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Biotech Beating the Recession

Wed, 09/29/2010 - 8:07am
Mike May

Despite challenging economic times, America’s biotechnology industry keeps growing.

Bioscience Technology Sept. 2010 CoverDespite a rough economic ride over the past couple years, the biotechnology industry in the United States keeps growing. Like other industries, biotech has faced some obstacles—such as decreases in venture capital (VC)—but the obstacles could drive biotech to become stronger. Furthermore, leading biotech states are creating new approaches, from tax incentives to workforce education, that enhance the industry.

“It has been a very challenging period for biotechnology since late 2007 through 2008 and into early 2009,” says Patrick Kelly, vice president for state government relations and alliance development for the Biotechnology Industry Organization (BIO). “This was probably the worst period of time for biotechnology in its brief history.”

Still, the industry survived—and even grew. According to the “Battelle/BIO State Bioscience Initiatives 2010” (http://bio.org/battelle2010), job growth in biotech from 2001 to 2008 was 15.8 percent—outstripping the overall rate in the U.S. by 4.5 times.

The overall increase in biotech jobs arose from continued growth in states that lead this industry. “Biotechnology employees in New Jersey increased from about 10,000 in 2007 to over 15,000 today,” says Debbie Hart, president of BioNJ. Likewise, Bob Coughlin, MassBio’s president and CEO, says, “Our early numbers show that the biotech employment in Massachusetts grew by 1.2 percent in 2009.”

In general, the biotechnology industry appears back on track. “In the second quarter of 2009, we started to see a leveling off and the latter half of 2009 brought a pretty significant trend toward bouncing back,” says Kelly. “We have not recovered entirely, but all of the financial information that we track says that we’re emerging from this down cycle.”

Many states also see sunnier times ahead. For example, Don Gerhardt, president and CEO of LifeScience Alley in Minnesota, says that the research park at the University of Minnesota is “growing like mad.” He adds, “Overall, we’re seeing a quiet but really surging development.”

The Golden Leaf Biomanufacturing Training and Education Center
The Golden Leaf Biomanufacturing Training and Education Center at North Carolina State University trains students with the latest equipment to provide the state with an advanced workforce. (Source: North Carolina Biotechnology Center)

Some Rough Road Remains
Some of the impacts of the recent recession, however, will impact the future. “Money applied to research today will not create an effect for a few years,” says Arun Ravi, a consultant for healthcare and life science at Frost & Sullivan. “When a product is in clinical trials, for instance, that money was set aside five to 10 years before.” So the recent years of economic turmoil could create more trouble ahead, especially in terms of output from biotech. “The future impact remains to be seen,” says Ravi.

Already, though, Ravi has seen “lots of takeovers and mergers.” And he does not necessarily see that trend as good for the industry. “For lots of larger pharmas, innovation is dying, and they are trying to jumpstart that through acquisitions. These larger companies are acquiring biotechs in the hope of creating higher revenue.”

Those biotechs driving innovation, however, face an ongoing capital crisis. Despite overall growth in biotechnology, VC fell over the past few years. The Battelle/BIO report points out that “venture capital to bioscience companies fell a dramatic 36.7 percent between 2008 and 2009, from $12.275 billion to $7.770 billion. In 2009, bioscience venture capital stood below levels recorded back in 2004.”

That puts serious pressure on companies in need of money. “Those companies that didn’t’ have lots of cash on hand and were looking for a deal or investment opportunities bore the hardest brunt,” says Kelly.

The capital crisis spawns other challenges. Ravi says, “Start-ups have been affected quite a bit. The funding is just not there any more.” He also believes that capital scarcity makes some companies overly conservative. “Few companies are willing to take risks with product portfolio’s. They are currently happy going with a product that has lower market share and lesser complications.”

Despite the potential benefits of taking innovation to the edge, investors want reduced risks. Kelly says that today’s investors “are more savvy.” He adds, “More and more, VC communities are looking at potential market return.”

Volcano Corporation

At Volcano Corp. in San Diego, experts—including engineering specialist Maritess E. Minas shown here—develop devices for artery surgery. (Source: BIOCOM)

As a result, VC gets tighter, and a range of financial metrics shows the stress caused by reduced capital. For example, Joseph D. Panetta, president and CEO of BIOCOM, which represents life science companies in Southern California, says, “We see very few companies going public.”

