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Chasing biotech, state by state—winners and losersKen Howard Wilan

States have identified biotech as an engine to economic prosperity. The obstacles for achieving success, however, especially for upstarts, may be considerable.

Although capital markets for financing biotech companies typically go up and down like a roller coaster, the number of initiatives launched by individual states to attract biotechnology to its borders has steadily climbed over the past few years. “States are always looking for money, now more than ever, [and they] are all very inter-ested in biotech, in trying to grow an industry cluster that will benefit them down the road,” says Patrick Kelly, vice president of state government relations at the US Biotechnology Industry Organization (BIO; Wash-ington, DC, USA).

Yet, is there enough biotech to go around, and are the returns on invest-ment for states as compelling as the sci-ence? Judging by the flood of programs designed to bring biotech to particular regions, most states have answered yes (see Table 1 on pullout). Some indus-try observers, however, say no.

Alluring numbersTo be sure, few people question the positive economic impact of biotech on the areas already established as titans. The San Francisco Bay area, Boston, San Diego and North Carolina’s Research Triangle Park are the golden examples of success touted as the mod-els toward which to aspire (Fig. 1). What these regions have in common are a large biomedi-cal research infrastructure, a ready source of capital and a critical mass of companies at various stages of development. Furthermore, the economics for the states with the ten

largest centers (see map on pullout) can be compelling. According to a study by the US Department of Commerce (Washington, DC, USA), over 70% of the total commercial bio-tech is located in just ten states1. And there’s a lot at stake here. In 2001, biotech companies nationally reported net sales of $567 billion, operating income of $100.5 billion, capital expenditures of $29.5 billion and the employ-ment of approximately 1.1 million people, according to the Commerce report.

These numbers had risen substan-tially during the late 1990s and early 2000: an Ernst & Young study found that public biotech company revenue more than doubled between 1998 and 2003 (refs. 2,3). In the second quarter of 2004, the biotech sector attracted $923 million in venture capital, reg-istering above all other industries charted except software, according to a MoneyTree survey4.

Additionally, the number of pat-ents, which represent the intellec-tual property that fuels tomorrow’s blockbuster drugs, seems ready to explode: in the last quarter of 2002, companies had 33,131 patents pend-ing, versus 23,992 patents already held by companies, according to the Commerce Department. Commerce interpreted these numbers in terms that seemed ready-made for a glossy brochure selling biotech: “Patent data underscore the dynamic and rapidly evolving nature of biotechnology,” reports Commerce. States outside the top ten read the writing on the wall and seemed to respond.

Indiana jumped in with almost $73 million in venture capital funds. Missouri started its MoBio indus-try organization. Iowa touts itself as Biowa. Florida has put its hat in the

ring in perhaps the most spectacular bid, pledging $570 million to bring a Scripps Research Institute (La Jolla, CA, USA) campus to Palm Beach (Box 1). These programs and others use various methods—including set-ting up tax incentives, providing early capital funds, establishing biomanufacturing train-ing programs and entrepreneurial support programs, and giving institutions grants—to plant biotech seeds within state borders. Michigan, in developing a life sciences cor-

Figure 1 The rich get richer. San Francisco’s latest biotech development, the 43-acre University of California, San Francisco Mission Bay campus with Genentech Hall at its center.

Ken Howard Wilan is a contributing writer for Nature Biotechnology based in Boston, Massachusetts, USA.e-mail: kenhoward@mindspring.com

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ridor, is going for Big Biotech. St. Louis, while pursuing dollars attached to human therapeu-tics, also seeks to leverage Monsanto’s pres-ence with initiatives aimed at agbiotech.

“It’s striking how many states and cities and towns and hamlets are declaring [themselves] the next center of life science,” says Donn Rubin, executive director of the Coalition for Plant and Life Sciences (St. Louis, MO, USA). But “they all won’t make it” (Box 2).

