How To Build a Biotech Cluster That Isn’t Boston or SF
I live and work in Louisville, KY, a city that probably isn’t too different from a lot of communities in the U.S. that are not biotech hubs like San Francisco and Boston. Driven in part by economic development, many in my hometown would like to develop a biotech cluster. But building a biotech cluster is hard and takes time.
We have been hard at work on building a biotech cluster for some time. In 1997, Louisville community leaders produced a report that included developing an economic development niche “biomedical research and healthcare-related services.” The Research Challenge Trust Fund, or Bucks for Brains, started the following year. Bucks for Brains has enabled the University of Louisville to recruit and retain teams of research faculty from some of the best universities in the world. Carl Weissman, the CEO of Seattle-based Accelerator, frequently advises communities to recruit star scientists if they want to create biotech hubs, and Louisville has done it. In August 2011, The Chronicle of Higher Education ran an article on the top 100 universities in biggest gains in federal funding for R&D in sciences and engineering for the period 1999-2009. The University of Louisville ranked fourth on that list with an increase of 263.1 percent over the decade.
Bucks for Brains has helped to increase our intellectual property and technology base. But, those smart scientists are only one piece of the puzzle.Biotech companies need “management talent” who can take a raw idea from a lab and turn it into a finished product. As Xconomy’s Luke Timmerman has said, “management talent is the most important factor in determining whether a company will succeed—even more important than the technology a company starts with.”
This issue of “management talent” is where many aspiring U.S. biotech clusters fall short. For starters, size is an issue. Boston and San Francisco both have populations about equal to the entire state of Kentucky. The Louisville metropolitan statistical area currently ranks 42nd nationally, so we are not exactly small. Nevertheless, we don’t have the sheer volume of people that you’ll find in the bigger hubs.
And, we don’t have a true biotech anchor tenant in our community that “employs a lot of talented people.” There are very few guys and gals walking around the streets of Louisville who have taken a drug to market. The “management talent”—more specifically, people that have made venture capital firms like Domain Associates or Third Rock Ventures money on previous deals—is frequently not here. Fast casual dining? Sure. Energy brokerage? Sure. Healthcare services? Sure. Biologics? No.
We, like a lot of cities, have a biotech people issue. And this is important, because because I subscribe to the “bet on the jockey” cliché.
So what are communities like ours to do? We don’t throw in the towel, but we don’t compete head-on with the Bay Area or Boston, either. First, we realize we are not aspiring to be the next anywhere and embrace co-opetition, not competition. And second, our metrics need to shift away from traditional economic development to economic impact; at least for some period of time.
I’ve latched on to the term “economic impact” because the University of Louisville can generate economic impact for itself and the community even if what creates the economic impact is not located in town.
Here’s one way how to create impact: Take the technology—perhaps in an LLC with some early proof of concept—to the right people. Start with your network of university alumni. But match the technology asset with the “management talent” investors will fund, wherever they are located. In Seattle? Fine. Remember, these are, or will be, to borrow a phrase from Atlas Venture’s Bruce Booth, classic Quadrant 1 biotech startups—“typically roll-up-your-sleeves venture creation around academic science or a whiteboard concept.” These companies require significant capital and come with a lot of risk. VCs don’t make these kind of investments for economic development purposes, such as creating jobs.
Again quoting Booth, “many Quad1’s sell early.” And this is a good thing. When the company sells, it creates economic impact back to the University (via equity ownership, royalties and/or gifts from alumni). After several economic impacts like that, I just might have a big enough bucket of cash to use to bring “management talent” to Louisville that can build a biotech startup in town that creates jobs. Once a few companies like that start to take root, then the first generation of “management talent” might mentor another team. Hopefully, over time, a Quadrant 1 company matures into a Quadrant 4. It requires a long-term view, à la Brad Feld. And it’s not focused on job creation. Short term, it’s about building awareness. Near term, it’s about economic impact. Long term, building the best biotech cluster your community can build.
If I were trying to emulate a city, it would probably be Seattle, because it is almost a self-contained example. Starting in the ’80s and ‘90s, Seattle has had quite a few companies grow there and then get acquired; Immunex, Rosetta Inpharmatics, Corixa, Icos, ZymoGenetics and more recently Calistoga Pharmaceuticals. Those acquisitions have no doubt created wealth in the community. It has created “buzz” for Seattle. From my vantage point, it has absolutely created a talent pool. Those people end up jumping in to other companies, either as angels, employees or board members. It creates a cycle. I see Dendreon and Seattle Genetics as the next step; homegrown companies that become biotech anchor tenants. Maybe Alder Biopharmaceuticals and VentiRx Pharmaceuticals will be similar examples.
So, how do you build a biotech cluster? One step at a time. It’s not going to happen overnight, but I’m sure we can do it in Louisville.