized Unrealized Market

Cost Gains Losses Value

Stocks $ 88,118 — (49,929) 38,189

Certificatesof deposit 2,825,000 — — 2,825,000

Commercialpaper 21,583,474 — — 21,583,474

BioscienceInvestmentFund 3,679,309 — — 3,679,309

Investmentsin jointventures 665,050 — — 665,050

$ 28,840,951 — (49,929) 28,791,022

27

Additionally, in connection with Economic Development Fi-nance awards, the Center receives the right to purchase com-pany stock in various biotechnology / bioscience companies.As of June 30, 2000, the Center received warrants to pur-chase 176,580 common shares and 42,500 preferred shareswith exercise prices ranging from $0.30 to $600 per share.These warrants expire at various dates through 2007. Valuehas not been attributed to these warrants; accordingly, theyare not reflected in the financial statements.

The Bioscience Investment Fund represents approximationsdrawn down from the wholly-owned Ventures. This invest-ment is accounted for on the equity method. All balancesincluded as commercial paper in Ventures are available forinvestment in the BIF.

(5) Loans and Notes ReceivableLoans and notes receivable related to the Economic Develop-ment Investment Fund at June 30, 2000 and 1999 consistedof the following:

Loans receivable:Loan receivable dated April 20,1995 from Covance Biotechnol-ogy Services, Inc. Interest is pay-able quarterly at an annual rateof 2.50% with the principal bal-ance paid in December 1999. Theloan was fully guaranteed byCovance, Inc.

Loan receivable dated October15, 1998 from Eno River Capi-tal, L.L.C. Interest is payablealong with the principal in onelump sum on October 15, 2005.Interest rate is 6.25% per year onthe unpaid principal balance.

Loans receivable

Notes receivable:Notes receivable from variousstate biotechnology companiesunder Economic DevelopmentFinance awards. Interest rates onthese notes vary from 6.25% to15.00%. Generally, principal andinterest are payable one to fiveyears from the execution of thenote. Due dates range from 2000to 2008.

Notes receivable from variousstate biotechnology companiesunder Small Business InnovationResearch awards. Interest rateson these notes vary from 8.25%to 8.50%. Generally, principaland interest are payable one toseven years from the execution ofthe note. Due dates range from2000 to 2001.

Notes receivable from variousstate universities under PatentFunding Assistance awards.These notes bear a flat interest feeof $2,000. Principal and interestare payable upon transfer, assign-ment, or license of patent forcompensation.

Notes receivable from variousstate biotechnology companiesunder the Collaborative FundingAssistance Program. Interest rateson these notes vary from 8.25%to 8.75%. Generally, principaland interest are payable one tofive years from the execution ofthe note. Due dates range from2000 to 2001.

Notes receivable from variousstate biotechnology companiesunder Proof of Principle Awards.Generally, principal and interestare payable within five years, ifthe technology or intellectualproperty is sold, transferred, as-signed or licensed. However,there is no interest if paid in thefirst year.

Notes receivable from variousstate biotechnology companiesunder Business DevelopmentAwards. Interest rates on thesenotes vary from 10.00% to11.00%. Generally, principal andinterest are payable one to three

1999

Gross GrossUnrealized Unrealized Market

Cost Gains Losses Value

Stocks $ 88,117 — (63,365) 24,752

Certificatesof deposit 1,350,000 — — 1,350,000

Commercialpaper 22,275,918 — — 22,275,918

BioscienceInvestmentFund 1,803,125 — — 1,803,125

Investmentsin jointventures 276,550 — — 276,550

$ 25,793,710 — (63,365) 25,730,345

$ — 3,000,000

2000 1999

75,000 40,000

$ 75,000 3,040,000

2000 1999

$1,314,481 1,539,687

129,971 149,998

23,583 29,583

60,000 69,000

42,050 42,050

28

years from the execution of thenote. Due dates range from 2000to 2003.

Notes receivable from variousstate biotechnology companiesunder Small Business ResearchAwards. Generally, principal andinterest are payable one to sevenyears from execution of the note.Due dates range from 2005 to2007.

Less allowance for uncollectiblenotes receivable

Notes receivable, net

(6) Property, Plant, and EquipmentA summary of property, plant,and equipment at June 30, 2000and 1999 follows:

Building

Furniture, fixtures,and equipment

Construction in progress

Less accumulated depreciation

vice. The Center’s contribution is 11.00% of pre-tax com-pensation for eligible employees. Employees are fully vestedin the plan assets upon participation. Approximately$169,000 and $177,000 was contributed to the plan duringthe years ended June 30, 2000 and 1999, respectively. Theplan is self-directed, with the majority of participants elect-ing mutual funds. Additionally, after six months of employ-ment, all regular employees are eligible to participate in a403(b)(7), tax-deferred supplemental retirement plan. Partici-pants may contribute subject to prevailing Internal RevenueService regulations.

(10) Operating LeasesThe Center has acquired the right to use the land on whichits building is constructed through an operating lease agree-ment with another nonprofit organization, the Triangle Uni-versities Center for Advanced Studies, Inc. (TUCASI). Titleto the land remains with TUCASI.

Payments to TUCASI under the agreement are at the nomi-nal rate of $1 per year, and the Center pays all costs of insur-ance, taxes, and maintenance as defined in the lease agree-ment.

(11) Component Unit DisclosureThe Center is considered a component unit of the State ofNorth Carolina because a controlling majority of the Center’sBoard of Director’s members consists of state or local gov-ernment representatives. During 2000, the Center received$9,638,913 in state funds, of which $310,626 was deferredbecause funds have not yet been expended for their intendedpurpose. During 1999, the Center received $10,138,913 instate funds. All was expended for their intended purpose.

2000 1999Plant Fund Plant Fund

$7,270,412 7,270,412

1,570,168 1,614,127

44,215 —

8,884,795 8,884,539

3,443,579 3,196,718

$ 5,441,216 5,687,821

349,333 169,333

1,975,901 2,026,803

790,361 810,721

$1,185,540 1,216,082

2000 1999

56,483 27,152

(7) Grants and Contracts PayableThe Center has committed grants and contracts to variousresearch programs, primarily through major universities andbiotechnology companies located in North Carolina. Thesegrants and contracts payable at June 30, 2000 are expectedto be paid as follows:

Programs EconomicYear and Developmentending Operating InvestmentJune 30, Fund Fund Total

2001 $ 5,259,871 298,825 5,558,696

2002 1,362,475 32,991 1,395,466

$ 6,622,346 331,816 6,954,162

(8) Interest IncomeInterest income of $1,443,997 and $1,290,592 was earnedduring the years ended June 30, 2000 and 1999, respectively,primarily by investing in certificates of deposit, commercialpaper and U.S. Government securities. Interest income col-lected on notes and loans receivable in 2000 and 1999 to-taled $136,909 and $172,360. No interest income has beenrecorded as deferred revenue.

(9) Pension PlanThe Center has a defined contribution pension plan coveringall qualified employees who have completed one year of ser-

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One thousand copies of this publicationwere printed in North Carolina at a cost of$3,209 or $3.21 per copy.

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