AT THE nexus of Maryland, Virginia and Washington DC, the clear political boundary formed by the Potomac river is a fairly arbitrary one where business and research are concerned. “In reality it’s one single workforce and capital region. Even though our respective states would love us to compete, sometimes it just doesn’t make sense to do so,” says Aris Melissaratos, Maryland’s secretary of business and economic development.

This year, the region’s leaders started to promote the Mid-Atlantic area as a whole, something akin to northern California’s Bay Area. Two new efforts could help the region work together to garner more resources and recognition. This fall will mark the first of Mid-Atlantic Bio, a planned annual trade meeting that will supplant the independent events held by the Virginia Biotech Association and the BioAlliance of the Technology Council of Maryland.

Another regional programme, kicking off next year, is the Chesapeake Nanotech Initiative. The Maryland and Virginia governors, as well as the mayor of Washington DC, have chosen a 12-member committee to fund and coordinate interdisciplinary nanotech research efforts across the region.

Venturing into funding

A MARYLAND tech-transfer organisation is number one in the US for backing biotech companies, according to a major annual study. Last year, the Maryland Technology Development Corporation (TEDCO) was the top-ranked source for early-stage funding, according to a study by Entrepreneur magazine in July. TEDCO was set up by the state government to encourage technology transfer from local universities. It funds companies that are strongly tied to a research institution and have only a handful of employees.

In 2004, TEDCO made 15 financing deals with start-up companies – more than any other US investor. The study ranked TEDCO top according to the number of individual financing deals it made with companies rather than the total amount of money. In fact, the deals it made were on a very small scale, measured in tens of thousands of dollars rather than millions. The pay-off for companies comes from the TEDCO stamp of approval, which attracts funding from other sources including the federal government and venture capitalists. On average, for every $1 invested through TEDCO, companies secure another $25 from elsewhere. Two funding grants this year went to local firms BioFactura and Imagilin Technology, which received $75,000 each to collaborate with the US Army Medical Research Institute of Infectious Diseases and the US Food and Drug Administration (FDA), respectively.

From a wider perspective the region’s venture capital investment in the life sciences may prove to be a disappointment in 2005, as in the first half of this year companies raised a mere $27 million. In comparison, last year the Potomac region ranked fifth in the US in the amount of life sciences venture capital, garnering more than $350 million, according to venture-capital research firm, VentureOne. And the region had the fastest growing biotechnology venture-capital funding in the US between 2000 and 2003, according to a regional analysis by the Milken Institute, a non-profit research group. Industry leaders will be hoping this year’s venture-capital collapse is a blip, not a downward trend.

MedImmune versus flu

MEDIMMUNE, based in Gaithersburg, Maryland, is the largest life sciences company in the region, and it had a rough year in 2004. Although there was a flu vaccine shortage in the US last year, the company’s much-hyped nose-spray flu vaccine, FluMist, sold much less than expected due to its high cost – initially around $60 to $70 compared with $15 to $20 for a flu shot – and because it wasn’t approved for use in pregnant women, the elderly and young children.

But now things are looking up for the company. Next year, MedImmune is expected to apply to the FDA to extend FluMist’s age range of 5 to 49-year-olds to include both younger and older age groups who are much more likely to need a flu vaccination. In September, the company’s stock hit a high with the announcement of a research deal with the National Institutes of Health to develop nasal-spray vaccines against strains of influenza that could become pandemic, including one targeting the much-publicised avian flu.

Meanwhile, MedImmune is planning two other local joint ventures. In September, the company disclosed a research agreement with DC-based Georgetown University to co-develop a cancer-fighting drug that will target an enzyme that plays a key role in prostate, colon and lung cancers. In the same month, the company announced the acquisition of Cellective Therapeutics, a Maryland-based company with three preclinical-stage programmes developing monoclonal antibodies to target antigens, which induce an immune response in the body.

Science gets back to basics

FEW areas in the US fare as well as the Mid-Atlantic when it comes to research funding in basic life sciences. It is consistently among the top five regions to get biotechnology funding from federal government sources such as the National Institutes of Health and the Small Business Technology Transfer Program, according to a report from the non-profit Milken Institute.

Maryland gets more than $11 billion annually in government research funding and about half of that goes to the life sciences. This plentiful funding of basic research is characteristic of the region, says Maryland’s secretary of economic development, Aris Melissaratos. Venture capital funding may be inconsistent, but Melissaratos is bullish: “Our scientists are content that the research dollars will come,” he says.

