States, cities court biotech over doubt of economists

Monday, June 21, 2004

SAN FRANCISCO -- Governors and mayors from across the country were in full force at the biotech industry's annual convention last week, offering tax breaks, government grants -- even help with parking -- to lure biotech companies.

Yet biotech remains a money-losing, niche industry firmly rooted in three small regions of the country.

"This notion that you lure biotech to your community to save its economy is laughable," said Joseph Cortright, a Portland, Ore., economist who co-wrote a report on the subject. "This is a bad-idea virus that has swept through governors, mayors and economic development officials."

The biotechnology industry is largely concentrated in the San Francisco Bay Area, San Diego and Boston because of the built-in venture capital communities, vibrant academic institutions and highly educated work forces in those regions. Research Triangle Park, N.C., and Seattle also have a significant number of biotech companies, but nothing compared to the top three areas.

What's more, biotechnology companies like to "cluster" around universities and each other so they can easily swap -- and steal -- technology and scientists, making it difficult for regions to launch a biotechnology industry from scratch, Cortright said.

'The dreaming side'

That hasn't stopped state and local officials from dreaming that the growing biotechnology industry will help shore up their sagging economies with high-paying jobs while adding luster to their communities with cutting-edge research aimed at curing cancer, AIDS and other high-profile diseases.

"It's always good to have skeptics, but I like to be on the dreaming side," said Florida Gov. Jeb Bush, who has made one of the biggest -- and riskiest -- moves to lure biotech to a state noted more for tourism and oranges than medical breakthroughs. "It's a lot more fun on the dreaming side of the road."

Florida and Palm Beach County have invested a combined $510 million to build a new biotechnology center for the prestigious Scripps Research Institute, based in San Diego. Bush and other Florida officials hope that Scripps' large influence on making San Diego a biotech hub will be duplicated in Florida.

"At minimum, there has been a paradigm shift in the thinking about Florida," Bush said.

According to a report prepared for the Biotechnology Industry Organization and released at the convention, at least 29 states have formal plans to woo the biotechnology industry.

Six governors made the trek to the conference and dozens of states and cities have colorful booths on the convention floor.

Arizona sent 60 representatives to the convention to tout its government-backed biotech initiatives. In 2002, the state provided $30 million and the city of Phoenix donated land worth $21 million to build the Translational Genomics Research Institute, according to the report.

The report, which included medical device makers and some chemical-making sectors not generally viewed as biotechnology, found jobs in the industry pay $26,600 more than the nationwide average.

There's no doubt biotechnology is growing and many analysts do see the genetically engineered, cell-based medicines someday eclipsing the traditional, chemical-based way most of today's drugs are made. But even the most optimistic outlooks don't see that occurring for another 10 years.

That's because for all its promise, the biotechnology industry has lost a combined $40 billion since its inception in 1976.

Combined annual revenue is about $30 billion, the same amount pharmaceutical maker Pfizer Inc. took in last year.

The combined market capitalization of publicly traded biotechnology companies is about $300 billion, slightly more than the value of Microsoft's publicly traded shares.

"You're talking about a couple decades' investment," said Jim Hall, a Boston-based analyst with the Scottish firm Wood MacKenzie Consultants. "Biotechnology companies still have a long way to go in terms of profits and revenues."

In all, biotechnology employs about 200,000 people nationwide, but ironically only one very small biotechnology company actually is based in the city of San Francisco, which takes credit for launching the industry because much of the pioneering work was done at the University of California, San Francisco.

"We are frustrated," San Francisco Mayor Gavin Newsom told biotechnology executives during a speech Monday at the industry convention.

"You need parking requirement changes, we'll take care of it. You need tax incentives? You got it," Newsom told the executives. "Whatever you need."

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