Biotechnology Clustering: The Regional Dynamics of the Modern Biotechnology Industry

Ernst and Young LLP, America's Biotechnology Report: Resurgence, 2004.

By Ted Everson

It has taken just three decades for biotechnology to become a central feature of the modern industrial landscape. Its origins can be traced to the mid-1970s and the development in university laboratories of two key technologies: recombinant DNA technology, which allowed scientists to produce human and other mammalian proteins by inserting them into rapidly growing cells such as bacteria; and monoclonal antibody technology, which permits the mass production of antibodies with diagnostic and therapeutic value. In the years since these breakthroughs rapid advances in molecular biology, electronics, and engineering have already created opportunities for commercial development of biotechnology in such industries as pharmaceuticals, medical devices, agriculture, and energy.

From the mid-1970s through the 1980s hundreds of innovative biotechnology start-up companies were founded. Armed with outstanding pools of scientific talent from universities and investment money from venture capitalists and other sources, these companies were the first wave of what has become a major new industrial sector—one that has a widely assumed potential for tremendous future growth.

Biotechnology firms display an interesting geographical characteristic: the tendency to cluster. As defined by Michael E. Porter, a professor at Harvard Business School, a cluster is a geographic concentration of competing and cooperating companies, suppliers, service providers, and other institutions. This phenomenon is dramatically demonstrated at the annual meetings of the Biotechnology Industry Organization, where company exhibits are organized in the meeting’s exhibit hall according to city, state, and country. The remarkable impact of biotechnology on the economies of the San Francisco and Boston areas has spurred many regional governments to create their own biotechnology development strategies in the hope of capturing some of this $50 billion global market. Over 40 U.S. states now have explicit policies designed to stimulate investment in biotechnology.

This interest in building biotechnology clusters begs several important questions: Are there common features in the formation of existing biotechnology clusters? Were government policy efforts an important part of their formation? How likely is it that new biotechnology clusters will emerge from government policy efforts? What steps are necessary for growing a cluster? Is there a blueprint that policy makers can follow to create a strong regional biotechnology cluster? What relationship exists between regional policies to foster cluster growth and national, or even international, trends and policies in economic development?

Today’s dominant biotechnology clusters, San Francisco Bay and Boston-Cambridge, are home to early biotechnology companies that emerged without comprehensive regional development strategies. Instead, these first companies sprang up near universities where experts in the new molecular biology techniques could be found; many of these experts later become entrepreneurs. Genentech’s South San Francisco location is a direct result of cofounder Herb Boyer’s faculty affiliation with the University of California, San Francisco, where he codiscovered recombinant DNA technology. Walter Gilbert was a faculty member at Harvard University when he cofounded Biogen in the Boston-Cambridge area. Later biotechnology start-ups emerged either in physical proximity to these and other early successful companies or in other regions with strong university research expertise.

University talent, however, is but one of the ingredients that have traditionally determined the location of biotechnology companies. The proximity of venture capitalists, who provided crucial start-up funds for nascent biotechnology companies, was an important ingredient in the commercialization of university research. The Bay Area’s traditional dominance in biotechnology has been due largely to the presence of a strong venture capital industry that arose during the emergence of Silicon Valley as an important new industrial center.