What Will it Take for a Capital Region Biotechnology Cluster
to Grow and
Sustain Itself?
By Shreefal Mehta PhD MBA
Research Assistant Professor of Biotechnology Management
Lally School of Management and Technology
Rensselaer Polytechnic Institute, Troy, NY
BIOTECH IS BIG BUSINESS
Biotech is a real industry and is big business
The excitement generated by the Human Genome project in 2000 has subsided
somewhat, with the realization that much more work is needed in order
to better understand
the genomic data of humans and other organisms. However, there is a growing
realization that this data and other technological breakthroughs have
opened the door to a new era of biology. The excitement in this new wave
of biotechnology
is due to the availability of information that integrates through all
levels of a living organism, from interactive networks of organisms within
ecosystems
to molecular networks of genetic regulation in individual cells. This
wave of disruptive technology and new information is clearly attracting
people
from all walks of life, driven by the awakening realization of the impact
that current
developments in biotechnology will have on all of our lives.
The biotechnology industry as a whole is 25+ years old and is maturing in the number of products and profitable firms. The new technological developments signal significant growth in the healthcare, biotechnology and pharmaceutical industries. According to the Biotechnology Industry Organization (BIO), biotechnology firms contributed $47M to the economy in 2002. In specific regions, the economic impact of biotechnology is also evident.
Value added to New
York State by biotech companies in the year 2000 (data from NYBA):
- In 2000, combined revenues of 1.2 billion (32% increase over 1999),
- Protein engineering services generated 500 million
- Therapeutics companies, 400 million
- Diagnostic companies, 200 million
In 2000, 600 million spent on R&D (32% increase over 1999)
TAKING STOCK
What do we have here in Albany that makes us think we will be successful in building a vibrant biosciences industry cluster?
Major Institutions
With Life Science Research:
The University at Albany (SUNY at Albany) founded in 1844 and designated
a University Center of the State University of New York in
1962, has 17,000 diverse
students
in nine schools and colleges.
The New York State Health Department’s
Wadsworth Center, based in Albany’s
Empire
State Plaza, employs 1,200 people. Its lab is perhaps the largest
state public health lab in the
country. They administer and teach a graduate program (M.S. Ph.D.)
in Biomedical Sciences and Environmental Health and Toxicology
with the
School of Public
Health, University at Albany.
Albany Medical College of Union University is one of the nation’s oldest private medical schools. The College strives to pursue excellence in the education of health care personnel, research in the basic and clinical medical sciences, and services to the community through delivery of patient care. In 1873, the College affiliated with Union College and Albany Law School to form Union University. Albany Medical Center is a private corporation formed in 1982 which administratively links Albany Medical College and the Albany Medical Center Hospital. The Medical Center is one of Albany’s largest non-governmental employers, with about 5,000 employees.
Rensselaer Polytechnic Institute (RPI), founded in 1824, is the nation’s oldest technological university with approximately 9,000 students in its 110 graduate and undergraduate academic programs.
Albany College of Pharmacy. Established in 1881 as the Department of Pharmacy of Union University, the College of Pharmacy now has about 800 students and 50 full-time faculty and awards PharmD degrees.
Other Relevant Capital Region Educational Institutes:
Albany Law College
Union College
Sage Colleges
Hudson Valley Community College
Life Sciences Research At These Universities:
These universities are actively pursuing research activities
in the life sciences and have attracted funding from the
National Institutes
of Health
(NIH), the
largest supporter for health care research in the country.
A quick
look at the NIH research grants awarded to the Capital
Region academic institutions
last
year (Table 1) shows an active community of nationally
recognized life sciences
researchers. Table 2 shows the 2001 total expenditures
(from all sources of funding) in the area of life sciences R&D by the
two leading universities in the area.
