The Biotechnology Cluster in Washington
Opportunities for Growth
Carrie G. Callaway Blanca Monter Monroy Jeff Rosenberg Annika Schilke
EXECUTIVE SUMMARY The field of biotechnology is defined by innovation and change. At its basis is the theory that we can use natural tools — cells, genes, proteins, enzymes and antibodies — to solve problems such as disease, hunger, and environmental degradation. The biotechnology cluster in Washington is strong, innovative and growing, but continued growth of this cluster may be limited unless some basic plans are put in place to benefit these innovators. This study explores the biotechnology industry and the cluster created around it. Industry clusters—a term made popular by Michael Porter of Harvard1—are collections of firms, institutions, and other economic actors whose mutual proximity and relationships allow them to form a competitive advantage in producing a certain type of good or service.2 The cluster approach has been gaining attention as a tool for regional economic development in recent years,3 and Washington has been one of several states trying to institute cluster strategies. For example, Governor Christine Gregoire’s 10-year economic plan, “The Next Washington,” includes a discussion of cluster-related economic growth. Overview of the biotechnology cluster Previous studies conducted both in Washington and nationally have all defined the biotechnology cluster similarly (see Table 12, p. 19). There are two basic components to the cluster: research and development, and manufacturing. Manufacturing is further split into four more detailed categories: medicinals and botanicals; pharmaceuticals; diagnostic substances; and biologic products other than diagnostic. A 2002 Brookings Institution report found that biotechnology clusters are concentrated in just nine metropolitan regions, one of which is Seattle. These nine regions contain approximately 75 percent of the nation’s largest biotechnology firms and 75 percent of the firms formed in the past decade. Biotechnology is one of the newest industry concentrations in Washington. While the industry currently employs only about 1% of workers in the state, it is a growing field, and one which is likely to continue to gain in importance as both scientific, and manufacturing advances are made. Biotechnology employment has been growing relatively rapidly, with a gain of approximately 5,000 jobs (a 33-percent growth) between 2001 and 2006. Jobs in the biotech cluster are generally high-skill, high-wage jobs;4 they exceed the national and state averages by over $30,000. However, wages for biotech jobs in Washington trail those nationally. Top occupations in the biotechnology cluster mostly include scientists and technicians (Table 16). There is a clear disparity in wages between scientists and lab technicians: the former make high wages—each makes an average wage of at least $60,000—while the latter all make under $40,000. Like most industries, there are also a substantial number of support employees such as clerks, secretaries, accountants, and managers. Researchers, institutions and companies in Washington produce about 150 biotech patents per year. While this is only a small percentage of the biotech patents in the US each year, the state is keeping pace with national trends in biotech innovations.
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Strengths, Weaknesses, Opportunities, and Threats The data discussed above, along with a review of existing literature and interviews and surveys with members of the biotechnology cluster, made clear a number of the cluster’s strengths and weaknesses, as well as opportunities and threats for future growth. The following is a summary of these strengths, weaknesses, opportunities, and threats. For more detail, please see p. 32.
Biotechnology Cluster – Washington State Internal
Positive Strengths ● ●
●
External
●
Existing and expanding cluster associations and collaborations. Central location for talent – allows for stable employment and growth through rise and fall biotech firm cycles. Above average levels of biotechnology research and commercialization when compared to the rest of the US. Growing number of biotech capital investment firms.
Opportunities ● ● ● ● ●
Excellent culture for start-up firms and spin-offs. Located near major research centers & universities. Location excellent for new export options, especially to Asia. Growing area, much potential for increased revenues. Increased funding opportunities through government and private investors.
Negative Weaknesses ●
●
Typical negative revenues due to R&D expense for the first 2-5 years. Limited internal production, marketing, or distribution. (Difficult due small size of most biotech firms.)
Threats ● ● ● ●
Limited export partners. Government regulatory agencies. Backlogs of patents. Start-up acquisition and relocation.
Diamond Model Another way to summarize the dynamics of the biotechnology cluster is the ‘diamond model,’ created by Harvard economist Michael Porter. This tool models the effects of location on competition using four interrelated influences (or conditions):5 1. Factor conditions: The position of factors of productions such as skilled labor or infrastructure. 2. Demand conditions: The nature of the home-market demand for the industry’s product and/ or services. 3. Related and supporting industries: The presence or absence of supplier industries and other related industries that are internationally competitive. 4. Firm strategy, structure and rivalry: A local context that encourages appropriate forms of investment, sustained upgrading and vigorous competition among locally based rivals. Porter depicts his model graphically as a diamond to illustrate the interrelation between these conditions. The nature of these relations defines the environment in which clusters are formed and learn to compete. Below is a summary of how Porter’s diamond model applies to the biotech cluster in Washington. For more detail, please see p. 40.
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● ●
Active local rivalry: more than 4,500 companies Favorable environment for investment: State Government’s policies favoring biotech industry development.
Firm Strategy, Structure & Rivalry
Factor Conditions ● ●
Diamond Model
Demand Conditions
Specialized and skilled labor force High quality research
●
Competitive and demanding customers - local hospitals and universities.
Related & Supporting Industries
● ●
Lack of Suppliers Presence of related industries: veterinary services, medical devices and healthcare.
Recommendations: The following recommendations stem from our research and analysis: 1. Expand the manufacturing capacity of the biotechnology cluster. ● Washington has already approved Substitute House Bill 2640 providing biotechnology product and medical device manufacturing tax incentives.6 Washington can go further by offering tax credits to venture capitalists who invest in qualified biotech firms. ● Consider providing initial construction funding for government-sponsored or private biotechnology manufacturing sites. ● Expand training programs related to bio manufacturing.
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2. Enhance collaboration opportunities between manufacturing firms and knowledge institutions. In the report The Future of Life Sciences,7 a number of recommendations were put forward. We recommend a continued focus on the following recommendations from that report: ● Support efforts to develop and disseminate career path information to excite and educate students, job seekers, science teachers, and high school counselors. ● Foster science education and encourage mentoring and nurturing student interest in life science. ● Underwrite the Life Sciences Industry-Education Council to bring senior leaders from industry and education together to address workforce training and education issues. ● Form a science learning consortium with the mission of capturing the imaginations of students at all levels. 3. Find Washington’s niche within the larger biotech field. ● Survey the biotech faculty at local research universities to ensure that existing faculty resources are fully known and that advantageous partnerships can be fostered. ● Heavily recruit star biotechnology faculty at research universities. ● Create institutes around specific research goals, and include local universities and hospitals as partners in these institutes. ● Use Washington’s own natural resources to inspire locally-focused biotech research. 4. Provide stronger linkages between the biotech cluster and its related industries ● Encourage biotech firms to band together to sources supplies locally. ● Allocate a portion of grants such as the Live Sciences Discovery Fund to biotech suppliers, which can improve the business climate for all life-science industries. ● Aggressively market the products and the research produced by Washington biotechnology firms and institutions. ● Engage in market research to ascertain what new products are needed by existing or potential customers. Overall, Washington State has great opportunities in its biotechnology cluster to promote further economic development and prosperity. This includes a variety of avenues. First, it includes building off of the biotechnology cluster’s existing strength to expand manufacturing and create jobs. Next, it also includes opportunities for prosperous partnerships between Washington’s highly skilled knowledge institutions and business. In addition, Washington can look to attract niche market firms and products to promote essential innovation. Finally, utilizing its professional associations and partnerships, Washington’s biotechnology cluster can grow by strengthening the linkages in its supply chain producing gains for every link. Overall, Washington State is moving in a positive direction with many biotech initiatives already in implementation.
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TABLE OF CONTENTS INTRODUCTION.........................................................................................................................................................8 WASHINGTON’S ECONOMIC PERFORMANCE................................................................................................8 INDUSTRY ANALYSIS.....................................................................................................................................................10 BOEING AND MICROSOFT..............................................................................................................................................13 A CLUSTER FOCUS.................................................................................................................................................16 LEGISLATION ON CLUSTERS............................................................................................................................................16 PREVIOUS CLUSTER STUDIES..........................................................................................................................................17 CLUSTER ANALYSIS..............................................................................................................................................18 IDENTIFYING CLUSTERS.................................................................................................................................................18 ABOUT THE BIOTECHNOLOGY CLUSTER......................................................................................................22 THE BIOTECH CLUSTER NATIONALLY..............................................................................................................................23 THE BIOTECH CLUSTER IN WASHINGTON.........................................................................................................................24 QUALITATIVE ANALYSIS................................................................................................................................................32 RELATED INDUSTRIES..........................................................................................................................................37 OUTPUTS.....................................................................................................................................................................37 INPUTS........................................................................................................................................................................39 DIAMOND MODEL..................................................................................................................................................40 RECOMMENDATIONS............................................................................................................................................46 EXPAND THE MANUFACTURING CAPACITY OF THE BIOTECHNOLOGY CLUSTER...........................................................................46 ENHANCE COLLABORATION OPPORTUNITIES BETWEEN MANUFACTURING FIRMS AND KNOWLEDGE INSTITUTIONS.............................48 FIND WASHINGTON’S NICHE WITHIN THE LARGER BIOTECH FIELD..........................................................................................49 PROVIDE STRONGER LINKAGES BETWEEN THE BIOTECH CLUSTER AND ITS RELATED INDUSTRIES...................................................51 CONCLUSION...........................................................................................................................................................53 APPENDIX..................................................................................................................................................................54 INDUSTRY ANALYSIS METHODOLOGY..............................................................................................................................54 INTERVIEWS.................................................................................................................................................................55 REFERENCES............................................................................................................................................................64
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INTRODUCTION This report presents analysis of the Washington State biotechnology cluster and its impact on the state economy, as well as recommendations for development of the cluster. Biotechnology already plays a significant role in the state’s economy, but it has the potential for further growth. The report is organized as follows: we begin with an overview of the state economy and some of its important industries. We then turn to the biotechnology cluster itself, analyzing a number of the cluster’s economic indicators and using qualitative methods to analyze the cluster’s strength and weaknesses. After our analysis of the cluster, we provide some additional information about related industries that are either important inputs to biotechnology, or to which biotechnology is an important input. With this information in mind, we turn to one final method of qualitative analysis: Harvard Professor Michael E. Porter’s “diamond model” for assessing the cluster’s competitive opportunities and challenges. Finally, we conclude with some recommendations for further development of the biotechnology cluster.
WASHINGTON’S ECONOMIC PERFORMANCE A good starting point for any statewide economic development strategy is an assessment of the state’s economic performance. There are many ways to operationalize the idea of competitiveness. According to Harvard Economist Michael Porter, competitiveness is determined by the productivity with which Table 1: Indicators of Innovative Performance a region utilizes its Washington US Indicator human, capital and Rank Score Score Overall 2 86.2 60.3 natural resources.8 Foreign Direct Investment Productivity sets a The percentage of each state's workforce region’s standard of 33 3.70% 4.70% employed by foreign companies. living (e.g. wage, Job Churning returns on capital, and The number of new start-ups and business returns on natural failures, combined, as a share of all 10 21.30% 19.80% resources). establishments in each state. The “motor” for competitiveness is the capacity for innovation. A state with a high capacity for innovation propels growth in productivity, improving competitiveness, and therefore sustaining and increasing prosperity.
Initial Public Offerings A weighted measure of the value and number of initial public stock offerings of companies as a share of gross state product. Patents The number of patents issued to companies or individuals per 1,000 workers. Venture Capital Venture capital invested as a percentage of GSP. Source: The 2002 State New Economic Index
1
11.8
5
9
1
0.8
5
1.30%
1.10%
Some important indicators of economic performance are gross domestic product, employment growth, unemployment rate, cost of living, average wages, and exports. Measures of innovation
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include patents, new establishment formation and foreign direct investment. Porter et al. (2000)9 define innovative capacity as the ability to commercialize and produce a flow of innovative technology over the long term. There are many measures of technological innovation, but studies have demonstrated that patenting is the best available indicator, and is correlated with non-patented innovative activity10. As shown in Table 1, Washington ranked 9th for the number of patents issued to companies or individuals per 1,000 workers. For perspective, these indicators are compared with the nationwide economy. Washington’s gross domestic product in real terms (GDP) increased by 5.6 percent in 2006,11 2.2 percentage points more than the national economy (3.4%). This was the second year in row that Washington’s economy grew faster than the nation’s. Durable goods manufacturing and real estate and leasing were the activities that contributed the most to this increase, with a growth of 1.01 and 1.03 percent, respectively. Washington State’s GDP per capita ($39,616) is ranked 13th nationally; Delaware leads the nation with the highest per capita real GDP of $59,288. In Table 2: Washington Employment by Sector Washington, total employment Jan-08 Jan-07 Change Industry Change % grew 2.1 Employment (1,000) percent Agriculture, Forestry, and Related Services 46.4 48.4 (2.0) (4.2) (+61,900) Mining 8.1 8.7 (0.6) (7.1) from January Construction 205.1 203.4 1.7 0.8 2007 to Manufacturing 297.4 289.7 7.7 2.7 January 2008. Transportation, Communications, and Utilities 96.4 95.4 1.0 1.0 Since October Wholesale Trade 130.8 127.9 2.9 2.3 Retail Trade 330.9 325.1 5.8 1.8 2004, annual 102.9 100.4 2.5 2.5 job growth has Information Finance activities 155.4 155.7 (0.3) (0.2) consistently Professional and Business services 349.4 339.5 9.9 2.9 exceeded 2 Admin and Support and Waste Management 156.7 150.9 5.8 3.8 percent. This Education and Health Services 353.8 341.5 12.3 3.6 growth rate Leisure and Hospitality 284.6 275.5 9.1 3.3 compares Other services 106.1 104.1 2.0 1.9 positively to Government 538.2 530.2 8.0 1.5 the nation’s Source:http://www.workforceexplorer.com/ annual employment growth of 0.7 percent in January 2008. The industries with the greatest employment growth rates were Administrative and Support and Waste Management and Remediation Services, and Education and Health Services, with growth of 3.8 and 3.6 percent respectively (Table 2). Education and Health Services comprises the largest number of employees at 353,800. This is equivalent to 14 percent of the non-farm employment in the private sector. While national unemployment increased in the last year by 0.4 percentage points, Washington’s unemployment rate decreased 0.1 percentages points (4.5% in January 2008). The state has a mean hourly wage of $20.63, which is 9.5 percent above the national mean ($18.84).12 Washington has a higher than average cost of living which somewhat dampens the
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effect of those high wages; overall, though, with the high wages, Washington is still able to compete successfully for skilled talent—a crucial asset for any economy.13 Washington’ exports, at $66.3 billion, are equivalent to 5.6 percent of US total exports. The state’s principal trade partners are China, Japan and Canada.14 The transportation equipment sector dominates the state's export profile and accounted for 64 percent ($42.7 billion) of Washington's total merchandise exports in 2007. Other top manufactured exports that year were computers and electronic products ($3.3 billion), machinery ($2.1 billion), and processed foods ($2.1 billion). According to the Department of Commerce, export-supported jobs linked to manufacturing account for an estimated 9.0 percent of Washington's total private-sector employment, tied for the highest share among the 50 states. Nearly two-fifths (39.1 percent, the highest share) of all manufacturing workers in Washington depend on foreign exports for their jobs. Foreign-controlled companies employed 85,900 workers in Washington in 2005. Major sources of Washington's jobs in 2005 included Japan, the United Kingdom, Canada, Germany, and France. Foreign investment in Washington was responsible for 3.6 percent of the state’s total private-industry employment in 2005.
