Questioning Biotech's Benefits

While most communities are investing to attract or grow biotechnology companies, a recent report concludes that only a handful of cities will benefit in the long run.

If manufacturing is economic development's erstwhile two-timing boyfriend, then biotech is its latest Prince Charming. It's not that the economic development types would turn down a date with a "traditional" global manufacturer looking to locate a plant, but frankly, many of them have set their sites elsewhere. Consider an Aug. 13 comment from Richard H. Dean, president and CEO of Wake Forest University Health Sciences, Winston-Salem, N.C. Announcing an expansion to that community's Piedmont Triad Research Park, he described it as "a major commitment to transform our economy from one driven by manufacturing to one led by technology." Winston-Salem and about 40 other U.S. communities have specific economic-development strategies to grow or attract biotechnology companies. Many of these strategies are in response to massive job losses in traditional manufacturing industries. On the surface, the effort seems to make sense -- biotech-related funding is available, and rapid advances in genetic mapping promise a future filled with human- and plant-based biotech solutions. But a comprehensive study released by the Washington, D.C.-based Brookings Institution's Center on Urban & Metropolitan Policy this summer scrutinizes these biotech strategies and the ultimate payoffs they promise. Significantly, it raises the question of whether these communities would be better served by making amends with traditional manufacturing. "Biotech seems to be the flavor of the month for economic development," says Joseph Cortright, co-author of the Brookings report and an economist with Impresa Inc., Portland, Ore. "Ten years ago there was talk about being the next Silicon Valley. Three or four years ago everyone was talking about how they would be the next e-commerce or dot-com center. And now everyone, almost by common agreement, is saying the next thing is biotechnology." The Brookings report, "Signs of Life: The Growth of Biotechnology Centers in the United States," concludes that five metropolitan areas -- Boston, San Francisco, San Diego, Seattle and Raleigh-Durham -- comprise most of the biotech activity in the U.S. Together, these five accounted for 75% of new venture capital in biopharmaceuticals in the past six years, 74% of the value of research contracts from pharmaceutical firms and 56% of new biotech businesses formed during the '90s. (The study looked only at human-based biotechnology.) What's more, biotech in these five areas is continuing to grow at a faster rate than anywhere else in the United States. "All the measures of commercialization are growing more in those areas," Cortright says. "Not only do they have the lead, but they are pulling away." The study lists these five metropolitan statistical areas along with four others (New York, Philadelphia-Wilmington, Los Angeles and Washington-Baltimore) as "Biotechnology Centers." Other U.S. communities fall under the headings "Research Centers," "Median Metropolitan Areas," or "No Significant Biotech Research or Commercialization." (See "Leaders and Wannabes"). And while most of these communities have some research and commercialization of biotech, "thus far none of [them] has developed a significant concentration of biotech activity," the study states. And ultimately, Cortright says, few of them ever will. The Academic Connection So why, with such daunting odds of achieving large-scale success, are communities pursuing biotechnology? For Winston-Salem, N.C., the strategy is part of an overall plan to diversify a local economy traditionally dependent on a few major companies. By 1990 Winston-Salem had suffered several major economic hits including the acquisition of RJR Tobacco Co. by Kohlberg Kravis Roberts & Co., the buyout of Piedmont Airlines by USAirways, and the flight of the textiles industry. In response, the 2,000-member Greater Winston-Salem Chamber of Commerce invested $500 million to study whether or not the community should change course and try to attract "technology" companies. "We decided we did have the assets, and we did have the basic ingredients," to grow and build biotechnology companies, says Peggy Low, senior vice president of technology for the chamber. The community saw potential benefits from the Wake Forest University School of Medicine, which has an annual budget of nearly $500 million and receives more than $100 million a year in research grants. Indeed, start-up biotech company Pilot Therapeutics is a spin off from Wake Forest and is, among other things, developing foods to treat chronic diseases. This summer, UK agricultural foods company Kings Inc. announced it will relocate its headquarters to Winston-Salem in part because of its belief that Pilot's products have tremendous market potential. Low counts such achievements as biotech successes and points to the planned expansion of the Piedmont Triad Research Park, home to about 20 companies, as proof that the strategy is succeeding. Still, the decade-long effort to attract biotech has replaced relatively few jobs lost by the exodus of textiles, large-scale tobacco production and other industries. According to Low, biotech jobs at Piedmont Triad Research Park number 600. In textiles alone, North Carolina lost 120,000 jobs from 1980 to 2001, according to the American Textile Manufacturers Institute, Washington, D.C. What's more, according to Cortright, few start-up biotech companies exist long enough to employ a large workforce, hold more than a few company picnics and pay retirement benefits. Nationally, only 44 biotech companies employ more than 1,000 people, and the Greensboro-Winston-Salem-Highpoint metropolitan statistical area in 2001 was home to only two biotech companies that employed more than 100 people, according to the Institute for Biotechnology Information, Research Triangle Park, N.C. "Most small biotech companies have already mortgaged their future because the way they have financed their operations is to sell their marketing rights to products to big pharmaceutical companies," Cortright says. "And their manufacturing operations may be located in Puerto Rico or somewhere else in the world. So there's no guarantee that even if one of your biotech companies comes up with a good idea that it will blossom into a fully integrated pharmaceutical company." Low said Winston-Salem recognizes that the biotech bet is a risky one but based on the chamber's research, leaders there believe it will be an important part of the community's economy along with other targeted industries such as finance. She points out, though, that the community would certainly not turn away a traditional manufacturer that would be a positive part of the mix. "We are very much interested in any kind of industry that brings quality jobs," she says. Benefiting From Boston While Winston-Salem is concentrating on the intellectual end of biotech, Rhode Island has found success in bricks and mortar. The state landed a biotech coup this year when Immunex Corp. announced it would expand production and build a $1 billion complex in West Greenwich. Immunex has since been purchased by Amgen Inc., the largest biotech company in the U.S. with $4 billion in annual revenues. The Greenwich multi-plant complex will employ 700 people at full production. According to Jean Burritt Robertson, research and development director for the Rhode Island Economic Development Corp., the state has been recruiting biotech for a long time and that luck, along with a strong manufacturing tradition and proximity to Boston, is paying off. In the '70s, the state built a technical park that was home to some failed companies but is now the site that is being retrofitted by Amgen. "The first company that went in there was somewhat successful, then they lost their patent rights. But if we didn't have that building in there in the '70s, we probably wouldn't have Amgen today." Another commerce park built in Smithfield in the '80s was home to the failed Alpha Beta biotech company. Dow Chemical Co. has since moved in with contract manufacturing and is expanding to employ about 600 workers. "We were lucky that we didn't lose our investment," Robertson says. "But what we learned is that R&D is risky, and we learned that it's the manufacturing end that's the perfect fit for Rhode Island. We've always had a strong manufacturing base, and, while we won't turn R&D away, we feel that the manufacturing end of things is our niche." She also notes the state's proximity (a 30-minute ride) to Boston. "Although we like to think of ourselves as unique, we have become part of the Boston metro area." Cortright says that Rhode Island is the exception that proves the rule. Its success is tied directly to providing services to one of the top biotech communities, rather than trying to incubate its own biotech hub. Additionally, it has not abandoned a core competency -- manufacturing.

