Chris Cashman, president and CEO of Protez Pharmaceuticals, a Malvern, Pennsylvania, maker of new antibiotics to fight drug-resistance, recalls the 2001 to 2002 "washout period," when the market for biotech and many small-capital companies fell apart. "Raising money was very difficult. Lots of companies failed," he says.

For Cashman and other biotech entrepreneurs, the recovery began with Pennsylvania's move in 2001 to use its tobacco settlement funds to create capital for life science companies. Thus BioAdvance, the "greenhouse" for southeastern Pa., was launched in 2002 with $33.8 million. One of its key programs, the $20 million Greenhouse Fund, provides seed and preseed investments of $250,000 to $1 million per company to life science startups, says Ellen Semple, BioAdvance's director of marketing and communications. Since its first investments in 2003, BioAdvance has pumped more than $11.5 million into 21 biotechs and nine academic projects, which have then raised $200 million...

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