Table 1: NIH Grants Awarded In 2002 To Local Institutions
| WADSWORTH CENTER | $17,881,064 |
| ALBANY MEDICAL COLLEGE OF UNION UNIV | $ 9,663,727 |
| SUNY AT ALBANY | $ 8,584,336 |
| RENSSELAER POLYTECHNIC INSTITUTE | $ 1,873,709 |
Note: this does not include ongoing grants awarded in previous
years that may be ongoing projects.
TABLE 2: R&D Spending In The Life Sciences*
FY 2001 (National Science Foundation
Data)
| SUNY AT ALBANY | $41,335,000 out of total R&D expenses of $70 Million |
| RENSSELAER POLYTECHNIC INSTITUTE | $669,000 out of total R&D expenses of $45 Million |
*does not include engineering
R&D expenditures (e.g.
biomedical engineering, chemical engineering).
Biotechnology
Companies In The Capital Region:
Capital Area Facts (from NYBA):
– 2 public biotech companies: Albany Molecular Research, American Bio Medica
– Handful of private companies like Taconic Biotechnology, Therion Corporation, Vec Technologies, and several other biomedical technology based companies like Drug Risk Solutions. Only a few focused on development of life-sciences based products.
– Regeneron manufacturing division based here in Rensselaer with over 250 employees, General Electric CRD, based in Schenectady, is building a biotechnology research unit.
– Total employment = 750 as of the year 2000, last year for which figures are available.
Entrepreneurial
Money:
There are no venture capital groups or banks
with a focused interest or extensive experience with
life science companies.
A local
angel venture group (Tech
Valley Angel Network) has funded some biomedical
technology
companies but
no life-science
companies based in the capital region are venture-backed
at this time to the best of my knowledge.
Quality
of life and
entrepreneurial
culture:
Social capital is intrinsically tied to economic
growth. Attracting and keeping the right kind
of creative,
entrepreneurial people
is integral to building
small and medium-sized companies that give critical
mass to a cluster.
The Capital Region attractiveness is based on its general bucolic beauty and the numerous ski slopes around every corner (literally this last winter). Other factors contributing to the high quality of life in the Capital Region are the area’s reasonable cost of living and low traffic congestion. There are good school districts in the area, many of which compare favorably with national class averages.
But do we have what it takes
to attract and grow entrepreneurs and new companies?
A certain vibrancy of social and cultural life
attracts and builds networks of people and nurtures
the entrepreneurial
spirits.
An important social
factor is
the attitude towards and acceptance of frequent
failure in
trying something risky. Last year, the Capital
Region (Albany-Schenectady-Troy metro
area) scored 17
out of 266 ranked metros on author Richard Florida’s
(The Rise Of The
Creative Class) creativity index, which
measures attributes including education, innovation
and diversity.
On the other hand, it is clear that the creative arts and socially vibrant cultures that in the region’s cultural and night life are not yet comparable to the quality and vibrancy of those in other biotech entrepreneurial hubs like Boston, San Francisco and Seattle. Consider this: the largest employers in the region are the state and federal governments and are likely to attract people who prefer the stability of a government job and are not inclined to risk-taking entrepreneurial activities.
State and local government initiatives
The main thrust for the support of life sciences in the capital region from the government is coming from the New York State Office of Science, Technology, and Academic Research (NYSTAR).
About Gen*NY*sis
The State Budget provided $225 million for the Gen*NY*sis (Generating Employment
through New York State Science) program. The program was created to maximize
the research and development potential of the world-class life science
research being conducted at NYS public, not-for-profit and private academic
research
institutions. There are more than 20 Gen*NY*sis Centers in NYState, with
two grants recently announced in the capital region:
UAlbany East Campus cancer research center $22.5 million
RPI – Center for Bioengineering and Medicine $22.5 million
NYSTAR Advanced Research Centers supports The Center for Pharmacogenomics at Albany Medical College. This Center identifies candidate genes for disease susceptibility as well as adverse reactions to chemicals and drugs. Findings will be used to develop new technologies, including those that uncover susceptibility to drug therapies. Chief partners are Wadsworth Center Laboratory and Health Research, Inc.
