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THIRD WORLD NETWORK INFORMATION SERVICE ON BIOSAFETY

20 June 2002

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Dear friends and colleagues,

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RE: TOUGH ROAD AHEAD FOR BIOTECHNOLGY CENTERS

Biotechnology is a risky business. So says a new study by the Brookings Institution, a policy research institute based in Washington DC.

For countries, especially developing countries, which is contemplating setting up their own biotech centers this new study which looks at the growth and decline of biotech centers in the 51 major metropolitan areas in the US throws light into what it takes to create a thriving and financially successful center.† And what it takes seemed like a tall order. Not only is the industry highly volatile (half of the biotech companies formed in the 1970s have folded or merged with other companies), the process of setting up a successful company is protracted requiring substantial fundings and time. Also the economics is great that most small biotech companies have failed over the last two decades.† ďThe apparent scale of research funding required for becoming a biotechnology center may be beyond the reach of most metropolitan areas...,Ē the study concludes, adding that most biotech firms operate at a loss, spending large amounts on research and development for several years in advance of earning any sales revenue. According to the study, the typical biotech firm spent about $8.4 million on research and development and earned revenues of just $2.5 million in 1998.

As such, biotechnology activities are highly concentrated within those metropolitan areas that combine a strong research capacity with the ability to convert research into substantial commercial activity. And these are also places where there is a high concentration of capital flow, a critical ingredient in the development process, as well as the location of leading universities and research institutes as sources of intellectual and human capital.

Those that contain these essential ingredients are clustered around only nine of the 51 metropolitan areas the study surveyed, with the Boston and San Francisco areas as the two established and dominant centers of the biotech industry in the US, which incidently, has the largest concentration of biotech research firms in the world.† Government financing, a criteria that would be taxing especially to developing country governments, is also required to boost growth.† The study notes that the biotech centers in the US receive heavy support and subsidies from the government; for example, the National Institutes of Health provide substantial research fundings totaling USD229 million in 2000 to the biotech centers with three-fifths going to the nine key areas.

The study also concludes that it would be a mistake to believe that biotech centers would take off like those of the computer technology centers. Unlike the boom created by the personal computer and internet, biotechnologies are often quite expensive and most biotech products are applicable to only a narrow fraction of the population.

Another shortcoming of the biotech centers are that even the successful ones do not contribute significantly to the economies in terms of job creation as most of the companies are small and have no intention of growing nor do they expand to other places.

We hereby reproduce the Executive Summary of the report. The full report is available at

http://www.brook.edu/dybdocroot/es/urban/publications/biotech.pdf

With best wishes,

Lim Li Lin and Chee Yoke Heong

Third World Network

228 Macalister Road

10400 Penang

Malaysia

Email: twnet@po.jaring.my

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REF: Doc.TWN/Biosafety/2002/I

Signs of Life: The Growth of Biotechnology Centers in the US

By Joseph Cortright and Heike Mayer

Executive Summary

The biotechnology industry is concentrated within nine of the nationís 51 largest metropolitan areas.† These nine areas account for three-fourths of the nationís largest biotechnology firms and for threefourths of the biotech firms formed in the past decade. Two of the nine metropolitan areas, Boston and San Francisco, established themselves as the research leaders in biotechnology in the early days after the industryís founding in the1970s and continue today to be the dominant centers of the biotech industry. Two other metropolitan areas, Philadelphia and New York, have substantial concentrations of biotech activity, related chiefly to the historical presence of the headquarters of the nationís largest pharmaceutical manufacturers. Since the 1970s, three other metropolitan areas have emerged as significant centers of biotech industry-San Diego, Seattle, and Raleigh-Durham-each of which has built upon a well-recognized and well-funded medical research establishment and has been the site of many start-up firms.† Two additional metropolitan areas, Washington/Baltimore and Los Angeles, also have a concentration of biotech activity. Washington, D.C., has a significant biomedical research establishment and is home to the National Institutes of Health (NIH); in addition, several firms related to the exploration and mapping of the human genome are located in the Washington/Baltimore area. Los Angeles is home to the nationís largest biotech firm, Amgen, located in Thousand Oaks.

These nine biotech regions are leaders because they have two necessary elements for industry growth: strong research capacity and the ability to convert research into successful commercial activity.† The present analysis suggests that the critical factor in the development of a biotechnology industry is not only the availability of pre-commercial medical research but also the availability of continuing private-sector investment in product development. Most biotech firms operate at a loss, spending large amounts on research and development for several years in advance of earning any sales revenue. These money-losing biotech research firms depend on venture capital investments, on research contracts and equity investments from large pharmaceutical companies (usually in exchange for marketing rights), and on sales of their company stock in public markets.

Biomedical research activity is now relatively widespread, but thus far only a few of the countryís 51 largest metropolitan areas have demonstrated the entrepreneurial and financial capacity required for consistently generating significant numbers of new biotechnology-related businesses. Five of the nine top biotechnology metropolitan areas-the leaders (Boston and San Francisco) and three other areas in which biotech is growing rapidly (San Diego, Seattle, and Raleigh-Durham) - account for the bulk of the growth of new biotechnology firms. Together these five areas have accounted for 75 percent of the new venture capital in biopharmaceuticals in the past 6 years, for 74 percent of the value of research contracts from pharmaceutical firms, and for 56 percent of the new biotech businesses formed during the 1990s.† Thus far none of the other 42 largest metropolitan areas in the United States has developed a significant concentration of biotechnology activity.

These other 42 metropolitan areas are divided into three groups, as follows: Four metropolitan areas (Chicago, Detroit, Houston, and St.† Louis) can be classified as research centers with limited commercial activity because they rank above average in research activity but below average in commercialization.† Twenty-eight metropolitan areas have some biotechnology research and commercialization but at levels well below the average of the 51 metro areas in the sample. These may be regarded as median metropolitan areas. Ten metropolitan areas (Charlotte, Grand Rapids, Jacksonville, Las Vegas, Louisville, Norfolk, Orlando, Phoenix, San Juan, and West Palm Beach) have no significant biotech research or commercialization, with levels of both research and commercialization at less than 10 percent of the average of the 51 metropolitan areas in the sample.

Development of a successful biotechnology cluster requires a considerable amount of time and investment.† Established concentrations of medical researchers and research institutions change slowly. It often takes a decade or more to develop biotechnology-based products, and perhaps one in 1,000 patented biotech innovations produces a successful commercial product. The historically low odds of success and the extended stretch of time associated with developing and securing regulatory approval for commercial biotechnology products mean that metropolitan areas seeking to develop a biotech industry will need to invest a significant amount of time and resources.† Although growing rapidly, the biotechnology industry is still a small portion of most metropolitan economies.† To date, even successful biotechnology industry clusters have produced only modest returns to their regional economies. Most biotechnology firms are quite small: nationally only 44 have more than 1,000 employees. (Institute for Biotechnology Information 2001) Biotech firms typically contract with global pharmaceutical firms to produce, market, and distribute successful products rather than attempting to create their own capacity to do so. In the two largest concentrations of biotech activity in the nation (Boston and San Francisco), none of the largest biotech firms is among either regionís 25 largest private employers.

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