Biotechnology is regarded one of the fastest growing industries in the world. In North America, the pharmaceutical-biotech sector continues to show formidable strength. Competition to attract the business of those planning future expansion or relocation will be especially fierce at this year’s convention.
The US scene
The sector in the US has recovered rather well since biotech stocks hit the skids in 2001-2002, even though market analyst Ernst & Young, in its America’s Biotechnology Report: Resurgence, 2004, points out this sudden up-tick is largely led by the US and is uneven across the globe. Ernst & Young notes that biotechnology companies in the US are driving product development worldwide and predicts that the industry is poised for profitability by 2008. Consequently, cities and states across the US are fighting it out for biotech dollars.
Meanwhile, locations worldwide, especially in Canada, Europe and Asia, are vying for their piece of the bonanza since the industry shows significant promise to create a new health economy in which biotech, pharmaceutical and medical device companies converge with health care providers.
While the hype at events like BIO can be overwhelming, consultants contend that biotech businesses still prefer to cluster in locations that offer a solid mix of academia, venture capital funding and an entrepreneurial culture. Many US cities have one or two of those elements, experts say, but few have all three. Plus biotechnology is still a relatively small industry. BIO estimates that there are about 1473 biotech companies in the US with 198,300 employees in total. Of those companies, only 314 are publicly held.
Scott Morrison, an analyst at Ernst & Young in Palo Alto, California, argues that this is too small to support widespread growth. And even if biotech employment were to grow by 15% during the next year, the 30,000 new jobs would probably be at existing companies in such established biotech hubs as San Diego, Boston and San Francisco, Mr Morrison says. “My feeling is that if you do not have a biotech industry already, it isn’t going to happen,“ he says.
That is probably not what most investment promotion professionals want to hear, but it will not stop them from trying. Whereas in 2001, 14 US states had identified the biosciences as a priority for economic development, today 40 states have designated it as a “hot” sector and all 50 offer an argument for attracting the business.
The state of Arizona, which is trying to build its biotech industry from the ground up, is promoting the tri-city region of Prescott Valley and Chino Valley, home to Northern Arizona University in Flagstaff and Arizona State University in Tempe. With a new hospital and medical facilities in the area, economic developers there hope this will translate into bioscience industries in the future.
The city of Phoenix, a late bloomer in biotech, has also acted fast in setting up its new state-of-the-art International Genomics Consortium (IGC) and Translational Genomics Research Institute (TGen), which opened in December. The six-story, $46m building forms the cornerstone of a planned bioscience and medical research campus in the city centre.
The 173,000ft2 City of Phoenix-owned building is the first structure in what will become the Phoenix Bioscience Center at Copper Square, a 15-acre bioscience and medical research campus. When fully developed, the site will house more than one million square feet of laboratory and office space, including the proposed joint university school of medicine. The Arizona BioMedical Collaborative, a partnership between Arizona’s state universities, plans to develop its own research facilities devoted to biotech, education and research activities on the campus.
Wisconsin is also making a play for biotech investment. The state is expanding stem cell research by investing more than $641m in new laboratory construction (California will provide up to $350m a year for the next 10 years). And in November, state governor Jim Doyle announced that during the next few years Wisconsin would invest up to $750m, including more than $500m in new facilities and direct research support for scientists at University of Wisconsin-Madison.
“Wisconsin leads the world in groundbreaking biomedical research, but we need to continue to move forward,” Mr Doyle said. “The state, in partnership with the university and our other private partners, has an aggressive and comprehensive strategy to ensure that we remain at the forefront not only of scientific discoveries, but of creating thousands of new high-tech jobs.”
Responding to the announcement, stem cell pioneer James Thomson, a University of Wisconsin-Madison professor of anatomy, stressed that continuing investment was needed to maintain Wisconsin’s leading position. “There are states that are competing with us and private universities that are competing with us, and I think that the initiative that the governor [has] announced goes a long way in maintaining this leadership position in what is really an age of discovery,” he said.