Why biotech?“What will be the next wave of economic growth?” asks Rob Atkinson, vice president of the Progressive Policy Institute (Washington, DC, USA), an affiliate of the Democratic Leadership Council. “States are looking for something to replace what they’re losing—manufacturing jobs, including high tech. With biotech, states have an easy lever; they can crank up programs at universities” (Box 3).

Marsha Schachtel, senior fellow at the Johns Hopkins Institute for Policy Studies (JHU; Baltimore, MD, USA), agrees. “People see the

century and maybe this millennium mov-ing towards bio applications,” says Schachtel, who was formerly the director of technology development at Maryland’s Department of Business and Economic Development.

Almost every state has a medical school, she points out. Moreover, with the NIH budget having doubled over the past 5 years, local politicians and businessmen have perceived an opportunity and seized it. “Tons of dollars

Figure 2 Genetown. Massachusetts sports a health biotech industry.

Trying to convert oranges into biotechnology gold, politicians and land developers in Florida have wooed La Jolla, California-based Scripps Research Institute into setting up a 364,000-square-foot research campus on a former orange grove in Palm Beach County. The deal received $310 million in state backing as well as a package from Palm Beach County that includes the land and $137 million towards construction costs. Scripps projects it will have 545 staffers in place by 2011. Scripps and a coalition of Florida-based business development organizations, including the office of Governor Jeb Bush, various county business development boards, BioFlorida (West Palm Beach, FL, USA) and Enterprise Florida (Orlando, FL, USA), predict that the Scripps presence will seed the emergence of a biotech boom in the state.

Venture capitalists are already being sought via briefings with Governor Bush as well as outreach via state business development organizations and regional technology transfer offices, says Erin Heston, senior communications manager with Enterprise Florida. And Scripps has begun recruiting researchers for its Florida campus, but will basic research in the Sunshine State lead to successful homegrown commercialization?

“Any time you have half a billion dollars to spend, you can have a significant economic impact,” says Joseph Cortright, a principal with the economics consulting firm Impresa (Portland, OR, USA). “But for commercializing biotech via Scripps, it is highly unlikely.”

Cortright says that to translate research into potential products, a critical mass of venture capitalists, entrepreneurs, managerial talent and established companies must be present, and that the clusters that already exist in cities like Boston and San Diego tend to continue to attract more talent because of their critical

mass while making it difficult for startup regions like South Florida.

“If you’re a brilliant young biochemist embarking on a career, where do you go, to a place with lots of companies and mentors or a backwater” with few options, posits Cortright. “Entrepreneurial researchers gravitate to centers. Scripps is not closing its dominant operation. If you were working for Scripps, would you want to be at an outpost or where everything’s going on?”

Venture capitalists also want to be close to their established network of bankers, attorneys and managerial talent. And they want to be close to the companies they invest in to serve on the board, recruit talent and broker deals, says Cortright. If they like a startup that is far from them, it is more likely the venture capitalist will move the company to where he is based rather than finance it from afar, he says.

But, counters Patricia Ardigo, director of the life science group at commercial real estate developer CB Richard Ellis (Stamford, CT, USA), which is working on the Scripps development, the very success of established biotech centers can also be a handicap: “Some locations are already becoming land-locked and the cost [for biotech start-ups] to develop is very expensive. Not every company can afford to pay these high rents.”

Florida already has academic and medical centers, and the Scripps development will add a biotech anchor to grow the sector, says Ardigo. “Scripps has very particular science they do, and it will draw particular companies to the area.”

What about other regions trying to grow a local biotech cluster? “A lot of states are looking to do research development,” acknowledges Ardigo. “Who comes out of the gate first wins.”

Box 1 Sunshine state plants seeds for big biotech

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are going into health-related R&D at univer-sities, so people saw the R&D engine being primed by Washington. People in states asked ‘How do we turn this into a real generator for our economy?’ So this is being played out now,” explains Schachtel.

Tobacco settlement money from the 1998 agreement involving 46 states, with a mandate toward health care, has also fueled biotech investment. However, much of this money, though sparking plans for investment, has recently been diverted to cover state budget shortfalls, according to Schachtel.

