Venture Capital: Airplanes ... to antibodies
As the pressure to diversify increases in the Seattle area, some wonder whether the region is counting too much on the future of businesses summed up by a three-syllable buzzwordPower brokers lead the charge for newest economic hope
By JOHN COOK
SEATTLE POST-INTELLIGENCER REPORTER
Does the Puget Sound region have what it takes to become a world class biotechnology hub?
That question will be on the minds of plenty of folks this year -- from politicians and urban planners to real estate developers and venture capitalists.
A lot is at stake as the Seattle area attempts to make the transformation from airplanes to antibodies. And 2004 could be the pivotal year in which the momentum behind Seattle's growing biotechnology industry coalesces.
While supporters believe biotech is the best long-term economic hope for the region, detractors wonder if the prospects are overstated.
The biotech charge is being led by some of the region's biggest power brokers.
# Seattle Mayor Greg Nickels is rolling the dice with his political future by supporting efforts to redevelop the South Lake Union biotechnology corridor.
# Microsoft co-founder Paul Allen is dedicating a chunk of his multibillion dollar fortune to biotech research, real estate and investments.
# And cities such as Renton are courting life science companies as a way to replace dwindling aerospace jobs.
Like the biotechnology industry itself, it will take years -- maybe decades -- to determine if the bets pay off.
But many agree that the state can't afford to let the opportunity pass by. There are signs that Seattle's biotechnology industry -- among the top 10 in the country in terms of jobs, companies and venture funding -- is starting to fire on all cylinders.
Next week, the Technology Alliance plans to deliver a proposal to Gov. Gary Locke that calls for increased government funds for biotechnology projects in the state. Dubbed Bio 21, the proposal is designed to make the state more competitive in attracting and growing biotechnology companies.
Later this month, Amgen will open a state-of-the-art research facility along Elliott Bay -- an important ribbon cutting by the company that acquired Immunex.
Two Seattle area biotechnology companies -- Icos and Corixa -- will ramp up marketing efforts for their recently approved drugs. And Seattle cancer research company Xcyte Therapies is expected to go public in the coming months.
"It is really a defining time and an exciting time," said Ruth Scott, president of the Washington Biotechnology and Biomedical Association, a trade group that represents the state's 190 life science companies and research organizations.
But with states such as Michigan, New York and North Carolina looking to grow their own stable of biotechnology companies, Scott does not believe there is time to rest. "I think we have some challenges ahead of us," she said. "I hope we as a state don't turn our back on this industry."
That's also the hope of Susannah Malarkey, who worked with a 25-person steering committee to develop the Bio 21 proposal. She declined to say how much money the committee was recommending for biotech research in the state, leaving the final decision up to Locke. But she acknowledged the importance of the proposal.
"This really allows Washington to put a stake in the ground in a way that it never has before," said Malarkey, executive director of the Technology Alliance. "Washington has enormous assets, but we are obviously not alone in pursuing these opportunities and as a state we have to play catch up because we are 46th out 50 states in terms of state investment in research capacity."
Robert Nelsen, a venture capitalist with Arch Venture Partners, is encouraged with initiatives like Bio 21 and he believes the region has a "good shot" at becoming a hotbed for biotechnology research. After years of debate, he thinks political leaders have started to embrace the role that biotechnology can play in the economy. Ironically, he said, Boeing's 7E7 campaign served as a wake-up call.
"People realized that Boeing is not the savior and they started looking forward," said Nelsen. "People outside the industry started asking, 'Where are we going to be in 20 years?' It is going to be software and biotech, not aerospace."
Momentum is building around that idea -- driven in part by two of the world's richest men who happen to live on shores of Lake Washington. Microsoft co-founders Bill Gates and Paul Allen have taken a keen interest in Seattle's biotechnology community: bankrolling start-ups, recruiting world-renowned scientists and donating millions of dollars to research institutions. Allen, a cancer survivor, primarily works through his investment arm of Vulcan Inc. Gates, whose mother died of cancer in 1994, has the Bill & Melinda Gates Foundation.
It is almost hard to imagine what the Seattle biotechnology community would look like today without their contributions.
