Why biotech strategies are often 21st century snake oil
By Joe Cortright
Thanks to technological innovations, our lives are in many ways better, faster, and safer: We have better communications, faster, cheaper computing, and more sophisticated drugs and medical technology than ever before. And rightly, the debates about economic development focus on how we fuel the process of innovation. At City Observatory, we think this matters to cities, because cities are the crucibles of innovation, the places where smart people collaborate to create and perfect new ideas.
While the emphasis on innovation is the right one, like any widely accepted concept, there are those who look to profit from the frenzy of enthusiasm and expectation.
Around the country, dozens of cities and many states have committed themselves to biotech development strategies, hoping that by expanding the local base of medical research, that they can generate commercial activity—and jobs—at companies that develop and sell new drugs and medical devices. There’s a powerful allure to trying to catch the next technological wave, and using it to transform the local economy.
Over the past decade, for example, Florida has invested in excess of a billion dollars to lure medical research institutions from California, Massachusetts and as far away as Germany to set up shop in the Sunshine State. Governor Jeb Bush pitched biotech as a way to diversify Florida’s economy away from its traditional dependence on tourism and real estate development.
The historic Florida capitol. Credit: Stephen Nakatani, Flickr
Of course it hasn’t panned out; Florida’s share of biotech venture capital—a key leading indicator of commercialization—hasn’t budged in the past decade. And several of the labs that took state subsidies are down-sizing or folding up their operations as the state subsidies are largely spent. Massachusetts-based Draper Laboratories (which got $30 million from the state) recently announced it was consolidating its operations at its Boston headquarters and closing outposts in Tampa and St. Petersburg—in part because they were apparently unable to attract the key talent that they needed. The Sanford-Burnham Institute,which got over $300 million in state and local subsidies, is contemplating leaving town and turning its Orlando facilities over to the local branch of the University of Florida.
And while Florida’s flagging biotech effort might be well-meant but unlucky, in one recent case, the spectacular collapse of a development scheme has to be chalked up to outright fraud. As the San Francisco Chronicle’s Thomas Lee reports, both private and public investors have succumbed to the siren song of biotech investment. Last month, the Securities and Exchange Commission issued a multi-million dollar fine, and a lifetime investment ban, to Stephen Burrill, a prominent San Francisco-based biotech industry analyst and fund manager. Burrill diverted millions of dollars meant for biotech startups funds to his personal use. Not only that, but Burrill was a key advisor to a private developer who landed $34 million in state and federal funds to build a highway interchange to service a proposed biotech research park in rural Pine Island, Minnesota, based on Burrill’s promise he could raise a billion dollar investment fund to fill the park with startups. In the aftermath of the SEC action, Burrill is nowhere to be found, and the Elk Run biotech park sits empty.
But puffery and self-dealing are nothing new on the technological frontier or indeed, in the world of economic development. The most recent example, biomedical equipment maker Theranos, which claimed that it had produced a new technology for performing blood tests with just a single drop of blood. The startup garnered a $9 billion valuation, and conducted nearly 2 million tests before conceding that its core technology didn’t in fact work. Theranos has told hundreds of thousands of its patients that their test results are invalid. As ZeroHedge’s Tyler Darden relates, the company rode a wave of fawning media reports that praised its disruptive “nano” breakthrough technology (WIRED) and lionized its CEO as “the world’s youngest self-made female billionaire” and “the next Steve Jobs.” All that is now crashing to earth.
When it comes to biotech breakthroughs, consumers, investors and citizens are all easy prey for the hucksters that simultaneously appeal to our fear of illness and disease and our hope—borne from the actual improvements in technology—that theirs is just the next step in a long chain of successes. Investors pony up their money for biotech—even though nearly all biotech firms end up money losers, according to the most comprehensive study, undertaken by Harvard Business School’s Gary Pisano. And as my colleague Heike Mayer and I pointed out nearly a decade ago, it’s virtually impossible for a city that doesn’t already have a strong biotech cluster to develop one now that the industry has locked into centers like San Francisco, San Diego and Boston.
At first glance, biotech development strategies seemed like political losers: you incur most of the costs of building new research facilities and paying staff up front, and it takes years, or even decades for the fruits of research to show up in the form of breakthroughs, products, profits and jobs. No Mayor or Governor could expect to still be in office by the time the benefits of their strategy were realized. But as it turns out, the distant prospects of success always enable biotech proponents to argue that their efforts simply haven’t yet been given enough time (and usually, also resources) to succeed. And likewise, no one can pronounce them failures. When asked why the struggling Scripps Institute in West Palm Beach hadn’t produced any of the spin off activity expected, local economic developers had a read explanation, reported the Palm Beach Post:
So rather than being a liability, the long gestation period of biotech emerges as a political strength. Apparently, you’ve got to give the snake oil just a little bit more time to kick in.
