Stephen Dunphy / Times staff columnist
Economic Memo: Risk and biotech go together
The Seattle area should count itself fortunate to have a growing biotech sector because a recent study by the Brookings Institution says regions trying to create an industry have an expensive, risky and time-consuming road ahead of them.
Not that it's stopping anyone. More than 40 states have biotechnology as part of their long-range drives to improve their local economies. Around the country, more than 80 percent of local economic-development organizations list biotech as a top growth target. Several have committed hundreds of millions of dollars on such efforts ranging from industrial parks to tax breaks.
"The dream is that you take a research base and parlay that into an industry," said Joe Cortright, an economist with Impresa Consulting, in Portland, and the lead author of the Brookings study.
Portland is a good example. The state is backing $200 million in bonds to help Oregon Health & Science University build 200,000 square feet of high-tech labs and recruit the talent needed to get an industry going. It has had some success, increasing its share of federal funding for biotech research.
But the Brookings study shows Portland trails the pack in such measures as venture capital, number of patents and biotech jobs. Portland was ranked among 28 third-tier cities in the study, making it unlikely Portland will ever reap the sweeping economic gains it hopes for.
Seattle, on the other hand, is included among the five top biotech centers in the country. "It's striking that not only is the industry highly concentrated, but that the leaders are pulling away," Cortright said. Measures of research used in the study — National Institutes of Health funding and patents — are becoming more widespread among the 51 metro areas, but Cortright said all the key measures of commercialization, such as venture-capital investment and new-company formation, are becoming more concentrated in the top five areas.
The five areas are the longtime leaders in the industry, Boston and San Francisco, and three in which biotech is growing rapidly — San Diego, Raleigh-Durham and Seattle.
"Together these five areas have accounted for 75 percent of the new venture capital in biopharmaceuticals in the past six 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," the report said.
So far, none of the other 42 largest metro areas in the country "has developed a significant concentration of biotechnology activity," the report said.
One of the reasons the top areas continue to expand may have more to do with money and businesses than science and research. Two necessary elements are needed for industry growth — strong research capacity and the ability to convert research into successful commercial activity.
"Biomedical research activity is now relatively widespread, but thus far only a few of the country's 51 largest metropolitan areas have demonstrated the entrepreneurial and financial capacity required for consistently generating significant numbers of new biotechnology-related businesses," according to the study.
Looking specifically at Seattle, the study sounds like a familiar recording. It cites the importance of the University of Washington and the Fred Hutchinson Cancer Research Center. This area's industry has been driven by spinoffs from those two key research institutions.
Seattle is definitely in the game, but others will have a hard time making it. Why?
The scale of investment needed is staggering, especially research funding and venture capital. In Seattle, biotech has garnered more than $500 million in NIH funding annually for a decade and $750 million in new venture-capital investment over the past six years. The totals reflect the level of effort needed for a successful biotech industry.
Another reason is that conventional industrial-recruiting techniques don't work. Most biotechs start locally and remain local, tending to cluster in areas with strong life-sciences research groups and major universities. Any area with a strong biotech sector should focus on what it has, not what it might get, according to the study.
Even if a region is successful, biotech takes time. It will be a decade or more for any effort to bear significant fruit.
Cortright also thinks people are placing too much emphasis on the industry itself.
"It may turn out to be naive to assume, as many seem to, that biotech in the next decade will be a simple repetition of the impact that computers and the Internet had in the last decade," he said.
There is no Moore's law for biotech, he said, a reference to the rule of thumb developed by Intel that computing capacity doubles roughly every 18 months. No law limits the downstream economic benefits.
"Biotech may turn out to be more like nuclear power — a technology whose economics have never really penciled out, and which has raised serious health and moral questions that have delayed or impeded its widespread adoption."