One example of this strength in research was announced in July. The National Cancer Institute and National Human Genome Research Institute, both based in Bethesda, Maryland, have formed a partnership to study the genetic basis of cancer. Each agency is putting in up to $50 million in funding for the pilot project.

NORTH Carolina may be known as the “tar-heel state”, but many are looking to biotechnology to take it light years beyond the tar that was a main export in its early days as a colony. This year, an Ernst & Young survey ranked the state third in the US behind Boston and the Bay Area on the success of its biotechnology industry. And its strength appears to come from its scientists. According to a recent report by think tank the Milken Institute, the state has the highest concentration of biotechnology human capital in the US. This means that North Carolina institutions award more biotechnology PhDs and master’s degrees, and there is a greater proportion of scientists working in the sector than anywhere else.

It has the skills in abundance, but what the state really needs is something bigger. North Carolina lacks a large biotech company like the Bay Area’s Genentech, says Ernst & Young biotechnology analyst Michael Constantino. “In 10 years, I’d like to see the world headquarters of some large biotech companies. What happens to most of our companies is that they end up getting acquired. We have to figure out how to get some of them to be the acquirers rather than the acquired,” he says. “It’s good to have an 800-pound gorilla in the backyard.”

Like most regions in the US besides Boston and the Bay Area, North Carolina is also crying out for more venture-capital investment in its life sciences companies – the industry attracted a mere $76 million last year. However, the state appears to be headed for something of a revival; life sciences venture-capital funds swelled to $75 million in the first half of 2005. If it keeps up this pace for the rest of the year, funding will hit a level not seen since 2002.

R&D triangulation

Unlike many US states that have only lately jumped on the biotech bandwagon, North Carolina has a strong tradition of backing this field. When Research Triangle Park – so named because it is located between the universities in Raleigh, Durham and Chapel Hill – was founded in 1959, the state showed keen foresight by attempting to bridge the gap between academia, industry and government.

Public-private partnerships continue to thrive in the park. For example, in August the National Institute of Environmental Health Sciences awarded biotech firm Icoria a $1.2 million grant for research into biomarkers for drug-induced liver injury. Both the government agency and the company are located in the research park.

Research Triangle Park now stakes a claim as the largest R&D park in the world and houses almost 40,000 employees of R&D-intensive companies. About one-third of the 137 companies based there are dedicated to the life sciences. GlaxoSmithKline, Bayer CropScience, the US Environmental Protection Agency and Diosynth Biotechnology are among the largest employers. But while most of the employees at the park work for multinational companies, about 40 per cent work for start-ups with fewer than 10 employees, making the area a cornerstone of North Carolina biotech.

Research Triangle Park wasn’t the only state-backed institution that showed remarkable planning. The North Carolina Biotechnology Center was founded over 20 years ago, and is almost entirely funded by the state. It has an annual budget of about $13 million dedicated to recruiting world-class university faculty, awarding grants to early-stage applied research, and providing universities with large-scale equipment that is shared with corporate researchers.

Today, the state government has lost none of its knack for forward thinking. Last year, the governor introduced an aggressive plan that detailed more than 50 strategies for supporting and attracting firms to the region. One example is the nurture of the biomanufacturing sector through the education of its workers (see “People Provider”, below).

People provider

Companies usually have to train their own employees, but not in North Carolina. The state government will often do it for them by investing in life sciences training programmes. “Instead of throwing tax dollars at companies, [the state] provides you with a trained workforce once that plant opens,” says Ernst & Young’s Michael Constantino. “It makes it very attractive to companies that want to have high-quality manufacturing with lower labour costs.”

This year, the state and other backers pledged $65 million to found the Biomanufacturing Training and Education Center with North Carolina State University and the local community college system. The centre will simulate a biomanufacturing pilot plant, giving students hands-on experience of producing and packaging products in sterile conditions. Once the programme is up and running, it is expected to provide training for up to 3000 North Carolinans a year, according to the North Carolina Biotechnology Center.

The centre will further strengthen North Carolina’s biomanufacturing capabilities, say its backers. At least 16 corporate and contract biomanufacturing operations already employ more than 4500 people in the state, and a number of biotechnology and pharmaceutical companies have manufacturing operations there, including Merck, GlaxoSmithKline, Biogen Idec, and Wyeth. In addition, an extensive network of almost 80 contract research organisations, which includes Quintiles and PPD, allows biotech companies to outsource any part of their process from pre-clinical research to post-marketing manufacturing. North Carolina is a “one-stop shopping state”, say industry leaders.