Another issue, say some industry observers, is a ‘me too’ mentality. The current array of state programs shows “the psychology of the economic development fraternity” more than the economics of opportunity, says Joseph Cortright, a principal with the economics consulting firm Impresa (Portland, OR, USA) and an author of a widely read biotechnology report5. “The economic development frater-nity has turned to biotech as the next big thing after tech and telecom are no longer in favor. It’s a herd instinct.”

Another possible issue is political pride. “People impressed by the impact technology has had on the economy are looking for the next big thing, and by common agreement it’s biotech,” says Cortright. “As a governor, you don’t want to be seen as not getting it.”

States’ interestsFrom an economist’s viewpoint, government stoking the flames of biotech makes sense,

says JHU’s Schachtel. “For computer software, government doesn’t get a lot of calls for help because software writers are working so fast, government can’t keep up, and investment is relatively small so the market works for them,” she explains. However, biotech requires a much greater upfront investment, and “it doesn’t work for most venture models looking to get money out in 5 to 7 years. But with the

telecom crunch and dot com crash, people are taking another look at bio.”

To make biotech work on a significant scale for a state—to provide jobs and tax revenue—many in industry cite three over-all needs that must be met: robust university research in place, investment dollars from venture capitalists and angels readily available to spin off university-developed technology, and an existing base of companies to provide and attract a workforce. There is also a fourth requirement: time.

“Only brothels or casinos [achieve] over-night success”, says Walt Plosila, vice president

of the technology partnership practice at Battelle Memorial Institute (Cleveland, OH, USA). A state should expect 8–14 years to pass before seeing a return on an investment made in biotech, say people in the industry.

And even if all these elements are in place, it may already be too late for most states that are not yet a part of the top-tier club of biotech clusters, say some experts.

“Early flourishing of a company made these [top] centers,” says Cortright. “Biogen in Boston, Genentech in San Francisco, Hybritech in San Diego. It mattered that these places hit home runs early on. They brought venture capitalists (VCs) and the spread of companies. Twenty-five years ago one or two states may have had a chance. But not now. There’s been a tectonic shift since Biogen, Genentech and Hybritech. They were able to go public fairly quickly. Where is the next Amgen or Biogen most likely to emerge? Where they started.”

Niche playsYet big isn’t the only game in town. “We have 80,000 local governments and 50 states; one model does not fit all,” says Plosila. “States are not focusing on the same areas,” he adds. There’s lots of “subdisciplines now; no way could established centers take advantage of all niches. There’s plenty of markets to go around.”

So some states are leveraging homegrown expertise. Washington State, for example, is funneling research from the Fred Hutchinson

Box 2 A tale of two potential biotech cities

In the backyard of biotech superstar Boston sit two down-at-the heels Massachusetts cities, once industrial powerhouses but long in an economic decline. Both Worcester and Springfield are now looking at biotech as one way to revive local economies, says Chris Gabrieli, chairman of Massachusetts 2020, a nonprofit institute focused on expanding economic opportunities in the state (Boston, MA, USA), and a former VC with Bessemer Venture Partners (Wellesley Hills, MA, USA).

Worcester is 40 miles from downtown Boston, and is the same driving distance for VCs clustered on the 128 high-tech corridor as is research-rich Cambridge. Springfield, only 51 additional miles down the road from Worcester, sits in a different economy, more aligned with Hartford, CT (25 miles away) than brahmin Boston. Though geographically in Massachusetts, Springfield may as well be in the Midwest, says Gabrieli.

“For Springfield and Kansas, creating VC infrastructure, the obstacles are enormous,” he says. Worcester, however, can compete on spillover from Boston, he adds.

“Regions are more important than states for economic development,” explains Donn Rubin, executive director of the

Coalition for Plant and Life Sciences (St. Louis, MO, USA). “Regions compete as sort of city states, and states are archaic collections of boundaries.” States set policy, but economic strategies are based on regional resources, he says.

