By: Arzoo Zaheer
Summary:
Milken Institute is a non-profit, non-partisan, publicly supported organization that works to better the condition of the global economy and quality of life by utilizing innovative applied research and creative financial-market standards. They believe that innovation is the key to global prosperity.
Milken’s Biotech Index (product of untiring research by Milken Institute and Deloitte) is a measurement of “economic outcomes” and “efficiency in functions” of 21st century biotechnology clusters within U.S. and the world. A cluster is a geographical collection of competing and/or collaborating firms and their supplier network. These inter-related industries are responsible for wealth creation in their specific regions via export of goods and services. Their supplier networks play a pivotal role in their success and flow of goods and services.
According to the most recent (2004) index findings, a given biotechnology cluster will benefit by focusing on the following aspects:
1-Increased R&D assets
2-Greater share of fundings distributed to the research universities
3-Greater percentage of Bachelors and PhDs awarded
4-Creation of more indigenous or local ventures capital firms
5-Recruiting best biotech talent
6- Investing in Risk Capital
7-Increased local Human Capital
8-More profitable biotechnology firms
9-Larger biotech anchor firms
10-Larger number of big pharmaceutical companies
11-Increased ability to manufacture more products locally
12-Better Technology and Science Workforce
13-Increased job creation
Introduction:
In this article, I will analyze 2004 Milken’s Biotech Index’s findings to highlight the impact of this index on U.S.
Within U.S. important biotechnology clusters include regions such as San Jose, Oakland, San Diego, San Francisco, Washington D.C., Boston, Orange County etc. 2004, Milken’s Biotech Index compares San Diego, top biotechnology cluster with 11 other clusters within U.S. These 12 clusters were selected based on previous studies and statistical evaluations involving metropolitan areas that have the most specializations and concentrations of the biotech industry in U.S.
The index takes into accounts measurements for R&D, risk capital, human capital, biotech and life sciences workforce and entrepreneurship infrastructure. Economic strength of each cluster was measured based on population, gross metro product (GMP) and employment. Employment estimates were provided through 2002 and based on previous studies.
Figure 1: Milken’s Biotech Index 2004. Source: “America’s Biotech and Life Sciences Cluster”. (1)
As we can see, Milken’s Biotech Index 2004, identified the following top 12 biotech clusters within U.S.
1-San Diego (100%)
2-Boston (95.1%)
3-Raleigh-Durham-Chapel Hill (92.5%)
4-San Jose (87.8%)
5-Seattle-Bellevue-Everett (83.8%)
6-Washington, D.C. (79.4%)
7-Philadelphia (76.5%)
8-San Francisco (75.8%)
9-Oakland (74.3%)
10-Los-Angeles-Long Beach (66.5%)
11-Orange County, CA (54.1%)
12-Austin-San Marcos (47.8%)
Here, San Diego ranked 1 on the composite scale. Its life sciences industry is responsible (directly and indirectly) in creating 55,600 jobs and 5.8 billion income. The later figure makes 5.3% of the total income output in the metro.
Figure 2: This figure shows the top biotech/life sciences research organizations located in San Diego. (1)
Milken Biotech Index’s rankings are based on two significant factors: 1-Biotechnology Innovation Pipeline and 2-Current Impact Assessment.
1) Biotechnology Innovation Pipeline:
Biotechnology innovation pipeline refers to the support infrastructure that shows a cluster’s ability to capitalize on its biotech knowledge, creativity, competitiveness and ability of the industry to sustain long-term growth.
R & D Assets:
As we can see from Milken’s biotech index, San Diego ranked 100% in R&D assets. R&D assets drive technological innovation and a region with better R&D assets gains competitive advantage in drawing more tech-based firms and educated workforce while building new industrial clusters.
Figure 3: This figure shows the ranking of 12 top biotech clusters according to their R&D assets. (1)
2004 Milken’s Biotech index ranking for R&D took into account seven components: 1-National Health Institute of Health (NIH) fundings, 2-National Science Foundation (NSF) fundings to biotech, 3-Small Business Technology Transfer (STTR) program, 4-competitive NSF funding rate for biotech-related proposals, 5-Small Business Technology Transfer (STTR) program and 7-Small Business Innovation Research (SBIR) program. As we can see from the figure below, NIH is one of the largest funding agency that released 7.5 billion U.S. dollars to several biotech and medical schools in 2002.
Figure 4: This figure shows which of the seven programs, mentioned above, contributed most significantly to San Diego’s R&D assets. (1)
According to a 2004 study conducted by Milken’s institute, San Diego gained the first ranking in the composite index since the regional companies are very open not only to commercial fundings but also to public R&D funding such as National Institute for Health (NIH) for advanced research and National Science Foundation (NSF) for basic biotech research. San Diego biotech sectors demonstrate effectiveness in commercialing the R&D and new ventures.
Milken biotech index 2004, not only help to compare sectors within U.S. with each other but its findings are useful to foreign clusters as well. In order for other pharmaceutical clusters to achieve the same level of competitiveness, they have to design funding strategies that are similar to the companies that are part of the San Diego cluster. Inter-company collaborations and bench marking techniques will assist significantly in this goal.
