Watch Out SF, Boston Is Turning Into Biotech’s No. 1 Cluster

10/8/12Follow @xconomy

Biotech has never concentrated in just one place. This industry tends to grow up in geographic clusters, but it will always be spread across the map, partly because great science comes from hundreds of academic hotspots around the world.

But there have always been two places—San Francisco and Boston—that have stood out far above all the other hubs of biotech. And something truly special is happening now in Boston’s biotech cluster. Boston, I’m convinced, is very close to taking the title as the world’s No. 1 biotech hub, and holding onto that distinction for a generation.

Before going too much further, I should say a little bit about where I come from on this question. I started covering biotech 11 years ago in Seattle, which is where I call home. Partway through, I spent an academic year on a fellowship in Cambridge, MA, that gave me freedom to attend classes and meet innovators at Harvard, at MIT, and in the Longwood Medical Area. Then I moved to San Francisco to cover biotech’s biggest companies for Bloomberg News. Four years ago, I made the startup leap to Xconomy, where I built up our biotech coverage in Boston, Seattle, San Francisco, and San Diego. I’ve spent a lot of time meeting and interviewing people in those places, and writing about life sciences innovation at startups as well as at big companies like Amgen and Genentech.

San Francisco, as I think most people in the industry would agree, is an amazing place for life sciences and has earned its ranking as the No. 1 cluster of biotech. This dates to the late ‘70s and the formation of Genentech. Even today, if you look at the categories Ernst & Young uses to rank geographic clusters in its most recent “Beyond Borders” report, the San Francisco Bay Area ranks No. 1 in six of the seven. The Bay Area is tops in number of public biotech companies, public company revenue, R&D spending, profits, cash balances, and total assets. Boston was No. 1 in public company market valuations (a number that fluctuates daily), and was second in every other category.

Those numbers tell much of the story at public companies, but not the whole story, because they leave out private companies and Big Pharma investment. If you think that private companies and startup funding are an important part of the story, and a leading indicator of future success, Boston has the edge. New England surpassed the Bay Area in seed/early stage biotech financing, and the number of startup companies in 2009/2010. New England had 124 seed/early stage companies that pulled in $1.17 billion in financing that fiscal period, compared with 99 companies that got $938 million that fiscal year in the Bay Area, according to figures from PricewaterhouseCoopers and the National Venture Capital Association.

While plenty of people in Boston can scratch the startup itch, quite a few others can find steady work and experience in Big Pharma. Those companies have decided over the last decade to invest big money, and hire a lot of people, in Boston. There’s Novartis, Merck, Pfizer, GlaxoSmithKline, and more. When Paris-based Sanofi bought Cambridge, MA-based Genzyme for $20 billion last year, at a point when it was closing R&D centers around the world, it created combined operations in Boston. When Tokyo-based Takeda Pharmaceuticals bought Cambridge, MA-based Millennium Pharmaceuticals a few years ago for $8.8 billion, it didn’t just pick up the company’s crown jewel and leave. It consolidated its global cancer drug R&D operation in Boston, invested a lot more money there, and charged CEO Deborah Dunsire and her team with creating more products like bortezomib (Velcade).

Now look at the independent biotech companies based there. Biogen Idec (NASDAQ: BIIB) has undergone a resurgence the past couple years under a new management team. Vertex Pharmaceuticals (NASDAQ: VRTX) has broken out to become a regional anchor, and regional role model for dozens of startups, thanks to two important new FDA approved drugs. And during a time when many VCs are cutting back investment or going out of business, Third Rock Ventures has burst on the Boston biotech scene, injecting big money into bold new startup ideas coming out of Boston’s research institutions. Companies like Agios Pharmaceuticals, Constellation Pharmaceuticals, Foundation Medicine, Bluebird Bio, Warp Drive Bio, and Zafgen are a few of these high-impact kind of opportunities that you rarely see sprouting up anywhere else. It will take a few more years to see if this strategy really pays off, but the early indications are encouraging and have emboldened Third Rock to expand this model to San Francisco.

Cutting-edge science at Harvard University and MIT put Boston on the map in the first place, and Boston is always working hard to keep its edge in fields like genomics, where the Broad Institute rules. But what is interesting to me is how many visionary decisions about transportation and land use—intentional or not—have been made to support that science, and that will pay dividends for generations. Without question, Kendall Square in Cambridge is the most … Next Page »

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  • http://twitter.com/umassvdc VDC

    BOS got off to a slower start than SFO decades ago. But now, as the chart in “Where biotech is better off than anywhere else” shows, BOS is over taking SFO at least in terms of the number of Series A deals. http://blogs.umb.edu/vdc/2012/06/18/where-biotech-is-better-off-than-anywhere-else/

  • JP

    What about RTP, NC?