Worcester also has a decisive advantage with the University of Massachusetts medical school, based in the city. The research can serve as a starting point to attract VCs to build companies. Springfield does not have an equivalent engine for research and discovery.

“Biotech companies like to be really close to their researchers,” says Gabrieli. “Worcester has a real chance; it is growing in its research [at the medical school]; it has a shot at competing,” he says.

Worcester Springfield

Population (2000) 172,648 152,082

Labor force (2001) 79,015 65,361

Unemployment rate (2001) 5.3% 5.0%

Source: Commonwealth of Massachusetts, Department of Revenue.

Only brothels or casinos [achieve] overnight success. A state should expect 8–14 years to pass before seeing a return on an investment made in biotech.

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Cancer Research Center (Seattle, WA, USA) into cancer-focused biotech. Idaho has potatoes, and thus agbiotech potential, says Progressive Policy Institute’s Atkinson. Rhode Island has an established expertise in cellular engineering and tissue regeneration; thus this is one of its intended biotech niches. “Regions not in the top ten shouldn’t just give up and not try,” says Atkinson. “But they need to be realistic about what they have to build on. If

you don’t have anything to build on, [you] probably shouldn’t try.”

States with an existing research base are still not guaranteed to rise in biotech, how-ever. Failure to provide support for com-mercialization of that research—in the guise of entrepreneurial assistance programs and organizations dedicated to technology trans-fer—was repeatedly cited by experts as a major pitfall for regions looking to boost local

Box 4 Biomarketing—what’s in a name?

Cities, states and regions are branding themselves as biotech hotspots by following rules previously more closely aligned with trying to sell kids’ cereal, new soap or a deodorant: give yourself a cool name (Fig. 2). Care to match Genetown, Biotech Bay, BioCapital or BioGarden—all trademarked—with the areas they reference? (respectively, Massachusetts; San Francisco Bay Area; Maryland, Virginia, Delaware, District of Columbia; and New Jersey). And let’s not forget BioForest (Pacific Northwest) and BioTechus (Texas). All are part the “Hotbed Campaigns” regional marketing of biotech (http://www.biospace.com/biotechhotbeds.cfm#other) by BioSpace, a life sciences–focused resource website.

biotech. Just plowing money into research institutions isn’t enough.

“Michigan still doesn’t get it,” says Plosila. It has “no staying power. The new governor [was] putting money into auto robots [and taking it away from biotech]. Just putting money into research doesn’t take care of it; it builds no constituencies, no commercial focus. Rockefeller University (New York, NY, USA) still doesn’t have a tech transfer office. Also, [New York City] has lots of top academic medical centers but nobody paying attention to how to commercialize and attract talent.”

If you build it, will it make money?Objective measurements over whether a state should invest in biotech and how to do it may be confounded by the long ramp toward a payoff for an investment. That decision may be tilted in favor of investment, however, by the industry’s allure. “Who’s going to win? If you’re not at least making an effort, you’re guaranteed to miss,” asserts BIO’s Kelly. “If you have active university research in state and

Box 3 Universities at intersection between state funding and industry development

Outside the purview of angel investors and technology transfer offices but at the intersection of science and commerce exist some state-funded, university-based programs meant to grease the wheels of biotechnology.

“Where is that disconnect between cool science and getting it out to the world?” asks Clinton Rubin, director of the Center for Biotechnology at the State University of New York at Stony Brook. “States need to cultivate a relationship between industry, the finance world and academia. It’s great to get on the cover of Science and Nature, but it doesn’t generate jobs or get your science to the bedside. The real future of biotech is looking through this really fertile ground of academia and finding big oil to start companies. [And] I don’t think it’s up to states to build it and they will come. It’s up to the academic centers. [It’s something] universities need to focus on and states need to support.”

