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Competition Heats Up for Slice of Biotech Industry

Marketing themselves as cut-rate alternatives to California, other states and nations hope to tap the sector's potential.

June 29, 2003|Denise Gellene | Times Staff Writer

WASHINGTON — Joining the usual swarm of lawyers, bankers and executives at the biotechnology industry's annual convention last week was a new deal maker: the governor of Delaware.

Citing cheaper labor, bargain land prices and lower taxes, Gov. Ruth Ann Minner touted Delaware as a cut-rate alternative to California, home to the world's largest biotech companies, Amgen Inc. and Genentech Inc. In fact, she was one of eight governors personally promoting their states at the convention, called BIO 2003.

Minner's pitch: "We have four seasons, none of the traffic that goes with big cities and outstanding corporate laws."

She hosted a reception aboard the Kalmar Nyckel, a replica of the tall ship that first brought Swedish settlers to Delaware. Guests nibbled on smoked salmon and crab cakes as the ship's crew sang old sailing songs.

Missouri's boosters took over Washington's International Spy Museum, where state VIPs talked business amid displays of sleuthing devices. The Pennsylvania contingent threw a party at the Library of Congress. Virginia bused 300 prospects to Mount Vernon, where they dined on roast beef and Virginia ham.

Wisconsin got help from its former governor, Health and Human Services Secretary Tommy Thompson. Now the drug industry's top regulator, he worked the crowd at a reception featuring polka music and Wisconsin cheese. "I may be the secretary, but I'm still Badger Red," he said, referring to the University of Wisconsin mascot.

Why such ardent pursuit of a relatively small industry that isn't creating many new jobs?

Aiming to diversify, states reliant on manufacturing and agriculture are romancing new industries. Biotechnology looks promising as a sector because it stands ready to supply high-tech medicines for an aging population and disease-resistant crops to feed the world's hungry. Many states think they can tap the expertise of their universities to form clusters of start-up firms.

In Virginia, for instance, Gov. Mark Warner envisions clusters near the University of Virginia, George Mason University and Virginia Tech. "We're at the dawn of the life sciences decade," he said as he strolled the convention floor.

Europe, Asia and Australia also sent recruiting missions to the convention. Scotland -- which gave the world Dolly the cloned sheep -- held a malt whiskey-tasting reception. Singapore unveiled a scale model of an elaborate biotech center whose tenants include Swiss pharmaceutical company Novartis. Japan marked its first appearance at the event by cracking a cask of sake.

Japan, in the throes of a prolonged economic slump, turned to biotechnology "almost by default," said trade official Jun Okumura. "There is a real sense of urgency in Japan right now." His immediate goal was to find business partners for the six Japanese biotech firms showcased at the convention. "I like what I see," said Okumura, president of the Japan External Trade Organization.

Wall Street has shown some renewed excitement about biotechnology. Last month after Genentech released its report on successful human tests of an experimental cancer drug, investors poured billions into the South San Francisco-based company's stock. The market value of the entire industry stood at $301 billion at the end of May, up 34% from the end of 2002.

For biotechs not part of the top tier, however, the outlook remains grim. One-third of the 318 publicly traded biotechs have less than 12 months' worth of cash remaining, according to Ernst & Young. Without fresh financing, half of all biotech firms will run out of funds in two years, the consulting firm said. And hiring in the biotechnology industry is at a virtual standstill.

States believe the industry will recover and are eager to participate. But experts attending the convention doubted that the industry would grow large enough to expand beyond the places where they already are well-established, such as the San Francisco Bay Area, Boston and San Diego. The entire industry in the U.S. employs about 200,000 people, and the jobs pay very well. In California the average salary is $65,000, according to the California Healthcare Institute, an industry group.

A mix of top-flight academic centers, ready access to venture capital and an entrepreneurial climate led to formation of such leading California biotechs as Gilead Sciences Inc. of Foster City, Idec Pharmaceuticals Corp. of San Diego and Chiron Corp. of Emeryville. In the Bay Area, spinoffs from Stanford University, UC San Francisco and UC Berkeley found seed money on Palo Alto's Sand Hill Road. To the south, in La Jolla, an active venture community financed discoveries from UC San Diego and Scripps Institute.

Few regions have the smarts or the stomach for biotech, an industry with a high failure rate and a huge appetite for cash. San Francisco merchant banker G. Steven Burrill said many states have set their expectations too high: "It is possible to create clusters, but it is very, very tough."

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