Recent Research: Foreign Bias for Location in Partnering with U.S. Biotech Start-ups

Perhaps in no field more than biotechnology are the roles of alliances, mergers and acquisitions, and licensing so influential in determining the future success of a start-up firm. Pharmaceuticals are perhaps the best example of this. There aren't hundreds of big pharma companies around the world; there are perhaps a dozen, and, thanks to television advertising for meds, most are practically household names. To make it as a young biopharma business, most plan to be licensed up or bought out.



The implications of this for state and regional technology-based economic development (TBED) were evident in a 2004 presentation by Cardiff University professor Philip Cooke in a presentation titled Path Dependence, given before the 2004 national meeting of Canada's Innovation Systems Research Network. With the increasing concentration of pharmaceutical distribution and the globalization of research capabilities, Cooke studied the evolution of pharma originating in the Basel-Friedburg-Strasburg region of Switzerland. After following the 250-year history of Swiss-related pharma, he concluded globalization is allowing or resulting in a cluster-based division of capabilities such that the tens and hundreds of biotech firms in certain "biotech hotspots," such as San Diego, San Francisco and Cambridge, are serving as very specialized open research labs for Swiss pharma giants like Novartis.



So if the U.S. biotech powerhouse areas are being reduced to mere concentrations of boutique research labs, what can other areas of the country do to be active players in biotechnology? Is being/becoming a high-wage research center for a particular niche of the biotech/life science industry a sufficient goal for TBED strategists?



Even that may be difficullt, if not impossible, the field was told nearly four years ago. There was quite a bit of uproar in the TBED community back in 2002 (see June 14, 2002 issue of the Digest) when Joe Cortright and Heike Mayer suggested in the Brookings Institution paper, Signs of Life: The Growth of Biotechnology Centers in the U.S, that the sheer amount of research money required to become one of the top biotech metros "may be beyond the reach of most metro areas." Since most of that funding comes from the National Institutes of Health (NIH) and, as the authors pointed out, "none of the 51 metro areas increased its share of NIH medical school research funding by even one percentage point during the past 15 years," the point may be valid - if being in the top 10 biotech regions is the goal. 



However, development of a cluster of niche capabilities seems to point the way with an ever watchful eye for opportunities to help nascent biotech firms form strategic alliances with larger partners as well as secure other sources of capital.



New research, published in the July 2006 issue of the Journal of Business Venturing, suggests communities also will have to overcome a locational bias in helping local biotech firms cultivate alliances with foreign partners. "An Examination of the Investments in U.S. Biotechnology Firms by Foreign and Domestic Corporate Partners," by Joseph Coombs, Ram Mubambi and David Deeds, finds, while domestic corporations are strongly influenced when selecting strategic alliance partners by firms' recent patent activities, foreign corporations appear to be more influenced by the location of the firm. The implications are that foreign firms recognize value in research conducted in clusters of technological capabilities. That supports Cooke's conclusions as well and suggests regions outside the readily recognized biotech hubs will have work much harder or differently to encourage international consideration.



If geographic clusters of research activities will serve as the de facto research labs of large biotech companies, then the quality and perceived value of research will be the drivers to ensure the relationship remains solid between the geographic region and its alliance partners - domestic and foreign.