The Center for Biotechnology, supported by funding from the New York State Office of Science, Technology and Academic Research, attempts to target and nurture academic research so as to influence the economy of New York State. Its annual budget of $1.5 million, which has provided funding for 56 academic research programs since 1998, has yielded 34 patents and 22 license agreements, and, according to the center, has led to the creation of 733 jobs and $339 million in corporate revenue.

Still, funding programs to match development with research at universities is not necessarily an easy sell. “My problem is convincing the university that commercializing basic science is valuable as an economic engine but also important in meeting the first paragraph in the NIH RO1 [grant] in how you will help people,” says Rubin.

“I would like the university to see a larger role in maturing technology”, Rubin continues. “Not in making competitors with

Eli Lilly or Pfizer, but chances are, with all the university funding, there are a lot of basic sciences which could impact broader science, [such as] health care. Normal academics are not bred [to think] that way.”

Also, Rubin points out, PhD candidates might directly benefit from the exposure to the development process. “In the real world, there are more jobs in industry than tenure-track positions.”

Across the country, the University of California’s Discovery Grants program targets similar goals by getting companies and academic research projects together and providing grants to match that of the companies. The companies get first crack at reviewing the research and negotiating a license.

“Our program looks to protect the public service mission of the university while engaging industry more directly,” explains Cherisa Yarkin, director of the Economic Research and Assessment Indus-try–University Cooperative Research Program at the University of California (Berkeley, CA). Yet, “looking at research funding and technology transfer returns, research doesn’t look so profitable; only a tiny bit of research goes through licensing, so this is not a good metric to judge research value.” Instead, Yarkin points to a 2003 survey of companies participating in the Discovery Grant program: the ten-year survival rate of small biotechs with discovery grants was higher than for the sector as a whole.

Yarkin attributes the high satisfaction rate to a peer review process that evaluates the science in the absence of economic considerations. “We focus on the science and let industry with the money decide what is a good investment,” she says. In addition, the program has unique attributes that may not be easily reproducible outside California, including the entrepreneurial ethos embedded in California culture and the high-caliber faculty in the UC system who cannot be lured away by industry but who can be engaged via support for their research.

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don’t have infrastructure, then you’re passing up opportunity.” Yet there exist significant obstacles to generating jobs and revenue.

“A lot of people are operating under the assumption that biotech over the next decade will be what info tech was the last 10 years,” says Impresa’s Cortright. However, there is a “fundamental flaw with that analogy. It’s seductive, but nobody has identified anything like a Moore’s Law for biotech.”

Also, a substantial proportion of research funding is tied to clinical studies rather than technology development. “A lot of NIH research money is out there, and a lot of people say to themselves ‘if there’s so much research, can’t we convert it to innovation?’” says Chris Gabrieli, chairman of Massachusetts 2020 (Boston, MA, USA), a nonprofit institute focused on expanding economic opportuni-ties in the state, and a former venture capital-ist with Bessemer Venture Partners (Wellesley Hills, MA, USA). “This is a mistake. A lot of research is clinical, not generating novel molecules with drug potential. Biotech is very important for a handful of places in the

country. Many of the other people who seek to get into it will do poorly.”

Additionally, Gabrieli and others point out, most biotech companies do not employ legions of workers. Amgen (Thousand Oaks, CA, USA), arguably the largest biotech in the United States, employs only about 4,400 workers at its headquarters. Moreover, even as the number of workers in the industry increases, the number of companies generat-ing those jobs, and thus the number of con-cerns available to locate in various states, has not kept pace. Although billions of dollars in investment and thousands of jobs were cre-ated in biotech in the 10 years between 1994 and 2003, there was a net gain of only 162 companies, according to BIO.

“People in development view things like Krispy Kreme donuts—start in one place and spread everywhere,” says Cortright. “But [bio-tech is] not the same. It is higher risk, compa-nies open and close.”

“Lightning could strike” with a major drug discovery, concedes Cortright, “but three-fourths of top metros in the US are pursuing

[a biotech] strategy. That doesn’t make sense. One could hit; [but] that doesn’t justify the investment.”

