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| A Bio·IT World special section
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STRATEGIC INSIGHTS 

By Barbara Depompa

June 15, 2003

Special Issue 
· State of the States for Biotech
· Northeast Region
· Mid-Atlantic/Southeast Region
· Midwest/South Region
· Northwest Region
· Southwest Region
Texas
Bioscience with a Space Spin

Known for its large energy industry sector, Texas has done notably well attracting or launching about 450 biotechs and related companies. Some of the leading biopharmaceutical firms in the Lone Star State include Lexicon Genetics, Ilex Oncology, Introgen Therapeutics, and Tanox Biosystems.

Even the NASA center in Houston offers a bioscience spin — the National Space Biomedical Research Institute (NSBRI), a consortium of 12 institutions working to prevent or solve health problems related to long-duration space travel and prolonged exposure to microgravity. Biopharma-related product development coming out of the NSBRI includes treatments for osteoporosis, muscle wasting, shift-related sleep disorders, and radiation-related conditions.

Among the various startup incubation and technology transfer resources in Texas are the TEKSA Innovations Corp., a for-profit "business integrator" focused on developing biotech companies; the Texas Technology Transfer Association (T3A), a nonprofit organization created to facilitate the commercialization of new technologies; and academic institutions such as the University of Texas Health Science Center at Houston (UTHSC-H) and the M. D. Anderson Cancer Center, which works with biotech firms to maximize economic return on M. D. Anderson's intellectual assets.

Also, Texas lawmakers recently passed legislation to enable all state universities to set up Centers for Technology Development and Transfer.

Texas
· 450 life science companies
· 5% tax credit on research-related expenses
· 25% tax credit for new R&D jobs
Financial incentives made available to biotechnology companies in Texas include a tax credit of 5 percent of research-related expenses, and tax credit of 25 percent of wages paid for new jobs created in R&D, among other areas. A capital investment tax credit equal to 7.5 percent of a qualified investment is also available, though a minimum investment of $500,000 is required to claim the credit.

The Texas Department of Economic Development offers a Capital Access Fund to help finance companies with fewer than 500 employees, so long as 51 percent of those workers reside in Texas. And a state-sponsored Skills Development Fund assists Texas colleges in financing custom job training for local businesses, giving companies grants up to $1,000 per trainee.

The primary industry-lobbying group is the Texas Healthcare & Bioscience Institute, which offers biotech firms information resources for business and product development, as well as advocacy of policies and actions that promote biomedical science, biotechnology, and medical device innovation in Texas.       www.thbi.org 



New Mexico
Building a Bioinformatics Niche 

There may only be slightly more than 125 biotech and biopharmaceutical companies in New Mexico, but the University of New Mexico's Bureau of Business and Economic Research reports that the biotech industry is growing at a compound annual rate of 18 percent. The National Science Foundation also ranked New Mexico as second in the United States in "R&D intensity," which measured R&D spending as a percentage of gross state product (GSP).

New Mexico
· 125 life science companies
· 18% life science growth rate
· 2nd in U.S. for "R&D intensity"
There are not as yet, however, many large companies. Only a handful of firms, such as Genzyme Genetics, Cardinal Health, and a branch of GlaxoSmithKline, have more than 100 employees. The balance has fewer than 100 employees.

The state offers a technology job tax credit that provides biotech firms from 4 percent to 8 percent credit for payroll and sales taxes related to training. Biotechs can claim an R&D deduction for the entire amount of gross receipts tax charged by the state.

Funding is available for biotechs that train New Mexico residents, paying 50 percent of a trainee's hourly wage for up to six months. In some rural areas the fund pays up to 70 percent of the hourly wage. Also, course materials are covered 100 percent when an employee is trained at an accredited university.

For biopharma firms needing or wanting to sell into European markets, the state offers a unique program for funding ISO 9000 certification, which enables companies to pay as little as $500 to become ISO 9000-compliant within a year.

As for incubation and technology transfer resources, the University of New Mexico's Health Science Center, in Albuquerque, has been involved in biomedical and biotech research, spinning out five companies in the past two years that employ about 500 people in the state. NextGen, a privately funded organization, is helping build new jobs in biotech and biomedicine, as well as other technology arenas. And New Mexico's office of science and technology is also actively aiding biotech firms interested in moving to the region, and has successfully spun out several biotech firms working with the University of New Mexico.

The main industry lobby is the New Mexico Biotech and Biomedical Association, which represents about 100 medical device, diagnostics, bioinformatics, and pharmaceutical companies, with 400 participants and 130 members from across the state.       www.newmexicodevelopment.com



Arizona 
Focus on Cancer and Neurological Therapy

When compared with California or Massachusetts, Arizona's biotech industry is in its infancy, especially in terms of venture capital investment. But a low cost of living and amenities such as arid climate and convenient regional airports have helped the Grand Canyon State attract or launch 300 companies in the biotech, medical device, and pharmaceutical industries.

Arizona
· 300 life science companies
· 3 research parks
· 1 "biocampus"
· Job-training grants of up to $6,000 per employee
· Reduced-tax "enterprise empowerment" zones
Most firms are quite small, however — 10 percent have more than 100 employees; about 25 percent have between 20 and 100 employees; and 65 percent have fewer than 20 employees.

There are, however, more than 20 different universities, hospitals, and foundations supporting biotech research and development, including the Arizona Cancer Center, which runs both a pancreatic cancer and a colon cancer program, and the Mayo Clinic in Scottsdale, which conducts research in molecular genetics and cell biology. There is also the International Genomics Consortium, which has partnered with 19 hospitals and medical centers nationwide to build a huge database of information on the role of genetics in cancer; and the Translational Genomics Research Institute, which houses 200 scientists translating genomic research in cancer and neurological disorders into drugs and therapies.

