When Communities Invest in Biotech Clusters

At a recent global biotech convention in Atlanta, Georgia, 27 US states each paid as much as $100,000 for a place on the exhibition floor, just for the chance to promote themselves as prime locations for biotech companies.  They did this because, across the US, communities have been pouring public money into developing biotech parks.  In an article in the June 11 issue of The New York Times ("Despite the Odds, Cities Race to Bet on Biotech"), Shaila Dewan reported that Palm Beach County in Florida used $510 million to attract a research institute employing 545 people, in hopes that it will become the center of a cluster employing tens of thousands.  In Kannapolis, North Carolina, a real estate developer talked the state and city into investing nearly $200 million in rent and infrastructure at his biotech campus, which currently stands half-empty.

Don't get me wrong.  In our book Broadband Economies, I wrote that Intelligent Communities need to set ambitious goals.   To paraphrase the poet Robert Browning, their reach needs to exceed their grasp.  The big challenge for community leaders is deciding what to reach for.  That's a hard job for businesspeople with years of experience in a market.  For politicians, city administrators and economic development officers, it's that much harder to get it right.  

Is biotech the next gold rush?  Maybe so.  According to the OECD's 2009 statistics on biotech, US companies had $554 billion in sales in 2006, up 74% from 2004.  Biotech R&D employment rose from 985,000 in 2004 to 1.36 million in 2006, a 38% growth rate in just two years.   

But here's the thing.  According to Ms. Dewan's article, the US industry is already highly concentrated in a few major centers, including Boston, San Diego and San Francisco.  And it is still a pretty small industry.  The OECD says that the US has over 3,000 biotech companies, but only 43 of them employ more than 1,000 people, according to the consulting firm BioAbility.  In a 2007 article looking at the government's role in innovation, The Economist wrote this about the effort to jumpstart a sector by building real estate: "Typically governments pick a promising part of their country, ideally one that has a big university nearby, and provide a pot of money that is meant to kick-start entrepreneurship under the guiding hand of benevolent bureaucrats.  It has been an abysmal failure... "

I hope that the bets being placed by Palm Beach County, Kannapolis, Shreveport, New York City and the other communities in Ms. Dewan's article pay off handsomely.  They are dreaming big dreams and placing big bets.  But if I were in their shoes, I might be looking for ways to diversify.  I would be preparing to adapt to changing times.  There are some human activities that make perfect sense when a few people do them, which make no sense at all when everybody does them.  Subprime lending comes to mind.  Ten years ago it was investing in dot-com companies that had never earned a penny of revenue.  Generally speaking, when everybody has the same business plan, it may be time to get out of the business.