INDUSTRY ANALYSIS The following section profiles some of the most important industries in the state. In particular, we look at: Industries the state is most specialized in, as measured by the industries’ location quotients ● Industries that have been gaining in concentration, as measured by the increase in LQ and competitive shift; and ● Industries that have the greatest employment. ●
ABOUT LOCATION QUOTIENT AND COMPETITIVE-SHIFT ANALYSIS Location quotients (LQs) measure, for each industry in the state, whether the industry is more or less concentrated in Washington than it is nationally. In general, an industry with an LQ of exactly 1 is assumed to be self sufficient, an LQ greater than 1 means that an industry is a net exporter, and an LQ less than 1 means than the state must import some of that good or service to satisfy local demand.
The most concentrated industries in the state remain those involving the Washington’s abundant natural resources (Table 3). However, publishing and transportation are also quite important (see p. 13). Many of these industries continue to become more Competitive shift measures the growth concentrated at a rapid rate (Table 4). Financial and attributable to each industry in the state. In information services have also been gaining other words, it measures the growth rate of each local industry, after controlling for the concentration rapidly; though they still have relatively growth of the national economy and the low LQs, they are potential “rising stars.” This is also growth of the industry nationwide. confirmed by their very high competitive shifts (Table For more detail on these methods, please see 5). While many of the industries already mentioned are the appendix. drivers of the state economy, the industries with the largest employment are services geared towards strictly local consumption, such as food services and retail stores. Their focus on local consumption is confirmed by the extent to which LQs in Table 6 cluster around 1, which indicates that production is just enough to meet local demand.
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Table 3: Top 10 Industries by Location Quotient NAICS 114 111 113 814 511 516 483 336 115 562
NAICS Meaning Fishing, Hunting and Trapping Crop Production Forestry and Logging Private Households Publishing Industries (except Internet) Internet Publishing and Broadcasting Water Transportation Transportation Equipment Manufacturing Support Activities for Agriculture and Forestry Waste Mgmt and Remediation Services
LQ 2006 11.25 4.98 3.80 3.36 3.02 2.70 2.70
LQ Change 2000-2006 2.31 0.35 -0.58 -0.84 0.83 -0.05 -0.10
Employment 2006 2,009 54,995 5,311 36,113 55,502 1,913 3,358
Competitive Shift 2000-2006 20.27% 7.15% -10.90% -25.14% 33.06% -1.20% -4.17%
2.42
0.04
86,676
1.52%
2.36 1.88
0.61 -0.16
15,753 13,280
35.15% -8.63%
Table 4: Top 10 Industries by Change in Location Quotient NAICS
327 488
NAICS Meaning Fishing, Hunting and Trapping Publishing Industries (except Internet) Lessors of Nonfinancial Intangible Assets (except Copyrighted Works) Support Activities for Agriculture and Forestry Crop Production Other Information Services Wholesale Electronic Markets and Agents and Brokers Nonmetallic Mineral Product Manufacturing Support Activities for Transportation
324
Petroleum and Coal Products Manufacturing
114 511 533 115 111 519 425
LQ 2006 11.25 3.02
LQ Change 2000-2006 2.31 0.83
Employment 2006 2,009 55,502
Competitive Shift 2000-2006 20.27% 33.06%
1.13
0.63
634
121.76%
2.36 4.98 0.90
0.61 0.35 0.31
15,753 54,995 943
35.15% 7.15% 58.77%
0.76
0.20
12,150
47.63%
0.97 1.54
0.18 0.17
10,162 17,810
21.18% 13.13%
1.06
0.15
2,452
15.47%
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Table 5: Top 10 Industries by Competitive Shift NAICS
533 519 425 115 511 335 327 114 452 337
NAICS Meaning Lessors of Nonfinancial Intangible Assets (except Copyrighted Works) Other Information Services Wholesale Electronic Markets and Agents and Brokers Support Activities for Agriculture and Forestry Publishing Industries (except Internet) Electrical Equipment, Appliance, and Component Manufacturing Nonmetallic Mineral Product Manufacturing Fishing, Hunting and Trapping General Merchandise Stores Furniture and Related Product Manufacturing
LQ 2006
LQ Change 2000-2006
Employment 2006
Competitive Shift 2000-2006
1.13 0.90
0.63 0.31
634 943
121.76% 58.77%
0.76
0.20
12,150
47.63%
2.36 3.02
0.61 0.83
15,753 55,502
35.15% 33.06%
0.49
0.14
4,303
30.26%
0.97 11.25 0.98
0.18 2.31 0.15
10,162 2,009 59,199
21.18% 20.27% 19.26%
0.77
0.14
8,706
18.97%
LQ 2006 1.02
LQ Change 2000-2006 -0.04
Employment 2006 193,079
Competitive Shift 2000-2006 -3.82%
0.94 0.81 1.06 1.14
-0.03 0.06 -0.02 0.07
141,684 131,950 114,756 112,505
-3.00% 8.56% -1.96% 7.78%
2.42 1.05 0.73 0.98 1.02
0.04 0.02 -0.01 0.15 -0.03
86,676 65,884 64,945 59,199 58,833
1.52% 1.51% -1.89% 19.26% -2.58%
Table 6: Top 10 Industries by Employment NAICS
722 541 561 621 238 336 423 622 452 445
NAICS Meaning Food Services and Drinking Places Professional, Scientific, and Technical Services Administrative and Support Services Ambulatory Health Care Services Specialty Trade Contractors Transportation Equipment Manufacturing Merchant Wholesalers, Durable Goods Hospitals General Merchandise Stores Food and Beverage Stores
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BOEING AND MICROSOFT Table 3 shows that transport equipment and publishing are two of the most concentrated industries in Washington. The presence of Boeing and Microsoft in the transport, and publishing industries, respectively, are the main reason for this concentration. The following is a brief summary of the impact of Microsoft and Boeing in Washington. Based on Fortune’s 2007 list of America’s largest corporations,15 the largest corporations in the State of Washington are Costco Wholesale (annual revenues over $60 billion), Microsoft (annual revenues over $44 billion), and Washington Mutual (annual revenues over $26 billion). Although not in the top three, Boeing also is a major player in the Washington State economy. Despite changing its headquarters to Illinois in 2003, Boeing maintains 46% of its workforce in Washington through Boeing commercial airplanes and the Boeing financial corporation.16 Table 7: Top Washington Companies by Revenue Company Costco Wholesale Microsoft Washington Mutual Weyerhaeuser Paccar Amazon.com Nordstrom Starbucks Safeco Expeditors Intl. of Washington Boeing financial and airplanes Boeing (head quarters)
National Rank 32 49 81 105 141 237 286 310 363 477 28
Revenues ($ Million) 60,151.20 44,282.00 26,561.00 22,250.00 16,454.10 10,711.00 8,560.70 7,786.90 6,289.90 4,626.00 1,428.00* 61,530.00
City
Industry
Issaquah Redmond Seattle Federal Way Bellevue Seattle Seattle Seattle Seattle Seattle Washington Illinois
Specialty retailers Computer software Savings institutions Forest and Paper Products Motor Vehicles and Cars Internet Services and Retailers General merchandisers Food services Insurance P&C stock Transportation and Logistic Aerospace and Defense Aerospace and Defense
Source-Fortune http://money.cnn.com/magazines/fortune/fortune500/2007/snapshots/1344.html 04-30-07
Boeing In 2005, the aerospace industry in Washington employed 65,400 people, including an estimated 59,000 working at Boeing (91% of the total). As Table 8 below shows, maintenance services accounts for 1,800 jobs, electronic products 1,120 jobs, and lighting 1,060 jobs; the rest of the employment is in aero structures or composite aerospace products.17 After six years of layoffs, the launch of the 7E7 project18 increased employment opportunities (see Figure 1). Currently, Boeing employs 74,500 people in Washington State, which accounts for 2.5 percent of total state employment.19
*
Sales
13
Table 8: Washington Aerospace Industry Statistics, 2005 Companies
Employment
Products
The Boeing Co. Goodrich Corp. Crane Aerospace & Electronics Esterline Technologies Corp. Zodiac/Northwest Composites ESP Tect Corp. Hexcel Corp. Electroimpact Skills Avtech Corp. AIM Aviation Fatigue Technology Zodiac/IDD Aerospace Corp. AIM Aviation Auburn Contour Aerospace Corp. Precision Machine Works Saint-Gobain Aerospace Components
59,710 1,800 120 1,060 550 330 310 300 240 240 230 180 160 140 130 120 100 100
Airplanes, information systems Maintenance services, landing gear assembly Electronic products and systems Lighting, metal finishing, inspection services Interiors, composites, composite structures Engineering services within simulation industry Aero structures and mechanical assemblies Composite aerospace parts CNC machines, assembly machines, tooling Precision parts Aviation electronics Interior products Retainers, bushings, fasteners, fittings, tooling Flight deck control panels, keyboards Composite products Machined structures and subassemblies Hard metal parts Advanced plastic and composite materials Lighted displays, keyboards, avionics assemblies Unmanned robotic aircraft
Spectralux Corp.
70
The Insitu Group
50
Source: Lists 2006, Puget Sound Business Journal, December 22, 2005. The 1997 Washington Input-Output study20 showed that 96.3 percent of the industry’s output was exported and that half of these exports were destined to foreign countries. The same study showed that in 1997, Boeing and the other aerospace companies purchased $21.9 billion in goods and services to support operations. The company’s two largest local purchases were aerospace products and professional business services. Conway and Pedersen, in 2006, estimated that the Washington aerospace and salary employment multiplier is 3.2, implying that each aerospace job indirectly supports 2.2 others jobs in the state.21 Thus, the total impact of the aerospace industry amounts to 209,300 wage and salary jobs (7.5% of total state employment).
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Figure 1: Employment by Year (persons) Employees in Washington 120.0
100.0
thousands
80.0
Boeing
60.0
40.0
Microsoft 20.0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: Microsoft, Boeing
Microsoft Currently, Microsoft employs 35,000 people in Washington,22 less than half of Boeing’s employment. Although it employs fewer people, according to Dick Wallace “Microsoft has had an effect on the economy that is in some sense immeasurable — the great wealth that's been created, and the lasting effects that wealth has on the economy in terms of spending or as a source of venture capital.”23 A 2003 study by Dick Conway & Associates found that every job at Microsoft supports 3.4 other jobs in the economy, higher than the 2.5 jobs supported by Boeing; Microsoft accounted for 128,000 jobs, or 3.6 percent of the total state workforce24. Also, to support operations, the company spent $800 million on goods and services from Washington producers. The 1997 Washington input-output study showed that 36 percent of the computer and data processing industry’s output was exported. In 1997, this industry locally purchased $1.6 billion in goods and services to support operations. The two largest local purchases were real estate and business and professional services.25
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A CLUSTER FOCUS Rather than crafting a development strategy for the state as a whole, or for any one particular industry, this report aims to focus on an industry cluster that is important to the state’s economy. Industry clusters—a term made popular by Michael Porter of Harvard26—are collections of firms, institutions, and other economic actors whose mutual proximity and relationships allow them to form a competitive advantage in producing a certain type of good or service.27 Clusters vary greatly in size and scope. They can span industries, or they can occupy a specific niche within a single industry.28 Clusters have been defined in many ways, but are best thought of in terms of ideas and relationships.29 Ideas imply that clusters are formed when a body of specialized knowledge can be built amongst firms, workers, and institutions in a region; this specialized knowledge makes a region more attractive for firms in related industries who can tap into it. Relationships imply that concentrations of firms and workers allow for both intra-regional competition, which strengthens the quality of the cluster’s products, and intra-regional cooperation, which allows firms within the cluster to benefit from their complementarities. The cluster approach has been gaining attention as a tool for regional economic development in recent years,30 and Washington has been one of several states trying to institute cluster strategies. For example, Governor Christine Gregoire’s 10-year economic plan, “The Next Washington,” puts forth several ideas for economic stimuli, including the idea of cluster-related economic growth.
LEGISLATION ON CLUSTERS As mentioned in “The Next Washington,” the Washington Legislature has passed several measures to assist in the expansion of cluster study and growth within the state. Senate Bill 5330,31 which was signed by the Governor in March of 2006, provided a competitive grant program “to promote regional activity around industry clusters.”32 Additionally, Substitute House Bill 1091 passed in 2007 outlined the establishment of innovation partnership zones in order to spur economic development within emerging clusters. It also mandated the establishment of a working group to determine the criteria “for identifying strategic clusters which are important to economic prosperity in the state, considering cluster size, growth rate, and wage levels among other factors.”33 In response to this bill and the Governor’s emphasis on clusters, the “Skills for the Next Washington” working paper was developed by the Workforce Training and Education Coordinating Board (Workforce Board), the Department of Community, Trade, and Economic Development (CTED), and the Economic Development Commission in collaboration with representatives from the Higher Education Coordinating Board, the State Board for Community and Technical Colleges, the Employment Security Department, Associate Development Organizations, and Workforce Development Councils. This working paper “presents a framework for coordinating workforce and economic development at the state and local levels focusing on a cluster-based approach.”34
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PREVIOUS CLUSTER STUDIES Over the past decade, a number of cluster studies have been performed for various Washington agencies. A 2000 study by Paul Sommers of the Daniel J. Evans School of Public Affairs35 laid out a strategy for identifying clusters and analyzed Washington’s manufacturing sector from a cluster viewpoint. Another (2002) study by Sommers and others36 grouped industries into clusters at a regional level for six sub-state regions, and proposed a methodology for ranking the significance of these clusters for workforce program planning. A 2003 study by Deloitte37 identified 13 industries to target for business retention, expansion, and attraction. Some work has also been done on measuring performance and crafting strategies for particular clusters, including: ● Forest products ● Healthcare ● Value-added agriculture ● Construction ● Marine services ● Information technology CTED has the following cluster strategy in place: CTED will focus its economic development efforts to help strengthen existing clusters that are most significant to local and the state economy, and to nurture emerging clusters so that the competitive advantages of each region of Washington can be fully realized.