Agbio takes root

North Carolina is a top tobacco-producing state, accounting for about 40 per cent of the tobacco grown in the US. This strength, combined with an established agricultural tradition, has helped agbiotech to flourish in the state, says Leslie Alexandre, president and chief executive officer of the North Carolina Biotechnology Center.

Evidence is easy to find. On the academic side, researchers at North Carolina State University expect to finish mapping the tobacco genome by 2007. In industry, two major European agbio companies, Syngenta and Bayer CropScience, have US headquarters and major research facilities in North Carolina’s Research Triangle Park. The state is also home to several agbio start-ups including Athenix, Cropsolution, Akkadix Genetics and Embrex (see “Checking on the Chicks”).

Arysta LifeScience, an agbio company based in Japan with over $1 billion in revenue last year, announced in August that it plans to shift its US headquarters from San Francisco to Research Triangle Park. Meanwhile, the state legislature is set to pass a bill that will block local governments from banning the planting of genetically modified crops, as three California counties have done.

Considering that LA hosts the world’s largest biotechnology firm, Amgen, its status as little brother in California is difficult to comprehend. Amgen pulls the region up to second in the nation when it comes to public biotech company revenues and R&D spending, according to a recent report by consultancy Ernst & Young.

But Amgen’s presence has yet to translate into an entrepreneurial environment like San Diego or San Francisco, where investors are keen to support young companies. In fact, when Amgen started its own venture capital arm with a $100 million fund last year, it placed the headquarters in biotech-focused San Diego rather than the LA area.

“There have been some spin-outs from Amgen, but nowhere near the number you have seen come out of Genentech in the Bay Area,” notes Tracy Lefteroff, a PriceWaterhouseCoopers life sciences analyst. Instead of starting up close to home, researchers and executives are moving out of the region to set up their companies, he says, because the area has fewer alternative job opportunities if the venture fails.

With fewer start-ups, the relative dearth of venture capital continues to be a problem for emerging life sciences companies in the area. After several stable years, last year venture capital for life sciences companies in the region was cut by half, from $270 million the previous year to $136 million, according to Dow Jones VentureOne and Ernst & Young. In the same period, life sciences venture investment in the Bay Area increased by 20 per cent, and in San Diego by 43 per cent.

LA’s lack of venture capital funding despite regional potential is bemoaned in a recent issue of the newsletter SoCalBio Synergies, produced by the area’s life sciences industry group, the Southern California Biomedical Association (SoCalBio). It points out that the six counties of Greater Los Angeles are home to only seven venture capital firms that actively invest in the life sciences industry, and that just five of these are interested in early-stage deals. “This scarcity of local smart money can make it difficult for start-ups to develop new ideas. It can also make them vulnerable to cherry-picking by venture capital firms from the Bay Area or East Coast,” it adds.

“The scarcity of local smart money can make it difficult for LA start-ups to develop new ideas”

SoCalBio is working to make investment in the life sciences more appealing both to companies running regional employee pension programmes and wealthy individual investors. It hopes to announce in the next few months that a local pension programme is willing to devote a small percentage of its funds to LA life sciences companies.

Local and state governments are also focusing on driving the life sciences industry in the LA region. Improving technology transfer and lowering business costs are at the heart of a 10-year plan for the LA area issued by the California governor’s office last year.

But a lack of funding isn’t the only difficulty for start-up companies: there are simply fewer ideas to invest in, according to SoCalBio founder Ahmed Enany. The University of Southern California (USC) and the University of California, Los Angeles (UCLA), have done a poor job of commercialising their research, he argues. UCLA has produced only 18 biomedical spin-offs, while the USC has generated 16. In comparison, the University of California, San Diego (UCSD), and the University of California, San Francisco (UCSF), have yielded more than 60 biomedical companies each, and Stanford University is a clear winner with 94 firms (see Chart).

This is despite the fact that UCLA gets the seventh largest amount of university funding nationwide from the National Institutes of Health, and is second only to UCSF in California. “That’s what goes in, but you see a disparity in terms of what comes out,” notes Enany. “Stanford doesn’t get as much NIH money, yet they spin out many more companies.” In the last decade, technology transfer has improved at UCLA, more so at USC and the California Institute of Technology, but it needs to go further, he says.

The Los Angeles region’s scarcity of spin-offs, major life sciences companies and venture capital mean the industry looks quite different from that in San Diego and the Bay Area. While it watches its neighbours grow from strength to strength, the region has a number of hurdles to tackle if it wants to copy their success.