Will Midwest Biotech Boom?

The numbers they are bandying about are truly staggering. In the next ten years, the “life science” industries are projected to account for 15 to 18 percent of the total U.S. GDP - translating into roughly $2.6 trillion. You can see it on the faces of the 20,000 people scrambling around the South building of the McCormick Place convention center in Chicago, wide-eyed grinners weaving their way through a maze of exhibit stands, passing row after row of free handouts - pens, shirts, mugs, flash drives, hats, bags, magnets, beer, water, energy bars, and scores of iPods. They beam and wave as they fend off hawkers trying to rope them in with promises of world-saving technologies. But the gentility and generosity belie the fundamental truth of the gathering: unholy sums of money are to be made, if you’re clever enough to figure out how.

It’s BIO 2006, the annual convention of the Biotechnology Industry Organization (BIO), the world’s largest biotech and life sciences confab. For less than a week each year, a small indoor city is built on the shores of Lake Michigan, where prospectors hailing from more than 60 countries stake out paying claims. This morning the life merchants are abuzz. Gold has been found in the form of two new reports claiming that the biotech industry, after a rough start (25 years at a total net loss of $45 billion, with $57.7 billion in losses since 1994), has come “roaring back.”

One of the reports, an annual Ernst & Young publication called Beyond Borders, announced that in 2005 the industry posted an 18 percent increase in revenue to $63.1 billion. Public biotech firms also managed to raise $19.7 billion in capital, the sector’s second highest total since the technology bubble burst in 2000. Of greater cause for celebration was the astonishing 30 percent reduction in net losses.

Yet despite gilded optimism, the biotech industry still couldn’t turn a profit in 2005, losing some $4.4 billion. And according to a Brookings Institution report, “Signs of Life: The Growth of Biotechnology Centers,” the industry employed only around 183,000 in 2002. The study also identified nine regions with the highest biotech concentrations: Boston, Los Angeles, New York, Philadelphia, Raleigh-Durham, San Diego, San Francisco, Seattle, and Washington, D.C.-Baltimore.

Noticeably absent from the list: America’s heartland. In a recent ranking of leading biotech metro regions by the Milken Institute, not a single Midwestern city made the grade. But with places like Madison, Wisconsin, and Oklahoma City mounting hard-hitting crusades to develop their biotech economies, some industry experts expect big changes ahead.

The BioBasket of the Nation?

A year ago, G. Stephen Burrill, CEO of the San Francisco-based Burrill & Company, a life science venture capital and consulting firm, reported that the Midwest would be the next biotech hotbed, driven by highly optimistic financing. “The Midwest is not the first place people think of when considering centers of biotechnology excellence,” says Burrill. “But it’s really more of an awareness issue than it is a fact issue. The Midwest is well positioned in all the areas necessary to be successful.”

Too true. The Midwest is home to more than 300 dedicated biotechnology companies, about 21 percent of the U.S. total. And as the historical breadbasket of America, more than one-third of all agricultural biotech companies are based in the region. These are the titans of life science: Archer Daniels Midland, Cargill, Dow AgroSciences, Eli Lilly, 3M, Monsanto, and Procter & Gamble. Add to that world-class academic institutions, including the Big Ten universities, Loyola, and the University of Chicago, which all possess nationally recognized research programs.

Because of the region’s strong agricultural base, biotech companies operating in the Midwest will play a significant role in the burgeoning markets for nutraceuticals (loosely defined as food that also has health or medicinal benefits), industrial biotechnology, and bio-fuels. In April, BIO began lobbying Congress to approve $150 million in funding from the 2007 budget for the development of “cellulosic ethanol production.” A catalog of public statements stemming from both sides of the congressional aisle - and from environmentalists and biotech boosters alike - laud bio-fuel as the Midwest’s greatest potential asset in the biotech race.

Madison: The Little Isthmus That Could

Midwesterners are furiously networking to improve their region’s status in the biotech sector. During the Chicago convention, Wisconsin was one of the largest delegations - three hundred delegates, who gave themselves a down-home name, “Main Street in Biotech City.” Industry leaders joined Wisconsin governor Jim Doyle in a high-spirited clan that rolled into Chicago like the Merry Pranksters of economic development. There were real estate brokers ready to make quick deals in private, and a platoon of white-coat types, disciples of world-renowned stem-cell pioneers James Thomson and Gabriela Cezar, who were wearing uncomfortable-looking suits.

John Wiley, Chancellor of the University of Wisconsin-Madison (UW), was quoted in the Wisconsin press this spring as saying that Madison was “the epicenter of biotechnology and life sciences research in Wisconsin, the Midwest, and the nation.” A few months later, Wiley laughed, after being reminded of his bombast. “That’s a pretty bold statement,” he says. “I don’t remember saying anything like that. But, you never hit higher than you aim, so I’ll stand by the substance of the statement.”