CTED will identify and support Washington’s emerging industry clusters by: ● ● ● ● ●
Building upon existing and emerging research to identify and characterize Washington’s key industry clusters and to assess their needs. Working with other state agencies and industries within each cluster to gain detailed information on the collective needs of businesses within each cluster. Forming internal teams to deliver CTED services to meet the needs of each cluster. Coordinating delivery and leveraging state and other financial and technical resources to help strengthen existing and emerging clusters. Working with the Governor to implement the Industries of the Future Initiative and other statewide activities that are aligned with cluster growth.
CTED will support existing regional cluster efforts by: ● ● ●
Aligning agency services to strategically assist regional cluster to meet needs and priorities. Forming interagency service delivery teams with public and private agencies to coordinate assistance for locally defined needs within a priority cluster. Organizing business and industry networks that encourage cluster growth
CTED will ensure communities are fully prepared to support cluster development by: ●
● ●
Partnering with local communities in each region to develop cluster development plans that addresses business, political, societal and capital needs throughout pre-development, development, and infrastructure stages. Organizing partnerships between participating cluster businesses and service providers that will encourage the formation of new business, and assist existing businesses to expand. Facilitating community to business interactions and relationships.
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CLUSTER ANALYSIS IDENTIFYING CLUSTERS In the section above, we discussed some of the most important industries to Washington’s economy today. Stakeholders in this project, however, expressed an interest in “learning something new” and exploring clusters that are not so dominant in the state economy. Using the same location quotient and shift-share techniques and a more detailed level of data (4-digit NAICS), we explored some emerging industries in the state1 (see Table 9). From this analysis, we identified Scientific Research and Development Services (NAICS 5417) as an industry for further study. Table 9: Emerging Industries NAICS 5417 2383 5311 6241 2361 4529 2381 5614 7223 5511 3261 4251
NAICS Meaning
LQ 2006
LQ Change 2000-2006
Employment 2006
Competitive Shift 2000-2006
1.49 1.48 1.40 1.39 1.34 1.17
0.19 0.16 0.16 0.15 0.10 0.32
18407 31127 17216 27857 27806 33227
17.2% 14.1% 12.4% 17.1% 11.1% 51.3%
1.10 0.99 0.92
0.17 0.30 0.16
25256 15957 10285
22.4% 44.2% 22.4%
0.91 0.77
0.11 0.13
33572 10131
13.7% 16.7%
0.75
0.20
12150
47.6%
Scientific Research and Development Services Building Finishing Contractors Lessors of Real Estate Individual and Family Services Residential Building Construction Other General Merchandise Stores Foundation, Structure, and Building Exterior Contractors Business Support Services Special Food Services Management of Companies and Enterprises Plastics Product Manufacturing Wholesale Electronic Markets and Agents and Brokers
From this starting point, we endeavored to place the Scientific Research industry in the context of a statewide cluster. This involved three steps:
Gathering additional data on the industry Input-output analysis Literature review
Additional data about Scientific Research and Development Services Upon further inspection of the data at a more detailed level, it is apparent that the vast majority of the employment in this industry is in the “hard sciences,” as opposed to the social sciences (Table 10). More detailed data is not available for 2006, but 7-digit data from the 2002 Economic 1
Though we did not want to look at the most major players, we focused our analysis on industries that already have a significant impact on the economy. Industries we looked at were those with location quotients between 1.5 and .5, with positive increases of at least .1 in LQ from 2000 to 2006, competitive shift over 10%, and employment of at least 10,000.
18
Census indicates that employment is roughly split between physical and engineering sciences and life sciences (Table 11); the former contributes mostly to the aerospace cluster, and the latter to the biotechnology cluster. Because our study is interested in an emerging cluster, we chose to focus our analysis on biotechnology. To pinpoint biotechnology-specific industries, we endeavored to use the most disaggregated level of data available at all times. Table 10: 5-Digit NAICS Analysis, 2006 data Industry
Employment
54171
Physical, Engineering, and Life Sciences
54172
Social Sciences and Humanities
Annual Wages
LQ
17,625
$82,465
1.59
782
$56,532
0.60
Table 11: 7-Digit NAICS Analysis, 2002 data Industry
Employment
Annual Wages
LQ
5417101
Research and Development in the Physical and Engineering Sciences
8,834
$74,978
1.41
5417102
Research and Development in the Life Sciences
8,791*
No Data
1.79
Source: 2002 Economic Census Literature review Previous studies conducted both in Washington and nationally have all defined the Biotech cluster similarly (Table 12). There are two basic components to the cluster: research and development, and manufacturing. Manufacturing is further split into four more detailed categories: medicinals and botanicals; pharmaceuticals; diagnostic substances; and biologic products, other than diagnostic. Table 12: Sample of definitions of biotechnology in existing literature Study
Year
Geographic Area
WA Biotechnology & Biomedical Assoc.
2002
Washington
Cortright & Mayer
2002 United States
DeVol et. al.
*
Industries
2004
San Diego
54171 3254 5417102
3254
5417102
32541
Research and Development in the Physical, Engineering, and Life Sciences Pharmaceutical and medicine manufacturing Research and Development in the Life Sciences Pharmaceutical and medicine manufacturing Research and Development in the Life Sciences Pharmaceutical and medicine manufacturing
Estimated by authors
19
Other studies have opted for a much broader, moreinclusive definition. For instance, Kelton, Pasquale, and Rebelein38 include the following industries in their definition: ● ● ● ● ● ● ● ● ● ● ● ● ● ●
325400 Pharmaceutical and Medicine Manufacturing 541940 Veterinary Services 550000 Management of Companies and Enterprises 541700 Scientific Research and Development Services 621B00 Other Ambulatory Health Care Services 322210 Paperboard Container Manufacturing 325120 Industrial Gas Manufacturing 339116 Dental Laboratories 339113 Surgical Appliance and Supplies Manufacturing 339112 Surgical and Medical Instrument Manufacturing 322291 Sanitary Paper Product Manufacturing 311119 Other Animal Food Manufacturing 334510 Electromedical and Electrotherapeutic Apparatus Manufacturing 622000 Hospitals
This definition includes many related industries, not all of which are crucial to the existence of a biotechnology cluster. We have opted for the more narrow definition proposed above, although we also address many of the industries in this expanded definition as “related industries” (see p. 37). Input-output analysis In addition to the two industries identified by the studies above, another promising-looking industry was Medical Equipment and Supplies Manufacturing (NAICS 3391). To explore whether this industry fit into our definition of the biotech cluster, and to further explore the industries in the standard definition, we used rudimentary input-output analysis. Input-output analysis does not support the inclusion of Medical Equipment and Supplies Manufacturing in the cluster (see Table 13, Table 14). It is closely related, but not closely enough to be included in our definition of the cluster itself. We identified a number of related industries, which we address below (see p. 37): ●
Veterinary services (NAICS 59194/311)
●
Healthcare (NAICS 621/622)
●
Medical devices (NAICS 33451/33911)
●
Artificial and Synthetic Fibers and Filaments Manufacturing (NAICS 32522)
These industries do not warrant inclusion in the main cluster, but will still be important in the development of a cluster strategy. These industries are discussed further on p. 36.
20
Table 13: Top 15 Inputs to Biotech Industries Rank
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Pharmaceutical and medicine manufacturing Input Name Pharmaceutical and medicine manu1.2263 facturing Management of companies and en0.1102 terprises 0.0773 Wholesale trade Lessors of nonfinancial intangible as0.0539 sets Scientific research and development 0.0254 services Other basic organic chemical manu0.0202 facturing 0.0183 Commercial printing 0.0160 0.0150 0.0142 0.0141
Paperboard container manufacturing All other miscellaneous professional and technical services Monetary authorities and depository credit intermediation Plastics plumbing fixtures and all other plastics products
Scientific research and development services Input
0.0254
Name Scientific research and development services Glass and glass products, except glass containers Wholesale trade
0.0247
Employment services
0.0191
Legal services
0.0178
Commercial printing
0.0158
Telecommunications Management of companies and enterprises
1.0032 0.0270
0.0150 0.0135 0.0121 0.0113
0.0136
Advertising and related services
0.0107
0.0135 0.0135
Power generation and supply Telecommunications
0.0105 0.0103
0.0129
Paper and paperboard mills
0.0095
Power generation and supply All other miscellaneous professional and technical services Other basic organic chemical manufacturing Guided missile and space vehicle manufacturing Architectural and engineering services Management consulting services Maintenance and repair of nonresidential buildings
21
Table 14: Top 15 Outputs of Biotech Industries Pharmaceutical and medicine manufacturing Rank Output
Scientific research and development services Output Name Scientific research and development 1.0032 services Noncellulosic organic fiber manufactur0.0317 ing Synthetic dye and pigment manufactur0.0268 ing 0.0260 Cellulosic organic fiber manufacturing
1
1.2263
Name Pharmaceutical and medicine manufacturing
2
0.1693
Veterinary services
3 4
0.0787 0.0605
5
0.0344
Other animal food manufacturing Dental laboratories Other ambulatory health care services
6
0.0326
Hospitals
0.0258
7
0.0317
0.0254
8 9 10 11
0.0205 0.0183 0.0173 0.0130
Poultry and egg production Animal production, except cattle and poultry and eggs Poultry processing Dog and cat food manufacturing Cattle ranching and farming
12
0.0116
0.0235
13
0.0095
14
0.0088
Animal, except poultry, slaughtering Offices of physicians, dentists, and other health practitioners Nursing and residential care facilities
15
0.0076
Home health care services
0.0229
0.0259
0.0248 0.0241 0.0240 0.0239
0.0233 0.0230
Surface active agent manufacturing Guided missile and space vehicle manufacturing Pharmaceutical and medicine manufacturing Printing ink manufacturing Other aircraft parts and equipment Motor vehicle body manufacturing Synthetic rubber manufacturing Motorcycle, bicycle, and parts manufacturing Motor home manufacturing Other basic inorganic chemical manufacturing Propulsion units and parts for space vehicles and guided missiles
ABOUT THE BIOTECHNOLOGY CLUSTER Although researchers seem to have come to a consensus on how to define the biotechnology cluster in terms of industry codes, they have been less successful agreeing on a definition in plain English. Some definitions of biotechnology include: ●
“Any technique that uses living organisms or parts of organisms to make/ modify products, improve plants or animals, or develop microorganisms for specific use.”39
●
“...a collection of technologies that capitalize on the attributes of cells, such as their manufacturing capabilities, and put biological molecules, such as DNA and proteins, to work for us...”40
●
“Developers of technology promoting drug development, disease treatment, and a deeper understanding of living organisms, including biochemicals, cell therapy, genetic engineering systems, drug delivery, and pharmaceuticals.”41
22
In the following section, we review some of the literature that has been written on the biotechnology cluster, both nationally and within the state of Washington. We then analyze the most recent data available for on Washington’s biotech cluster.
THE BIOTECH CLUSTER NATIONALLY A 2002 Brookings Institution report found that biotechnology clusters are concentrated in just nine metropolitan regions. These nine regions, including Seattle, contain approximately 75 percent of the nation’s largest biotechnology firms and 75 percent of the firms formed in the past decade.42 Not only are biotech centers located in only a few major urban centers, they are also very specialized; different centers have different strengths. The Brookings Institution divides them into four types: Pharmaceutical Centers (New York & Philadelphia) are relatively stronger in research than they are in commercialization; Biotech Leaders (Boston & San Francisco) were the earliest homes of the biotechnology industry and are particularly skilled in commercialization; Biotech Challengers (San Diego, Raleigh-Durham, Seattle) have seen rapid growth in commercial biotechnology activity in the past decade, and are relatively stronger in commercialization than in research;* and Other Biotechnology Centers (Washington DC, Los Angeles) have particularly strong bases in research. Many of the biotech firms within the state of Washington are spin-offs of the University of Washington and the Hutchinson Center. In fact, researchers from these institutions founded several of the largest regional biotech firms including Genetic Systems and Immunex both who expanding the commercialization of their research. In addition, the Hutchinson Center, a leader in cancer research, has emphasized the commercialization of its research findings.43 Nationwide, pharmaceuticals create over half of the cluster’s sales, and approximately one quarter of its jobs (Table 15). The pharmaceutical industry is dominated by several large manufacturing giants, while research and development firms tend to be small and numerous.44 Table 15: Pharmaceutical and Biotechnology Employment and Sales (U.S.), 2002 NAICS
Industry
Employment
Sales ($1000)
325411
Medicinal and botanical mfg
19,938
11,585,499
325412
Pharmaceutical preparation mfg
182,149
113,991,849
325413
In-vitro diagnostic substance mfg
26,838
7,296,122
325414
Biological product (except diagnostic) mfg
22,858
7,790,703
244,737
26,316,797
5417102 Research and development in the life sciences
Source: 2002 Economic Census
*
While the Brookings Institution categorizes Seattle as a “Biotech Challenger,” our research does not support the finding that Seattle is particularly advanced in commercialization; rather, research and development is the strongest component of the cluster in Washington.
23
The Brookings report also notes that, so far, biotechnology clusters have had only small returns to regional economies. Biotechnology is a relatively new field, and it often requires years or even decades of research to bring a successful product to market.45 However, it is also a field with enormous potential for growth. In addition to rapidly increasing technological advances, biotechnology is due for a surge in earnings simply due to demographic phenomena. The number of Americans 65 years and older, who consume a disproportionate amount of healthcare, will increase drastically as the baby-boomer generation ages, increasing demand for healthcare and biotechnology accordingly.46
THE BIOTECH CLUSTER IN WASHINGTON The biotechnology cluster in Washington is located predominantly in the Seattle/Tacoma/Everett metropolitan area. It is comprised mostly of many small firms; only three firms out of 721 have over 500 employees.47 It is also quite young, even by the biotechnology cluster’s standards; the majority of biotech firms in the state have been founded since 1990.48
24
Economic Indicators Employment
In 2006, the core industries of the biotechnology cluster accounted for approximately 20,000 employees, or just under 1 percent of the total employment in Washington. While this is significantly lower than the employment of some of Washington’s more mature clusters such as software publishing and transportation manufacturing, biotechnology employment has been growing relatively rapidly. It added approximately 5,000 jobs, a 33-percent growth, between 2001 and 2006, led by gains in Scientific Research and Development (Figure 2). Research and Development is by far the larger employer of the two industries that comprise the biotech cluster, accounting for approximately 88 percent of the total employment. It has also seen greater growth in the past five years, while Pharmaceutical and Medicine Manufacturing has had stagnant employment. (Figure 2) Additional employment in Pharmaceutical and Medicine Manufacturing could help to drive Washington’s economy to a greater degree than Scientific Research. Input-output analysis of the two industries indicates that each job in Scientific Research and Development generates an additional .61 jobs, while each job in Pharmaceutical and Medicine Manufacturing generates an additional 1.04 jobs.49 At the moment, the cluster is a less powerful driver of the economy than more mature firms such as software publishing or aerospace manufacturing (see p. 13). The cluster’s location quotient, or its concentration in Washington as compared to its concentration nationally, has risen over the past five years, although its growth came mainly from 2001 to 2002, and it has declined slightly over the past two years (Figure 3). The recent decline has been caused by the decline in the location quotient for Scientific Research and Development, which indicates that though employment in this industry is rising, it is doing so less rapidly than employment in the industry nationally. Wages
Jobs in the biotech cluster are generally high-skill, high-wage jobs.50 Jobs in the cluster exceed the national and state averages by over $30,000. However, wages for biotech jobs in Washington trail wages nationally (Figure 4). The two industries in the biotechnology cluster also have sharply different average wages. The average wage for the Scientific Research and Development industry exceeds the average wage for Pharmaceutical and Medicine Manufacturing by nearly $15,000 (Figure 5).
