Midwest Plays Gracious Host to Biotech Field
Inside a laboratory built on converted farmland, a small group of scientists at Hematech have become this state’s best hope -- and biggest gamble -- for a piece of the biotech boom.
With its pioneering work in cattle cloning, Hematech is trying to find ways to produce antibodies that could be used to cure human diseases, such as anthrax and smallpox, and be tapped as a bioterrorism defense.
It’s the kind of heady, scientific research that makes state government officials drool -- even if they don’t quite understand what the company does.
“When we started the company in Massachusetts in 1998, we were one of hundreds of biotech companies in that area,” said James Robl, president and chief scientific officer of Hematech. “When we decided that we wanted to leave, you would not have believed how often our phone rang. We became the most popular folks in town.”
Like the heady days of the dot-com boom, biotechs hold the promise of big returns on big dreams. It’s an appealing pitch to many states in the Midwest, which is hungry for ways to shore up dwindling populations, boost depressed agriculture-based economies and bounce back from the bust in information technologies.
Minnesota lost more than 10,000 high-tech jobs from 2001 to 2002, while Wisconsin watched an estimated 5,700 positions evaporate, according to a recent report from the American Electronics Assn. South Dakota lost 12% of its jobs, dropping from 11,000 positions to 9,700.
Nationwide, high-tech industries dropped 540,000 jobs, falling 8% during that time.
But while the stock market was slumping in many other areas, biotech stocks were on the rise. The market value of the entire industry reached more than $300 billion last year, according to industry analysts, who attribute the boom in part to the Food and Drug Administration approving several cancer drugs.
In South Dakota and in many other states, universities are gearing up to train what they hope will be a flood of young, bright biotech students -- bioengineers, biochemists and geneticists -- eager to launch companies locally or work for biotech firms that relocate to their area.
The reality is that many biotech companies run out of funding far before they deliver an approved product -- and most never turn a profit.
“If you’re in the drugs and pharmaceutical space, which is where much of this business is, it can take as much as 12 to 14 years to get to a point where you have a product to sell,” said Walt Plosila, vice president of the research firm Battelle Memorial Institute in Columbus, Ohio. “There will be a lot of money spent with no profit for a long time. And everyone wants the home run. Clearly, not everyone is going to get it.”
That hasn’t stopped the investing craze among government agencies nationwide.
Iowa has set aside about $503 million for economic development of biotechnologies, including a $205-million chunk aimed specifically at start-ups and life sciences infrastructures.
Arizona has spent about $140 million to build a biotechnology sector, including setting aside 24 acres of land and a $30-million promise to back the International Genomics Consortium. The consortium plans to create a standard for collecting cancer data and a central database for medical researchers.
In Missouri, investors in St. Louis have raised nearly $285 million in venture capital for biotech efforts, nailed down funding for a new and private academic research center and built two start-up business parks.
Last fall, Florida Gov. Jeb Bush enticed San Diego-based Scripps Research Institute with more than $500 million in state and local funds to set up an extension laboratory facility in West Palm Beach.
In fact, 41 states had some sort of biotech initiative in place in 2002 -- ranging from modest proposals to plans to spend hundreds of millions of dollars to attract companies, according to a report by the Biotechnology Industry Organization, an industry trade group.
California is the leader in the nation’s biotech race and has an estimated 450 publicly traded firms. That is double the number in Massachusetts, the state with the second-largest collection of biotech firms.
In the Midwest, there are less than 15 publicly traded biotech companies and only 1,500 workers at these firms.
Eager to change that status, several Midwestern states sent emissaries last summer to an annual trade show hosted by the Biotechnology Industry Organization. Governors and political figures from nearly a dozen states -- including Iowa, Kentucky, Missouri and Wisconsin -- attended the event and began wooing companies on the showroom floor.
“Biotech is a promising area, and everyone wants to be part of it,” said Kansas Lt. Gov. John Moore. “The difference, I hope, is that states are becoming smarter in the types of companies that they try to attract.”
Compared to offers from other states, South Dakota’s pool of funds is small and focused greatly on one company -- privately held Hematech.
South Dakota has picked up half of the $15 million Hematech spent to expand its labs, thanks to a combination of state grants and loans, and has committed an additional $1.3 million to boost the construction of a nearby technology business center aimed at attracting other biotech companies to the area.
In the last two decades, promises of tax breaks and other perks attracted dozens of companies not in the biotech field to South Dakota. More than a dozen banking and financial services firms set up shop or expanded their presence here; computer maker Gateway Inc. moved its manufacturing and operation facility to the state.
And those incentives also lured Hematech from the East Coast to Sioux Falls in 2002. Several states offered moving incentives, Robl said, including nearby Iowa. But South Dakota was the most compelling, and the most aggressive.
The pitch? South Dakota has no income, personal property or corporate taxes. And then there was the intense schmoozing.
“We got calls from the governor, had lunch with South Dakota’s U.S. senators, and had meetings with its congressman, the presidents of the two big state universities and the local university in Sioux Falls. If we have a problem, we pick up the phone and call the governor,” Robl said. “In Massachusetts, we couldn’t get a phone call returned.”
When it moved to the state, Hematech had a staff of 12. Today it employs about 43 people in offices both here and its animal management facilities in Sioux Center, Iowa.
With its partner, Trans Ova Genetics, also in Sioux Center, the company works with calves that have been genetically altered to create human antibodies.
Their dreams of the future are rosy. Someday soon, they plan to build additional production farms and expand the number of cows that they use for testing and production of the antibodies. And someday, if all goes well, the Food and Drug Administration will approve the company’s product -- and its products will be available for sale.
“We’re doing our best to make sure Hematech has all the financial help it needs in the meantime,” said South Dakota Gov. Mike Rounds. “If they can be successful, then maybe other companies will come.”