While these initiatives will help draw top notch scientific researchers and pay for building structures at these two institutes, creating world class life sciences research institutes is only the first step that is needed to develop and grow a life sciences industry cluster. The life sciences intellectual property created at these institutions will not stay in the region if effective mechanisms to support new companies and attract more established companies are not put in place rapidly. The commercialization of biotechnology products is a long, research-intensive (and thus capital intensive) product development process. This means that local economic development agencies have to acquire a specific appreciation and knowledge of the industry, technologies and the needs of early stage and midstage companies. The state and local governments have to cooperate and work creatively at creating the right incentives to develop a critical mass of companies for a biotechnology cluster. There exists only one initiative that I know of at the state level to financially support early stage companies.
Small Business Technology Investment Fund (SBTIF)
All SBTIF investments require 3:1 matching funds that may include backing
from private sector venture capital firms, private investors, federal
sources, or
other public sources outside New York State. Typical investments
range from $50,000 to $500,000. However, this fund usually requires efficacy
or safety data in humans studies in order to consider the company for financing.
By that stage, most life science companies can raise investment elsewhere
too.
The
state venture fund cannot assist where it is most needed — early
stage
companies caught in the pre-clinical financial death valley.
Growth
of a bioscience beach — a story with a
lesson:
A story of another city with some similarities to Albany (somewhat isolated
city, a few hours away from city with venture capital, excellent research
university, attractive outdoor activities) is worth looking into. San Diego
(Bioscience Beach) is a stellar biotech industry cluster that is continuing
to grow and attract major research centers from large established companies
from around the globe.
The story really starts about 25 years ago, when Hybritech was formed in San Diego, at the birth of the biotech industry on the West Coast, along with Genentech in San Francisco. The formation of Hybritech came about due to a few factors: the presence of an outstanding scientist at UCSD (University of California San Diego), venture capital networks on that coast, a risk-supportive environment, mobile trained workforce, and a regional culture of open communication.
Hybritech was formed by technology transfer out of UCSD with an innovative arrangement with the founding scientist (Ivor Royston) and the company. Royston was able to continue working at UCSD while developing Hybritech technology and the agreements with UCSD and Hybritech became a model for other scientists to do the same. The innovation that formed Hybritech (recombinant DNA and cloning monoclonal antibodies in large batches to avoid tricky calibration and quality issues) proved to be a rich technology base for future companies.
The next scene in the story opens with Hybritech being bought over by Eli Lilly in the late 1980s. Many creative individuals, now millionaires, left the bureaucratic pharmaceutical company to act as “angel investors and mentors” for other local firms and scientists. There was a steady growth in local entrepreneurial firms and experienced executives and scientists. A large number of very successful firms in San Diego can trace their roots back to Hybritech, implying a strong local environment that can sustain innovative companies.
A key factor that contributed to the growth of a cluster was the emergence of a strong advocacy and social network, formed by dynamic entrepreneurial, forward-looking individuals that formed links between and among companies and universities and served as serial entrepreneurs or attractors for human and venture capital. The local and regional advocacy group lobbied actively and vigorously to state and local governments for the needs of their constituents which included biotech firms and other organizations (lawyers, accountants) affected by their success. A study of the emergence of the San Diego cluster has pointed out “if a city is not attractive to prospective inhabitants and fails to build a critical mass of interacting companies along networks, sustainable clusters will not develop.”
While San Diego had several factors that helped the development of the bioscience cluster, it had several factors that the cluster companies and advocacy groups had to work against. San Diego has a shortage of water and affordable land, making large manufacturing facility development costly. Other negatives include substandard schools, immigration problems, and traffic gridlock. However, the bioscience advocacy organizations have taken an active role in promoting solutions to these problems.
Moral and Lessons from the Story:
Dr Walcott, who has written several papers on economic development and
the life science industry, summarizes that a biotechnology cluster
formation is dependent on certain features more specialized than just stellar
research
universities.
