Houston lags the major biotech clusters
A lot of energy has been spent in the last 10 years trying to figure out why Houston, with all the research conducted in its world-class medical center, hadn’t spawned more biotech startups. Houston lagged behind the major biotech clusters–San Francisco, San Diego, and Boston–in the number of biotech employees (~10,000 vs. 30,000-40,000), the number of VC deals (<10 vs. ~100), and the proportion of corporate-sponsored R&D (25% vs. 70-90%). The density of technology companies in Houston was far lower than the leading regions, so we had an underdeveloped infrastructure to support startups and a small pool of startup leaders.
Still, the city's leaders wanted to see biotechnology become a major driver for growth in Houston's economy over the next 15-20 years by creating 65,000 to 95,000 jobs and allowing Houston to remain competitive. Two organizations in town, the Houston Technology Center and BioHouston, lead the city’s efforts to encourage growth in the biotechnology sector. These organizations deserve credit for more than doubling the number of life sciences companies in Houston, as well as tripling life sciences employment.
But Houston still lags far behind the major biotech clusters. What is missing? For a while, the prevailing reason was that there just wasn’t enough biotech-savvy venture capital in town. Startups were forced to seek funding on the West or East coasts, and those deals invariably required the startup to move away from Houston.
This is only one piece of the puzzle, however.
Results of a competitive analysis
Last spring, I led a team of Rice EMBA students in an analysis of Houston’s biotech cluster. Our analysis included a look at the best practices of Houston’s competitors with the goal of identifying opportunities. The 20 competitors we considered were a selection of universities, economic development organizations (EDOs), non-profits, startup incubators, and state programs.
For the universities, we found extensive cross-campus programs with strong ties to the local business community.
For each of the competitors, we examined their organizational philosophy and vision, primary target audience, scale, activities, and fundraising model. For the universities, we found extensive cross-campus programs with strong ties to the local business community. The schools actively promote technology transfer to students, postdocs, and faculty through a variety of cross disciplinary events designed to encourage attendees to think about how research can be commercialized. The integration of technology transfer with research stood out at UCSF, in particular, where the Center for BioEntrepreneurship is officially housed in the Office of Research. Similar initiatives to link academic research and local industry were found at the EDOs, non-profits, and state programs, with the additional focus on developing biotechnology-friendly public policy.
The integration of technology transfer and academic research is critical, and sadly missing from the Texas Medical Center. Commercialization is not a priority to most scientists. Their career advancement depends on publishing new findings and receiving grants to take new directions in research. So far as I know, M.D. Anderson is the only institution in the medical center that recognizes patents as equivalent to publications for evaluating tenure candidates. Faculty members, postdocs, and students need to be trained how to recognize commercial potential in their research and how to direct future research towards commercialization. Academic thinking in the TMC will have to change before we’ll see a radical increase in new companies.
Based on our findings, we recommended that the educational institutions in the medical center should become hubs for the biotech community, reaching out to the local industry and promoting commercialization. We also recommended new educational programs like “Scientist to CEO” and a “Biotechnology Entrepreneurs Bootcamp.”
Conclusion
An opportunity exists today to develop entrepreneurship in the medical center. A FASEB study released last year reports that while the number of newly minted life science PhDs has increased steadily over the last 30 years, the number of tenure track academic positions has remained constant. Additionally, the funding crunch in academic research, resulting from budget cuts at the NIH, is further limiting the research opportunities for young scientists. As a result, most PhD students are forced to find employment after academia in industry. This has fostered increasing interest in biotech and entrepreneurship in the medical center. As evidence of this trend, I noticed last spring that Rice University’s course in Life Sciences Entrepreneurship, which is open to everyone in the medical center, had tripled in enrollment over the prior year because of increasing demand. Now is the time for Houston’s universities and nascent biotechnology industry to seize upon this opportunity, by developing the biotech entrepreneurs who will drive biotechnology commercialization in the Texas Medical Center.
This post is an elaboration on my recent comments at Houston Strategies.
Update: Eric Berger has more thoughts on the matter.
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harikandula 07.15.08 at 12:13 pm
I think progress is being made in bits and pieces. Universities are recognizing the importance of commercialization, there is push for incubators and parks, professional courses are being developed.
But, i think vital links are missing in the chain from research to start-ups like VC and importantly interest in professors.
I think TTs have to work more on educating professors and students which bring more exciting technologies into light, which kind of propells everything else.
