Why New York is Flunking Biotechnology

Despite the presence of leading universities, medical schools and teaching hospitals, and the proximity of major pharmaceutical firms in New Jersey, there is no significant biotechnology industry in New York City. Our medical schools and health-care institutions are laggards when it comes to converting ideas and research into new commercial ventures based in the city. It seems that New York's impressive biomedical complex simply does not possess the technical know-how and entrepreneurial spirit that have led to the proliferation of biotech firms in cities such as Boston, San Diego and San Francisco.

MIT, for example, has always "encouraged its faculty to engage in research and consulting for the private sector," notes Annealee Saxenian in her book, Regional Advantage (Harvard University Press, 1994). An electrical engineering professor at MIT founded what eventually became the Raytheon Corporation, and MIT was key to starting up the first publicly held venture capital firm in the nation. According to Saxenian, MIT's engineering departments and research labs spawned at least 175 new enterprises back in the 1960's. More recently, research institutions in Cambridge, Boston, and Worcester adopted the moniker "Genetown" to promote the region's strengths in biotechnology.

Economic growth in Northern California's "Silicon Valley" can be traced directly to Stanford University's decision to create the Stanford Research Institute and Stanford Industrial Park, the nation's first science park, in the 1950's. In so doing, Stanford provided cheap space for its graduates eager to start businesses on the West Coast because they could not land jobs on the East Coast. As federal defense spending grew during the Cold War era, the Stanford Industrial Park attracted defense contractors and corporate research labs that bolstered the university's research and engineering programs and generated jobs. Almost 200 biotech companies are now located in the San Francisco Bay Area.

No single factor accounts for the dearth of biotechnology firms in New York City. Ironically, the very wealth of medical schools and health-care institutions here has played a major role. The multiplicity of institutions has fostered competition for money, talent, and prestige and has inhibited institutional collaboration and cooperation.

Moreover, the city's health-care industry is substantially larger and more politically potent than its biomedical research sector. The consequence has been to subordinate research to clinical care. Compared with Boston and San Francisco, where much of the cities' wealth is tied to technological innovation, New York's strength in media, finance, and fashion makes it difficult for public officials to recognize the strategic potential of biomedical research and development.

Economic development requires more than productive scholars, federal grants, and farseeing public officials. It needs individuals and firms who know how to translate research into viable business ventures. While MIT and Stanford have pioneered commercial ventures that strengthen their regional economies, New York's biomedical institutions have been slow to develop the incentives and institutional linkages that have made biotechnology a major source of jobs elsewhere.

Admittedly, there have been attempts. In the 1980's, the city encouraged a new biotech company, Enzo Biochem, to settle in Manhattan, but eventually it left the city. In 1995, efforts were made to develop a biotech incubator at 345 Hudson Street, but a temporary downturn in the biotech industry made this a false start too. After thirteen years of planning and construction, a biotechnology incubator, financed largely by the State of New York, opened in the fall of 1995 at the site of the former Audubon Ballroom in Washington Heights. With 60,000 square feet of modern, low-cost space for biotech firms, to date it has attracted seven start-up firms that occupy a total of 30,000 square feet.

New York City has no shortage of scientific talent. According to the 1995 Directory of the National Academy of Sciences, 94 members of the NAS (5.79%) - a very respectable share - are associated with institutions here. And it claims 8.24% of the mathematicians and 9.72% of the cellular and developmental biologists in the American Academy of Arts and Sciences. But we have less than one percent of the engineering sciences membership of the American Academy of Arts and Sciences.

Roy Vagelos, former chairman and CEO of Merck, the pharmaceutical giant, says that "science in New York City is excellent," but he also warns that "science and engineering go together." And New York City does not have a critical mass of engineering entrepreneurs linked to our academic science centers. It's essential to have engineers and entrepreneurs nearby - risk-takers who thrive on inventing new products.

Seven medical schools in New York City (soon to be six, with the merger of NYU and Mt. Sinai) educate 6.73% of the nation's doctors, almost two-thirds of the state's physicians, and more than 12% of the medical residents and fellows in the nation. These schools and the city's other biomedical institutions should be a magnet for private as well as federal funds for research and development. Yet four of the top five research institutions in New York City - Columbia, NYU, Yeshiva University and Mt. Sinai School of Medicine - depend on the federal government for two-thirds or more of their total R&D spending - a risky proposition. Only Rockefeller University taps other sources for more than half of its R&D support.

Two medical school deans are trying to change their institutional cultures. According to Dr. Jack Rowe, president of Mt. Sinai Medical Center, attracting the world's best scientists now requires more than a salary and laboratory. It requires the opportunity to benefit financially from their work. Rowe and Dr. Herbert Pardes, the dean of Columbia's College of Physicians and Surgeons, are encouraging clinical trials and more interaction with industry. Columbia's licensing royalties rose from $11 million in 1991 to $33 million in 1995; it has approximately 150 license agreements with private industry, an achievement that has generated controversy since not all of the Columbia faculty consider the commercialization of research to be an appropriate academic function.

Through its work in cellular biology and DNA, Rockefeller University has long been at the forefront of biomedical research, but it has not spawned spin-off firms. Instead, it has chosen to license the commercial rights to its research to private firms. Last year, Amgen acquired the commercial rights to a new obesity gene discovered by Rockefeller University scientists. Rockefeller and its researchers stand to benefit financially, but since Amgen is located in Southern California, any new jobs stemming from this breakthrough will not be in New York City.

Similarly, several start-up firms have been spawned from research at Columbia University, but most of them, such as Progenies in Tarrytown, are located outside the city in the surrounding suburbs. This is not a failure of science, but an indicator of how little our state and city leaders have done to take advantage of commercially relevant research that occurs in New York City.

There is cause for some optimism, however. Recent and pending medical school mergers and hospital closings should create new opportunities for biotechnology. With fewer medical school deans in control of larger empires, it should be easier to establish partnerships among the city's biomedical research institutions. And the surplus of hospital beds in New York City may be the best hope for biotechnology start-up firms. Why not convert them into low-cost incubators?

Across the country, new contract research organizations that reduce the time it takes to evaluate new drugs are attracting substantial industrial support. New York City, with its sophisticated healthcare institutions and easy access to a large and diverse patient population, is a potentially attractive site for privately sponsored clinical trials. "A head start of 30 days can add $10 million in profits over the life of a drug with peak annual sales of $200 million," according to David Kessler, Commissioner of the Food and Drug Administration (as cited in a KPMG report prepared recently for the New York Council on Biomedical Research and Development).

As insurance companies and the federal government tighten up their reimbursement rates, building a biotechnology industry here will be essential if we are to compete effectively with other cities to retain our excellence in medical care. New York City cannot afford to let biotechnology pass it by.

 

Originally published in Home Economics
The Partnership Policy Center, September 1996