As an example, despite efforts by local and state offices, no industry
cluster
has developed in Baltimore around the John Hopkins University or in
Dallas around the University of Texas Southwestern Medical Center. Albany
is
still building up its life science research and academic base of innovation,
but would strongly benefit in its endeavors to build a cluster by paying
attention
to the following specialized features, seen to aid Bioscience Beach
in establishing a cluster:
1. Outstanding research university with specialized field of biomedical
research
2. Regional culture that supports failure in the form of multiple companies
3. Local entrepreneurial culture and adequate risk capital including
venture capital
4. Strong leadership through leading individuals and community and
associations — causing
companies and universities to be networked and interacting.
5. Suitable real estate including specifically developed real estate
three levels of facilities — from incubators to midsized labs and development
facilities. Markets must include subletting of specialized labs and
other amenities.
ALBANY NEEDS TO GROW IN A FEW AREAS TO BUILD A BIOTECH CLUSTER
People, people and people, research, money, networks, location.
The local research institutions (Wadsworth, UAlbany, RPI) seem to be
converging their interests and expertise on two main themes — regenerative
medicine and cancer. These two areas of research have some key technological
and biological
themes that tie them to together, allowing the region to build a
specialization in biochemical pathways that mediate cell growth and
differentiation. This
is a rich area of research that could spark off some key insights
and innovations leading to blockbuster products. Now how do we keep
these innovations here
and commercialize them by growing local companies?
In the first step, technology transfer units at these institutions have to be proactive and creative, with a mission to build local companies. Economic development agencies have to be alert and sensitive to the needs of an early stage biotech company. Beyond technical personnel, of which we should have enough once UAlbany and RPI get their life sciences buildings built, this area desperately needs entrepreneurial, middle management and experienced biotechnology managers to start and grow early stage companies. Venture capitalists will always want to bring in experienced management from pharmaceutical or biotech industry and these experienced executives will want to go where they have other options (a critical mass of other similar companies) and do not have to relocate their families with single business failures. Venture capitalists will invest in the area if they see other companies they can build a portfolio with, so that their day trips to this city in the Adirondacks are productive.
Building that critical mass needs a push by state government, coordination of local economic agencies and other attractors for companies, like the biotechnology incubator at UAlbany East Campus that has academic core facilities that can be used by companies. Venture capitalists must be wooed with forums like SmartStart and biotech entrepreneurs must be built (MBA programs at local schools) if not bought.
This can happen, only if everyone involved has a “can-do” and “coordinate” and “collaborate” attitude.
Action Steps To Grow Biotechnology Industry In The Capital Region
1. Assist in the
growth of selected life sciences companies to produce success stories for
the area, build management talent
and successful
entrepreneurial individuals, and grow experienced local service
infrastructure (e.g. real
estate developers) who have a successful experience with biotechnology.
2. Infrastructure development — real estate and laboratory space development
around Albany Medical School, College of Pharmacy, Wadsworth,
UAlbany and RPI to support early and mid stage companies. Manufacturing
facility greenspace availability with special utilities.
3. Advocacy association and dynamic leadership to be nurtured
and attracted
4. Networks and association activities to build interactive
and open environment
5. Foster biotech venture capital and angel network links with
Boston and New York with directed efforts to bring specialized
VCs and investment
banks to
Albany.
6. Scientific, technical, regulatory, business seminars
and conferences
7. Idea exchange network and resource
8. Job exchange network and resource
9. Advocacy with other stakeholders — peripheral companies, government
agencies
10. State, national links with other biotech associations
BIBLIOGRAPHY
Susan Walcott. Analyzing an innovative environment: San Diego as a bioscience beachhead. Economic Development Quarterly. May 2002. Vol 16. No 2. 99-114.
Kerry A. Dolan. San DNAgo. 26 May 2003. Forbes Magazine online.