Arizona offers a host of tax breaks to biotech firms that enter the state. There are three research parks, as well as a "biocampus," all of which pay no property taxes. In "enterprise empowerment" zones, companies may also pay no other taxes related to running a business, as well as paying lower utility costs. A federal income tax credit of up to $3,000 per employee is also available in these zones. The state's R&D tax credit is one of the most generous in the United States — a 20 percent credit on $2.5 million in R&D expenses, and 11 percent on any additional R&D expenses, with no cap on spending.

Job-training grants offer up to $6,000 per employee, or $1.2 million per grant period (maximum of two years). Individual communities also offer attractive building and leasing incentives beyond the incentives available from the state.       www.azcommerce.com



Southern California
Deep Biotech Roots Grow Many Branches 

In southern California, the San Diego area is clearly distinguished by the large number and long history of biotech and biopharmaceutical companies — approximately 400, the majority of which have fewer than 100 employees. In total, life science firms now provide about 25,000 jobs in the San Diego area.

Southern California
· 400 life science companies
· 25,000 life science jobs
· $20-million UC grant-matching fund
· 100 biotech spinoffs from UCSD
Dozens of scientists and executives from Hybritech, a biotech firm founded by two professors from the University of California at San Diego (UCSD) in 1978, have gone on to start local companies, such as Ligand, Idec, Dura, Gensia, Neurocrine Biosciences, Immune Response Corp., Viagene, Gen-Probe, Nanogen, and Genoptix.

Agoron Pharmaceuticals, now part of Pfizer, is another example of a company founded in the 1970s whose success attracted big pharmaceutical competitors, which have since acquired or moved branch offices to the region.

As for financial incentives, the state of California offers a 15 percent R&D tax credit for qualifying in-house research, along with a 24 percent R&D tax credit for research and development conducted outside a company, but within the state. This research incentive is usually awarded for work with universities. And there's no cap on R&D spending.

The California Technology Investment Partnership (CALTIP) provides matching funds grants of up to $250,000 for biotech firms that win federal funding or grants for research, while the University of California's $20-million Discovery Grant fund provides grants to match investments made by biotech firms working with university researchers.

Four primary research centers augment biotech industry in the region: UCSD, The Salk Institute, The Scripps Research Institute, and The Burnham Institute. Each of the research centers is actively involved in technology transfer agreements. UCSD, for example, has spun off an estimated 100 biotech companies over the years. This process is encouraged through the UCSD Connect program, which helps UCSD scientists develop and fund their ideas. The program also helps established firms secure subsequent rounds of financing and build corporate partnerships.

Another UCSD program, Translational Medicine ("TransMed" for short), brings together faculty research teams and venture capital firms; the VCs can then provide funding of between $200,000 and $400,000 annually for projects they feel have the greatest commercial potential.

The most important lobbying group for the San Diego area is the eight-year-old BIOCOM, which offers public policy advocacy as well as professional development and networking opportunities for its members.       www.commerce.ca.gov



Northern California
'Can You Afford To Be Elsewhere?' 

The Bay Area of Northern California may be rightfully considered the oldest bioscience cluster in the United States by virtue of giant Genentech, founded in South San Francisco 25 years ago. Since then, more than 600 companies in biotech or biopharmaceutical specialties have launched or located in the area. About 5 percent of these firms have 450 employees or more, which includes notables like Chiron, Bayer, Roche, and Incyte Genomics. About half of all the companies, however, have fewer than 100 employees.

Northern California
· 25-year-old bioscience cluster
· 600 life science companies
· 15%-24% R&D tax credit;6% investment tax credit
· $100-million Genome and Biomedical Sciences Center at UC Davis
Northern California's Bay Area consists of nine separate counties featuring a mature biotech infrastructure that includes world-renown research centers such as the Lawrence Livermore National Laboratory, Sandia National Laboratories, and several prestigious universities. The University of California at Davis, for example, claims to be one of the top two producers of life science Ph.D.s in the world. The university is building a $100-million Genome and Biomedical Sciences Center, with an emphasis on bioinformatics and functional genomics.

Other important research resources include the Joint Genome Institute, sponsored by the DOE, which is a leading genome-sequencing and research facility that played a key role in the International Human Genome Project. IBM has two R&D laboratories in San Jose, the Almaden Research Center and Silicon Valley Laboratory, which engage in multiple life science projects with university researchers.

The Bay Area has a high cost of living, however — some say the highest in the United States. To mitigate this, the state offers a wide range of tax credits and other financial incentives to lure relocations, expansions, and startups. But the strongest pull may be from critical mass. "With our advanced support structure for biotech," says Sally DiDomenico, vice president of the Bay Area Economic Forum, "my argument is, you can't afford not to be here."

In any case, California offers a 15 percent R&D tax credit for qualifying in-house research, as well as a 24 percent tax credit for R&D conducted outside a company but within the state. This tax break is typically awarded for work with universities. And while some states cap R&D tax credits after six to 10 years, California puts no time limit on a company's ability to collect this tax credit.

A 6 percent investment tax credit is permitted for equipment purchases, with this credit awarded for up to nine years, while a 6 percent manufacturing investment credit is also available for up to 10 years. The latter credit includes equipment used and buildings constructed.

While the area has numerous trade associations, one of the most influential biotech lobby organizations is BayBio, a 13-year-old nonprofit that hosts several events throughout the year, including conferences for emerging bioscience companies and facility managers, workshops for professional skill development, and legislative briefings.       www.commerce.ca.gov







For reprints and/or copyright permission, please contact  Terry Manning, 781.972.1349 , tmanning@healthtech.com.