California up front
Even with increased competition, however, California remains the market leader, followed by Massachusetts, North Carolina, Maryland, New Jersey and New York. But changes abound in California, the “Golden Gate State”. San Francisco will always be considered the birthplace of biotechnology thanks to south San Francisco-based Genentech. But Genentech is now the dominant company in San Diego and the city has replaced San Francisco as the biotech leader.
With California voters passing Proposition 71 in last year’s elections, which will provide up to $350m a year for stem cell research for the next 10 years – support that is forbidden at the federal level – it remains to be seen whether this could help to reverse a brain drain from San Francisco and from California as a whole.
With costs skyrocketing around San Francisco in recent years, cash-strapped biotech firms have been searching for cheaper digs. Incyte Corp, which works on drugs for Aids, closed its headquarters in Palo Alto and set up its operations in Wilmington, Delaware, where it now employs 180 people.
To help plug the drain, San Francisco embarked on a marketing blitz and hosted BIO 2004. San Francisco mayor Gavin Newsom launched a number of initiatives aimed at the biotech industry, including passing an unprecedented payroll tax exemption; fostering biotech-related development projects such as the 1.4 million square foot project by Pasadena life science REIT Alexandria Real Estate Equities (whose clients include Merck, Pfizer and Quest Diagnostics); facilitating the completion of the J David Gladstone Institute, a 200,000ft2 research laboratory; and creating the Mayor’s Biotechnology Advisory Council (MayBAC).
Nevertheless, San Diego still shines as California’s biotech bright spot. Last year, the Milken Institute recognised it as the number one biotech cluster in the US thanks to its climate for innovation, success in bringing products to market, and its ability to attract new companies and jobs. Helping the growth are corporate giants Merck, Pfizer, Dow and Novartis, which have developed key partnerships with local biotech pioneers, and the city’s wealth of venture capital that is providing companies with the freedom to develop innovative products.
California Healthcare Institute/ PricewaterhouseCoopers reported in 2004 that San Diego housed 502 biomedical companies. By 2003, local research institutions had spun-off at least 136 biotech firms.
Massachusetts follows on California’s heels. In its 2004 Biotech Index, the Milken Institute ranked Boston number two, behind San Diego. “If you add pharmaceuticals and medical devices to the measurements, Boston would jump to the number one spot,” says Michael Barron, a partner at law firm Nixon Peabody LLP in Boston.
Massachusetts has in its favour a good record of attracting public research funding. “If you look at the number of National Institute of Health (NIH) grants we receive, Massachusetts has a tremendous competitive advantage,” says Mr Barron. “Massachusetts leads the nation in per capita NIH funding, outpacing the next highest state, Maryland, by 52%. Annual biopharmaceutical research funding in Greater Boston reached $3.3bn in 2003.”
The Boston area, and Cambridge in particular, has fostered pioneering biotechnology, spawning five discoveries that have earned Nobel prizes. It is home to Massachusetts Institute of Technology (MIT), Harvard, Massachusetts General Hospital, Beth-Israel Deaconess Medic Center, the New England Medical Center, the Whitehead Institute/MIT Center for Genome Research, and 60 biotech and pharmaceutical companies.
Two of the nation’s first biotech firms, Biogen and Genzyme, were founded there. A total of 52 of the firms are located in the Central Square, Kendall Square and East Cambridge areas, within a mile of the MIT campus. Just across the Charles River are Boston’s famed hospitals.
Novartis AG created its worldwide research centre there, dubbed the Novartis Institute for Biomedical Research (NIBR). When asked why it was attracted to Cambridge, Dr Daniel Vasella, Novartis chairman and CEO says: “Analysis shows that it is more and more difficult to attract and retain scientific talent, so we have to go where the talent is. Cambridge is a pool of scientific talent that is not found elsewhere in the world.”
Nevertheless, just as in San Francisco, some companies are moving to Boston’s suburbs for cheaper rents. Among them is AstraZeneca, which chose to locate in Waltham – about 20 minutes from Boston’s city centre – where it could obtain a 64-acre parcel of land.