Why biotech strategies are often 21st century snake oil
Thanks to technological innovations, our lives are in many ways better, faster, and safer: We have better communications, faster, cheaper computing, and more sophisticated drugs and medical technology than ever before. And rightly, the debates about economic development focus on how we fuel the process of innovation. At City Observatory, we think this matters to cities, because cities are the crucibles of innovation, the places where smart people collaborate to create and perfect new ideas.
While the emphasis on innovation is the right one, like any widely accepted concept, there are those who look to profit from the frenzy of enthusiasm and expectation.
Around the country, dozens of cities and many states have committed themselves to biotech development strategies, hoping that by expanding the local base of medical research, that they can generate commercial activity—and jobs—at companies that develop and sell new drugs and medical devices. There’s a powerful allure to trying to catch the next technological wave, and using it to transform the local economy.
Over the past decade, for example, Florida has invested in excess of a billion dollars to lure medical research institutions from California, Massachusetts and as far away as Germany to set up shop in the Sunshine State. Governor Jeb Bush pitched biotech as a way to diversify Florida’s economy away from its traditional dependence on tourism and real estate development.
Of course it hasn’t panned out; Florida’s share of biotech venture capital—a key leading indicator of commercialization—hasn’t budged in the past decade. And several of the labs that took state subsidies are down-sizing or folding up their operations as the state subsidies are largely spent. Massachusetts-based Draper Laboratories (which got $30 million from the state) recently announced it was consolidating its operations at its Boston headquarters and closing outposts in Tampa and St. Petersburg—in part because they were apparently unable to attract the key talent that they needed. The Sanford-Burnham Institute, which got over $300 million in state and local subsidies, is contemplating leaving town and turning its Orlando facilities over to the local branch of the University of Florida.
And while Florida’s flagging biotech effort might be well-meant but unlucky, in one recent case, the spectacular collapse of a development scheme has to be chalked up to outright fraud. As the San Francisco Chronicle’s Thomas Lee reports, both private and public investors have succumbed to the siren song of biotech investment. Last month, the Securities and Exchange Commission issued a multi-million dollar fine, and a lifetime investment ban, to Stephen Burrill, a prominent San Francisco-based biotech industry analyst and fund manager. Burrill diverted millions of dollars meant for biotech startups funds to his personal use. Not only that, but Burrill was a key advisor to a private developer who landed $34 million in state and federal funds to build a highway interchange to service a proposed biotech research park in rural Pine Island, Minnesota, based on Burrill’s promise he could raise a billion dollar investment fund to fill the park with startups. In the aftermath of the SEC action, Burrill is nowhere to be found, and the Elk Run biotech park sits empty.
But puffery and self-dealing are nothing new on the technological frontier or indeed, in the world of economic development. The most recent example, biomedical equipment maker Theranos, which claimed that it had produced a new technology for performing blood tests with just a single drop of blood. The startup garnered a $9 billion valuation, and conducted nearly 2 million tests before conceding that its core technology didn’t in fact work. Theranos has told hundreds of thousands of its patients that their test results are invalid. As ZeroHedge’s Tyler Darden relates, the company rode a wave of fawning media reports that praised its disruptive “nano” breakthrough technology (WIRED) and lionized its CEO as “the world’s youngest self-made female billionaire” and “the next Steve Jobs.” All that is now crashing to earth.
When it comes to biotech breakthroughs, consumers, investors and citizens are all easy prey for the hucksters that simultaneously appeal to our fear of illness and disease and our hope—borne from the actual improvements in technology—that theirs is just the next step in a long chain of successes. Investors pony up their money for biotech—even though nearly all biotech firms end up money losers, according to the most comprehensive study, undertaken by Harvard Business School’s Gary Pisano. And as my colleague Heike Mayer and I pointed out nearly a decade ago, it’s virtually impossible for a city that doesn’t already have a strong biotech cluster to develop one now that the industry has locked into centers like San Francisco, San Diego and Boston.
At first glance, biotech development strategies seemed like political losers: you incur most of the costs of building new research facilities and paying staff up front, and it takes years, or even decades for the fruits of research to show up in the form of breakthroughs, products, profits and jobs. No Mayor or Governor could expect to still be in office by the time the benefits of their strategy were realized. But as it turns out, the distant prospects of success always enable biotech proponents to argue that their efforts simply haven’t yet been given enough time (and usually, also resources) to succeed. And likewise, no one can pronounce them failures. When asked why the struggling Scripps Institute in West Palm Beach hadn’t produced any of the spin off activity expected, local economic developers had a read explanation, reported the Palm Beach Post:
“Biotech officials urge patience and repeat the mantra that a science cluster needs decades to evolve. “This takes a lot of time to develop,” said Kelly Smallridge, president of the Business Development Board of Palm Beach County.”
“The biotech bonanza Jeb Bush hoped for? It didn’t go as planned,” Palm Beach Post, June 15, 2015
So rather than being a liability, the long gestation period of biotech emerges as a political strength. Apparently, you’ve got to give the snake oil just a little bit more time to kick in.
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