25
Figure 2: Biotech Employment by Year 25000
Biotech Total
Employees
20000 15000 Pharm. and Medical Manf.
10000
5000 Research and Devt.
0 2001
2002
2003
2004
2005
2006
Figure 3: Biotech LQ by Year 2 1.8
Biotech Average
Location Quotient
1.6 1.4 1.2
Pharm. and Medical Manf.
1 0.8 0.6 0.4
Research and Devt.
0.2 0 2001
2002
2003
2004
2005
2006
26
Figure 4: InflationAdjusted Wages (2001 dollars) $100,000.00 $90,000.00 $80,000.00 $70,000.00 US Total
$60,000.00
US Biotech
$50,000.00
WA Total
$40,000.00
WA Biotech
$30,000.00 $20,000.00 $10,000.00 $0.00 2001
2002
2003
2004
2005
2006
Figure 5: Composition of Biotech Wages, 2006 $84,000.00 $82,000.00 $80,000.00 $78,000.00 $76,000.00 $74,000.00 $72,000.00 $70,000.00 $68,000.00 $66,000.00 $64,000.00 $62,000.00 Biotech Average
Pharm. and Medical Manf.
Research and Devt.
27
Occupations
Top occupations in the biotechnology cluster mostly include scientists and technicians (Table 16). There is a clear disparity in wages between scientists and lab technicians: the former make high wages—each makes an average wage of at least $60,000—while the latter all make under $40,000. Like most industries, there are also a substantial number of support employees such as clerks, secretaries, accountants, and managers. Table 16: Top Occupations by Employment Occupation 191042 194021 519081 439061 191023 192031 436011 436014 119121 131199 111021 191029 132011 151031 499042 192041 151011 191021 519083 172072
Medical Scientists, Except Epidemiologists Biological Technicians Dental Laboratory Technicians Office Clerks, General Zoologists and Wildlife Biologists Chemists Executive Secretaries and Administrative Assistants Secretaries, Except Legal, Medical, and Executive Natural Sciences Managers Business Operations Specialists, All Other General and Operations Managers Biological Scientists, All Other Accountants and Auditors Computer Software Engineers, Applications Maintenance and Repair Workers, General Environmental Scientists and Specialists, Including Health Computer and Information Scientists, Research Biochemists and Biophysicists Ophthalmic Laboratory Technicians Electronics Engineers, Except Computer
Employment in Biotech Cluster 1884 1247 1001 772 638 576 569 453 451 418 398 391 389 339 322 300 299 288 275 259
Avg. Wage $70,470 $36,910 $38,900 $28,060 $59,900 $68,890 $43,520 $32,990 $112,030 $63,560 $121,630 $71,300 $59,360 $82,520 $37,020 $64,900 $105,590 $61,240 $31,850 $79,230
The biotech cluster is the most common source of employment for many scientists and technicians. Over 35 percent of all biochemists, biophysicists, medical scientists, chemists, biological scientists, and biological technicians in the state were employed in the biotech cluster (Table 17). Of the other occupations with the highest employment in the cluster, it is perhaps not surprising that biotech jobs comprise less than 10 percent of employment for occupations related to general office activities.
28
Table 17: Top Occupations by Concentration Occupation 191021 191042 119121 192031 191029 194021 151011 191023 194031 192041 172072 436011 111021 131199 436014 119199 151031 132011 499042 439061
Biochemists and Biophysicists Medical Scientists, Except Epidemiologists Natural Sciences Managers Chemists Biological Scientists, All Other Biological Technicians Computer and Information Scientists, Research Zoologists and Wildlife Biologists Chemical Technicians Environmental Scientists and Specialists, Including Health Electronics Engineers, Except Computer Executive Secretaries and Administrative Assistants General and Operations Managers Business Operations Specialists, All Other Secretaries, Except Legal, Medical, and Executive Managers, All Other Computer Software Engineers, Applications Accountants and Auditors Maintenance and Repair Workers, General Office Clerks, General
Employment in Biotech Cluster 288
521
Pct. Employment in Biotech 55%
1882
3874
49%
451 576 391 1247
1100 1516 1071 3599
41% 38% 36% 35%
299
1063
28%
638 247
2403 937
27% 26%
300
3907
8%
259
3677
7%
560
18548
3%
346
17652
2%
417
24972
2%
446
28088
2%
245
16486
1%
330
25290
1%
352
27617
1%
302
27107
1%
573
69683
1%
Total Employment
Sales
As in most industries, sales drive biotechnology investments and growth. This is particularly true for large biotechnology firms who are most motivated to invest in research and development for pharmaceuticals and other products that have the largest potential markets, and who frequently buy-out smaller firms whose research meets these standards. The 2002 economic census shows that the vast majority of biotechnology businesses and employees in Washington are in research and development, which is a good sign in and of itself since the creation of new knowledge is one of the most important parts of a biotechnology cluster. There are also a moderate number of firms and employees in Washington under the designation of “pharmaceuticals” and “biologic products”. While detailed information on research and development firms is not available, we do know that pharmaceuticals, biologic products, diagnostic substances and even the medicinal and botanicals sectors bring millions of dollars into the state economy through sales. Excluding R&D, the total was about $261,683,000 in 2002 (Table 18). 29
Table 18: 2002 Economic Census Data for Washington Biotech Sectors Industry
Establishments
Value of Shipments ($1000)
Annual Payroll
Paid Employees
325411
Medicinals/ Botanicals
8
38,813
5720
195
325412
Pharmaceuticals
13
80,544
19,107
398
10
65,724
14,208
268
5
76,602
11,747
332
187
Withheld
Withheld
8,791*
223
261,683 (excluding R&D)
50,782 (Excluding R&D)
325413 325414 5417102
Diagnostic Substances Biologic Products (except Diagnostic) Research and Development in the Life Sciences Total:
Patents
Capacity for innovation is one of the most important benefits of cluster development. One measure of innovation is patent grants. Patents in the biotechnology cluster typically fall under three categorizations from the patent office: Class 424 (Drug, Bio-Affecting and Body-Treating Compositions), Class 435 (Chemistry: Molecular Biology and Microbiology), and Class 800 (Multicellular Living Organisms and Unmodified Parts Thereof and Related Processes). These three classes are not necessarily comprehensive of all biotech related patents, but are a good indicator for this cluster.51 Researchers, institutions and companies in Washington produce about 150 biotech patents per year. While this is only a small percentage of the biotech patents in the US each year (about 5,500), the state is keeping pace with national trends in biotech innovations. Biotechnology patenting was on a steady downward trend nationwide during the first part of the 21st century. However, Washington appears to have “bottomed out” in patents in 2004, after which the number again ascended, whereas for the US as a whole, the general downward trend continued until 2005, before starting to move back up (Figure 6). This may indicate that Washington is ahead of the curve and is working its way out of the innovation stall-out more quickly than other places.
*
Estimated by authors
30
Figure 6: Patents Granted 20022006
National Institutes of Health Grants
Grant funding received is another important indicator of innovation for the biotechnology cluster. In addition to indicating innovation capacity, upfront capital is an essential resource for biotechnology firms; so tracking grant funding is essential for judging the health of a local cluster. The largest single funder of research and training related to medicine, health, and biotechnology is the National Institutes of Health (NIH).52 Their grant funding records are the best indicator for the financial health of a regional cluster’s research capacity. Washington receives a large amount of National Institute of Health grants each year, totaling almost 6 billion dollars since 2000, and receiving well over $700,000,000 a year for the last five years. This is about 1/30th of the NIH’s total grant dollars each year. This substantial chunk of NIH funding is a key part of the Biotech cluster’s success in Washington.
31
Last year the NIH granted various institutions in Washington a total of $785,736,150, through 1,610 awards. The vast majority of this was in research grants, with training grants and fellowships a distant second and third, in both total funding and number of awards (Table 19). Table 19: NIH Grants by Type, Washington State Summary for 2007 Grant Type Construction Grants Fellowships Other Awards Research Grants Training Grants Total
Dollar Amount
Grants Awarded
Average Grant amount
$677,988 $3,461,416 $2,443,661 $753,654,446 $25,498,639 $785,736,150
1 84 9 1443 73 1,610
$677,988 $41,207 $271,518 $522,283 $349,296
Figure 7: Total NIH Grants to Washington, 20002007
QUALITATIVE ANALYSIS In addition to the quantitative information presented above, the qualitative data below offer another strategy for further understanding and defining the biotech cluster in Washington. Included in this section are information and insights derived from interviews within the cluster. SWOT Analysis SWOT (strengths, weaknesses, opportunities, threats) analysis is a qualitative planning tool that is typically used to assist decision makers in evaluating a project or business venture. It can also be used to better understand the business environment a single firm, or in this case a cluster, is working within. In this type of analysis, strengths are identified as being those factors that are both internal and positive while weaknesses are internal and negative. Opportunities are those 32
factors that are external to the cluster and positive while threats are external and negative. By identifying these different factors decision makers can target areas of weakness for improvement within the cluster. This identification also allows decision makers to work towards taking advantage of opportunities as well. The following is an outline of the SWOT analysis of the biotech cluster in Washington. Strengths
The biotechnology cluster in Washington State has a great number of strengths that give it an advantage. One major strength is the existing and expanding cluster associations and collaborations within the state including the Washington Biotechnology & Biomedical Association (WBBA.) In addition to this, another strength is the large number of biotech firms within the Seattle metropolitan area. This central location for talent allows for stable employment and growth through rise and fall biotech firm cycles. Each of these strengths contributes to yet another strength that exists currently: Washington has above average levels of biotechnology research and commercialization when compared to the rest of the US. As can be expected, these strengths are interrelated. Another strength that is backing many of the previous is the growing number of biotech capital investment firms located within Washington. This number is increasing both in volume of firms and in the size and type of firms investing. Weaknesses
The biotech cluster area in general is very research and development intensive before a product can go to market and earn revenues. Because of this one of the weaknesses of the cluster by nature is negative revenue for the first 2-5 years in new firms. Also within this is the issue of limited internal production, marketing and distribution in the majority of firms (which are typically small in size with limited resources.) These weaknesses are difficult to overcome as they are currently part of the general operating issues of biotech industries in general. Opportunities
Many opportunities within the Washington biotech cluster are linked to the previous strengths. For example, Washington has an excellent culture for start-up firms and spin-offs, largely due to its location near a pool of highly skilled workers. In addition to this, it has an attractive culture because of its location near major research centers and universities (an opportunity within itself.) Washington’s location on the west coast of the US also presents an opportunity for new export options, especially to growing Asian economies. The growth of the biotech cluster in this area presents an additional opportunity for increase revenues and funding sources both in the state. Overall in Washington, opportunities are moving towards strengths and growing along with the cluster. Threats
The external threats on the cluster include limited export partners currently outside of Washington. Another threat on the cluster is government regulatory agencies, which can change the scope and options of ongoing research and even halt projects as administrations or rules change. Along with this is the issue of patent backlog that threatens revenue and profitability of projects as well as viability of first to market options. The last threat listed is start-up acquisition
33
and relocation. This is a threat to the continued expansion and establishment of stable long-term high paying jobs in the sector. Stakeholder and Power vs. Interest Analysis Two essential tools to fully understanding the landscape of the Washington State Biotechnology Cluster are stakeholder analysis and power vs. interest analysis. Stakeholder analysis flushes out the essential stakeholders, or interested parties in and affected by the biotech cluster. As can been seen below, many of these stakeholders have a vested interest in the success of the cluster and many are intertwined themselves in that success. Also in a stakeholder position are regulatory agencies, patent agencies as well as state and local government. Each of these groups is indirectly involved in the cluster and plays a role in its success or failure. The power vs. interest grid expands on the stakeholder outline above. This tool illustrates the power and interest level of the above stakeholders in the biotech cluster. This visual aid can be used by decision makers to best allocate their time and resources on those stakeholders with higher interest and higher power. For example, research and development firms with a major stake in the outcome of regulation changes would best utilize their resources on this high power, high interest stakeholder. This would be better use of their funds than expending resources on lower interest and lower power groups. Table 20: SWOT Analysis
Biotechnology Cluster – Washington State Internal
Positive Strengths
External
Existing and expanding cluster associations and collaborations. Central location for talent – allows for stable employment and growth through rise and fall biotech firm cycles. Above average levels of biotechnology research and commercialization when compared to the rest of the US. Growing number of biotech capital investment firms.
Opportunities
Excellent culture for start-up firms and spin-offs. Located near major research centers & universities. Location excellent for new export options, especially to Asia. Growing area, much potential for increased revenues. Increased funding opportunities through government and private investors.
Negative Weaknesses
Typical negative revenues due to R&D expense for the first 2-5 years. Limited internal production, marketing, or distribution. (Difficult due small size of most biotech firms.)
Threats
Limited export partners. Government regulatory agencies. Backlogs of patents. Start-up acquisition and relocation.
34
Table 21: Stakeholder Analysis Stakeholder
Stakeholder Interest(s) Tax incentives, high quality employees, trade partners, expansion Biotech Firms incentives, distribution infrastructure, maintaining business (Producers) success and growth, turning a profit Presence of capital investment, maintaining business success and Biotech Firms (R&D) growth, educational partnerships, turning a profit Consumers High quality & safe product to consume, affordable prices Growth of biotech firms & universities, maintaining business Suppliers success and growth Turning a profit, maintaining business success and growth, fair Service Providers value for services Government Regulators Quality control, public safety Local Communities Stable employment & infrastructure investment Washington Biotech presence increases enrollment, investment & channels Universities & for collaboration, increasing prestige and funding Research Centers Maintaining legitimacy, effective and thorough processing, Patent Agencies quality assurance Consistent employment for their members, fair wages, workplace Employee Unions safety Return on investment, centralization of innovators, increased Investors investment opportunities Washington Employment, tax revenues, growth of employment, innovation Legislature/Governor and the growth of the Washington economy Employees of biotech Maintaining consistent employment, keeping benefits, job growth firms & advancement opportunities, fair wages Gain job opportunities, gain benefits, job growth & advancement Employees opportunities as well as fair wages.