He stands by it because he, like many others, believes the roots of biotech have been planted in Wisconsin. For starters, the state takes very good care of its university system. UW ranks third in the nation among public universities in research funding, and half of that research has been in life sciences. In late 2004, the state announced that in the next several years, it will invest $750 million in biotech development, including more than $500 million in new facilities and direct research support for university scientists. The figures are astonishing, considering Wisconsin’s relatively small population (just five and a half million people). Another significant university resource is the Wisconsin Alumni Research Foundation (WARF). According to its website, WARF boasts the “oldest, biggest, and richest” university patenting and licensing offices in the nation, with $1.5 billion in annual revenues generated by technology invented in University of Wisconsin laboratories.

For years, the Madison campus has been a patent powerhouse. It is a cluster of colleges, together offering almost every academic discipline imaginable and a highly collaborative environment - one that has enabled university researchers to invent everything from Vitamin D milk to the Social Security system. It’s no accident that stem cells were pioneered in Madison, according to Wiley. It was a conscious, strategic decision, made possible by a rare confluence of people and resources that make Madison among a few places where these types of discoveries can occur. If he’s right, Wiley’s city is running on the right track. There’s powerful evidence of this “cluster economy” phenomenon happening in coastal regions with tremendous biotech success. The main ingredients necessary to prepare a prosperous biotech sector include a strong research foundation, venture capital firms, scientific entrepreneurs, and a workforce that can support biotech businesses. A potent regional economy and high quality of life doesn’t hurt either, since the biotech workforce is highly skilled, highly paid, and highly mobile.

Enter the Wisconsin Institute for Discovery, a $150 million interdisciplinary research facility that brings together scientists and engineers from various fields to explore human biology. Think of it as your all-purpose human health research facility. Carl Gulbrandsen, Managing Director of WARF, believes the new institute will be celebrated for advancing “synthetic biology,” the active collaboration of the biologic and computer sciences. The new facility won’t be completed for ten more years. But boosters hope it will serve as the anchor institution for a vibrant biotech province.

Oklahoma City: The View Is OK from Here

According to Mayor Mick Cornett, Oklahoma City culture is best described as “everybody pulling on the same rope.” If the tragic 1995 bombing of the Alfred P. Murrah Federal Building has an upshot, says Cornett, it is that people appear to have “risen up in unison to create the city they had always dreamed of.”

While there’s been a clear, steady recovery in the last decade, building the city of everyone’s dreams hasn’t been easy. Oklahoma City lost more than 2,000 jobs after a big General Motors assembly plant closed last fall, and it continues to lose manufacturing jobs. Mayor Cornett’s long-term goal is to diversify the economy, now dominated by the energy industry and supplemented by post-bombing tourism. But he’d also like to diversify the population - by attracting, for example, a few more “creative class” types.

Oklahoma’s proximity to the Dallas megapolitan area occasionally gives it an advantage in attracting cosmopolitan types. But whereas Madison’s colleges and businesses attract an increasingly diverse crew of people, making it an island in an otherwise homogenous, conservative state, Oklahoma City is still largely a socio-economic one-horse town.

Local CEOs sometimes use this to their advantage. The low cost of living makes Oklahoma City an attractive place to raise a family, and the flag-waving, small-town ethos appeals to some young people. This tends to produce job candidates with clean pasts, able to pass deep background and security checks to work, for example, on the numerous Pentagon-funded “biodefense” projects. Many local business leaders report a 100 percent signing rate among young candidates.

Still, luring the biggest biotech movers and shakers to Oklahoma is an entirely different matter. And strangely, the people in this folksy, white-bread community seem to know exactly how important a thriving biotechnology sector could be to their economy. “Like most cities, we’re trying to create new jobs, and we have economic development dollars available for the biosciences, which are generally higher-paying jobs that tend to attract other jobs,” says Cornett.

In 2005, the city hired Battelle, a highly influential science and technology consulting firm, to work with local groups to put together a workable strategy for the ten-county Oklahoma City metro area. They called it “Moving Forward Together” - presumably, all up the same rope.

Perhaps most interesting about the Battelle study was its “proof” that Oklahoma City was actually a thriving bioscience economy with 30,000 employees - not a fledgling biotech sector with only 1,112 workers. The extra 29,000 people were reclassified hospital workers - everyone from the chief of thoracic surgery to the part-time retiree in the gift shop. Not exactly a flood of technocrats, but it made for a much more compelling, if a bit specious, economic case.

The report’s ultimate conclusion: biotech isn’t necessarily an industry you attract, but an industry you grow. The plan recommended that rather than competing to recruit established companies, the established bioscience community might try formally collaborating to create a cluster of scientists to draw promising researchers and developers. Such a cluster, the report argues, could create more than 7,000 new jobs and 90 new businesses within ten years. Lucky for everyone, the city already has just such a group - albeit an unusual one - in place.