These bad years for biotech VC, though, might not be as troubled as they first appear. “VC in biotech and other industries in Massachusetts was down in 2009,” says MassBio’s Coughlin, “but still, it was the fourth best year ever for biotech VC in this state.”

Moreover, biotech folks in search of cash should always see funding as a significant obstacle. “Financing for this industry has always been the number one challenge, and probably always will be,” says Hart of BioNJ.

Adding Extras
To stay competitive in economically tough times, states seek ways to distinguish their biotech environments. For example, Hart says that New Jersey has put considerable effort into workforce development. As she says, “We want to make sure that folks are broadly trained and accessing the jobs out there.” So she and her colleagues at the County Colleges, Bio1Stop, Rutgers University, and others collaborated on training programs, job fairs and forums, and the development of a website that will serve as a hub for ongoing workforce development in biotech.

To stay competitive, today’s biotech workforce must adapt. “We’re seeing a much more mobile workforce,” says Panetta. For example, he points out that many members of BIOCOM work as service providers, such as being consultants on clinical trials. As Panetta says, “They can be contracted to a company on a temporary basis without it making an investment in a full-time workforce.”

To keep overhead down even more, some companies run virtually. Panetta sees lots of this. “It might include a core group of just a dozen people or so,” he says, “and the rest comes from outside on a contracting basis.”

One of the keys to ongoing success in biotechnology, however, is consistency. That’s the advice from Norris Tolson, president and CEO of the North Carolina Biotechnology Center in Research Triangle Park (RTP). In the past decade or so, North Carolina has invested about $1.3 billion in biotechnology. As a result, a wide range of biotechnology prospers across the state. “Rural North Carolina is especially strong in ag-biotech,” says Tolson. “We are engaged in nanotechnology and medical devices in a technology crescent spanning the RTP, Piedmont Triad, and Charlotte regions.” Moreover, work on natural products and marine biotechnology can be found in the state’s western mountains and eastern seaboard, respectively. Tolson adds that biofuels can be found statewide. As he says, “Where we can grow crops, farmers will raise feedstock for biofuels in our state.”

NeoStem’s Adult Stem Cell Collection Center and Research & Development laboratory 

On April 27, 2010, a ribbon cutting opened NeoStem’s Adult Stem Cell Collection Center and Research & Development laboratory at its facility in Cambridge, Massachusetts. (Source: MassBio)

Pushing Ahead
“Some companies can move ahead more successfully than others,” says Panetta. “Those are the companies that have a shorter timeline between discovery and commercialization.”

States can also impact the potential for biotechnology. The Battelle/BIO report notes that “[t]hirty?eight states reported offering R&D tax credits, an increasing number of which offer a larger credit if the research is conducted by an in?state university.”

For example, Minnesota recently enacted an aggressive new angel-investment tax credit. “This puts Minnesota in play for greatly improving its startup numbers,” says Gerhardt. Over five years, this credit will provide more than $50 million in tax credits for early stage life science and technology investments.

To stay successful in biotechnology, Ravi provides several key pieces of advice. First, he says, “Continuously evolve. Me-too products will not help companies maintain economic growth.” Next, make sure to put enough money in R&D. As Ravi says, “R&D is what drives this industry. Invest in people and technology so you don’t suffer in the next five to 10 years.” In addition, a company can take a new approach. For example, Ravi says, “A medium- or small-size biotech can partner with other larger companies to help market their products. This may reduce your revenue, but it can also reduce costs and get you to market quicker.”

In the end, Coughlin expects a stronger industry ahead. As an example, he says, “Coming out of this downturn, biopharmas will operate more efficiently and be more results-oriented.” He adds, “We’re seeing a little economic Darwinism, and that’s not necessarily a bad thing at all.”

Coughlin, like many others, came to the biotechnology industry for personal reasons. He has a child with cystic fibrosis. “I hope these companies will find a cure for my son,” he says. “We’re investing in cures and solving unmet medical needs.” As Coughlin concludes: “Biotechnology touches every human who walks on Earth.”

About the Author
Mike May, PhD, is a publishing consultant for science and technology based in Minnesota.

This article was published in Bioscience Technology magazine: Vol. 34, No. 9, September, 2010, pp. 10-11.

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