Thursday, October 06, 2005

States pursuing the mirage of biotech?

The Houston Business Journal has an interesting web-only article on how states and cities are desperate to be the next big biotech cluster.

States spend millions in feverish pursuit of biotech

Like a contagious virus, biotech fever is sweeping across America, leading states and municipalities to spend millions of dollars courting an industry that has never been profitable and is highly concentrated in just a few areas of the country.

Officials infected with the fever often see visions of high-paying jobs and dramatic impact on economic development - not to mention revolutionary advances in health care and agriculture. And the cure may come only after sufferers have wasted years and millions in taxpayer dollars chasing after the mirage.

That's the skeptic's view of the economic development community's current obsession with biotechnology. Four years ago, just 14 states had targeted biotech as a way to grow their economies. Today, 41 states are chasing the business.

"That says a lot more about the herd instinct of people who do economic development in this country than the economics of biotechnology," says Joseph Cortright, a Portland, Ore.-based economist who co-authored a 2002 Brookings Institute study on biotech.

A decade ago, every region wanted to be the next Silicon Valley, Cortright says. A few years later, dot-coms were all the rage.

"Biotechnology is the latest 'It Girl,' '' says Rob DeRocker, executive vice president of Development Counsellors International, a New York City-based firm that works with economic development organizations around the world.


Areas that don't have an existing biotech infrastructure won't be able to compete on cost alone. Instead, DeRocker says, they need "the political will and financial wherewithal" to spend decades beefing up their medical research institutions and commercialization capacity.

Many places now chasing biotech won't have that kind of patience, he predicts. "Some of these locations," he says, "will wake up and smell the coffee."

"Quite frankly," DeVol says, "most of them aren't going to be successful in the bigger scheme of things."

The good news is that we all get to benefit from these new biotech therapies being generously subsidized by local governments.

All this focus is in spite of the fact that biotech companies tend to have few employees, a small payroll, are rarely profitable, and usually don't expand much as they outsource production, sales, and other support services to big pharma - which they cover in a sidebar article. Their conclusion:

Economic developers' fascination with biotech also could lead them to neglect other strategies that could pay off better for their communities.

DeRocker says the "blocking and tackling" of economic development - things like work force retraining and helping existing businesses grow - "could be lost for the sake of trying to reach the end zone with one pass" via biotech.

Cortright advises economic developers against looking for "magic bullets."

"Everybody assumes there's one next big thing," he says. "There really are lots and lots of little next things. The hard part is figuring out what are the little next things that you can have a big piece of."

Houston already has an incredible research base in the Texas Medical Center, the largest in the world, and has been trying to increase commercialization via the non-profit BioHouston organization, with some mild success, inc. attracting some local biotech VC. There also seems to be a developing niche for Houston around the intersection of bio and nanotech, with Rice pushing aggressively in that direction and building a collaborative research center with the TMC at Main and University. Then there's Governor Perry's Emerging Technology Fund. So, to some extent, we're as guilty as the rest of them, although I think we might a bit more conservative: fewer subsidies (relatively), less obsessive focus, a more "real" chance of making it work.


At 12:25 AM, October 07, 2005, Anonymous Anonymous said...

It's interesting that we consistently espouse that having low taxes brings businesses to Houston, yet creating no tax zones and research parks to entice biotech companies is frowned upon as not free market enough.

Also, one thing people forget is that having big biotech companies in the city not only create high quality jobs, they also attract the best research doctors. It's not surprising that SF, SD, Boston, and the triangle also have some of the best hospitals in the US (as well as many of the top biotech companies). But it does bring up the question, why not us? We have the academic infrastructure. The real question is, why aren't the companies flocking to us considering our low tax climate and top notch academic facilities?

And to that question, Im at a loss, though Im sure there are a lot of city administrators who would love to figure that one out.

At 9:31 AM, October 07, 2005, Anonymous Anonymous said...

Maybe it's because of the negative image and misconceptions that a lot of people have about Houston?

Maybe if Houston starts making some movies the image will change! LA, NYC and Chicago have that “image improving machine” working for them.


At 10:31 AM, October 07, 2005, Anonymous Anonymous said...

"We have the academic infrastructure. The real question is, why aren't the companies flocking to us considering our low tax climate and top notch academic facilities?"

Richard Florida wrote a series of books about the "Creative Class," highly educated, highly mobile artists, bankers, engineers, etc. who generate a disproportionate share of GDP...regrettably, I've not read the book, although it is on my nightstand.

Comparing Houston to the other cities you list, SF, SD, BOS, NC, perhaps they are viewed as “nicer places to live” than HOU? Obviously, SF and SD’s climate is much better than HOU’s, and there is nothing we can do to change that. Pollution will also be a tough thing to modify, partially because of the existing industry on the HSC and partly because of the climate. Our vaunted advantage in low tax is probably less of an advantage when you’re trying to attract 5 M.D.’s and a lab than an industrial plant.

What CAN Houston do to make itself more attractive? We already have a great restaurant scene and cultural diversity (including substantial numbers of South Asians in addition to the usual black/Hispanic/anglo mix). Houston has become a “third voice” between East Coast and West Coast hip hop. Is it mass transit, fine arts, something else?

At 4:21 PM, October 07, 2005, Blogger Tory Gattis said...

Small startup companies, inc. biotech are home grown. They don't typically switch cities early on. It's just where the founder happened to be. That founder is usually an academic researcher, who then gets mixed with some local VC and management talent, which have been Houston's weaknesses. I think we're make more progress on the VC than mgt talent. Biotech-savvy managers are rare in Texas and hard to attract. It will take time, mostly to "grow our own."

