Biotechnology Clustering: The Regional Dynamics of the Modern Biotechnology Industry

By Ted Everson

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

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

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

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

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

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

The success of the early biotechnology clusters suggests that cluster development is often a result of a bottom-up process by which companies emerge early and gain competitive advantage rather than a top-down approach of state investment. But there are other patterns of cluster development. Hybritech is based in San Diego because its cofounder Ivor Royston (see profile, p. 37) was a faculty member at the University of California, San Diego. Nevertheless, San Diego’s emergence in the 1990s as a center of biotechnology activity is due in large part to an aggressive attempt by local government to encourage the commercialization of university research in the region. Policy makers in Raleigh-Durham and Seattle have also helped create regional climates favorable to the commercialization of research. Success in other regions has been based on the existence of one or several large, dominant firms that anchor economic development in biotechnology: Monsanto in St. Louis, multiple pharmaceutical corporations in the Philadelphia–New Jersey area, and Amgen near Los Angeles.

While studies of the regional dynamics of industrial growth have existed since the 19th century, Porter’s work has drawn the attention of analysts and policy makers. It was developed in the context of his interest in encouraging regional industrial growth to ensure national leadership in a global economy. His ideas attained broad recognition in academic, government, and economic circles and ensured continued policy interest in the cluster as a fundamental unit of economic growth. Economists, sociologists, geographers, urban planners, and other scholars have produced a large amount of literature on the phenomenon of industrial clustering, both generally and for the biotechnology industry in particular. Much of this literature purports to provide guidelines for regional economic development.

There is considerable debate about the degree to which cluster analyses aid policy creation. Some commentators have argued that development strategies treat the concept of clustering somewhat superficially, neglecting regional nuances and idiosyncrasies in favor of a standardized approach. Critics have urged policy makers to move beyond a reliance on cluster studies, suggesting that they might be better served by adopting economic development strategies that exploit the innate and dynamic characteristics of their regions.
To a great extent debates about the value of cluster studies to economic development reflect the great diversity of approaches undertaken in these studies. Some analysts follow a quantitative approach, statistically analyzing a variety of indicators of economic success across large numbers of cluster locations and industries. Others use a qualitative approach, producing detailed case studies of individual clusters in order to understand the specific attributes of a cluster’s success. The definition of cluster also varies. Some analyses highlight interindustry ties; others see distribution links between suppliers, manufacturers, and customers as the central component of a cluster; others focus more generally on the proximity of similar or complementary firms without defining the interactions between these firms.

In light of this variation in method and definition some critics question the value of clustering as a concept, but the idea’s strength lies in this diversity; it is rich and fertile, rapidly evolving, and broadly applicable to the dynamics of different regions and fields. There is no single method, definition, or process for understanding or creating clusters; regional economic development is by definition connected to a specific place, and every place has unique circumstances.

Studies of biotechnology clusters shed light on the future of the field, but they also reveal that there is no one-size-fits-all method for creating new clusters. A multifaceted understanding of clustering, combined with the dynamic and ongoing process of understanding the unique circumstances of a particular economic region, can provide the most reliable means to ensure the growth and evolution of successful biotechnology clusters.

For Further Reading

Braunerhjelm, Pontus, and Maryann Feldman, eds. Cluster Genesis: Technology-Based Industrial Development. New York: Oxford University Press, 2006.

Cortright, Joseph. Making Sense of Clusters: Regional Competitiveness and Economic Development. Washington, DC: Brookings Institution, 2006.

Cortright, Joseph, and Heike Mayer. Signs of Life: The Growth of Biotechnology Centers in the U.S. Washington, DC: Brookings Institution, 2002.

Ted Everson is a historian of science and the program manager for biotechnology studies at CHF’s Center for Contemporary History and Policy.