  • KC

    Based on the career opportunities recruiters are calling about, I would say Boston definitely has the momentum right now.

  • http://www.xconomy.com/ Luke Timmerman

    JP–I’m no expert on Research Triangle Park. We at Xconomy don’t have a bureau there. But the data from Ernst & Young and other sources ranks N. Carolina much further down the list than Boston and SF. If you were to break things into rough tiers, then I’d say SF and Boston are undoubtedly the first tier, San Diego & NY/NJ are in the second tier, and a few other places like Seattle, Philly, NC, & Texas are in the third tier.

  • Jimbo

    I had a this debate on your article about Sarepta, and am assuming that this is an impetus for your article. I agree Boston is getting close, but they are not there yet. A couple of points for and against each one. Boston is much cheaper than SF, both for employee cost of living and for running a business (Positive). San Francisco has a much great quality of life (weather, outdoor activities, culture, scenic beauty) (positive).

    Personally, I have worked in biotech in both places and I think the innnovation mindset on the West Coast is better. Peopel take more chances and are not as rigid in their thought process (huge generalization, I know, but in general, my experience) . The kind of entrepeneurial teaching at Stanford and UCSF is IMHO superior to MIT and Harvard, and it is a bonus to be so close to Silicon Valley. I am a Genentech alum from 95-2005, and that was an awesome experience. Having lost Genentech to Roche has been a devastating blow to SF biotech revenue numbers and culture, but a lot of good Genentech people have also founded new biotech or given their expereinces to smaller ones.

    • Ran

      Now that I am much older, looking back at my past, I’d tell anyone of you younger folks starting out to look at the quality of life with a balance of Fun times over all that dog eat dog, crumbling infrastructure, nasty weather in Boston!

  • http://www.xconomy.com/ Luke Timmerman

    Jimbo—I’ve been thinking about the SF vs. Boston question for a long time. But the Sarepta move, and the comments you and others made about that story, did help prompt me to think about it some more in this column.

    I agree with what you’re saying about the quality of life on the West Coast. I love it here, and always am glad to come back after traveling East. But I see it diminishing as an advantage. One star biologist I know who has lived in Seattle and SF, Eric Schadt, says that he experienced such horrific traffic going to Lake Tahoe that he realized it was easier for him to fly from SFO to Sea-Tac, rent a car, and drive to Crystal Mountain for a day of recreation.

    I still think the long-term ramifications of the Roche/Genentech deal are to be determined. While Roche has preserved most of the jobs in South SF, and Genentech has remained innovative the last few years (T-DM1, pertuzumab, vismodegib, et al), I haven’t seen a wave of big-idea startups led by ex-Genentech managers, armed with big Series A venture rounds. They may be bottled up by the lack of VC funding. If we start seeing more of those startups getting formed, and making real progress, then SF could keep this race close. But I think the transportation, land use, and political clout for biotech in Boston are massive long-term advantages.

    • Jimbo

      agree with your points, but would add some more.

      Most of the elite at genentech left within 1 yr of roche buyout, and many the year or 2 before . I would look at Genentech led start-up since 2006 or so, when genentech really turned into BP. A lot of innovators left in that period.
      T-DM1 and pertuzumab are not recent innovations. The innovation happens prior to and in ph 1 and 2, and these started pre-Roche.
      I don’t agree with the lake tahoe comment. I own a home there and go every other weekend during the winter. I live in SF and it has never taken me more than 4 hrs to get there (unless there is a massive storm). It usually takes 3 to 3.5. I leave after rush hour on Friday nights around 7:30. During non-winter months I cycle and mountain bike in marin every weekend. During winter, i surf in the week and go to tahoe on weekends. Not to mention world class ballet and opera. Of course, Seattle also has all of these advantages over Boston as well and is a beautiful place

      • http://www.xconomy.com/ Luke Timmerman

        This might be worth another column at some point—how much innovation was sparked by the Roche/Genentech takeover, both inside and outside the company. It’s definitely true that T-DM1, pertuzumab et al are examples of Genentech innovation from years ago, but that are just obviously ripening now. It will take years to get the final word on how innovative Genentech really was post-Roche takeover.

