When Gov. Chris Gregoire created the $350 million Life Sciences Discovery Fund four years ago, the idea was use to tobacco settlement money to help transform the state into a biotech hub. But now Xconomy reports that the fund could be "gutted" under budget bills now moving through the state legislature, with LSDF executive director Lee Huntsman telling the online publication that the fund could be left with as little as $5 million to spend over the next two years.

Government operated funds have a mixed record of success, with the LSDF receiving its fair share of criticism over the years. In 2007, award-winning scientist Leroy Hood lashed out saying the Life Sciences Discovery Fund had "made every single wrong decision a fund can make."

The state is now trying to patch a $9 billion shortfall that is predicted in the state budget over the next two years, with a proposal this week to increase tuition at state universities 14 percent. 

According to Xconomy, the Senate Ways and Means committee is considering allocating $38 million to the LSDF over the next two years, which would be a 41 percent cut. Meanwhile, the House is looking at reducing allocations to just $5 million, which prompted Huntsman to say that they couldn't realistically make grants at that level.

Last December, the fund announced $18 million in funding for health research projects at the Fred Hutchinson Cancer Research Center; Seattle & King County Department of Public Health; Washington State University and the University of Washington.

The grants covered research projects ranging from "accelerating vaccine development to targeting better drug delivery methods inside human cells, to studying point‐of‐care resuscitation technology, and to reaching out to rural, underserved populations to improve mental health and substance abuse services."

"We are proud to award the LSDF program grants to such valuable scientific and public health research endeavors,” Huntsman said at the time.

You can look at the Senate operating budget proposal for 2009-2011 here.

UPDATE: Seattle attorney Stephen Graham, who works extensively with biotechnology companies in the state, said it would be unfortunate to pull the plug on the fund before it really had a chance to succeed.

"This is just the sort of thing that this state does not need if it is going to be a serious about competing with other states to attract players in the industry," said Graham, who co-chairs Fenwick & West's Life Sciences practice. "What it really does, is it undercuts the promise."

But he also echoed some of Hood's criticisms, saying that the fund has focused on small research grants rather than new companies.

"Our biggest need is to figure out how to fund these emerging companies, especially now as the opportunities for funding for seed-stage companies are less and less," he said. "If we had a real viable fund in there to come in and fill that gap so these companies --that otherwise aren't getting funding -- then you really have a chance to attract companies to the area and start building new companies."

While the LSDF has not fulfilled its promise, Graham thinks there is a way to reposition it in a way so that the state does support the industry.

"You got to look at the problems that you are trying to solve, and even figure out a way to solve them or decide that they can not be solved," he said. "I am not prepared to say that the state can't come up with a way to fund these companies."

If the state doesn't figure it out, Graham said states such as California and Massachusetts would love to open their doors to the opportunities.

"Just to say that: 'Hey, I support this and this is great and thank you people in the life sciences industry for all you do.' That's not going to get us there," he said.