TCS Daily


Biotech Biorhythms

By Charles Matthew Rousseaux - July 7, 2004 12:00 AM

Metropolitan areas are anxious to turn the seeming staccato beat of developments in biotechnology into a long march of financial gains. It seems simple in principle: Take a group of researchers, add a group of venture capitalists, mix in some tax breaks or similar economic incentives, give it a few years to ferment and then discoveries and dollars will begin to bubble and boil.

The toil and trouble involved are often missed. As a consequence, some states and regions have spent -- or are considering spending -- like mad to attract perfectly (ok mostly) sane scientists. They may be disappointed. While successful biotech clusters benefit regions in many ways, their rhythms are more complicated, and their beat of research more prolonged than it appears.

Only a few of the nation's metropolitan areas have the right ingredients for self-sustaining biotech clusters according to a report released earlier this month by the Milken Institute, a nonprofit economic think tank. Milken analysts studied the 12 successful areas, based on 44 separate measurements roughly divided into inputs and outputs: Inputs into the area's biotechnology innovation pipeline such as quality of the workforce and research dollars, and outputs of jobs, products and companies.

San Diego topped the list, serving as the literal benchmark. It was followed by San Francisco, Boston and Washington D.C. All of the areas have large numbers of talented innovators working in interrelated fields. The physical proximity of scientists also plays a critical part in cluster synergy. Study author Ross DeVol said, "In San Diego, the cluster is so dense you can't go to lunch without running into someone (from biotech)." (Which must make for some interesting orders: "Are you sure you want a petri dish platter and a side of Salmonella?")

"Signs of Life," a 2002 Brookings Institute Study, found essentially the same clusters (although the rankings were slightly different). It said that all the successful areas had two elements critical for sustained growth, "strong research capacity and the ability to convert research into successful commercial activity."

Tax breaks and subsidies are no guarantee that clusters will become boons instead of bombs. According to an April analysis by the American Enterprise Institute's Scott Wallsten, "Despite the promise of thousands of new jobs, [high-tech] cluster-development schemes rarely work." The Maryland Science and Technology Center and the Texas Research Park in San Antonio both became bitter pills to taxpayers, having failed to generate the thousands of jobs expected after going into business over a decade ago. As a consequence, Mr. Wallsten urged politicians to be cautious when considering spending substantial funds on such projects.

The billions bet on biotech often go awry. A May 20, 2004 Wall Street Journal story noted that in its first 25 years of existence, investors have put up $100 billion into industry, and have received back $40 billion -- in losses. While a few drugs are extremely profitable, most are failures.

Much of this is simply the nature of the beast. Biological systems are enormously complex, with countless inputs and outputs. Even cutting-edge research is usually a gritty, frustrating process -- long lab labors punctuated by occasionally breaking glassware and extremely rare breakthroughs. For instance, scientists at the Merck have spent 20 years attempting to develop an HIV vaccine. They believe they are on the right track, but it will still take years of trials, and vast additional funds, to tell. Additional funds will be required to bring it fully to the market. Companies without its deep pockets would long ago have gone bankrupt.

Yet successful biotech clusters produce undeniable benefits, including the capital of their human capital. According to the accounting and consulting firm Ernst and Young, the biotech industry produced $20 billion in direct revenue and $27 billion in indirect revenue in 1999. In that same year, the industry created over 150,000 direct jobs and nearly 300,000 indirect jobs. San Diego's biotech lab benches produce $5.8 billion in income from 55,600 jobs -- over five percent of the metropolitan area's overall economic output -- and Milken analysts calculated that every $1 produced by the life science sector generates $1.10 of additional output. The average biotech worker in California will earn almost $70,000 (note to self: pick up copy of DMA . . .oops . . . DNA for Dummies.)

That worker there will keep more of his or her income than might be expected. Virtually all of the states with self-sustaining biotechnology clusters have combined state and local tax burdens below the national average of 10 percent, according to rankings released by Tax Foundation in April. Surprisingly, that includes California (26) and Massachusetts. The only exception is Washington D.C., but it is flanked by Maryland (24) and Virginia (37).

Does that mean that urban areas with high taxes and little research infrastructure have their tubes permanently tied, unable to ever experience the joy of growing biotech clusters? Not necessarily, but politicians should be realistic in their planning. The Brookings Institution said, "Even successful biotechnology strategies will take a decade or more to bear significant fruit."

That fruit is not forbidden (although ethical concerns do grow from it) and there is promise in its produce -- as the Milken Institute said, "Progress in microbiology and genomics hold the promise to make biotechnology the dominant economic force of the first half of the 21st century." While regions should strive to develop successful technology clusters, not all may be able to get in step with the biorhythms of biotech.

Charles Rousseaux is an editorial writer for The Washington Times and a frequent contributor to Tech Central Station. E-mail: crousseaux@washingtontimes.com


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