Thursday, June 05, 2008

Can Houston become a major biotech center?

I got to see Dr. Dan Monticello, Ph.D., President and Director of Molecular LogiX in The Woodlands, speak at The Houston Economics Club this week (held at the very cool new Federal Reserve building). He gave an overview of biotech in Houston, with strengths, weaknesses, and proposed solutions.

First, some of the strengths:
  • World's largest medical center, including huge numbers of patients for clinical trials
  • BioHouston supporting regional efforts from TAMU all the way to UTMB Galveston
  • We educate (and export) a lot of talent
  • Strong state funding via the Texas Enterprise Fund and the new $3 billion cancer initiative
  • Rapidly growing and successful Texas Life Science Conference (attracted representatives with over $6 billion of venture capital)
Despite all that, we only have 140 life science companies (most are small), and are really not in the same league as San Diego, San Francisco, or Boston. Why?

Weaknesses:
  • Extremely heavy competition (every city wants to be "the next San Diego")
  • Nonprofit institutions are doing more development themselves, rather than outsourcing to private enterprises
  • Easier for nonprofit institutions and universities to export ideas and talent than develop it here
  • Lack of experienced biotech management
  • No "soft landing" for failures (an executive is afraid he will move to Houston, and if his venture fails, there will not be other good biotech options for him to jump to)
  • Insufficiently informed venture capital and ventures with an unfamiliar value proposition (locals understand oil and software, but not biotech and its long time frames)
Evidently, even though VC from the coasts will come in to the conference to review local companies - and they might fund medical device companies (shorter time frames) - for therapeutics (i.e. long-term investments), they want the companies to move to the coast to be next to them.

An his proposed solutions:
  • Support "pump priming" efforts
  • Insist on regional cooperation
  • Strategic recruiting (get more and larger biotech firms moved here)
  • Monitor the state money (see strengths above) to make sure it is spent effectively
  • More philanthropic investments (don't just give to TMC institutions, but to worthy biotech ventures)
On the money issue, I think Texas universities need to realize it's in their own interest to put a tiny portion of their endowments - maybe 1 or 2% - into Texas-focused VC, including biotech. Those investments will make Texas a more interesting place for both talented professors and students, creating a positive feedback loop for the universities. The funds need to be sufficiently capitalized and structured to attract top-talent partners from the coasts to actually live here and cultivate ventures here.

Another idea: this is a total shot in the dark, but I've heard the FDA bureaucracy is very painful for biotech ventures. Could we cultivate partnerships with a network of Latin American medical institutions to make those clinical trials both faster and less expensive? Tapping that network might be very attractive to biotech startups.

Overall, my impression is that we're on the right track, it's just going to take many years of sustained efforts to get where we want to go. It's difficult for a city to have more than one primary focus industry - and ours is obviously energy - but if anybody can do it, I think we can given our tremendous foundation on the nonprofit side of health care. Building a for-profit side on top of it should be achievable.

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8 Comments:

At 12:34 AM, June 06, 2008, Blogger AC said...

These guys don't think much of government-sponsored VC. http://www.nber.org/papers/w14029 (via Richard Florida).

I have no idea whether university-backed VC would fare any better. The basic problems with government-backed VC, according to these authors, are that they provide less mentoring and other value to upstarts and crowd out private capital.

 
At 12:44 AM, June 06, 2008, Anonymous Anonymous said...

Interesting read... Hopefully as the TMC undergoes it's current and ongoing boom, it can incorporate more bio tech companies. There are some very specialized centers going up in the TMC, pediatrics, maternity, neurology, etc. that could be beneficial for a knowledge base and clinical space for bio tech comapnies.

 
At 8:17 AM, June 06, 2008, Blogger Tory Gattis said...

AC: universities already allocate a substantial chunk of their endowments to VC firms, but most of it goes to the coasts. I'm just saying it's in their own best interest to allocate some of it for Texas VC firms, and maybe give those firms more generous terms (mgt fees + carried interest) to attract top flight VC partners from the coasts to provide the mentoring and connections you mention.

They may not get quite as high a returns as the coasts (although that's debatable), but the secondary effects of creating a more vibrant startup scene in Texas will attract better professors and students, which will ultimately help those universities much more in their core missions.

 
At 3:47 PM, June 06, 2008, Blogger Graham said...

This last spring, I led a team of Rice EMBAs in analyzing Houston's biotech cluster. In our competitive analysis of the other major biotech clusters, we found strong entrepreneurial cultures at the major research universities like UCSF, UCSD, Harvard, MIT, etc. All of these schools actively promote technology transfer to students, postdocs, and faculty through centers for entrepreneurship, which offer a variety of cross disciplinary events. UCSF's Center for BioEntrepreneurship is so integrated with the administration, that it is officially housed in the Office of Research.

This kind of integration is critical. Scientists aren't always (if ever?) thinking about how to commercialize their research. Faculty members, postdocs, and students need to be trained how to recognize commercial potential in their research and how to direct future research towards commercialization. Academic thinking will have to change before we'll see a radical increase in new companies. There are several organizations in the TMC that would like to change this thinking, but none of them right now have the resources or institutional backing to penetrate the culture too deep.

 
At 5:15 PM, June 06, 2008, Blogger Tory Gattis said...

Very good point, Graham. Thanks for passing along the insight from your research.

 
At 9:08 AM, June 09, 2008, Blogger Dane McKitrick said...

There is one factor that is consistently overlooked in evaluating the Biotech or even High Tech business in Houston. The overlooked issue is our humidity. I have been designing and constructing High Tech facilities globally for nearly 20 years. The air conditioning needed to maintain the precise conditions required is vastly higher than nearly everywhere in the world. It is even higher than most parts of Malaysia.

Houston can attract the research level work because it does not require a large space. Once a product is proven and manufacturing is required, the work inevitably shifts to somewhere that the operating costs will be significantly lower.

For example, a 10,000 SF facility suitable for Bio or Semi conductor production will require at least 65 tons of mechanical cooling in Houston. In Austin it is only 55 tons. In Albuquerque it’s only 38 tons while in San Jose CA, it is all the way down to 34 tons.

With the costs of electricity spiraling higher (and Houston among the highest) savvy investors will locate production facilities where the operating costs are lowest. Houston loses out simply due to the air conditioning costs without considering any other factors.

 
At 2:42 PM, June 24, 2008, Blogger Hari Kishore said...

Thanks for your input, Graham. I think Institutes in TMC have lot of commercialization potential, especially in cancer. I worked in tech transfer office of Texas A&M and the managers are very active in promoting the commercialization interest to students, professors. they participate in seminars by student bodies and also promoted business plan competition in the business school. There is a lot of activity in the office due to inclusion of patents criteria in awarding tenure track.

I think the tech transfer offices should be active in promoting the interes, not just dealing with professors coming to their office.

I now work at MDACC and I noticed that TT office is not so active. I am not sure if they lack institutional support or motivation . But they could commercialize a lot from the wonderful research in oncology.

Hari

 
At 1:53 PM, July 13, 2008, Blogger Graham R said...

Hari, thanks for your insight into MDA's tech transfer. I'd always heard that Mendelsohn made commercialization a priority over there. But, then again, I'd also heard that Governor Perry made it clear he wasn't happy with the rate of commercialization at MDA during his visit last November.

As for A&M, I read about the "Ideas Challenge" during our research last spring and thought it was a fantastic idea. I hope you can bring some of those kinds of ideas to the medical center. If you're interested, I've written more about our research and the need for more entrepreneurship programs in the medical center.

 

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