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Big In Biotech Listed are several measures of biotech research and commercialization. Numerals are averages; dollar values are U.S. millions. (Biotech centers: Boston, San Francisco, San Diego, Raleigh-Durham-Chapel Hill, Seattle, New York, Philadelphia, Los Angeles and Washington, D.C.)
Measure Biotech Centers Other Metro Areas
NIH* Funding 812 104
Biotech patents,1990-1992 641 263
New biotech firms,1991-1999 35 3
Biotech firms with 100+ employees 24 2
*National Institute of Health Source: The Brookings Institution, "Signs of Life: The Growth of Biotech Centers in the U.S."
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Leaders And Wannabes Biotechnology Centers Metropolitan statistical areas and consolidated metropolitan statistical areas with above average levels of biotechnology research and commercialization.
  • Boston-Worcester-Lawrence
  • San-Francisco-Oakland-San Jose
  • San Diego
  • Raleigh-Durham-Chapel Hill
  • Seattle-Tacoma-Bremerton
  • New York-Northern New Jersey-Long Island
  • Philadelphia-Wilmington-Atlantic City
  • Los Angeles-Riverside-Orange County
  • Washington-Baltimore
Research Centers Above average in research but limited commercial activity.
  • Chicago-Gary-Kenosha
  • Detroit-Ann Arbor-Flint
  • Houston-Galveston-Brazoria
  • St. Louis
Median Metropolitan Areas Median levels of both research and commercialization.
  • Atlanta
  • Austin-San Marcos
  • Buffalo-Niagara Falls
  • Cincinnati-Hamilton
  • Cleveland-Akron
  • Columbus
  • Dallas-Fort Worth
  • Denver-Boulder-Greeley
  • Greensboro-Winston-Salem-Highpoint
  • Hartford
  • Indianapolis
  • Kansas City
  • Memphis
  • Miami-Fort Lauderdale
  • Milwaukee-Racine
  • Minneapolis-St. Paul
  • Nashville
  • New Orleans
  • Oklahoma City
  • Pittsburgh
  • Portland-Salem
  • Providence-Fall River-Warwick
  • Richmond-Petersburg
  • Rochester
  • Sacramento
  • Salt Lake City-Ogden
  • San Antonio
  • Tampa-St. Petersburg-Clearwater
No Significant Research Or Commercialization
  • Charlotte-Gastonia-Rock Hill
  • Grand Rapids-Muskegon-Holland
  • Jacksonville
  • Las Vegas
  • Louisville
  • Norfolk-Virginia Beach-Newport News
  • Orlando
  • Phoenix-Mesa
  • San Juan-Caguas-Arecibo
  • West Palm Beach-Boca Raton
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