Image does hurt our recruiting, although I don't think TV's the answer. If we can just get from mild negative to mild positive like Dallas and Atlanta, I think we'll be good - and I think we're headed that direction.

To answer gwin's question: I don't think it's a fine arts or mass transit issue (although I do think the light rail "impresses" short-term visitors to the core). We do need air pollution progress, and we are making it, albeit slowly. Interestingly, almost all the air pollution monitoring problems are on the industrial east side. If we just gave up the land to Baytown and Pasadena to annex, they'd get the bad marks and Houston would look fine.

Honestly, I'm not sure we really need to improve our image that much. We already attract 100K new residents/year, which is about as much growth as we want to handle. People who live here are very happy with the city and usually want to come back if they leave. Over time, we can grow our own talent base rather than having to convince east or west coasters to move here. I also think we're a pretty strong magnet for all kinds of people within 1000 miles - I certainly see plenty of out-of-state license plates.

I actually think the best thing we can do to improve our image is *not* pickup the negatives of other big cities like traffic gridlock or unaffordable cost of living (esp. housing). Those negatives are bringing them down, and making us look good by comparison.

At 4:32 PM, October 07, 2005, Blogger Tory Gattis said...

More thoughts on Chicago and image:

NY and LA definitely have glamorous images, but Chicago really does not. Usually it's portrayed as pretty gritty in the media, and "really cold windy city" is most peoples' first thought. People aren't running to move there. They are growing, but very slowly - mostly by attracting people from nearby states. If you live in the Midwest and want to move to the "big city" without going too far, Chicago and Minneapolis are really your two best choices.

But it gets respect out of sheer size and impressive amenities focused around downtown and the lakeshore, including some top universities. This is really the most viable image path for Houston, with heat being our weather-negative instead of cold (not a problem for growth in Florida, Phoenix, or Vegas!). If we continue to grow, continue to invest in mobility to the core, which increases jobs in the core, which provides concentrated tax and disposable income base to support great amenities like Chicago's, we will eventually earn the country's respect. We may never be glamorous, but can certainly be respected.

At 8:59 PM, October 07, 2005, Anonymous Anonymous said...

Just read this post in SciGuy in the Chronicle on how Houston lost out on an NIH nanotech center:

So you would think that between MD Anderson, arguably the best cancer hospital in the nation, and Rice, where two scientists won the Nobel Prize for their work in nanotech (though one promptly left for Caltech after) we would win one out of the 7 awards?

Think again, we were completely left out. The winners:

1. Research Triangle, NC
3. Atlanta, GA
4. Boston, MA
5. Northwestern
6. CalTech (ouch!)
7. St. Louis

Wow, even St. Louis got a biotech center (right next to Chicago and not even a major player compared to Houston in nanotech).

Not very good news for us, considering how important it is for us to diversify our economy before the next energy bust.

At 9:46 PM, October 07, 2005, Blogger Tory Gattis said...

Even though the amounts of money are relatively small, it is disappointing. I would not be surprised if there was an "arrogance" factor by Rice/MDA that cost them the win by thinking they were shoe-ins so they didn't bother to create a top-notch proposal. Sad.

At 9:32 AM, October 09, 2005, Anonymous Anonymous said...

Did I read a different article than everyone else? Your post states that biotech is not profitable, creates few jobs and few support companies, yet all of the responses question what Houston must do to attract more of this mirage.

Something that also strikes me as strange, is this fascination with biotech and nanotech, as the national leadership wages a thinly veiled war on science as "anti-religion", and further, has become more hostile to immigration, which provides much of our research base, as natives pursue easier or more profitable career paths.

It appears to me that the lotto mentality has infected economic development, and if Houston hasn't completely fallen for the latest gold rush, it should not necessarily be faulted for it.

At 9:55 PM, October 09, 2005, Blogger Tory Gattis said...

I still think biotech can be a valuable industry to cultivate, but communities need to be realistic about their chances, not exaggerate the benefits, not neglect other economic development opportunities, and minimize (if not eliminate) any taxpayer subsidies. Level-headed economic development, not a gold rush or dot-com mentality.

At 10:19 PM, October 11, 2005, Anonymous Anonymous said...

Except that even after the bust California is still MUCH better off than it was prior to the boom.

In any case, it just seems like Houston and the rest of Texas will keep missing out on state of the art industries and rely on the flow of oil for our city's economic welfare.

Let's just hope that this statement is not true:


At 10:19 PM, October 11, 2005, Anonymous Anonymous said...

I meant


At 10:29 PM, October 11, 2005, Blogger Tory Gattis said...

Well, you might argue that Houston is lagging, but not Texas. Austin and Dallas have plenty of state-of-the-art industries. Texas is usually ranked in the top handful of states for tech industry jobs. And we're the #1 exporting state in the country.

Houston is still pretty reliant on the energy industry, but not as much as it was 20 years ago (and certainly nowhere near matching Detroit's reliance on autos). We've diversified substantially since the 80s. I think it's now less than half the Houston economy (however they measure that).

Interestingly, I once saw a stat that said NY was far more dependent on the financial industry than Houston is on the energy industry. Most people assume NY is a more diversified economy, but it's not.

At 5:08 PM, October 18, 2005, Blogger Obi Igbokwe said...

In terms of jobs created in the biotech sector, California is still miles ahead, but according to the monthly stats we collect at my website from around websites, texas isnt doing to badly in the jobs rankings, came 6th in the month of August. The rankings can be viewed here, on our site - but please note, this is just a rough esitmate of the number of jobs created.


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