Although large-scale investment is perhaps foolhardy, some level of investment may offer some returns for many different states, say experts. Of course, the trick is determining how much to spend, and on what.

Biotech “probably won’t have a major cen-ter in every state given the size of the industry at the moment,” says John Hopkins’ Schachtel. “But it is still good economics to aspire to cap-ture some of it.”

1. A survey of the use of biotechnology in US industry (US Department of Commerce, Technology Administra-tion, Bureau of Industry and Security, Washington, DC, 2003).

2. Resurgence: the Americas perspective. Global biotechnol-ogy report (Ernst & Young, New York, 2004).

3. Beyond borders: global biotechnology report (Ernst & Young, New York, 2002).

4. MoneyTree Survey: Investments by industry/Q2 2004 (PricewaterhouseCoopers, New York; Thomson Venture Economics, New York; and the National Venture Capital Association, Arlington, VA, 2004).

5. Cortright, J. & Mayer, H. Signs of life: the growth of biotech-nology centers in the US. (Brookings Institution Center on Urban and Metropolitan Policy, Washington, DC, 2002).

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ERRATA AND CORR IGENDUM

Erratum: Agbio groups join BIOJeffrey L. FoxNat. Biotechnol. 22, 1493 (2004)

Erratum: Nat. Biotechnol. 23, 117 (2005)

The erratum incorrectly stated that “CropLife International…sometimes receives funding from CBI.” In fact, CropLife International provides funding to the Council for Biotechnology Information (CBI), not the other way around.

Erratum: Chasing biotech, state by state—winners and losersKen Howard WilanNat. Biotechnol. 23, 175–179 (2005)

On page 178, paragraph 2, line 7, it was erroneously reported that “Rockefeller University (New York, NY, USA) still doesn’t have a tech transfer office.” The university has had a tech transfer office since 2000.

Erratum: Clone on the range: what animal biotech brings to the tableAlan DoveNat. Biotechnol. 23, 283–285 (2005)

On page 285, last column, paragraph 2, last line, the reduction in fecal phosphorus was reported as 30%. It should have read 70%.

Corrigendum: Problems in monitoring horizontal gene transfer in field trials of transgenic plantsJack A. Heinemann & Terje TraavikNat. Biotechnol. 22, 1105–1109 (2004)

On page 1108, paragraph 1, line 7, reference 49 in the statement “B. thuringiensis has ‘a significant history of mammalian pathogenicity’46 and is thus not irrelevant to food safety or other environmental issues” was inappropriately cited (reference 46 states: “Bt does not have a significant history of mammalian pathogenecity”.) The text should have read that “B. thuringiensis belongs to a closely related clade of bacteria, which includes Bacillus cereus and Bacillus anthracis, and which has a significant history of mammalian pathogenicity1,2 and is thus not irrelevant to food safety or other environmental issues. Members of this group are so closely related that they may be considered members of the same species, often differing only by the presence or absence of certain plasmids3,4.”

1. Helgason, E., Caugant, D.A., Olsen, I. & Kolsto, A.-B. Genetic structure of population of Bacillus cereus and B. thuringiensis isolates associated with periodontitis and other human infections. J. Clin. Microbiol. 38, 1615–1622 (2000).

2. Økstad, O.A., Hegna, I., Lindbäck, T., Rishovd, A.-L. & Kolstø, A.-B. Genome organization is not conserved between Bacillus cereus and Bacillus subtilis. Microbiol. 145, 621–631 (1999).

3. Helgason, E. et al. Bacillus anthracis, Bacillus cereus, and Bacillus thuringiensis—one species on the basis of genetic evidence. Appl. Environ. Microbiol. 66, 2627–2630 (2000).

4. Hoffmaster, A.R. et al. Identification of anthrax toxin genes in a Bacillus cereus associated with an illness resembling inhalation anthrax. Proc. Natl. Acad. Sci. USA 101, 8449–8454 (2004).

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