35
Figure 8: Power vs. Interest Grid
- Government Regulators - Patent Agencies
- Biotech Investors
- Washington Legislature
Power
- Biotech Firms (Producers and R&D)
- Employee Unions - Service providers & utilities
Universities w/Biotech and Related Programs
- Suppliers
- Biotech cluster employees
- Local communities
- Consumers
Interest
36
RELATED INDUSTRIES While just two industries make up the core of the biotech cluster, there are a number of other industries that are related, that can both benefit from and contribute to a biotechnology cluster strategy (Table 22). These related industries include both inputs and outputs. Inputs and outputs are important for different reasons. Many of the inputs to a cluster are suppliers, which ideally should be located in close proximity to the production centers of a cluster. Local suppliers lower transaction costs, eases communication, and is often even more efficient than vertical integration, not to mention much simpler.53 Interviews and surveys with Washington biotechnology firms indicate a greater need for local suppliers. Attracting suppliers could thus improve the competitive advantage of the biotech cluster in Washington. Outputs of a cluster represent its customers; sophisticated and demanding customers can help to drive quality and innovation in a cluster. Unusual local demands can also help to establish a niche for a cluster, which can be exploited globally. Once again, close proximity to customers reduces transaction costs and speeds innovation; the speed of innovation is even further increased due to inter-firm competition within the cluster.54 Table 22: Top Inputs and Outputs of Biotechnology Clusters Outputs
Inputs
NAICS
Meaning
NAICS
Meaning
334510
Electromedical apparatus mfg.
32221
Paperboard container mfg.
33911
Medical equipment and supplies mfg.
32518
Other basic inorganic chemical mfg.
54194
Veterinary services
32519
Other basic organic chemical mfg.*
621111
Offices of physicians
326191
Plastics plumbing fixture mfg.
62121
Offices of dentists
32721
Glass and glass product mfg.
62151
Medical and diagnostic laboratories
6221
General medical and surgical hospitals
6223
Specialty hospitals
*No employment in Washington
OUTPUTS Many of the most important customers of the biotechnology cluster, perhaps not surprisingly, are medical facilities such as physicians’ and dentists’ offices. There are also, however, several related manufacturing industries, such as electromedical apparatus and medical equipment. One surprising related industry is veterinary services, which is one of several animal-related outputs related to pharmaceutical manufacturing. The strength of these industries in Washington varies greatly. Three related industries (electromedical apparatus manufacturing, physicians’ offices, and dentists’ offices) have very 37
high location quotients ranging from 2.5 to 4, while two (medical equipment and supplies manufacturing and general medical hospitals) have low LQs around .5 or less (Figure 10). Similarly, average annual wages range from approximately $25,000 (veterinary services) to $85,000 (electromedical apparatus manufacturing) (Figure 9). Perhaps the strongest customer for biotechnology businesses is electromedical apparatus engineering, an industry that is very closely related to biotech. In fact, a 2002 report on the biotechnology cluster prepared for the Washington Biotechnology & Biomedical Association also addresses the “medical devices” cluster, which includes electromedical apparatus engineering and medical equipment and supplies manufacturing. That report states: “Biotechnology and medical devices are distinct yet complementary sectors dynamically linked to each other within the biosciences industry.”55 Electromedical apparatus engineering has a very high location quotient of nearly 3, indicating that it is quite concentrated in Washington and as a result contributes to additional employment growth in the state. It also has very high wages. Figure 9: Average Annual Wages of Biotech and Major Outputs ("Customers")
Figure 10: Location Quotients of Biotech and Major Outputs ("Customers")
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INPUTS Important suppliers of the biotechnology cluster include both chemical manufacturers and laboratory supply manufacturers, such as container and plumbing fixture manufacturers. All of these suppliers have low-to-moderate location quotients, with a range of approximately 0.7 to 1.2, a much narrower range than biotech outputs (Figure 12). They do have a wide range of average wages, from approximately $30,000 to $80,000 (Figure 11). The suppliers with the greatest amount of employment are those manufacturing containers, such as paperboard container manufacturing and glass manufacturing, which have nearly 5,000 employees between them. Inorganic chemical manufacturing may be the most important supplier in terms of its impact on the statewide economy, with approximately 1,000 employees, an LQ of just above 1, and a high average wage. Organic chemical manufacturing, on the other hand, while it is an important biotechnology supplier, has no presence in Washington State.
Figure 11: Average Annual Wages of Biotech and Major Inputs ("Suppliers")
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Figure 12: Location Quotients of Biotech and Major Inputs ("Suppliers")
DIAMOND MODEL The ‘diamond model,’ created by Harvard economist Michael Porter, is a tool that models the effects of location on competition using four interrelated influences (or conditions):56 1. Factor conditions: The position of factors of productions such as skilled labor or infrastructure. 2. Demand conditions: The nature of the home-market demand for the industry’s product and/ or services. 3. Related and supporting industries: The presence or absence of supplier industries and other related industries that are internationally competitive. 4. Firm strategy, structure and rivalry: A local context that encourages appropriate forms of investment, sustained upgrading and vigorous competition among locally based rivals. Porter depicts his model graphically as a diamond to illustrate the interrelation between these conditions. The nature of these relations defines the environment in which clusters are formed and learn to compete. An environment with poor specialized assets, lacking incentives to innovate, and/or limited investment will create weak companies. The following section presents our analysis of how Porter’s diamond model applies to the biotech cluster in Washington.
40
● ●
Active local rivalry: more than 4,500 companies Favorable environment for investment: State Government’s policies favoring biotech industry development.
Firm Strategy, Structure & Rivalry
Factor Conditions ● ●
Diamond Model
Demand Conditions
Specialized and skilled labor force High quality research
●
Competitive and demanding customers - local hospitals and universities.
Related & Supporting Industries
● ●
Lack of Suppliers Presence of related industries: veterinary services, medical devices and healthcare.
Factor conditions In order to be competitive, industries should have highly specialized labor, as well as scientific institutes that continuously provide new knowledge. The State of Washington has a large pool of these resources. In 2006, there were 5,002 science graduate students in the State of Washington.57Also, it is estimated that 2,080 undergraduate students are enrolled in life sciences careers (Table 23).* Of course, the quality of the resources is important as well. The University of Washington and Washington State University ranked in the nations top 10 graduate schools in medical research, computer science, and among the top one hundred universities in biology, *
The Integrated Postsecondary Education Data System reports the overall graduation rate in 2000. Using this rate, the estimated enrollment per University and degree level was estimated.
41
chemistry, earth science, math, physics and engineering, according to U.S. News and World Report (Table 24).58 Table 23: Students enrolled in life sciences careers Institutions
University of Washington Washington State University
B.S.
M.S.
PHD
Overall grad rate in 2000 (%)
694
64
108
75
31
21
20
261
22
25
Majors Biological and biomedical sciences Biomedical/Medical Engineering Biological and biomedical sciences Biomedical/Medical Engineering
Eastern Washington Universities
Biological and biomedical sciences
DeVry University
Biomedical Technology/ Technician
Gonzaga University Heritage University Pacific Lutheran University Saint Martin's University Seattle Pacific University Seattle University University of Puget Sound Walla Walla University Whitman College Whitworth University
Completion 2006-2007
Biological and biomedical sciences
B.S.
M.S.
PHD
925
85
144
41
28
27
435
37
42
15
0
0
158
8
0
81 n.a 68 65 65 71 74 47 88
67
0
0
68 25 77 56 69 45 64
0 0 0 0 0 6 0
0 0 0 0 0 0 0
74
36
0
0
60
9 104
54 2 46 16 50 40 51 21 56
27
5
66
3
n.a
3
Estimated Enrollment
1,462 118 153 2,080 164 Total 1,733 2,456 Grand total Source: Integrated Postsecondary Education Data System (U.S. Department of Education)
212
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Table 24: Graduate Schools by 2007 Rank Area of Study
University of Washington
Biology Chemistry Computer Earth science Math Physics Engineering Medical research
18 28 6 11 24 20 24 6
Washington State University System 77 74 25 84 80 77
Source: U.S. News and World Report.
The major sources of life science research in the Washington State include the Washington State University System, the University of Washington, and research centers such as The Hutchinson Center, the Battelle/Pacific Northwest National Laboratories (PNNL). Together, these centers are considered “the technology foundation of Washington's biotechnology industry.”59 As an example, the PNNL performs research for the U.S. Department of Energy, as well as other government agencies, universities, and industries to deliver breakthrough science and technology solutions. In terms of employment, in May 2006 there were 14,040 people employed in life science occupations. Of these, 25.7 percent were employed as medical scientists, 24.3 as biological technicians, and 16 percent as wildlife biologists. The remainder of the group was employed in a variety of other life science occupations (Table 25). Table 25: Washington’s employment and hourly mean occupations. May 2006 Occupation (SOC code)* Life Science Occupations (190000) Food Scientists and Technologists (191012) Soil and Plant Scientists (191013) Biochemists and Biophysicists (191021) Microbiologists (191022) Zoologists and Wildlife Biologists (191023) Biological Scientists, All Other (191029) Conservation Scientists (191031) Foresters (191032) Epidemiologists (191041)
Employment 14,040 210 390 470 370 2,230 980 560 800 250
Hourly mean wage 27.99 28.99 30.87 29.44 27.16 28.80 34.28 31.08 25.62 30.97
3,610
33.88
Life Scientists, All Other (191099)
340
29.56
Agricultural and Food Science Technicians (194011)
420
15.41
3,410
17.75
Medical Scientists, Except Epidemiologists (191042)
Biological Technicians (194021)
*
SOC code: Standard Occupational Classification code – see http://www.bls.gov/soc/home.htm for more detail.
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Demand Conditions States gain competitive advantage when the local demand gives companies a clearer picture of customer needs. Competitiveness increases if the local (or home) demand is “sophisticated and demanding for the product or service.”60 A natural customer of the pharmaceutical and biotech industries is the health-care industry. In this regard, hospitals in Washington have a strong reputation, ranking among the 10 best hospitals in the U.S.61 Furthermore, the University of Washington Medical Center is ranked 6th place for cancer treatments, and the Children's Hospital is ranked 9th for pediatrics. Universities and research centers are also potential customers and well as suppliers. As mentioned above, the State of Washington has universities and research centers with a wellknown reputation in the U.S. that crease demand for cutting edge products and services. Related and supporting industries Domestic suppliers create advantages for local companies in several ways. Competitive homesuppliers deliver inputs in an efficient, early, rapid and perhaps preferential way to industries. Unfortunately, local companies suffer for lack of suppliers. Respondents from the survey indicated that they do not purchase services, products and/or raw materials locally because of the lack of suppliers. Respondents indicated that more important suppliers come from other states as California or New Jersey. Competitiveness increases with the presence of related industries promoting the information flow and technical interchange. As discussed above, veterinary services, healthcare, medical devices manufacturing, and artificial and synthetic fibers and filaments manufacturing are all related industries with a presence in the State of Washington. Firm strategy, structure and rivalry Finally, the context for firm strategy can be divided in two dimensions. The first is having a local context that encourages an appropriate climate for investment (tax structure system, labor market policy, etc.). The second is vigorous competition among locally based rivals. The State of Washington has implemented several tax incentives to encourage research and development. The Sales Tax Exemption for High Technology R&D/Manufacturing enacted in 1994 exempts companies that manufacture or who are engaged in research and development from paying the sales or use tax on machinery and equipment used directly in manufacturing or research operations. In 1989, the State of Washington helped to create the Washington Biotechnology & Biomedical Association (WBBA), a non-profit trade organization founded to enhance quality of life by promoting the growth and understanding of the biotechnology and medical technology industries. In 2003, then-Governor Gary Locke convened leaders from Washington’s research institutions, industry, government and the community to develop a strategic vision for Washington in the 21st century. This effort, called Bio 21, was coordinated by the Technology Alliance.62
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As the result of the Bio 21 report, Governor Gregoire signed Senate Bill 5581 into law. This established the Live Sciences Discovery Fund that has a directive to “promote life sciences research to foster a preventative and predictive vision of the next generation of health-related innovations, to enhance the competitive position of Washington State in this vital sector of the economy, and to improve the quality and delivery of health care for the people of Washington.”63 Starting in 2008, the Fund will begin allocating $35 million annually from tobacco settlements to research with high economic-development potential, including new employee recruitment and facility enhancements. The state projects that it will levy $1 billion in additional external research funding over its 10-year lifetime and create 20,000 jobs within 15 years.64 The existence of domestic rivals creates pressure on companies to innovate and improve, or in Porter’s words, “to stimulate the competitive advantage.” Washington’s Biotech industry not only faces competition within industry domestically, but also from related industries (Table 26). In this regard, there are more than two thousand health care providers that can be a direct competition to the biotech industry. Table 26: Biotech rivals Industry Biotech industry Veterinary services Healthcare1/ Medical devices 1/ Not includes dental or medical offices. Source: Washington Workforce explorer
Establishment/employers 220 839 2,851 608
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RECOMMENDATIONS The research above resulted in the following four key recommendations: 1. Expand the manufacturing capacity of the biotechnology cluster. 2. Enhance collaboration opportunities between manufacturing firms and knowledge institutions. 3. Find Washington’s niche within the larger biotech field. 4. Provide stronger linkages between the biotech cluster and its related industries. Each recommendation aims to expand and strengthen the biotechnology cluster to help promote overall economic development and prosperity within Washington State.
EXPAND THE MANUFACTURING CAPACITY OF THE BIOTECHNOLOGY CLUSTER. The manufacturing of biotech products is an opportunity for growth in employment. Just two years ago, Bristol-Myers Squibb Co. chose Massachusetts as the site of a $1.1 billion biomanufacturing facility expected to generate 550 new jobs.65 A usual comment on biotechnology industry in Washington is that it needs more new companies, but the efforts should be concentrated in obtaining funding for new life sciences companies, not in manufacturing. Jack Faris, President of the Washington Biotechnology & Biomedical Association in a telephone interview said: “It is necessary to have more firms in the area…. It is necessary create more opportunities, and increase funding for research”. On the same topic, Thomas Ranken CEO of Vizx Labs, LLC said: “Encouraging manufacturing is good but is less important than commercialization because the real value of biotech is on the intellectual property.” However, as far as the biotechnology cluster’s impact on the state of Washington is concerned, manufacturing is key. Manufacturing, particularly of pharmaceuticals, dwarfs research in revenues (see p. 23). Also, an additional 1.04 jobs are created per job in manufacturing, compared to 0.61 jobs per job in research (see p. 25). The growth and strength of the industry should always be a goal to pursue. However, as more products reach the market, a rapid process development of manufacturing capacity may provide a key advantage. Nowadays, there are 20 products approved by the FDA each year; these products must be manufactured somewhere.66 Washington is an important research center, with experience in manufacturing. There are already several well known companies dedicated to biomanufacturing including Hollister-Stier Laboratories, AzoPharma Product Development Group, and Genentech.67 Washington could 46
attract more large scale manufacturing operations in the future. Consideration could be given to: ●
State tax incentives, local permits and tax waivers. In this regard, Washington has approved Substitute House Bill 2640 providing biotechnology product and medical device manufacturing tax incentives. More specifically, this bill provides tax incentives for investments in construction or renovation of structures, or machinery and equipment used for biotechnology product or medical device manufacturing effective July 1, 2006 expiring in January 1, 2017.68 Washington can go further by offering tax credits to venture capitalists who invest in qualified biotech firms, and companies can get financing to acquire land, build facilities and buy equipment.
