Empires of the Mind: The Emergence of the Biotechnology Industry

January 2007

By John Rees, Junior Project Manager

AngelouEconomics

In 1973, Herbert Boyer and three other university researchers published “Construction of Biologically Functional Bacterial Plasmids In Vitro.” The paper described a revolutionary technique for isolating individual DNA segments and inserting them into another cell with unprecedented precision. Although the molecular structure of DNA had been identified 20 years earlier, all subsequent efforts to create artificial DNA had proven futile. The technique perfected by Boyer and his colleagues, however, finally made recombinant DNA a reality.

Robert Swanson was one of the first individuals to recognize the commercial potential of recombinant DNA. Swanson, a fledgling venture capitalist, was trying to establish a company based on the promising premise of genetic manipulation when he learned of Boyer’s discovery. When Swanson visited Boyer at his laboratory, the overworked scientist agreed to speak with Swanson for just 10 minutes.

Several hours later, the two men remained deep in discussion at a bar named Churchill’s. Over beers, the two men agreed to start a company, and capitalize the new firm with $500 each. Although their new firm, Genentech, did not have a product in the marketplace for years, the world’s first biotechnology company had been christened.

Three decades later, biotechnology has grown into a global industry. As the biotechnology industry has matured, four major subsectors have emerged.

• Research, testing, and medical laboratories: As biotechnology products become increasingly complex, the importance of research and testing has become a critical element of the product development cycle. Government regulations require years of testing before a biotechnology product is approved and there is a growing market for firms that specialize in such services.

• Medical devices and equipment: Biotechnology is used in a variety of sophisticated medical devices and equipment due to its effectiveness at targeting specific biological processes.

• Drugs and pharmaceuticals: Traditionally, medicine has been created through novel mixtures of existing chemical compounds. With the rise of biotechnology, however, many promising pharmaceuticals are created through the use of living organisms. With many of the most promising medical advances predicated on the use of biotechnology, the field is expected to play an expanded role in healthcare.

• Agricultural feedstock and chemicals: Biotechnology allows scientists to create new breeds of crops. Through precise genetic changes, scientists can create plants with enhanced characteristics such as disease resistance or increased nutritional content. Biotechnology promises to also alter the potential uses of existing crops. Current biotechnology research on cellulosic ethanol may dramatically increase the efficiency of using crop-based fuels.

According to the Bureau of Labor, today more than 1.2 million people work in one of these biotechnology subsectors. Research, testing, and medical laboratories and drugs and pharmaceuticals are the two fastest growing segments of the biotechnology field. Together, these subsectors account for nearly 60% of all biotechnology employment, representing more than 700,000 workers. One in four biotechnology workers is employed in medical devices and equipment. The agricultural feedstock and chemicals subsector represents the remaining biotechnology employment.

Biotechnology employees enjoy some of the highest wages in the country, in addition to positive growth prospects. The average salary for a biotechnology worker tops $66,000, exceeding the national average by 65%. Wages in the drugs and pharmaceuticals subsector are even higher, annually averaging nearly $80,000. Furthermore, according to projections by the Milken Institute, biotechnology employment will grow by 1.6% annually through 2014, with many subsectors projected to experience even faster rates of growth. During this period, overall job growth in the private sector is expected to reach just 1.4% annually.

Significantly, the benefits of biotechnology extend beyond those individuals who directly work in the industry. Biotechnology jobs are characterized by extraordinary multiplier effects. According to recently published findings by BIO, the nation’s leading biotechnology lobbying organization, each biotechnology job produces an additional 5.7 jobs in other employment sectors throughout the community.

Few industries can rival biotechnology in community economic benefits. Unsurprisingly, biotechnology is one of the most aggressively recruited industries in the country. According to one survey, biotechnology was cited by more than 80% of local and state economic development agencies as a priority target industry. Fueled by visions of an educated, growing, and well-paid labor force, cities and states have eagerly announced economic initiatives aimed at attracting biotechnology firms to local sites.

Unfortunately, fostering a thriving climate for biotechnology firms is one of the most difficult economic development tasks facing communities today. With nearly every sizable community in America having identified biotechnology as an important target industry, the competition for biotechnology firms is fierce. Perhaps more importantly, the needs of biotechnology firms can be matched by very few cities.

Places with a proven past of biotechnology development have been remarkably successful in maintaining their dominance in most areas of the industry, especially in the areas of research, testing, and medical laboratories and medical devices and equipment. These two biotechnology fields are disproportionately clustered in a small number of cities distinguished by common characteristics—plentiful, educated labor forces, high levels of life sciences R&D expenditures, substantial venture capital markets, and large patent portfolios

Today, only a handful of cities in the world possess all of these qualities. As a result, pharmaceutical-driven biotechnology is overwhelmingly concentrated in a few choice locales. Historically, established biotechnology clusters such as San Francisco and Boston have remained virtually unchallenged over the past 20 years. North Carolina’s Research Triangle is perhaps the only newcomer among the top biotechnology regions during this period.

For cities wishing to sustain thriving biotechnology industries, financial initiatives alone will not suffice. A detailed analysis of the country’s largest combined metropolitan areas reveals the importance of education, investment, and commercialization in the biotechnology field. In this month’s Trade & Industry Development, I examine the number of science and engineering (S&E) doctoral graduates the area produces each year, the level of local research and development (R&D) expenditures, the availability of investment opportunities, and the number of patents produced. Although the individual metrics are imperfect measures of the local biotechnology environment, collectively they produce a common narrative. Cities pursuing an economic development agenda that includes biotechnology must consider the current examples of the leading metropolitan areas.

Ultimately, every dominant metropolitan player in the biotechnology industry has become so through a combination of public and private support of knowledge production. The Raleigh-Durham Research Triangle, for example, is currently one of the leading biotechnology regions in the world. When Genentech and biotechnology first started, however, North Carolina was better known as a leader in tobacco and textiles. Thanks to a number of remarkable research universities and long-term focus on supporting the biotechnology industry, however, North Carolina has transformed its economy to successfully compete in the 21st century.

Although the discovery of recombinant DNA is rightly credited to Boyer and Swanson, their work was made possible only through public commitment in regional research institutes and generous private investment in commercialization possibilities. Cities with large, world-class research universities and encouraging capital networks have become invariably become biotechnology powerhouses. As an entrepreneur and a scientist created the biotechnology industry over pints, clairvoyant communities were already supporting the dictates of the bar’s namesake. As Winston Churchill once proclaimed, “The empires of the future are the empires of the mind.”