Risk Capital & Entrepreneurial Infrastructure:
Risk capital and entrepreneurial infrastructure play a key role in enhancing and lubricating creative and innovative industry dynamics. San Diego has a remarkably high level of entrepreneurial activities. However, it lost the 1st rank in Risk Capital to San Jose. This decline occurred primarily due to California’s declining economy. Most of the risk capital comes from East Coast and San Francisco Bay. It is not local to San Diego. So, how can that be improved? Henry Nordhoff of Gen-Probe replies to this question as such:
Figure 5: This figure shows ranking of the top 12 U.S. biotech clusters according to Risk Capital and Entrepreneurial Infrastructure. (1)
“There would be more money, more capital available locally with people in San Diego controlling it with informal relationships, knowing others. I’d call up somebody, say, ‘Joe I’ve got this wonderful product, come on over….On the weaknesses, I think we still need to see more venture capital coming into San Diego. We’ve got probably about one quarter of the number of VCs that the Bay Area has and that hurts us.” (1)
Human Capital Capacity:
Third factor that affects the Biotechnology Innovation Pipeline is Human Capital Capacity. This includes a region’s capacity for suitable climate, qualified personnel, geographical advantages (ports, availability of raw materials) and large populations.
According to Milken’s Biotech Index 2004, San Diego slipped to the fourth rank, while Raleigh –Durham-Chapel Hill occupied the first position. Boston took the second position and Oakland gracefully occupied the third rank. Boston ranked second primarily due to its two centuries tradition of having the best expertise in medical science, medical devices, intellectual capital and pharmaceuticals. Compared to Boston, San-Diego and Raleigh-Chapel Hill are young competitors. However, Raleigh-Durham-Chapell Hill ranked first due to a higher availability of PhDs, multi-disciplanary fields of sciences, competitive technology research and production. San Deigo remained competitive in the fourth position due to four factors: 1-percantage of biotech bachelor’s degrees awarded among all bachelor’s degrees; 2-per capita measurements of biotech postdoctoral fellowships given; 3-number of biotech scientists; and lastly 4-number of bachelors degree awarded.
Any given cluster, whether in U.S. or the rest of the world, will benefit from these findings by mimicking behaviour of these top 4 U.S. biotech clusters.
Technology and Science Workforce:
A fundamental development requirement for any given sector is the ability to translate ideas into reality. This is where having a strong technology and science workforce is required to win a competitive edge over other sectors/clusters.
Milken’s Biotech Index 2004, ranked Raleigh-Durham-Chapel Hill as first, Boston as second, San Jose as third, Oakland as fourth and San Diego as fifth, according to their Biotech Workforce.
Figure 7: This figure shows ranking of the top 12 U.S. biotech clusters according to their relevant biotech workforce. (1)
Here, San Diego slipped the rank due to its comparatively smaller scope of life sciences. This cluster has relatively lower number of large pharmaceutical firms, teaching hospitals, medical device manufacturers and a relatively weaker manufacturing base.
Hence, the lesson U.S. and International biotech sector has learned here is that in order to succeed in advancing further in biotech initiatives, they must have a high/sufficient number of hospitals, large firms and related manufacturers.
1) Current Impact Assessment:
The second factor that was used to analyze performance efficiency of these 12 metro areas in order to rank them in Milken’s Biotech Index is Current Impact Assessement.
The Current Impact Assessment shows a cluster’s success in bringing new ideas to market and creating products, jobs and companies. It is comprised of seven unique components:
1-Employment Level in 2002
2-Location Quotient1 (LQ) in terms of employment in 2002
3-Relative Employment Growth from 1997–2002
4- Number of Establishments in 2001
5-Number of Location Quotients Greater than 2.0
6-Number of Location Quotients Less than 0.5
7- Number of Life Science Industries Growing Faster than the U.S. from 1997–2002
On three of these measures, San Diego scored 100% and was at 78% or better for the rest. According to the Milken’s biotech index, San Diego’s strength comprised of relative employment size and growth and a high concentration of biotech-related industries. San Diego also has relative more success not only in biotech R&D but also in biotech production process.
Again, using the findings of this study, its easy for the rest of the clusters to pinpoint the exact areas they need to develop themselves in an attempt to gain the same or more advantage as the San Diego cluster. As Teresa Young, co-leader of Deloitte’s regional Life Sciences Industry group comments:
Both academia and the biotech industry are hungry for this type of information. We believe the findings will be a useful tool for other geographies that desire a level of success comparable to San Diego and the other top metro areas that have built thriving biotech clusters. (2)
One important thing to note is that prosperity of any of the above mentioned clusters leads to a rippling effect so that consequent prosperity in related sectors occurs. For example, for every 1 job created within life sciences sector of San Diego, 1.7 jobs are created in all other sectors. An extended analysis of Milken’s Biotech Index is useful in pointing out such patterns.
Conclusion
Overall, Milken’s Biotech Index will significantly impact the biotechnology sector of U.S. by providing a detailed analysis of its top metro clusters. By mimicking behaviour and strategies adopted by the companies/organizations located within these clusters, the companies located in other clusters will benefit. Furthermore, this Index will significantly effect how the biotechnology sector will evolve in the future. It provides an outline as to what kind of short-comings must be overcome and what kind of strategies must be utilized in an attempt to enhance U.S. biotechnology capabilities.
References
1-Ross DeVol, Perry Wong, Junghoon Ki, Armen Bedroussian and Rob Koepp. “America’s Biotech and Life Sciences Clusters-San Diego’s Position and Economic Contributions.”
2-“What are America’s Top Biotech Centres? New Milken Institute Study shows which Metros Lead in”. Business Wire. Date: Monday, June-07-04.
Also, published by International Biopharmarmaceutical Association.
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