In the global battle between countries to lead in the biotech sector, IPAs are setting up partnerships and exploiting links between experts, to build their region’s “critical mass”. Ashleigh Lezard reports

The largest US biotech company, Amgen, has a market capitalisation of $61,540m, says Ernst & Young’s Global Biotechnology Report 2002. According to the same report, the combined market capitalisation of all public companies in the European biotech sector is $50,739m, highlighting the dominant position the US occupies globally.

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This is despite attempts by almost every economic development agency in Europe, Canada and Asia-Pacific to promote biotech as its primary sector. Every agency claims its own region is best qualified for research and development (R&D), has the most science professorships and the largest number of successful start-ups.

They all produce the same glossy guides to the sector, featuring buzzwords associated with it: ‘innovative’, ‘clustering’, ‘incubators’. Every region, it seems, wants to attract lucrative and prestigious investments by expanding biotechnology and established pharmaceutical companies, and to develop that all-important ‘knowledge-based economy’.

Huge growth

In fact, Europe has seen huge growth, and the Ernst & Young (E&Y) report estimates that by 2005 the biotech market could double from current valuations to more than $100bn – still way short of the US total but impressive nevertheless. Germany, France, Switzerland and Scandinavia have all developed the sector and are now competing with the UK. However, the UK still remains the foremost European location for biotech, particularly around prime locations such as Oxford and Cambridge. These are established biotech clusters and therefore have the most vital ingredients for a biotech investment – intellectual capital and reputation. Jonathan Reynolds, director of Oxfordshire Bioscience Network, explains: “Biotech is a very well-connected industry – networks and partnering are the critical factors for growth. The people within it are extremely intelligent and have established links within the industry.”

These networks lead to certain locations building up a ‘critical mass’ of biotech companies, which in turn attracts overseas investors and venture capitalists. Attracting private equity is very important to companies, and consultants at Ernst & Young (E&Y) argue that this is why the US and the UK dominate. The US has a highly developed venture capital market, with investors happy to put money into high-risk ventures in the hopes of high-level rewards.

Mr Reynolds says: “The sector is burning cash at such a fantastic rate that there is no need to cut costs; what matters is infrastructure and people.” Bob Hamm, president of US biotech multinational BIOGEN, adds: “In the US, smaller companies get funds; in Europe they have to sell themselves to bigger companies”.

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US academics estimate that 50 of the 68 European biotech firms in which venture capitalists invested last year originated from the UK.

Emerging biotech sectors need investment from US companies and venture capitalists, not only to gain money but also to provide the prestige that helps them expand. In a report on investing in biotech, Chris Davidson, head of research at London-based AltAssets, argues: “Sophisticated biotech companies are finding it easier to raise money from venture capitalists.” He adds that this money can go into the early, mid and late stages of a new venture. Seed capital comes from venture capitalists who have a local knowledge of what is going on and therefore are willing to take risks.

Crispin Littlehales, communication director of Burrill & Company, a biotech venture capital firm based in San Francisco, agrees. “Burrill & Company does invest outside the US, but only in conjunction with a strong, local co-investor with domain expertise and this tends to be at a company’s early to mid stage,” he says. This indicates that an established cluster is needed to attract necessary investment.

A vicious circle

The problem that countries face is that a successful biotech cluster cannot develop without a background in biotech and thus a network of scientists well-known enough to attract funds from venture capitalists, which then may lead ultimately to inward investment from multinationals. So how does a region go about achieving this ‘critical mass’?

Neil Impiazzi, senior project manager for the South East England Development Agency (SEEDA), explains how the agency is developing a new strategy of ‘bio-partnering’.

This involves creating a biotech network between Oxford and Kent so the two regions do not compete, but instead take advantage of each other’s strengths and target certain companies and countries. For example, they have undertaken a road show to the US, and a meeting with venture capitalists from Taiwan to gain more access to potential overseas funding.

Similarly, the Office for Foreign Investment in Wallonia (OFI), in Belgium, is collaborating with science parks in Finland and Sweden, among others, with the aim of developing a new biotech company that focuses on research into biotech and agrifood.

Paul Volleman, a consultant for Buck Consultants in the Netherlands, believes the sector in Europe is dividing into different categories. He sees the traditional ‘first-generation’ European biotech regions, such as Oxford and Cambridge in England, Munich-Martinsried and Heidelberg in Germany, being challenged by regions such as Scotland, Ireland, Medicon Valley in Scandinavia and BioValley in central Europe, where clusters have led to remarkable growth in the annual number of new cross-border manufacturing projects.

This ‘clustering’ has successfully raised the profile of both central Europe and Scandinavia in the biotech sector. BIOGEN announced in 2001 that it plans to build a $350m manufacturing plant in Medicon Valley. BIOGEN chief executive James C Mullen says: “Denmark is extremely competitive when it comes to the quality of the workforce. The region known as Medicon Valley is world class in the biotech and pharmaceutical field.”