●
Expanding manufacturing spaces. The state could consider providing initial construction funding for government-sponsored or private biotechnology manufacturing sites. Like a business incubator, this will help small firms to pass from the testing to the manufacturing phase. For example, the expansion of the University Maryland Biotechnology Institute Center for Advanced Research in Biotechnology includes a 40,000 square foot manufacturing facility for small molecules and biologics.69
●
Expanding training programs related to bio manufacturing. North Carolina has been aggressive in seeking a life science manufacturing focus. It has invested in workforce training through the Biomanufacturing and Pharmaceutical Training Consortium, a publicprivate partnership that aims to prepare up to 3,000 workers per year.70 In Washington, institutions like the Washington Technology Center, Washington Research Foundation, Connect Northwest and the Spokane Intercollegiate Research and Technology Institute (SIRTI) provide resources to help companies develop and commercialize their products. These institutions can expand or improve their curriculum to incorporate courses that provide managerial and operating skills.
To examine the feasibility of this recommendation we also performed a SWOT analysis in a similar fashion to our previous analysis. As can be seen (Table 27), this recommendation offers possibilities for capitalizing on the wealth of opportunities in this area.
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Table 27: Expansion Plan for Manufacturing in the Biotech Cluster Positive
Negative
Strengths ● ●
● ●
Weaknesses
Skilled workforce and well trained knowledge base Central location for talent – allows for stable employment and growth through rise and fall biotech firm cycles. Growing number of biotech capital investment firms – essential for attracting biotech manufacturing. Above average levels of biotechnology research and commercialization when compared to the rest of the US
● ●
Opportunities ● ● ● ● ● ●
Limited existing infrastructure – capital investment will be required Intellectual property essential to production – R&D periods are lengthy.
Threats
State tax incentives for manufacturing. Located near major research centers & universities – creates opportunities for collaboration. Existing transportation infrastructure and geographic location excellent for new export options. Increased funding opportunities through government and private investors. Falling US dollar makes exporting more advantageous. Biotechnology manufacturing generates high revenues.
● ●
Acquisition of commercializing smaller firms by out of state firms. Rapidly changing biotech product production –will require high tech and flexible manufacturing solutions.
ENHANCE COLLABORATION OPPORTUNITIES BETWEEN MANUFACTURING FIRMS AND KNOWLEDGE INSTITUTIONS. One of the strengths of the biotech cluster of Washington State is its ability to foster innovation. A great deal of this innovation can be attributed to collaboration between Washington State knowledge institutions (universities, research centers, etc.) and the biotech firms within the state. In fact, as mentioned earlier, many of the significant biotech firms within Washington have been spin-offs created by people from within these knowledge institutions. In interviews with members of the biotech cluster, one major concern within the region was the continued supply of graduates with science degrees and experience. Collaboration between biotech firms and Washington’s knowledge institutions will encourage increased interest and as such graduates within the sciences. Collaboration creates a beneficial cycle as seen below.71 Increased R&D Collaboration
Attraction of New Science Students
Cycle of Biotech/Knowledge Institutions Collaboration
New Business Development/ Business Retention
More Experienced Science Students/ Graduates
Highly Skilled Employees
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As mentioned, some collaboration already exists between firms in the biotech cluster and Washington’s knowledge institutions. Growth in this collaboration will feed the cycle and provides an opportunity for economic growth for the state. As stated in a Washington Biotechnology and Biomedical Association (WBBA) study, for each life scientist hired in Washington, 2.3 other jobs are created.72 Collaborations both on a small and large scale can be fueled by initiatives from the state government. Washington is already making large strides in this area. For example, in 2006, the Washington State Legislature authorized funding to assist in the recruitment of top-level scientists as educators and researchers at the University of Washington. This funding also aims to increase the University of Washington’s capacity for life science research in conjunction with the existing medical school.73 Within the report “The Future of Life Sciences,”74 the Washington State Life Sciences Skill Panel and the Education and Workforce Task Force regarding knowledge institution and biotech cluster collaboration put a set of recommendations forward. These recommendations are excellent strides towards the overall goal of enhancing collaboration opportunities between manufacturing firms and knowledge institutions. The recommendations below are a reprint of some of these recommendations, which we agree with and recommend these initiatives should be continued and expanded to promote success. It should be noted that some of the recommendations in the report have already been successfully implemented. Those recommendations that we feel should be a continued focus are listed below. Recommendation 26: The life sciences community should support efforts to develop and disseminate career path information to excite and educate students, job seekers, science teachers, and high school counselors. Recommendation 27: WBBA should partner with the Northwest Association for Biomedical Research (NWABR), and others engaged in fostering science education and encourage WBBA member involvement in mentoring and nurturing student interest in life science. Recommendation 29: The WBBA should underwrite the Life Sciences Industry-Education Council to bring senior leaders from industry and education together to address workforce training and education issues. Recommendation 31: WBBA will work with other organizations and individuals such as the Pacific Science Center, the Northwest Association for Biomedical Research, and others form a science learning consortium with the mission of capturing the imaginations of students at all levels-plus the imaginations of their parents and of the general public-about the possibilities for improving that lives and the lives of people everywhere through scientific discovery and invention.
FIND WASHINGTON’S NICHE WITHIN THE LARGER BIOTECH FIELD While the biggest biotechnology companies focus on prospects with large markets and high potential value, emerging companies, and small firms do better to focus on niche markets. This is an opportunity to differentiate a company and product, or to receive government or foundation funding. The most typical example is the small firms who develop “orphan drugs” – those which treat 49
conditions that do not effect a large enough segment of the society to be lucrative, but whose creation the government may be willing to subsidize, because of the potential to lower the costs of care, or for other charitable reasons.75 The federal government already has some programs in place to encourage and fund this type of research. While pursuing orphan drugs is the most obvious “niche” biotech work, there are an almost infinite number of other research and development possibilities for cluster strategies to encourage. One of the main benefits of pursuing a niche strategy is the potential benefit of growth of small firms. While larger firms have been subject to recessionary trends in hiring, startups have largely been immune to this trend, and are still finding funding for their ventures76 - making them a valuable employment resource. Small firms also create many opportunities for intellectual property development, a key component for any biotech cluster. There are a few basic resources that a biotechnology cluster simply cannot function without: a strong scientific base, from local universities and medical institutions, and an educated and technically skilled workforce. One of the strongest niche strategies has been to build off of the work and specializations of faculty at local research universities. In many cases the intellectual property created by or spurred by a star faculty member can define a biotech niche for a whole region. The first step that should be taken in the pursuit of a biotech research niche is to survey the biotech faculty at local research universities. This ensures that existing faculty resources are fully known and that advantageous partnerships can be fostered, to fully capitalize on the potential research and development opportunities sparked by the work and interests of those faculty. Strong recruiting efforts to attract star biotechnology faculty are recommended. This may require getting grants to Universities to make attractive research packages for potential faculty, a focus on packages that include research grants is also recommended. The creation of institutes around specific research goals, partnering universities and hospitals, is highly recommended. These kinds of partnerships create the kind of intellectual property that is key to biotech clusters in general and to developing niche technology specifically. One of the most important resources for startups and small firms is appropriate lab and office space. One proactive step municipalities in Washington could take is zoning for biotech lab and office space. Some faculty members and biotech firms may prefer to operate in the context of a research park. Creation of research parks around the development and commercialization of the work of a specific faculty member may pay off in some circumstances. Washington has a strong base of natural resources, including a long coast with bay areas, huge and diverse forest habitats, and perfect growing conditions for many crops. Many areas of biotech research overlap with natural resources, geography and habitats. Several other states including have used their own natural resources to inspire local biotech research and industries. For instance in North Carolina, the Atlantic coast and wetlands in the Southeastern part of the state have inspired a program called MARBIONC: Marine Biotechnology in North Carolina. This program was started through a statewide initiative and has scientists exploring biotech uses for marine organisms, and technology applications to improve habitat, fish farming, and coral
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reproduction. Several companies and numerous faculty members are involved with this research program77 This kind of method may be particularly effective for Washington, as the state’s wide variety of habitats and geomorphology could foster specialized research in many biotech sectors. While research in marine or forestry related biotechnology could potentially be very good fits for Washington, new research in crop related biotech, such as genetically modified (GM) crops could be especially timely, as the US and international markets are experiencing food and fuel shortages this year. This is likely to make the market more accepting of GM crop possibilities. Additionally, as worldwide climate change occurs and weather and pest patterns change, we can continue to expect the need for specially adapted crops to grow. Investments now in this biotech niche are almost certain to pay off in the years to come.
PROVIDE STRONGER LINKAGES BETWEEN THE BIOTECH CLUSTER AND ITS RELATED INDUSTRIES Links to suppliers One method for stimulating the production of supplies in Washington is based on a strategy used by the Clinton Foundation to expand the production of certain goods. The strategy relies on aggregating demand for supplies to stimulate supply. Currently, the lack of supply creates a vicious cycle—each biotech firm seeks suppliers elsewhere because of a lack of local supply, and the lack of local demand prevents supplier firms from expanding production. On the other hand, if biotech firms acting cooperatively could guarantee local suppliers orders for a large quantity of units for a set price, the guaranteed orders would reduce the risk of expanding production and help to develop supplying industries. Cluster associations such as WBBA can provide the crucial link between biotechnology firms and their suppliers for such a strategy. Biotech firms should be made more aware of the supplies available locally, and the advantages that accrue from ordering locally. The WBBA could also help suppliers to identify local biotech firms that might need the products they are producing. Finally, the WBBA could take the lead in identifying demand which could be guaranteed to suppliers in order to stimulate production. In addition to increasing demand from existing suppliers, there are opportunities for expanding the range of products and services produced locally. For instance, one industry with a significant potential for gains in Washington is organic chemical manufacturing. Currently, this industry has no employment in the state. However, nationally it is an important supplier of the biotech cluster. Furthermore, there is a fairly strong inorganic chemical manufacturing industry in Washington. The presence of this industry means that there are skilled chemical technicians and available laboratory space that can be leveraged to establish an organic chemical manufacturing industry. The 2002 economic analysis of the biotechnology and medical device clusters suggested the use of a state-run venture capital fund to encourage startups within the two clusters.78 Currently, a $1 million-per-year fund exists, distributed by the Washington Technology Center.79 This Research & Technology Development (RTD) grant program is focused on applied research projects, but a similar model could be applied to encouraging startups in industries that supply biotechnology firms. Such a program should particularly be geared towards startups that intend to direct their
51
capacity toward meeting demand from the biotechnology industry. Similarly, the Live Sciences Discovery Fund (see p. 44), when it begins in 2008, should take into consideration how grants to life-science industry suppliers could benefit both suppliers and reduce costs for all firms engaged in the life sciences, thus leveraging those grants to improve the general business climate for lifescience industries. Finally, many of the previously discussed suggestions for expanding the manufacturing capacity of the cluster are also pertinent to expanding the capacity of suppliers, as well. Links to customers Closer ties to local customers can also help biotechnology industries develop their niche within the global biotechnology trade. Typically, clusters are the most successful when they are driven by local demand. Demanding customers, combined with local competition, help to improve product quality within a cluster. Clients’ sophistication, and the amount of local competition are enhanced when a cluster focuses on producing for the strongest industries in its locale. It is important that customers know about all of the products available to them from the Washington biotechnology cluster. It is also important—perhaps even more so—that firms in the cluster fully understand the demands of their customers. These needs suggest two complementary strategies: aggressively marketing the products and the research produced by Washington biotechnology firms and institutions, and performing market research to ascertain what new products are needed by existing or potential customers. Particularly important in this regard are products or services that do not fall within the niches of other prominent biotechnology clusters. Both of these strategies can be implemented by a variety of actors, including the WBBA, Washington State economic development agencies such as CTED, or individual firms. The customer that has the greatest spillover effects on the Washington economy is the electromedical apparatus and medical equipment industry. This industry’s high location quotient indicates that it is very concentrated in Washington, and thus exports much of its product both nationally and internationally. There are thus opportunities for significant impacts on the economy if the industry is able to improve its competitiveness by taking advantage of the lower transaction costs of using local suppliers. In Washington, the cluster association has a particularly powerful opportunity to connect the biotechnology and biomedical device clusters. This is because the association, the WBBA, represents both biotechnology and biomedical interests. In addition to programs that serve the needs of their entire clientele, the WBBA should realize that these two clusters often function separately. To that end, programs should also be provided that bring members of both clusters together in a purposeful way, with an explicit focus on fostering stronger connections.
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CONCLUSION In conclusion, Washington State has fantastic opportunities to promote further economic development and prosperity in its biotechnology cluster. There are a variety of mechanisms by which this can be achieved: ●
Building off of the biotechnology cluster’s existing strengths to expand manufacturing and create jobs.
●
Developing partnerships between Washington’s highly skilled knowledge institutions and local businesses.
●
Building niche market firms and products to promote essential innovation.
●
Utilizing professional associations and partnerships to strengthening the linkages in the biotechnology supply chain.
Overall, Washington State is moving in a positive direction, with a number of biotechnology initiatives already implemented. With the analysis and recommendations above, it is our sincere belief that this movement can be expanded to achieve gains that will significantly benefit the state.
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APPENDIX INDUSTRY ANALYSIS METHODOLOGY Location quotient analysis measures, for each industry in the state, whether the industry is more or less concentrated in Washington than it is nationally. The location quotient is “the ratio of an industry’s share of the local economy to the industry’s share of the national economy.”80 Most often, this is measured using employment. It is defined as follows: LQ =
eit Eit ÷ eTt ETt
where: eit = state employment in industry i in year t. eTt = state employment in all industries in year t. Eit = national employment in industry i in year t. ETt = national employment in all industries in year t. An industry with an LQ of exactly 1 are assumed to produce exactly enough of a good or service to satisfy local demand. In general, an LQ greater than 1 means that an industry produces more than required for local consumption, and thus is a net exporter. Similarly, an LQ less than 1 means than the state must import some of that good or service to satisfy local demand. Competitive shift measures the growth attributable to each industry in the state. In other words, it measures the growth rate of each local industry, after controlling for the growth of the national economy and the growth of the industry nationwide. We also calculate this using employment, as shown below: Competitive Shift = rit '− t − RTt '− t − Rit '− t where: rit '−t = the rate of growth of state employment in industry i between years t’ and t RTt '−t = the rate of growth of the national economy (all industries) between years t’ and t Rit '−t = the rate of growth of national employment in industry i between years t’ and t
In general, an industry with a positive competitive shift is becoming more concentrated in the state than it is nationally, and vice versa.
