The Charleston Regional Development Alliance and the state of South Carolina had shifted their attention to promoting biotechnology, a sector that had few roots in Charleston.

South Carolina was keen on attracting biotech companies after an unsuccessful effort to bring a semiconductor plant to the state. But, with numerous distribution centre deals won by neighbouring Port of Savannah in Georgia and the highly attractive $450m Maersk Terminal project going to the Port of Virginia in Norfolk, had South Carolina misdirected its –economic development efforts?

Biotech is flavour of the month among investment promotion agencies, and locations around the world are proclaiming themselves the next big biotech hub. Many have convincing arguments – but not all will be able to attract enough investment to build up a critical mass of companies. Many will fail.

Investment inflows

Attracting biotech inflows depends on many of the same –factors that influence investment decisions in other sectors – skills, cost and so on – but for biotech investors the most important two words are ‘technology transfer’. They need universities that have close links to the private sector and that offer incubator facilities. They also need access to funding.

AlphaVax, one of the fastest growing biotech companies in Raleigh-Durham, North Carolina’s Research Triangle, has its roots in nearby University of North Carolina-Chapel Hill. The company is developing the next generation of prophylactic and therapeutic vaccines for the prevention and treatment of infectious diseases and cancer, and is the result of a US Army collaboration with the university.

AlphaVax is partly funded by a grant from the US National Institute of Health and a Europe-based investment broker with connections in the UK and Switzerland. CEO Peter Young says most biotech products take 10 to 20 years to become profitable. “Start-ups often don’t have two nickels to rub together,” he says. “My income-producing tool is a tin cup. The only money I make is that which is given to me. We seek investments based on a promise of what we can do.”

The bottom line? Challenges are high and the probability of success is low. The exceptions are established pharmaceutical companies that can afford to fund biotechnology efforts through earnings from established products.

Instead of starting biotech research from scratch, many pharmaceutical companies now buy biotech concerns that match their portfolio needs. For example, AstraZeneca recently purchased KuDOS Pharmaceuticals of Cambridge, UK, a leader in developing drugs for damaged DNA in cancer treatment.

Industry analysts predict that most promising biotech concerns will be consolidated or bought by other companies.

Bucking the trend

Some biotech start-ups are bucking the trend. Michigan’s Kalexsym, for example, was conceived by displaced Pfizer scientists, who decided to create their own business rather than move. In 2003, Pfizer announced it was closing five research sites and shuffling some operations and employees to cut costs. Bob Gadwood, president and chief scientific officer at Kalexsym, and business partner David Zimmerman recognised that a dozen scientists would be available as a result. “Many of us had been here for some 20 years,” he says.

Giving Kalexsym a boost, economic development agency Southwest Michigan First (SMF) pushed for legislation that now provides $2m of funding for start-ups as a result of the Pfizer closure. Qualifying companies may receive a loan of up to $200,000. SMF also built the $13m Southwest Michigan Innovation Centre to provide wet lab space. “It’s the only place in town with wet labs,” Mr Gadwood says.

Low success rate

Nevertheless, experts project that overall only 10% of biotech companies will succeed. To safeguard success, multi-skilled talent is needed as well as capital.

“Biotech companies need a person who has developed a product and has experience working with entities such as the US Food and Drug Administration,” Mr Young says. “This person must be well versed in the regulatory approval process, quality assurance, clinical development, and pre-clinical trails, as well as be a business professional with management experience.”

Companies have a greater likelihood of attracting employees that fit this profile, as well as attracting the all-important venture capital, if they are located conveniently. For this reason, larger metropolises will often have the edge in attracting biotech companies. Above all, those locations that can understand the special challenges that biotech companies face – and deliver solutions to these challenges – will be the ones that stand a chance of becoming biotech hubs. But this is often more difficult than it sounds.

Karen E Thuermer