Highly Concentrated Growth
Can the industry that came up with the growth hormone and other wonder drugs provide a powerful job stimulant for the economy?
President Bush, pushing a $500-million plan to bolster job training and education, called biotechnology one of the industries that would supply “much of our job growth” during his State of the Union address.
But the reality is that although the business is expanding -- one expert thinks biotech payrolls could grow by 15% in 2004 -- it is probably too small and too geographically concentrated to give the broader economy a big booster shot.
Biotech firms employ only about 200,000 people in all. That’s relatively puny, a mere 15% of the number of people who work for retail giant Wal-Mart Stores Inc. Total annual revenue for biotech firms in 2002 was not quite $35 billion, which is less than General Electric Co.’s sales for about three months.
“If you look narrowly at biotechnology, it is not a huge part of the economy, job-growth wise,” said consultant Scott Morrison of Ernst & Young.
One-third of the country’s biotech workers live in California, home to the nation’s two largest biotech firms, Amgen Inc. of Thousand Oaks and Genentech Inc. of South San Francisco; Genentech invented the growth hormone a quarter-century ago. Remaining workers are collected in a few cities with entrepreneurial environments and strong academic institutions, including Boston and Seattle.
Those clusters stand to benefit most from the coming job gains, which Morrison said could reach 30,000 this year.
Many states have been eagerly courting biotechnology firms to diversify economies dependent on manufacturing and agriculture, though with little success. At the industry’s annual meeting in Washington last year, governors from eight states prowled the convention floor for biotechs willing to relocate.
It’s no secret why the industry is coveted: Biotech workers are highly skilled and well paid. The average salary at California biomedical firms is $65,000, according to the California Healthcare Institute, an industry group. Amgen employees earn an average of $100,000, enough to keep luxury automobile dealerships in business and spark bidding wars on houses, Chief Executive Kevin Sharer said recently.
Few experts foresee a biotech migration to Indiana or Delaware, however.
“Biotech isn’t like Krispy Kreme,” whose growth depends on expansion into new territories where consumers hunger for doughnuts, said economist Joseph Cortright.
The industry thrives in strong academic centers with a critical mass of biotech companies so scientists have an opportunity to move around, Cortright said. Also required is an active venture capital community that understands a highly technical business with a huge appetite for cash.
“If you were a young scientist in San Diego or Boston, why would you want to leave?” said Cortright, who wrote a 2002 study on the nation’s biotech industry for the Brookings Institution.
But that doesn’t stop states far from the biotech bastions of California and Massachusetts from trying. With more than 300 biotechnology drugs in the late stages of human testing, many states are dangling incentives to attract biotech drug factories, said Carl Feldbaum, president of Biotechnology Industry Organization.
In fact, Amgen is in the process of consolidating its manufacturing in Puerto Rico to take advantage of tax advantages available to drug firms that establish factories there.
“These are similar to the kind of decisions made by Mitsubishi, Mercedes and Toyota,” Feldbaum said, citing automakers that took advantage of incentives to build factories outside the rust belt.
In California, industry leaders cringe at such talk. They hope Bush’s proposal to funnel job-training money to community colleges will train the manufacturing workers needed to keep drug production in California.
David Gollaher, president of the California Healthcare Institute, said biotech employment in the state could increase substantially in the next five to six years as firms hire sales and manufacturing employees to launch products.
“We’re looking for significant growth, but we need to keep our companies here instead of going to Singapore or China or Texas or North Carolina,” he said.
Still, the industry has a long way to go before becoming a strong economic force, experts said. Cortright said his analysis found no biotechnology company ranking among the top 25 employers in any region.
As he listened to Bush on Tuesday night, Cortright said, “It struck me that a speechwriter somewhere thought biotechnology sounded good.”
(BEGIN TEXT OF INFOBOX) * Growth factor? How the number of people employed by the biotech industry compares with selected other fields: Number of employees (In thousands) U.S. Postal Service 825 Furniture, home 572 furnishing stores Motion picture, 383 recording industry Biotech 200 Museums, historial 107 sites, zoos Logging 65 Internet publishing 35
Figures, except for biotech, are for December. Sources: Bureau of Labor Statistics, Ernst & Young * Los Angeles Times