Objective advice

BIOGEN’s Mr Hamm says the company was not offered any incentives “but Copenhagen Capacity were very helpful. They are terrific people who advised us objectively. Due to the academic institutions in the region, we could tell it was a good area to build up a relationship.” As Mr Reynolds of Oxfordshire Bioscience Network says: “Incentives don’t really matter. Investors will ask themselves: can my company grow there and do well?” The reputation of local scientists and contacts appear to be the most important thing in creating a successful cluster.

Pat McGovern, head of pharmaceuticals at the Irish Development Agency, says: “We used to offer significant incentives but now they are limited to employment grants.” Ireland is in the fortunate position of becoming a fairly well-known destination for biopharmaceutical investment by companies such as Schering-Plough, which set up a manufacturing plant in Cork in 1985.

Henri Termeer, president of US biotech company Genzyme, says: “Ireland has established itself as a world centre of bio-pharmaceutical manufacturing.” The company is currently building new manufacturing facilities in Renagel in Ireland.

Mr McGovern emphasises that the country is looking to attract those illusive R&D projects. For example, the Science Foundation Ireland is a new funding organisation established this year. It is headed by an American, Dr William Harris and has E700m worth of funds to dedicate to research projects in technology and biotechnology, with the hope of attracting the brightest researchers from around the world. However, Mr McGovern admits that the application process may be “perhaps a little too rigorous, as out of 40 applications so far this year, only three have been approved”.

Getting big companies to relocate their R&D departments is another challenge. BIOGEN site’s in Denmark is focused on manufacturing and production but R&D appears to be firmly located in specific regions of the US and the UK. BIOGEN has not moved any of its R&D functions to the Medicon Valley area, preferring to leave them in Massachusetts in the US. Ulf Aberg, director of inward investment for the project, says there has been no significant foreign investment in R&D in the region.

Mr Reynolds says bio-manufacturing and pharmaceutical production are the only areas of the life science sector that can be treated in the conventional sense of FDI promotion. He says investment promotion agencies (IPAs) always attend biotech fairs but it is hard to understand what they are trying to achieve. As Fabian Collard, assistant communications manager at OFI in Namur, Belgium, says: “We are not only looking for greenfield investment in biotech, even if it is the best scenario for us.”

The Wallonia region has 40 years’ experience in biopharmaceutical production, with GlaxoSmithkline Beecham and Baxter basing their facilities there. Although Wallonia is looking to expand R&D activities, the OFI is the first to admit that the region’s strengths lie in the manufacturing side.

Aggressive approach

Buck Consultants’ Mr Volleman argues that Singapore – which has adopted an aggressive approach to positioning itself as the dominant biotech location in South-East Asia – “might be a good location for manufacturing investment, offering skilled workers and good logistics but it will not automatically become an attractive county to conduct basic research”.

Dr Chan Tat Hon, director of the London branch of Singapore’s Economic Development Board, counters: “There is a certain lack of familiarity of Singapore for venture capitalists – but it takes a number of years to get results. Singapore has a good track record of creating something out of nothing, as we did with the chemicals industry.

“Also, it must not be forgotten that Singapore is an extremely cosmopolitan state, which uses foreign talent and is a pleasant place to live.” It also offers biotech companies various tax incentives and R&D grants.

Mr Volleman estimates that it takes 20 years to create a critical biotech mass (this is how long it has taken to build up the main US centres). San Francisco – or ‘Biotech Bay’ as it is known locally – was started in the 1960s.

Catching up fast is Boston, nicknamed ‘Gene Town’, which has more biotech companies within a 50-mile radius than anywhere in the world. In all, Massachusetts has 275 biotech companies, employing 27,000 people. Critical mass on this scale can only attract more investment, especially in R&D.

In May this year, Swiss pharmaceutical giant Novartis invested $250m in a new R&D laboratory, creating 400 jobs on the Cambridge campus of the Massachusetts Institute of Technology. The Novartis Institute for Biomedical Research will, says a company spokesman, “be one of the most important research campuses in the world and the investment in Cambridge will enhance the company’s ranking as one of the world’s premier R&D forces”.

Business strategies

As Donn Szaro, global health sciences director at E&Y, says: “Science, talent and money are increasingly flowing freely around the globe, and biotech companies everywhere must develop business strategies to take advantage of these global opportunities”.

Likewise, IPAs and regions must build on their strengths and encourage collaboration between universities, local business, venture capitalists and established multinationals.

Choosing the right biotech site

1. Define whether the project needs specific knowledge or manufacturing expertise, as different clusters promote different strengths.

2. Make sure that promoted strengths can be backed up, particularly if the investment is knowledge based. Consider what knowledge and skills are really needed for the investment and whether this is available, for example the proximity of a university. Some skills can be provided by modern communications so location may not be so important.

3. Look into whether specialist biotech facilities such as laboratories are available. As highly skilled employees are few and far between, companies usually hire internationally, so it is necessary to look into a location’s accommodation and living standards.

4. Small firms need to check on local availability of consultants, accountants and legal advisers to ensure laws and regulations relating to, for example, funding and intellectual property rights are understood.

5. Although site selection for biotech companies is like that of any other company in any other sector when it comes to infrastructure and skilled labour; incentives and tax are not considered as important.

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