Last April, Bill Gates donated $70 million to the University of Washington to create a research facility for genomic science. A few months later, Allen established the non-profit Allen Institute for Brain Science with a $100 million gift.
Those contributions are on top of the estimated $400 million that Allen is pumping into the South Lake Union neighborhood and the billions of dollars that Gates is donating to world health issues.
Together, Allen and Gates have helped jump-start many of the region's biotechnology companies: Corixa, Icos, Seattle Genetics, Dendreon and Regulome.
And their interest in the sector does not appear to be waning.
Even though Seattle's biotechnology industry is benefiting from rich benefactors and strong research institutions, some skeptics question whether it can really add much fuel to the economy.
"We are just dropping off the cliff because they think what is good for Paul Allen is good for the rest of us," said John Fox, the coordinator of the Seattle Displacement Coalition, who last month criticized development plans in the South Lake Union neighborhood. "There are some highly speculative assumptions about whether or not we can compete with the 200 other cities that are competing for biotech in the country."
Portland economist Joseph Cortright, who co-wrote a study on U.S. biotechnology regions for The Brookings Institution in 2002, said the competition is intense for biotechnology companies.
"Ten years ago everybody wanted to be the next Silicon Valley. Three or four years ago everybody wanted to be the next center of e-commerce and dot-coms. And this year the flavor of the month for the economic development fraternity is biotechnology and everybody is going after it," said Cortright. "And there are a couple of problems with that."
For one, biotechnology companies do not employ many people.
Of the nine major biotechnology centers in the United States, not one has a life science company among the top 25 employers. Nationally, only 44 biotech companies employ more than 1,000 people.
"This is an industry that is still really quite small," said Cortright. "So there aren't any Boeings out there and there aren't any Microsofts out there." An estimated 6,200 people work in the Puget Sound region's life science industry, according to Cortright's research. That's far fewer than the 27,200 people employed by Microsoft here.
The Washington Biotechnology and Biomedical Association uses different figures, estimating that there are 19,500 people working in the state's biotechnology and biomedical industry.
Whatever figures are used, Cortright said, it is unlikely that a biotechnology company will become the largest employer in any one region.
In addition to the limited employment opportunities, Cortright said, it can take years for biotechnology companies to develop new drugs.
It took 10 years for Bothell-based Icos to bring the erectile dysfunction drug Cialis to market. But for every Cialis, there are a number of drugs that never make it out of clinical trials.
Because it takes so long to develop new drugs and because so many fail, Cortright said, it could take several decades for a new biotechnology hub to emerge. That's bad news for community leaders who think biotech can quickly replace dying industries.
"Anyone who is assuming that they are going to do real estate development this year and see a bunch of biotech companies in the next decade, they are dreaming," Cortright said.
Still, some communities are giving it a try. The city of Renton is preparing for the day when Boeing no longer makes airplanes at the massive hangars on the sound end of Lake Washington.
In November, the Renton City Council authorized rezoning of the Boeing plant for biotechnology and other uses. Alex Pietsch, who heads Renton's department of economic development, said Boeing could vacate as much as 75 acres in the city in the next two or three years. While it is unlikely that biotechnology companies would consume all of that land, Pietsch said, he could imagine some spillover from Seattle.
"Obviously South Lake Union is going to happen," said Pietsch. "But if biotechnology lives up to its potential in the region, then there are going to be life sciences companies that either need more space than is available in South Lake Union or that is at a different price point."
Nelsen, the venture capitalist whose early-stage investments include Accelerator, Ceptyr and Trubion Pharmaceuticals, worries that too much pressure will be placed on the back of the Seattle biotechnology industry. "The biggest danger is that people's expectations get so high that they think it is going to solve all problems and that is not going to happen. But it is clearly the most exciting industry in the state."
Managing expectations also will be an important task for the trade group's Scott.
"The challenge really for our organization is to try to direct all of this interest and enthusiasm into the right areas because everybody is so high on biotech, yet they don't understand the complexities," she said. "So we really have to focus."
Cortright thinks that is a smart move. But he also warns cities about placing too much faith on biotech.
"I am not at all optimistic that the biotech industry will be this powerhouse of growth in the U.S. and even in the metropolitan areas," he said.
"I think it is going to be a small component of your metropolitan economy."
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