Chasing Science

If you notice all the countries, states, and municipalities actively courting biotech companies, you might think science-based businesses are a surefire guarantee of a strong local economy.

Apr 25, 2005
Bill Fair(bfair@nycedc.com)
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If you notice all the countries, states, and municipalities actively courting biotech companies, you might think science-based businesses are a surefire guarantee of a strong local economy. By last count, 43 of the 50 states in the United States were looking to bioscience as an economic savior. (Here, the term "bioscience" includes all biotech, medical device, specialty pharma, and large pharmaceutical companies.) While no official tally exists, these states in the aggregate have pledged more than $8 billion to attract this industry. This is staggering when you consider the entire US biotechnology industry consists of only 1,475 companies employing less than 200,000 people. The commitment by these states therefore translates into $5.4 million per company, or $40,000 per employee in the biotech sector.

Attend any Biotechnology Industry Organization event and you will see hordes of government officials wooing biotech companies of all stages of development. Can they all be right? Is biotech the answer for inner cities, the rust belt, farm regions, or any other area suffering from an economic reversal and loss of jobs? Or is it a case of too much money chasing too few companies?

In the interest of full disclosure, my city-New York-is a major competitor for bioscience companies. While we were late to the game and fell behind bioscience clusters in San Diego and Boston/Cambridge, we recognize the sector's importance and the role it can play in our efforts to diversify New York City's economy. We believe we can compete effectively because New York has a number of advantages that can help create a broader bioscience cluster. Those advantages include a proximity to great science, a talented workforce, a high quality of life, an entrepreneurial environment, access to capital, academic collaboration, and affordable and flexible real estate. Many other regions are attempting to attract companies with huge sums of money, but are overlooking the importance of these underlying assets.

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Simply throwing money at companies isn't enough. While government incentives play a role in location decisions, on their own they are insufficient to form a biotech cluster. As a result, most of the states looking to bioscience as a way to reinvigorate their economies will be severely disappointed and should consider other options.

At the New York City Economic Development Corporation, we have spent a great deal of time in the last few years studying the issue and traveling the globe to learn what it takes to create a successful biotech cluster. We have met with more than 250 companies ranging from Big Pharma to biotechnology start-ups to better understand the criteria they use to select a location for their operations.

The following is a list of major factors influencing bioscience location decisions, which can be used to measure an area's potential:

1. Proximity to Great Science – Bioscience companies (both drug- and device-makers) are increasingly looking for potential products to license in addition to their own research and development efforts. As a result, bioscience companies want to be near large and prestigious academic and research institutions. New York City, for example, is home to 10 major academic medical centers and more than 20 other research institutions. It is critical for a region to have a broad reputation for great science, or a specialized niche that makes it attractive to companies looking for specific science.

2. Talented Workforce – It takes more than great science to create a bioscience cluster. Companies need to be able to find the scientific, technical, entrepreneurial, and management talent to commercialize the science. If a region is lacking in one or more of these key labor pools, it may want to think about adding the missing elements or making the segments more attractive to the bioscience industry through workforce training initiatives.

3. Quality of Life – The greatest asset bioscience companies have is not their intellectual property, technology, buildings, or equipment-but their employees. And it takes more than competitive salaries to keep them. Workers, especially scientists, require affordable housing, great schools for their children, multiple cultural amenities, and the ability to collaborate with a wide variety of peers who will challenge their thinking inside and outside the lab. These career opportunities need to be close to the office to keep commuting times under 45 minutes. It's impossible to attract and retain the best and brightest without all the amenities that lead to a first-class quality of life.

4. Entrepreneurial Environment – Venture capitalists often say that the most critical success factor for any company, bioscience or otherwise, is a group of well-prepared entrepreneurs. Preferably, these are serial entrepreneurs with the skills, experience, and fortitude to grow a company into an attractive investment. Creating an entrepreneurial environment requires seasoned business leaders who can serve as mentors, advisors and board members, coupled with programs to help budding entrepreneurs hone their skills through training and collaboration. There are ways to build such a culture. For example, "bench-to-board-room" workshops can help scientists think through the commercialization process, and local business and engineering schools can work with entrepreneurs to help write and vet business plans. The quality and efficacy of these programs vary greatly, and the cost required to create such programs may prove prohibitive for some regions.

5. Access to Capital – Now comes the critical factor that separates the true biotech clusters from the pretenders: Access to capital. This includes everything from seed and early stage to "follow on" funding and access to public markets. Many regions have created early stage and development funds, committed tobacco settlement monies, and directed public pension funds to encourage development of the bioscience sector. But if you look at the numbers, the magnitude of investment is breathtaking. It typically takes $800 million to bring a new drug to market.

Funding needs to come from a combination of angel investors, venture capitalists, strategic corporate investment, investment banks, and other private and public funding sources. If a region lacks funding sources willing to make a significant long-term commitment to the bioscience sector, it has two choices: grow the resources or get out of the business. Investors have multiple demands on their time and money. If a region doesn't have a compelling reason for their presence, they will go elsewhere to seek the biggest returns for their portfolios.

6. Collaboration – Often overlooked by regional development officials is the level of collaboration both within and between research centers. If a university's technology transfer office is perceived to be "difficult" -regardless of its track record for innovation, patent filings, licensing revenues, or the number of company spin-offs-potential acquirers or partners will look elsewhere for deals that can be done faster and with less hassle. Because of the complexity of new product development, it's becoming increasingly unlikely that one university or company can provide all of the intellectual property required to make the next big breakthrough. Companies are looking to assemble the required components from a variety of institutions. If these institutions have a history of strong research collaboration, or better yet, cooperative commercialization efforts, they become immediately more attractive as potential partners.

7. Affordable and Flexible Real Estate – Affordable and adaptable space that is appropriate for bioscience companies is a must. Unlike most other industries, bioscience companies have highly specialized needs that can quickly change, in terms of both size and type, depending on the company's stage of development. It is common for bioscience space to be two to four times more expensive than standard office space. Because bioscience start-ups have a difficult time paying high rent and face development pressures to get new drugs and products to market (resulting in the need for shorter and more flexible lease terms), these companies are typically not very attractive to commercial landlords. As a result, the public sector often needs to subsidize, sometimes significantly, the cost of developing appropriate space. But pouring money into bioscience facilities can be a losing proposition given the high cost and specialized nature of the space, the often poor credit quality of the tenants, the need for varying facility sizes and lease terms, and the typically small number of jobs associated with each company. Consequently, regions need to think about not just building wet lab space but, more importantly, how the region will maximize the return from such investments.

8. Public Incentives – This factor is last on the list for a reason. If a region does not have most, if not all of the factors mentioned above, it is highly unlikely that any amount of public incentives-tax breaks, grants, low-interest loans, cheap rent, savings on utilities, or investment tax credits-will result in a sustainable bioscience cluster that yields significant economic development benefits. If there is no contribution toward economic development, government officials need to take a hard look at whether their time and money should be focused on industries more suitable to their regions.

It is clear that bioscience will be a powerful economic engine for some municipalities. But it is becoming equally clear that some regions are becoming irrational competitors and throwing exorbitant amounts of money at companies willing to take it. Over time, however, other factors such as access to capital and quality of life for employees will determine if a region succeeds or fails as a center for bioscience. Regions that focus on only one or two factors may, unfortunately, be left with empty pockets and broken promises.

Bill Fair is head of the bioscience desk for the New York City Economic Development Corporation.

He can be contacted at bfair@nycedc.com.

More information on bioscience in New York City.See also: The Best Place for Your Biotech is Here. No, Here!(Clare Kittredge)