        • Ryan Bethencourt

          Luke I’d love to see an article that tracked what innovation may have been catalyzed by the Roche takeover (prior to the full buyout) back in 2006!
          I also think it’s worth noting/watching some of the innovation that’s slowly starting to bubble up from the SF DIY biotech scene, it’s still very much mostly amateurs but there’s a lot of potential there for a different type of innovation outside of the walls of academia.

        • Jimbo

          i doubt any innovation was sparked inside the company due to the takeover, but i’m sure a lot was sapped

      • KG18

        Quality of life means different things to different people. For instance – some ppl actually like to experience all 4 seasons. I don’t live in Boston (only visited)… but I know there are many outdoor recreational activities you can get to in 4 hours from Boston (not to mention Nantucket or Cape Cod). You can get to the beautiful states of New Hampshire and Vermont in much less time. In 4 hours you can even get to the immense and also beautiful Adirondack Park in upstate NY. If you talk of ballet and culture – you can get to NYC (tops for culture in the U.S.) by train, bus, or car in – or less than – 4 hrs also. Montreal is not much further in the opposite direction.

  • TZ

    I’m at a startup biotech here in the SF Bay Area and I have to agree with the premise of your article. This personal opinion of mine was cemented recently after trips between here and Boston over the years as well as personal correspondence with colleagues from both areas.

    A number of folks I know from the next generation of scientists (grad students, postdocs) finishing their time from Stanford and UCSF have left for Boston as simply that’s where the opportunities were in biotech and disciplines surrounding that such as life sciences consulting, business dev., etc.

    Though I do like the quality of life here a number of factors negatively impact said quality of life for someone still in the early-mid crescendo of their career. Career movement feels even more risky here than in a place where there is a density of other startup biotechs as you point out. The cost of living is skyrocketing with the tech nouveau riche further driving this up. Traffic and lack of consistent and convenient public transport is an issue hence why tech companies, and even Genentech, need to have their own commuter shuttles as a necessary perk to ease this pain point to attract talent.

    The data is clearer now but I think the writing was on the wall starting since 2010 coincident with the emergence of the tech (mobile, social) in the SF Bay Area. Silicon Valley VC firms were slow to innovate their biotech investing business models sticking with the old grow big go big with well paid management brass that resulted in quite a number of failures. Boston life sciences VC firms learned what works and what doesn’t, invest in lean teams and act as interim management so the early-stage company can rightfully focus on science, and screened for true entrepreneurs and management leaders who add value while weeding out the snake oil types. Here, instead of learning to adapt the SF Bay Area VCs in life sciences either died out or just swung the pendulum hard the other direction into tech as most VCs in this area tread both sectors.

    These VC firms still show up at conferences and make a big show and brouhaha about investing in early-stage biotech startups. The reality is when they say “early” they mean technologies in clinical trials and they are extremely risk averse in the biotech sector right now. The reason they still show up at conferences is mostly a public relations game for if and when the biotech sector gets hot again they will try to convince us that their firm stuck with biotech entrepreneurs and was rooting for us all along!

    My 2 cents from the trenches.

  • http://www.xconomy.com/ Luke Timmerman

    TZ–thanks much for the thoughtful comment. While there’s a lot of energy in Boston at the moment, I agree the biotech industry overall is going through a fragile period, as people are trying to figure out ways to improve R&D and make companies more attractive from a risk/reward investment perspective. Scary times to be a scientist in the trenches.
    http://www.xconomy.com/national/2012/10/01/looking-for-biotech-to-catalyze-u-s-job-growth-keep-looking/

  • PR

    Loved the article Luke. I think a great follow up which I would love to read is whether this momentum fostered by the VC’s that you mention will be sustainable and good for the Biotech economy of the nation as well as Boston/Cambrige. What I am finding is that as one of your other posts reveals is that this group of VC’s run organizations lean…. very lean. In many cases the companies are run with virtual labs with new bright researchers chained in their offices managing CRO’s which are most oftenly based in China and India. They are so controlling in their power that little capital is spent or invested. It is clear that an easy exit strategy is planned right from the beginning and one must wonder if the goal is to gain the technology and sell this off, what real gain is there to the economy, if very little of permanence is built? What personal development is stiffled when a generation of new scientists are beginning their careers this way. I know of a few instances of this but it would be worth another story if you would investigate and comment on whether this is much broader and if this is one big house of cards waiting to fall.

  • yabis2000

    VC’s like warm weather, nice scenery, skiing(lake tahoe) and wine(napa).

    No contest here, Bay Area.