The (God)Father and the Family Business

Mike Anderson’s first “bioscience” project was back in 1985, as pastor of Oklahoma City’s Westminster Presbyterian Church. The church had decided to sell their namesake hospital to HCA, a healthcare corporation. Anderson was tasked with using the $62 million windfall. He encouraged the church to create the Presbyterian Health Foundation (PHF), which became the original anchor of Oklahoma City’s contemporary healthcare community.

PHF is a not-for-profit which, in its simplest terms, acts as a business agent for new medical technology. They take “approved, but not funded” peer-reviewed research studies originating in the R&D departments of nearby universities and local bioscience/healthcare firms, and marry them to some of the massive government funding available though federal agencies. PHF prefers proposals for medical education or bioscience research projects with the potential for spin-off technologies they can patent. Like the mighty Wisconsin WARF, they reinvest profits into new infrastructure or R&D.

Because of Anderson’s history of receiving gubernatorial appointments and his deep civic engagement, he has positioned the PHF “family” as a major player in Oklahoma City. Now the PHF president, Anderson is seen around town as a benevolent don in cloth.

“We’re centrally located in this community, both geographically and politically,” he says. “We precipitated the collaboration between the Oklahoma City Chamber [of Commerce] and the Battelle company to produce the regional development plan. You could say our role is to make these sorts of things happen.”

Over the years that $62 million original investment has grown into more than $201 million in total assets, $100 million in major research grants, and a seven-building, 600,000-square-foot research park (including a Class A wet lab facility) and 49 tenants. All told, the PHF family employs 1,178 loyal soldiers. The foundation’s total 2005 revenues - earned from an endowment, investments, charitable contributions, and income from the research park - totaled $25 million.

Today, PHF is the Oklahoma City biotech community. They see the future of this community, one they will play a large role in shaping, in “biologic manufacturing.” This highly specialized component of the biotech economy essentially makes the basic parts that make biological research work. To build that sector, a city needs the appropriate workforce - in other words, highly skilled, highly trained people with advanced degrees. And there aren’t nearly enough of those in Oklahoma City to go around. So, they must be imported.

Because of the massive Tinker Air Force base and large surrounding farming community, Anderson says, Oklahoma City is primed to attract all sorts of biotech business - including the aforementioned Pentagon-funded “biodefense” research, involving infectious disease prevention and anti-terrorism tactics, and any number of farmer-friendly bio-fuel businesses. In fact, the real purpose of the city’s Battelle plan, according to Anderson, was to chart a path for the indigenous energy sector to transition into bio-fuels.

So, what could possibly prevent Oklahoma City from becoming a booming bioscience hotbed? Anderson answers the question with a question: “Will the state be willing to match funds to subsidize the building of this industry?”

And there it is. Big investment dollars, especially on the state level, are the most coveted prize for any city. A recent bill in the Oklahoma legislature would give $150 million to statewide biotech research efforts, and government officials are claiming they eventually want to up that to $1 billion. There’s also a $180 million bond issue in the works, and funding for the Oklahoma Nanotechnology Applications Project (ONAP) which will “award funds to qualified Oklahoma companies applying nanotechnology . . . to improve current products or create new, cutting-edge products,” according to the Battelle study.

Other People’s Money

Joseph Cortright, a co-author of the Brookings report “Signs of Life” and now an economic analyst at Portland-based consulting firm Impresa, thinks the biotech industry has gone through a pretty rocky cycle. “The typical small start-up has been hunkered down, trying to stretch its capital as far as it can,” he says. Even though Ernst & Young says investment has increased, according to Cortright, money flowing in has still largely been choked off. Local economic development departments are really the only ones investing millions, creating a somewhat fatuous buzz.

“This is an industry that has been run on OPM (Other People’s Money). Even the cities that have biotech [industries] don’t employ many people, and they don’t make money. Cities have fallen prey to a very seductive semantic ideology that biotech will be for the next decade what the internet was to the last,” he says.

One would think all of this would make it unlikely for biotech economies to develop outside of established nodes. But you wouldn’t be able to tell that from the energy in Chicago during the week that the convention took over the city. There was, amongst the participants, as well as in local government and media, an almost a uniform sense of awed conviction that biotech will indeed save the world, along with their economies, and make them all rich to boot. This is why cities around the developed world are still spending seven figures to send delegations to the convention, with no real promise of coming home with anything in the near-term.

As Dr. Joseph Ferretti of the University of Oklahoma Health Sciences Center says, “Metaphorically, this is a very important and expensive game that we are playing, and we must pay to play.”

Charles Shaw is a senior staff writer for The Next American City. He is also editor-in-chief of Conscious Choice magazine in Chicago.