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Bubbles show size of employment in that sector, based on 2006
INTERVIEWS Interviewee: Mr. Jack Faris, President Washington Biotechnology & Biomedical Association Interviewer: Blanca Monter Date of interview: April 22, 2008 BM. Can you describe your organization and what its main functions are. JF. Support biotechnology, biomedical organizations, as well as research firms BM. How does your organization bring biotech firms together/how does it foster networking? JF. In various ways. Events, conferences, news, letters and public affairs advocacy. BM. Can you describe the biotech cluster in Washington. JF. Large and growing! With a diversity of industries. BM. Who would you say are its main players? JF. The biggest areas are medical research center, as the cancer research center, then bio-medical devices and lastly agriculture. The main problem is to identify the new companies. BM. What would you say are its main products? JF. The main products take time and investment to get it. 55
BM. But, what would you say are the main products now? JF. I do not understand the question. BM. What do you think are the main outputs of the biotechnology cluster? JF. Better health, employment. BM. What do you think are its main areas of weakness or improvement? JF. It is necessary to have more firms in the area. BM. What do you think about the mergers of pharmaceuticals and bio-technology firms? JF. This is a natural process of the pharmaceuticals in order to diversify. It will continue in the future. BM. What it is necessary to have more bio-tech firms? Capital for investment and more entrepreneurs. BM. Looking forward ten years, what would a successful biotechnology cluster in Washington look like to you? JF. A large and growing cluster. BM. Do you see any major barriers to future growth? JF. It is necessary create more opportunities, and increase funding for research. BM. Are there any other people he thinks we should speak with? JF. Yes, send e-mail to give you the contact information of Tom and Jim.
Interviewee: J. Thomas Ranken, CEO of Vizx Labs, LLC, a Seattle-based bioinformatics company focused on the development of software and systems for biological research. 206-890-8387 Interviewer: Blanca Monter Date of interview: April 28, 2008 BM. Can you describe the biotech cluster in Washington. TR. Do you want few lines or a book? BM Few lines will be okay TR Washington has a strong research community, for example the University of Washington, Hutchinson Cancer Research Center. BM So, you would say these are the major strengths: the research centers, yes. BM. What do you think are its main areas of weakness or improvement? TR. A great disappointment is the commerce part. BM. Is there a difference between the commerce and the manufacturing? TR. Yes. The commerce part refers to the part of discovery and approval of products. The biotech industry has a large representation of non-profitable research centers as the University of Washington and he Hutchinson Center, but there have been lay-offs, and the number of companies remains small, difficulties to start new companies.
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There are some recommendations for the commerce part. BM Do you refer to the Bio21 proposals? TR. No, there is a draft that we are working on. BM. What do you think of expand the manufacturing capacity of the biotechnology cluster? TR. Encouraging manufacturing is good but is less important than commercialization because the real value of biotech is on the intellectual property, so it should be an emphasis on research and development. BM. Who would you say are its main players? TR. Among the main players is Jack Faris (president of Washington Biotechnology and Biotechnical Association). The presence of large pharmaceuticals as Merck, or BM. What would you say are its main products? TR. The main products are minor drugs. BM. Do you see any major barriers to future growth? TR. The barrier is the lack of funding to create new successful companies. Then, the goal is finding money for these companies. BM. Why is a problem get funding? TR. There are high technology companies that can be funding in national or international capital market. But the problems is with life science business that is more difficult for them to obtain funding.
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Web Survey Complete Results Company I nformation Number
Zip: 99354 98034 98121 98008 98056 99207 Number
Number
Firm Name: Street: City: 1 Advanced Imaging Technologies 2400 Stevens Drive, Suite B Richland 2 Cardiac Dimensions Inc. 5540 Lake Washington Blvd NE Kirkland 3 HematoLogics, Inc 3161 Elliot Avenue Seattle 4 Mobile Air Applied Science, Inc. 14 - 168th Ave. NE Bellevue 5 Artemisia BioMedical, Inc 7908 127th AVE SE Newcastle 6 HollisterStier Laboratories LLC 3525 N Regal Spokane, WA County: Year Established Number of Employees Benton 2004 10 King 2001 30 King 1995 20 King 2005 5 King 2006 2 Spokane 1921 520 First & Last Name: Title: 1 Michael Hartwig COO 2 Tom Douthitt VP Market Development 3 Michael R. Loken President 4 Doug Woods CEO 5 Michael Kuran CEO 6 Bette Munroe HR Supervisor Response Text Advanced Imaging Technologies, Inc. is a privately held technology company providing medical professionals with a soft tissue imaging solution that delivers critical data unavailable in the market today. Our core technology is based on a proprietary imaging technique known as Holographic Ultrasound (HU). HU’s unique attributes combined with advanced software delivers unique anatomical information for enhanced 1 medical decision-making. ARIA Breast Imaging System: Our first commercial product incorporating the HU technology platform is the ARIA Breast Imaging System (BIS), which was designed to assist physicians in the early detection, diagnosis and biopsy of breast cancer, specifically for women with dense tissue. 2 Early stage medical device company developing a new treatment for Heart Failure. Currently in clinical trials 3 Medical diagnostics laboratory specializing in hematopathology MA2SI has developed and patented a technology platform it has used to develop a line of products used for airborne pathogen containment in 4 healthcare environments. Specialty pharmaceutical company developing and commercializing novel classes of targeted therapeutics for cancer, proliferative and 5 inflammatory disorders, and infectious diseases. HollisterStier Laboratories LLC provides a complete range of services to support the pharmaceutical and biopharmaceutical industries. The Allergy business is a worldwide leader in the manufacture of allergenic extracts, targeted primarily at treating allergies and asthma. 6 HollisterStier is also a nationally recognized contract manufacturer of sterile injectable vials, and lyophilized products. HollisterStier is owned by J ubilant Organosys of India.
Does your firm export outside of Washington? Answer Options Yes No Does your firm import from outside of Washington? Answer Options Yes No What part of your firm(s) is/ are located in Washington? Answer Options Headquarters Research & Development Manufacturing
Response Percent 33.3% 66.7%
Response Count 2 4
Response Percent 50.0% 50.0%
Response Count 3 3
Response Percent 100.0% 83.3% 66.7% Other (please specify)
Response Count 6 5 4 1
Other (please specify) Sales Staff are located outside Washington I ndustry clusters are comprised of companies that co-locate in close proximity because of linkages such as similar technologies, related products, shared customers, buyer-supplier relationship or a common labor pool, that present the opportunity for competitive advantage. c Given this definition, would you classify your industry as part of a cluster? Answer Options yes no
Response Percent 50.0% 50.0% skipped question
Response Count 2 2 2
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I ndustry Cluster Information & Social Capital Name up to three individuals or organizations with which you have COLLABORATED in the last two years including the type of collaboration. Examples of collaboration include bid on contracts together, attended trade shows together, helped to fill an order, shared equipment or services, or participated in an industry Number Organization 1: Location (City, State): Type of collaboration: 1 Cedara Software Toronto, CN SW development 2 Fred Hutchinson Cancer Research Center Seattle Research 3 Fabrication Services, Inc. Kent, WA Fabrication contract and costing 4 University of Washington Seattle, WA J oint Grant Applications, Sponsored Research Number Organization 2: Location (City, State): Type of collaboration: 1 Brokmen Precision Fabricators Kennewcick, WA Design engineering and part fabrication 2 Diagnostic Cytogenetics Inc Seattle shared customers 3 WBBA Seattle, WA Trade Association 4 J ohns Hopkins Univeristy Baltimore, MD Sponsored Research Number Organization 3: Location (City, State): Type of collaboration: 1 2 Amgen Seattle research 3 V. Montegrande & Co. Irvine, CA Marketing 4 skipped question 2 Name up to three individuals or organizations (such as a technical schools, competitor, customer, supplier, or consultant) that have helped you recently in some way (gave advice, shared information, or loan equipment) and the form of help (advice, production, loan etc.) Number Organization 1: Type of assistance: Fee based or free? 1 PNNL (Richland, WA) technical review / validation free
Number
2 Dr. Soheil Meshinshi, FHCRC (Seattle, WA)
Targeted clinical specimens
Free
David E. J affe & Associates (Woodinville, WA) 3 4 MedChem LLC (Federal Way, WA) Organization 2: 1 Kadlec Medical Center (Richland, WA)
Consulting
both
Drug Synthesis Optimization Type of assistance: Product evaluation site
Fee based Fee based or free? free
Dr. Brooke Anderson/Combimetrix (Edmonds, WA)
Rsearch/Development contacts
Free
University of Washington Medical Center (Seattle, WA)
Proof of concept trials
free
2 3 4 Number
Organization 3: 1 CTED (Seattle, WA) 2 Dr. Ken Mekler (Seattle, WA) 3 4
Type of assistance: Fee based or free? Identification of distribution partners free Target clients Free
Lee Huntsman, President Emeritus U of W (Seattle, WA) Adivce and introductions
free
skipped question Name up to three individuals or organizations and their locations which YOU have recently assisted in some way and how you assisted them. Number
Number
Number
Organization 1: 1 Tzu Chi Medical Center 2 Virginia Mason Medical Center 3 University of Washington Organization 2: 1 Unversity of Vienna 2 Snoqualmie Valley Hospital 3 Organization 3: 1 Amgen 2 Marshall Partington, MD 3
2
Location (City, State): HuaLien, Taiwan Seattle, WA Seattle, WA Location (City, State): Vienna Austria Snoqualmie, WA
Type of assistance: Education Provided airborne pathogen containment systems Material Supplies for testing Type of assistance: Education/Free Provided airborne pathogen containment systems
Location (City, State): Seattle Redmond, WA
Type of assistance: Research Airborne Pathogen Containment system
skipped question Please provide the names of three individuals or firms you would consider to be leaders in your industry. Number 1 2 3 4
1 Hologic Inc. Dr. Alberto Orfao (Salamanca Spain) Rear Admiral William McDaniel, MD (retired) Amgen
2. GE Healthcare Dr. Bruce Davis (Maine) Bill Haslebacher Genentech skipped question
3
3. Philips Dr. Michael Borowitz (J ohns Hopkins) David J affe Pfizer 2
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Please name three of the most important business groups, affiliations, and/ or professional organizations that your company belongs to. Please indicate also why they are important to you. Number 1. I mportance: 1 International Society for Analytical Cytometry Scientific Organization 2 WBBA Very 3 WBBA Industry info and support Number 2. I mportance: 1 American Institute for Medical and Biologic Engineering Scientific Contacts outside field 2 AeA, WA Very 3 Number 3. I mportance: 1 Better Business Bureau Validation of businss practice 2 APIC Very 3 skipped question 3 What are the most important advisory committees and/ or boards that your company is involved in? Response Text Number 1 Review scientific articles for various scientific journals 2 N/A skipped question 4 Do you think it would be important for your company to participate in more local/ regional networking opportunities? Response Percent Response Count Answer Options Yes 66.7% 2 No 33.3% 1 I f yes, please specifiy. Number 1 we need a better understanding of what regional companies are doing to promote themselves. 2 We already participate in those that are important and critical to us 3 More interaction required among early stage life science companies, especially regarding funding skipped question 3
Marketing & Sales Data What are your annual sales? Answer Options Confidential $15M Do you expect sales to decline, grow or remain the same over the next 12 months? Answer Options Decline Grow Remain the Same Do you conduct business online? I f yes, which form of e-commerce do you use? Answer Options Online transactional based selling. Online transactional based purchasing. Website/online directories. Online banking. E-mail. None.
