IE 11 is not supported. For an optimal experience visit our site on another browser.

States spend big in feverish biotech pursuit

Like a contagious virus, biotech fever is sweeping across America, leading states and municipalities to spend millions of dollars courting an industry that has never been profitable and is highly concentrated in just a few areas of the country.

Like a contagious virus, biotech fever is sweeping across America, leading states and municipalities to spend millions of dollars courting an industry that has never been profitable and is highly concentrated in just a few areas of the country.

Officials infected with the fever often see visions of high-paying jobs and dramatic impact on economic development - not to mention revolutionary advances in health care and agriculture. And the cure may come only after sufferers have wasted years and millions in taxpayer dollars chasing after the mirage. (See related story Biotech payoff 'more prestige than payroll'.)

That's the skeptic's view of the economic development community's current obsession with biotechnology. Four years ago, just 14 states had targeted biotech as a way to grow their economies. Today, 41 states are chasing the business.

"That says a lot more about the herd instinct of people who do economic development in this country than the economics of biotechnology," says Joseph Cortright, a Portland, Ore.-based economist who co-authored a 2002 Brookings Institute study on biotech.

A decade ago, every region wanted to be the next Silicon Valley, Cortright says. A few years later, dot-coms were all the rage.

"Biotechnology is the latest 'It Girl,' '' says Rob DeRocker, executive vice president of Development Counsellors International, a New York City-based firm that works with economic development organizations around the world.

This girl, however, won't go out with just anybody. She wants someone with leading-edge medical research institutions and deep pockets of venture capital. Only a few places in America, led by California and Massachusetts, now qualify.

Big bets against the odds
That hasn't stopped states like Arizona and Florida from knocking on her door. Arizona is investing $440 million in university research and development facilities to complement its success in recruiting the Translational Genomics Research Institute (TGen).

Arizona officials are confident Phoenix can become a leading biotech hub.

"Why not?" says Micah Miranda, biosciences manager for the Arizona Department of Commerce. "We're not going to be a passive player."

Cortright says, "the odds there are very strongly against them."

Even with TGen, he says, Phoenix has "just a tiny fraction of the scale" of the medical research needed to become a major biotech player. Last year, Arizona ranked 27th among states in National Institutes of Health contract awards, a leading indicator of medical research spending.

For its part, Florida put together a $500 million package to convince the prestigious California-based Scripps Institute to locate an East Coast branch in West Palm Beach.

Florida, at No. 19 in NIH awards, did better, but it's "still weak on commercialization" of biotech research, Cortight says.

He suspects Scripps' new Florida institute will be "viewed as an outpost" rather than a strong center in its own right.

Ross DeVol, director of regional economics at the Milken Institute, says Florida's recruitment of Scripps is a "bold gamble" based on the "big bang theory" of economic development. Scripps is one of the top biotech research institutes in the world so it "could be an important catalyst" for Florida - but it might "just change things at the margin."

Developing a strong biotech hub takes more than "just plunking a building down," says Walt Plosila, vice president of Battelle Memorial Institute's technology partnership practice. "A lot of this is growing your own rather than recruiting."

Niche players face VC gap
Other states aren't as ambitious as Arizona or Florida, but still think they're positioned to get a bigger piece of the biotech pie by pursuing niches where they've already developed some strength.

Alabama, for example, is home to a top 25 NIH research institution, the University of Alabama at Birmingham. The UAB-affiliated Southern Research Institute has developed six cancer drugs that already are on the market. The University of South Alabama recently recruited one of the top scientists from the National Cancer Institute and broke ground on a new cancer research facility.

"We see a lot of communities chasing biotech who don't have a lot of the basic ingredients that we have," says Angela Wier, vice president of the Economic Development Partnership of Alabama.

She acknowledges, however, that Alabama is weak on venture capital, an essential ingredient for building a strong biotech sector.

"That's a gap," she says.

Some states and municipalities are addressing this gap by creating their own venture capital funds or offering tax incentives for investments in local VC firms or university-backed companies.

Plosila, who analyzed states' biotech efforts last year in a study for the Biotechnology Industry Organization, says regions also need to come up with seed funding for early-stage biotech companies.

St. Louis, which wants to be a player in agricultural biotech, did that by creating BioGenerator, a not-for-profit fund that provides funding and expertise to commercialize promising new technologies.

Addressing pre-venture funding "isn't easy," Plosila says, "but it's essential."

Billionaire gambles on biotech
Then there's Kannapolis, N.C., which hopes to transform itself from a textile mill town to a biotech hub with the help of David Murdock, a California financier who plans to spend up to $1 billion to develop a research park at a former Pillowtex plant.

This initiative is unique because the key player is a private individual rather than a government. Murdock, who owns Dole Food Co. and a real estate development firm, has pledged to establish a $100 million venture capital fund to attract biotech firms to his park, which is about 40 miles northeast of Charlotte.

Murdock's deep pockets and real estate experience is "an interesting combination," DeVol says. The University of North Carolina plans to partner with Murdock on the research park, and Murdock's upfront VC commitment "could potentially attract top research scientists" as well as "capital-starved" biotech firms, DeVol says.

But he says it will take at least 10 years, more likely 15 to 20, for Murdock's gamble to pay off - if it ever does.

Success provides an edge
The current leaders in the biotech race have a significant edge, because success breeds success. Where would a brilliant young biochemist rather be, Cortright asks: in West Palm Beach, where there is only one major medical research institution and no local venture capitalists who understand biotech; or in San Diego, where there are dozens of biotech companies to work for, lots of mentors to learn from and biotech-savvy VCs?

That doesn't mean, however, that biotech champions like Boston and San Francisco aren't vulnerable to "legitimate contenders," DeRocker says.

"Anybody who has that view is a terrible student of history," he says, citing California's loss of the aerospace industry.

One area of vulnerability for both the San Francisco Bay area and Boston is their high cost of real estate.

That's one reason why Xceleron, a British company that has developed technology to speed drug development, chose Montgomery County, Md. - just outside of Washington, D.C. - as the site for its North American headquarters.

Boston "has almost priced itself out of the market for a small company like ours," says Xceleron CEO Colin Garner.

Montgomery County is a hot spot for biotech because it's home to NIH and the Food and Drug Administration.

Areas that don't have an existing biotech infrastructure won't be able to compete on cost alone. Instead, DeRocker says, they need "the political will and financial wherewithal" to spend decades beefing up their medical research institutions and commercialization capacity.

Many places now chasing biotech won't have that kind of patience, he predicts. "Some of these locations," he says, "will wake up and smell the coffee."

"Quite frankly," DeVol says, "most of them aren't going to be successful in the bigger scheme of things."

American City Business Journals, Inc.