Are you sleeping in a hotbed of life sciences innovation? Answer “yes” if your pillows reside in greater Boston, San Diego, San Francisco or Research Triangle Park, N.C. Answer “soon” if your zip code is anywhere else.
Life sciences – often used as shorthand for biotech – has become a healthy obsession among regional politicians and economic development czars. Its attractions include educated workforces, high employee salaries and the humanitarian cache that comes from helping to cure cancer or other debilitating diseases. Plus, economically speaking, there’s the added benefit of higher tax revenue for municipalities. At the Bio2004 trade show in San Francisco in June, for example, 39 different states sent representatives, including governors from Florida, Iowa, Kentucky, Massachusetts, Minnesota and Missouri.
Each of these attendees was trying to get his or her home state a bigger piece of the domestic biotech pie, which has grown much faster than the overall U.S. economy. In the micro sense, this means convincing existing companies to either relocate or expand into new geographic areas, while also recruiting promising scientists for local universities. In the macro sense, however, every donated business card was just one more step toward fostering a biotech hotbed, or perhaps toward creating a new one.
Biotech hotbeds – also known as biotech clusters or hubs – are self-perpetuating centers of innovation and, hopefully, profit. Like actual beds, they rely on four pillars:
At least one large, nonprofit research institution that is strong in the field of biomedicine (i.e., the study of cells and their molecules).
Proximity to venture capital firms that invest in biotech companies.
Local government officials with an interest in enhancing the business environment for biotech companies.
A few publicly-traded biotech companies, including at least one household name.
Each pillar is designed not only to reinforce the others, but also to build a stable base upon which to attract startup companies and a talented workforce. Like with most industries, the creature comforts include a litany of trade groups, networking receptions and service organizations, such as biotech-knowledgeable law firms and construction companies.
“Most of the major clusters today started with a well-established academic research organization like Harvard or Stanford, and also included a significant amount of community collaboration,” says Joe Panetta, president and chief executive of BIOCOM, a trade organization that works with the life sciences community in and around San Diego. “There are lots of elements needed to be successful, so it can’t just happen overnight.”
Indeed, today’s most evolved biotech hotbeds are at least three decades in the making. The oldest, by many accounts, is Greater Boston, which currently is estimated to include more than 300 biotech companies and over 30,000 industry workers. Generally defined as everything east of Route 128, Greater Boston features all four of the previously mentioned pillars:
Major research institutions, such as Harvard University, Boston University and the Dana-Farber Cancer Institute.
VCs that invest in biotech companies, including MPM Capital, Polaris Venture Partners and Prism Venture Partners.
Government-sponsored business environment enhancement, like a 50% income tax withholding rebate for life sciences companies that create manufacturing jobs in Massachusetts.
Publicly traded companies including Genzyme Corp. (Nasdaq: GZTR) and the worldwide R&D headquarters for Switzerland-based Novartis AG (NYSE: NOV).
Paul Sekhri, president and chief business officer of Cambridge, Mass.-based ARIAD Pharmaceuticals Inc. (Nasdaq: ARIA), served as a senior executive with Novartis AG when it was looking to relocate its research division. He says that a primary decision to open shop in Cambridge, Mass. was access to intellectual capital:
“Boston has a high concentration of research universities, and that creates the type of brain trust desired by companies in this industry,” Sekhri says. “It really is kind of a self-fulfilling cycle, because Novartis then helps bring other intelligent people into the area, and they perhaps go on to work at the universities.”
Increasing Rank Easier Said Than Done
According to a recent study by The Milken Institute, Boston currently ranks second among biotech hotbeds (see figure below). It was bested only by San Diego, with the Tarheel troika of Raleigh, Durham and Chapel Hill placing third. Coming in fourth was San Jose, Calif., which was broken out as a distinct region from Silicon Valley. The study is one of many recent biotech hotbed reports others put either Boston or the Bay Area on top and was based on 44 different metrics, including amount of VC funding and number of scientists working in the respective regions. The broader factors included what were referred to as the biotech innovation pipeline (i.e., local infrastructure) and a current impact assessment (i.e., company and job creation).
Not surprisingly, the four Milken Institute hotbeds received about 47% of all venture capital disbursed to U.S. life sciences companies in 2003, according to Thomson Venture Economics (publisher of VCJ).
Such VC largesse has not been lost on politicians from areas not found on the Milken Institute list. Pennsylvania, Michigan, Ohio and Illinois all are in various stages of launching biotech clusters, and Florida legislators recently made waves when they agreed to pay La Jolla, Calif.-based The Scripps Research Institute $310 million to open a new research campus in Palm Beach County, Fla.
“Right now I have a regular parade of economic development people from all over the country coming into my office, and asking how to duplicate the San Diego model,” says BIOCOM’s Panetta. “But there are a lot of elements to it, and I just don’t know how to react when I hear people in Palm Beach talking as though they’ll be just like San Diego or Boston within the next three years.”
Scott Morrison, U.S. director of life sciences with Ernst & Young, adds, “If you don’t already have a biotech cluster, you won’t be able to build one.”
Such skepticism is understandable, given the difficulty of erecting all four pillars and competing with existing hotbeds. The upside, however, is that it is impossible for any region to be out of a game that really is just beginning.
“I think that many regions have come to realize that we are still in our infancy in terms of the application of biotech,” says Leslie Alexandre, president and chief executive of the North Carolina Biotechnology Center. “Our industry has already solved many problems and helped the human condition, but we’re really just at the tip of the iceberg for innovations.”
One example of relatively untapped potential is research on embryonic stem cells, which scientists believe could be the key to curing such serious conditions as Alzheimer’s and certain spinal cord injuries. Federal funding for ES cell research is limited due to its politically sensitive nature, but states are certainly free to spend their own money.
The first major test of this local leeway will come Nov. 2, when California voters will be asked to pass Proposition 71, which would issue up to $3 billion in state bonds in order to fund all types of stem cell research (including ES cell research). Pro-71 forces include many VCs.
If successful, Prop 71 would not only hasten scientific development, but also would provide an incalculable boost to biotech hotbeds in California. Moreover, states like Massachusetts could be forced to adopt a similar bond bill to help their own biotech hotbeds stay warm.
“The only limitations on biotech are the ones created by things like a lack of venture capital or adequate worker training,” Alexandre says. “The science itself is unlimited.”