What other channels do you use to market your product/ services? Answer Options Trade Shows Trade Magazines Direct Sales Direct Mail Television Radio Number
Response Percent 75.0% 0.0% 0.0% 0.0% 25.0% 0.0% 0.0% 0.0% skipped question
Response Count 3 0 0 0 1 0 0 0
Response Percent 0.0% 100.0% 0.0% skipped question
Response Count 0 4 0
Response Percent 0.0% 0.0% 25.0% 0.0% 50.0% 25.0% Other (please specify) skipped question
Response Count 0 0 1 0 2 1 0
Response Percent 66.7% 66.7% 100.0% 66.7% 0.0% 0.0% Other (please specify)
Response Count 2 2 3 2 0 0 2
2
2
2
Other (please specify) 1 Channel Partners 2 N/A skipped question
3
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Number
Number
Number
Competitor 1: 1 Hologic Inc 2 Lab Corps 3 Holley Pharmaceuticals Competitor 2: 1 GE Healthcare 2 Quest 3 Cancer Research Technology Competitor 3: 1 Philips 2 Genzyme Genetics 3
Location (City, State) MA North Carolina China Location (City, State) WI California United Kingdom Location (City, State) Seattle New Mexico skipped question
3
Workforce Do you expect your employment to decline, grow or remain the same over the next 12 months? Response Percent Response Count Answer Options Decline 0.0% 0 Grow 100.0% 3 Remain the same 0.0% 0 Please specify the amount of expected change (if any) 1 Please specify the amount of expected change (if any) Number 1 Dependent on level of funding skipped question 3 Which job categories do you expect to fill in the next 12 months? Response Percent Response Count Answer Options Management 0.0% 0 Information technology 33.3% 1 Communications/marketing 0.0% 0 Personal services 0.0% 0 Transportation 0.0% 0 Hospitality services 0.0% 0 Healthcare 33.3% 1 Business and financial operations 0.0% 0 Education 0.0% 0 Scientific 66.7% 2 Professional services 33.3% 1 Construction 0.0% 0 Sales 33.3% 1 Protective services 0.0% 0 Engineering 0.0% 0 Social services 0.0% 0 Agricultural 0.0% 0 Production 33.3% 1 Administrative support 0.0% 0 Maintenance/repair 0.0% 0 Technicians 0.0% 0 None 0.0% 0 Other (please specify) 0 skipped question 3 Which job categories do you find the most difficult to fill or retain? Please rank your top three in each category as applicable. 1 being the most difficult to 3 being Difficult to fill or retain? Answer Options Difficult to fill Difficult to retain Management 0 0 Information technology 1 0 Communications/marketing 0 0 Personal services 0 0 Transportation 0 0 Hospitality services 0 0 Healthcare 0 0 Business and financial ops 0 0 Education 0 0 Scientific 1 0 Professional services 0 1 Construction 0 0 Sales 0 0 Protective services 0 0 Engineering 0 0 Social services 0 0 Agricultural 0 0 Production 0 0
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Which job categories are crucial to the success of your firm? Please rank your top three. 1 being the most crucial to 3 being less crucial. How does local demand for you products/ services within Washington compare to the demand for your products/ services overall? Please Rank Response Percent Response Count Answer Options Answer Options 1 2 3 Growing Slower 25.0% 1 Management 0 0 0 Growing More Rapidly 25.0% 1 Information technology 0 1 0 About Equal 0.0% 0 Communications/marketing 0 0 0 N/A 50.0% 2 Personal services 0 0 0 skipped question 2 Transportation 0 0 0 Specifically, who are the most important suppliers for your firm? Hospitality services 0 0 0 Number Supplier 1: Location (City, State): Products: Healthcare 1 0 0 1 Brokman Precision Fabricators Kennewick, WA component parts Business and financial ops 0 1 0 2 Becton Dickinson San J ose, CA Instrument/Reagents Education 0 0 0 3 MedChem LLC Federal Way, WA Drug material supply Scientific 2 0 Number Supplier 2: Location (City,0State): Products: Professional services 0 1 0 1 Dell Computer PC systems Construction 2 Applied Biosystems Inc. 0 Redwood City CA0 Instrument/Reagents0 Sales 1 0 3 Genscript Piscataway, NJ 0 Peptides Protective services 0 0 Number Supplier 3: Location (City,0State): Products: Engineering 0 0 0 1 Social services 0 0 0 2 Beckman Coulter Reagents Agricultural 0 0 0 3 Production 0 1 skipped question 0 3 Administrative 0 raw materials from outside Washington?0I f so, what prevents them from being0purchased locally? I s you firmsupport purchasing significant services, products and/ or Maintenance/repair 0 0 0 Technicians 0 0 1 Response Count Answer Options Which skills do you think are most lacking in your region? Please rank your top three. 1 being in Response very shortPercent supply and 3 being less. Lack of suppliers 75.0% 3 Established relationships with current suppliers 0.0% 0 Please High Rank cost 0.0% 0 Answer Options 1 2 30 Low quality 0.0% Reading N/A comprehension 0 0 01 25.0% Speaking Other (please specify) 0 0 00 Critical thinking 2 1 0 skipped question 0 Instructing Do you think your region could benefit from the development 0 of a regional brand or identity? I f yes, please 0 explain. 0 Response Text Equipment Numbermaintenance 0 0 0 the industry / technology base outside this region. 1 Yes, very little is known about Systems analysis 0 0 0 2 No Active listening 0 0 0 4 Mathematics 0 0 skipped question 0 Monitoring/quality control 0 0 0 Business Climate Problem solving 1 0 0 Troubleshooting 1 0 Why did you locate in this area? Please rank your top 3 options. 1 being most important and 3 being0less important. Decision 1 1 0 Rankmaking Writing 2 1 02 03 Answer Options Science 1 0 01 01 Workforce/work ethic Negotiation 2 1 02 00 Location Programming Cost of doing business 1 0 00 01 Repair Transportation 0 0 01 00 Time managment Family owned 0 1 01 10 Access raw materials requirments for the majority of entry-level What areto the educational workers within your firm? (Multiple 0 answers are okay) 0 1 Incentives 0 0 Response Percent Response1Count Answer Options Spin off 0 Previous work experience in a related field 0.0%1 01 Proximityinto similar/related companies 1 0 Experience the field 33.3% 10 Proximity to markets 1 High school education or equivalent 0.0%0 00 Proximity to suppliers 0 Post high school (technical school, etc) 0.0%0 01 to educational institutions 2 0 BA Proximity or BS degree 100.0% 30 None 0 0 0 skipped question 3 No opinion 0 0 or training. Please include the type 0 of training as well Please name up to three organizations you or your employees have used in the last 12 months for education Other (please specify) We were here prior to starting the business. as the organizations strengths and shortcoming as it relates to1your experience. 3 Response skipped Percent question Response Count Answer Options What are1the top three issues facing your business at this location? Please rank your top 3 options.0.0% 1 being most difficult and 3 being less difficult. Organization 0 Type of Training Rank Strength(s) Answer Options Shortcoming(s) Competition Organization 2 Environmental issues Type of Training Roads Strength(s) Water Shortcoming(s) Building improvement Organization 3 Technology Type of Training Cost of health care Strength(s) Globalization Shortcoming(s) Sales Workforce
1 2 0 0 0 0 1 1 1 2 1
0.0% 0.0% 2 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 0 0.0% 1 skipped question 1
0 0 3 0 0 0 1 0 1 0 1 0 1 0 0 0 0 0 0 0 0 0
6
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REFERENCES 1
Michael E. Porter, 1990. The Competitive Advantage of Nations. Free Press. Joseph Cortright, 2006. Making Sense of Clusters: Regional Competitiveness and Economic Development. The Brookings Institution, Washington, D.C. 3 Lee Munnich and Paul Brush, 2004. Knowledge Clusters and Entrepreneurship in Regional Economic Development. Minneapolis, MN: Hubert H. Humphrey School of Public Affairs. 4 Huckell/Weinman Associates, Inc., The Biotechnology and Medical Device Industry in Washington State. Washington Biotechnology & Biomedical Association: Seattle. 5 Porter, On Competition. 6 Washington State Department of Revenue, June 1st, 2006. 7 Washington State, 2006. The Future of Life Science in Washington. http://www.wabio.com/econ_dev_reports/WA_Growth_Strategy_2006.pdf (last visited May 6, 2008). 8 Michael E. Porter, 1996. On Competition. Boston: Harvard Businesss School Press. 9 Scott Stern, Michael E. Porter, and Jeffrey L. Furman, 2000, The Determinants of National Innovative Capacity, NBER, working paper 7876. 10 Porter et. al. refer to patenting as “an observable consequence of national innovative capacity”, See also, J. Eaton and S. Kortum, “International Technology Diffusion: Theory and Measurement,” International Economic Review, 40(3). 11 U.S. Department of Commerce, Bureau of Economic Analysis. Regional Economic Accounts. http://www.bea.gov/newsreleases/regional/gdp_state/gsp_newsrelease.htm 12 U.S. Department of Labor, Bureau of Labor Statistics. 13 Washington had the 18th-highest cost of living amongst cities in the United States. Missouri Economic Research and Information Center, “Cost of Living 3rd quarter 2007.” http://ded.mo.gov/researchandplanning/indicators/cost_of_living/index.stm (last visited May 6, 2008). 14 International Trade Administration. Washington: Exports, Jobs, and Foreign Investment. http://www.trade.gov/td/industry/otea/state_reports/washington.html; Trade State Express. National Trade Data. http:// tse.export.gov/NTDMap.aspx?UniqueURL=rzzxc545qsiizuixtmdu2d45-2008-3-2-2-16-24 (last visited May 6, 2008). 15 Fortune, 2007. “Boeing,” in Fortune 500, available at http://money.cnn.com/magazines/fortune/fortune500/2007/snapshots/1344.html (last visited May 6, 2008). 16 Boeing, 2008. Boeing employment numbers. http://www.boeing.com/employment/employment_table.html (last visited May 6, 2008). 17 Richard S. Conway Jr. and Douglas H. Pedersen, “The Washington Aerospace Industry”. The Puget Sound Economic Forecaster, document prepared fro the Aerospace Futures Alliance of Washington. 18 Deloitte, June 22, 2004. Employment and Income Analysis of the Boeing 7E7 Project. 19 Boeing Co. and Office of Financial Management. 20 Conway, Richard, 2004. 1997 Washington Input-Output Model. Washington Office of Financial Management. 21 Conway and Pedersen, “The Washington Aerospace Industry.” 22 Microsoft, Co. 23 Brier Dudley, 2003. “Company sparks region's growth.” Seattle Times, February 25, 2003. 24 Ibid.. 25 Conway, Washington Input-Output Model. 26 Porter, The Competitive Advantage of Nations. 27 Joseph Cortright, 2006. Making Sense of Clusters: Regional Competitiveness and Economic Development. The Brookings Institution: Washington, D.C. 28 Joseph Cortright, lecture March 27 2008, Making Sense of Clusters: Definition, Analysis, Action. 29 Ibid. 30 Lee Munnich and Paul Brush, 2004. Knowledge Clusters and Entrepreneurship in Regional Economic Development. Minneapolis, MN: Hubert H. Humphrey School of Public Affairs. 31 Wa Laws 2006, ch. 314. Available at http://apps.leg.wa.gov/documents/billdocs/2005-06/Pdf/Bills/Session%20Law %202006/5330.SL.pdf (last visited May 6, 2008). 32 Chris Gregoire, 2007. The Next Washington: Growing Jobs and Income in a Global Economy. http://www.governor.wa.gov/priorities/economy/next_wa_final.pdf (last visited May 6, 2008). 33 WA Laws 2007, ch. 227. Available at http://www.leg.wa.gov/pub/billinfo/2007-08/Pdf/Bills/Session%20Law %202007/1091-S.SL.pdf (last visited May 6, 2008). 34 Workforce Training Education and Coordinating Board, 2007. Skills for the Next Washington (Draft). http://www.wtb.wa.gov/SkillsfortheNextWashington.asp (last visited May 6, 2008). 2
REFERENCES 35
Paul Sommers, 2000. The Cluster Approach to Economic Development: Concept Paper for the Office of Trade and Economic Development, report to Office of Trade and Economic Development. 36 Paul Sommers and Deena Heg, 2002. Occupational Demand and Supply by Industry Cluster and Region, report for the State Board for Community and Technical Colleges and Workforce Training and Education Coordinating Board. 37 Deloitte. 2003. Business Attraction, Retention & Expansion Framework, draft report for the Department of Community, Trade, and Economic Development. 38 Christina M. L. Kelton, Margaret K. Pasquale, and Robert P. Rebelein, 2007. “Using the North American Industry Classification System (NAICS) to Identify National Industry Cluster Templates for Applied Regional Analysis.” Regional Studies, December 10 2007. 39 S.J. Goetz and R. S. Morgan, 1995, “State Level Locational Determinants of Biotechnology Firms,” Economic Development Quarterly 9(2):174–85, cited in Joseph Cortright and Heike Mayer, Signs of Life: The Growth of Biotechnology Centers in the U.S.. Washington, D.C.: The Brookings Institution Center on Urban and Metropolitan Policy. 40 Biotechnology Industry Organization, n.d., Guide to Biotechnology, http://bio.org/speeches/pubs/er/technology_collection.asp (last visited May 6, 2008). 41 PriceWaterhouse Coopers, 2001, Money Tree Survey, cited in Cortright and Mayer, Signs of Life. 42 Joseph Cortright and Heike Mayer, 2002. Signs of Life: The Growth of Biotechnology Centers in the U.S.. Washington, D.C.: The Brookings Institution Center on Urban and Metropolitan Policy. 43 Ibid. 44 Ibid. 45 Ibid. 46 Huckell/Weinman Associates, Inc., The Biotechnology and Medical Device Industry in Washington State. 47 infoUSA, access through Washington State Workforce Explorer, http://www.workforceexplorer.com/ (last visited April 7, 2008). 48 Huckell/Weinman Associates, Inc., The Biotechnology and Medical Device Industry in Washington State. 49 Bureau of Economic Analysis, Industry-by-Industry Total Requirements tables, 1997 Benchmark Data. 50 Huckell/Weinman Associates, Inc., The Biotechnology and Medical Device Industry in Washington State. 51 Cortright and Mayer, Signs of Life. 52 Ibid. 53 Porter, On Competition. 54 Ibid. 55 Huckell/Weinman Associates, Inc., The Biotechnology and Medical Device Industry in Washington State., p. 12. 56 Porter, On Competition. 57 Julia D. Oliver. “Graduate Students and Postdoctorates in Science and Engineering: Fall 2006: Detailed Statistic Table,” National Science Foundation. 58 U.S. News and World Report, 2008. America’s Best Graduate Schools 2009. http://gradschools.usnews.rankingsandreviews.com/grad (last visited May 6, 2008). 59 Washington Biomedical and Biotechnical Association, n.d. Washington BioHistory. Available at http://www.wabio.com/biohistory/WaBioHistory.pdf (last visited May 6, 2008). 60 Porter, On Competition. 61 U.S. News and World Report, 2007. America’s Best Hospitals 2007. http://health.usnews.com/sections/health/besthospitals (last visited May 6, 2008). 62 Technology Alliance, 2004. “Bio 21: Implementing Washington’s State Initiative in 21st Century Health.” 63 Life Science Discovery Fund, n.d.. http://www.lsdfa.org/about/mission.html 64 Biotechnology Industry Organization, 2006. “Growing The Nation's Biotech Sector: State Bioscience Initiatives 2006.” 65 Mark Hollmenr, “Bristol-Myers chooses Bay State for biomanufacturing plant”, Boston Business Journal June 1st, 2006. 66 Daniel S. Levine, 2006. “Hot target: Bio manufacturing.” San Francisco Business Times April 17th, 2006. 67 Washington Biotechnology and Biomedical Association website, http://www.wabio.com (last visited May 6, 2008). 68 Washington State Department of Revenue, June 1st, 2006. 69 Levine, “Hot target: Bio manufacturing.” 70 North Carolina Biotechnology Center website. http://www.ncbiotech.org/resource_center/biomanufacturing.html (last visited May 6, 2008).
REFERENCES 71
Richard Lambert, 2003. Lambert Review of Business-University Collaboration: Final Report. Available at http://www.hm-treasury.gov.uk/consultations_and_legislation/lambert/consult_lambert_index.cfm (last visited May 6, 2008). 72 Washington State, The Future of Life Sciences 73 Ibid. 74 Ibid. 75 Diedtra Henderson, 2006. “Biotech firms chase ‘orphan’ drugs.” International Herald Tribune May 31 2006. 76 Dave Jensen, 2002. “Understanding the Biotechnology Job Market” Science February 15, 2002. 77 Business North Carolina, 2006. “Across North Carolina, regions find their biotechnology niches.” http://www.allbusiness.com/north-america/united-states-north-carolina/1179329-1.html (last visited May 6, 2008). 78 Huckell/Weinman Associates, Inc., The Biotechnology and Medical Device Industry in Washington State. 79 Washington Technology Center, 2006. “Research and Technology Development (RTD) Grant Program.” http://www.watechcenter.org/index.php?p=RTD+Grant+Program&s=66 (last visited May 6, 2008). 80 Richard E. Klosterman, 1990. Community Analysis and Planning Techniques. Lanham, Md.: Rowman & Littlefield Publishers, Inc.
