BY JOE CORTRIGHT
The Knight challenge is an important instance of philanthropy. But we should not assume it will magically transform OHSU into a business- and job-spinning engine for the local economy.
BY JOE CORTRIGHT
‘The Knight challenge is an important instance of philanthropy. But we should not assume it will magically transform OHSU into a business- and job-spinning engine for the local economy.’
A close-up of a patient’s cancer cells at the OHSU Knight Cancer Institute.
It’s hard to overstate the generosity of Phil and Penny Knight’s gift of half a billion dollars for cancer research. They, and other donors who have matched their bequest — including some $200 million pledged on behalf of the taxpayers of the state — have made a material commitment to attacking a dreaded disease that directly and indirectly touches all of our lives.
The sheer size of the Knights’ gift has prompted speculation that this expanded research capacity will catapult Portland to the front ranks of the nation’s medical research centers and produce new biotech jobs and businesses. I’ve heard many people at forums like the Oregon Business Summit and economic development strategy meetings suggest this investment is the harbinger of a major new industry. This kind of boosterish optimism has been fueled by front page stories in the press proclaiming that cancer can be cured in the Northwest (Portland Business Journal, July 11, 2014) and that the region has a “burgeoning” biotech industry.
The Knight challenge is unquestionably an important instance of philanthropy. But we should be careful not to assume that it will somehow magically transform Oregon Health & Science University — a perpetual also-ran in the world of medical research commercialization — into a business- and job-spinning engine for the local economy.
Few economic development fads have been more enduring than the quest of states and cities to transform themselves into biotech centers by pumping more money into local medical research. We have a long track record now that tells us that biotech industry dreams are just that.
Cities and states around the nation have made considerable investments in biotech research, ranging from California’s voter-approved $3 billion stem cell research program, and Florida’s billion dollar effort, to smaller efforts in cities around the country, including Indianapolis, St. Louis and Phoenix. There’s no evidence that any of these expensive programs have materially shifted the geography of this industry, which is today even more concentrated in the same leading centers we identified more than a decade ago.
I’ve studied the U.S. biotech industry for the past 15 years and published a major study on its growth and geography through the Brookings Institution in 2002. Back then we warned that cities and states that were hoping to launch a biotech industry were destined to be frustrated. While more and more places were doing medical research — thanks to growing funding from the federal government — startup activity, new firms and related jobs were highly concentrated in a few successful industry clusters in places like Boston, San Francisco and San Diego.
The succeeding decade has confirmed our original analysis. The three leading centers are even more dominant today than they were a decade ago. In 2000-01, Boston, San Francisco and San Diego accounted for about 54% of venture capital invested in biotechnology. In 2010-12, the three metros accounted for 60% of biotech venture capital. No city has emerged to challenge these three.
If the rhetoric surrounding the Knight Challenge sounds vaguely familiar, it should: In many ways it’s a reprise of “The Oregon Opportunity” of a little more than a decade ago. Then, OHSU led by Peter Kohler, persuaded the legislature to pony up $200 million in state funds to match $300 million in other fund raising to underwrite expansion of the campus with the idea of making it a major biotech powerhouse.
Kohler predicted that this then unprecedented investment would cause Oregon to have a billion dollar biotech industry by 2006, an estimate he called “conservative” because of the high quality of OHSU research.
What are the fruits of the Oregon Opportunity? OHSU built new buildings on its campus and hired additional staff. But, the Oregon Opportunity did virtually nothing to change Portland’s status as a center for biotech commercialization. Consider the fates of three companies highlighted a dozen years ago as promising OHSU spinoffs: Receptor Biologix was sold to a Danish company that still has no marketable products, Znomics officially describes itself as a “shell corporation” and Virogenomics has a website not updated in several years.
As impressive as one billion dollars may seem, it is relatively small potatoes in the world of medical research. The San Francisco Bay area gets over a billion and a half dollars a year from the National Institutes of Health; San Diego gets more than $800 million annually, and Boston gets about $2 billion each year.
To see just how difficult it is to transform even a large and sustained research effort into biotech jobs, we need look no further than a short stretch of miles north on I-5 to Seattle. A decade ago, Seattle was one of the places we dubbed “biotech challengers” in our 2002 Brookings report, ranking in the top ten metro areas nationally in measures of research and commercialization. But today that cluster is evaporating.
Last year, Amgen, the city’s largest biotech employer, announced it was shutting down its Seattle operation. Some 660 Seattle area workers were laid off. Another major Seattle biotech company, Icos, departed in 2007 after being acquired by Lilly. Consistent with our findings about the growing dominance of a few leading centers, Amgen is retrenching — concentrating its research activities at its locations in San Francisco and Boston.
If Seattle, with its far larger research establishment and track record of creating promising startups, can’t succeed in this industry, there’s little reason to believe Portland will. Even when local researchers do the research that identifies the very rare billion dollar compounds — as they did in Portland, with Brian Druker’s Gleevec, and in Seattle, with Immunex’s Enbrel, nothing in the way this industry works means that this will translate into local businesses and jobs.
The hard and costly work of turning promising research ideas into marketable products happens in only a few places. The challenge in growing a commercial biotechnology hub is in overcoming the overwhelming competitive advantages that established clusters have in being places that have the financial, human and institutional resources to succeed in this complicated and risky business. Despite the time and expense that cities and states have invested in biotech research, there’s almost no evidence that anyone has made anything more than marginal changes to the landscape of the U.S. biotech industry.
To be fair, those promoting the Knight Challenge haven’t promised that it will lead to a new biotech industry locally — just that spending hundreds of millions beefing up OHSU’s campus and research staff will have a local multiplier effect. That’s true of course, but the same sort of multiplier holds whether we spend the money building schools, streetcars or public housing.
Phil and Penny Knight and the other contributors to the Knight Challenge are definitely doing a good deed. But we shouldn’t mistake that good deed for an economic breakthrough.
Billionaire’s Science Club
Public support for medical research spending has ebbed as the federal budget has tightened. The current budget for the National Institutes of Health, the country’s premier medical research agency, is about $18B, compared to its peak budget of $22B in 2002.
What’s the takeaway? In the 1990s, medical schools around the country were on a growth tear, with everyone benefiting from steady, large increases in NIH funding instituted under the Clinton administration. Since then, medical schools and other research institutions have had to search for a new benefactor. That has led them to peddle the “give us more money and we’ll generate a biotech cluster” idea, which extracted billions from states and cities ($3B in California; $1B in Florida), and extensive private fundraising.
In his article, “Private Science,” (Oregon Business, July/August 2014), reporter Joe Rojas-Burke explained how private philanthropy can skew medical research in the direction of high-profile diseases that often reflect funder interest, not the medical or scientific imperative. This begs the question: if you had $1 billion to move the world closer to a cure for cancer, how and where would you spend it? There is a reason why we rely on a peer-reviewed process to allocate NIH money. While the charitable impulse has social value, it is far from clear that we should allow medical research priorities to be driven by the parochial distribution of wealth.