I am enrolled in Professional program at Texas A&M which is supported by advisory committee consisting people from Industry (chaired by Dr Michael Dilling at Baylor Licensing Group.) The curriculum contains basic business courses which I think are essential and will help in the long-term. The students including me are interested in more on business than traditional research path. Most of the students choose to spend a semester at TT office as a part of the coursework.
I think everybody has to work collectively to bring everything together.
Graham 07.17.08 at 4:27 pm
Thank your for your comments, Hari. This Professional Program in Biotechnology sounds great! How long has it been around? How many students are enrolled in the program? What percentage of the alums stay in Houston? Do you have any data on the types of jobs graduates get?
One thing that concerns me is that I don’t see any classes on entrepreneurship in the curriculum. Are they covering topics like evaluating opportunities, finding financing, managing growth, and exits? Are any of the alumni going on to start their own companies?
Sorry to pepper you with questions. I’m very intrigued by this program.
david 07.27.08 at 8:21 am
Hello Mr. Berger:
I found your article really interesting and agree that Houston aught to make a push to commercialize legitimate technology in regards to serving medicinal progress. And yes considering that the TMC is the only institution of it’s caliber in this southern region your information does logically fit in this mix, (just my opinion).
However, I think that some of the data that you have and the tone you present might be misleading. Yes there may be slightly more PhD’s graduating w/ the same amount of tenure jobs…but this may not be a big problem. Some go back to their countries. There are many medical universities who would love to have PhD scientists drive their research. Baylor, MD Anderson…etc…, and not on the professor track. I’d say the jobs are competitive yes…but not so cutthroat to influence an entire wave of new PhD’s to jump on the biopharma bandwagon. A portion of those folks probably just want to make that extra buck….
which is a problem. there is a fine balance with this topic. I personally would not want to see TMC turn into the dark tower of corporate houston. as far as im concerned a lot of good research is going on there…and i can just smell future success on the level of discovery. and although your analysis does prompt administrators to act entrepreneurially, the last thing we need is our scientists to come to work in armani suits and discussing the latest article in “Forbes” instead of “Cell”.
I’d hate for this to be one big propaganda act by some business majors to just make a quick buck. Don’t worry we’ll come up with something for you boys to do
Graham 07.27.08 at 10:06 am
Thanks for your comments, David. I absolutely agree with you that mixing science and commercialization is “a fine balancing act.” We don’t want to turn all of our scientists into Armani-wearing Forbes readers. We want them thinking about science and how to advance technology.
We also want them thinking about how they can get their technology out of the lab and into the clinics. The evidence — in terms of number of startup companies, VC deals, biotech employees, etc. — shows that Houston scientists, unlike their peers, are not that making the leap from invention to commercialization. That’s why Houston is out of balance. Compared to our peers, San Francisco, San Diego, and Boston, Houston just isn’t commercializing technology at the same rate.
What solution would you propose that gets Houston’s technology out of the lab and into the clinic?
(By the way, if you intended your comments for Eric Berger, his blog is available here)
David 07.27.08 at 4:37 pm
I don’ know. I guess we could call up goldman sachs and ask those guys to do whatever it is they do.
Internally I guess the faculty could implement weekly meetings to discuss this as a group, set goals depending on conversations with a financial sector, and then get some shiznit done.
Either way I think dialogue is important. This is the starting point. Naturally with a group of smart people good ideas will be born. If commercializing is an issue and receiving money to support growth is a goal then maybe we should call up the Houston Chronicle and ask if we could rent out a section dedicated to current, promising technology just so the public can read this and keep up. I’m sure there are a bunch of nerds in Houston who would hone an interest in this. With dialogue on both fronts, intra and internally, the buzz probably would allow some things to happen.
Either way you guys need to get dedicated scientists like me working in an area like the biotech companies so they won’t bust. I really don’t want to work at a university where you have uncommitted workers dragging their ass in at 1030 am and basically wasting materials (i.e. Western blot buffers since it is likely your blots won’t develop b/c you were too mind distracted to insert the correct plasmid you needed, with the antibody codon inserted into your competant cells to begin with) where I could get to work in a lab that’s serious. Problem is that every time I try to find a job in the biotech company area, it seems either their labs are in New Mexico or they move after 4-5 months. What the H yo? Hey it’s a 2 way street, if youre a solid company in houston and you want talent then send out flyers to all grad programs in houston so we can know where the heck you guys are. I really don’t want to go to law school and do “IP law”. TMC put up some biotech info on your website so people like me can know what specific areas you need work. Ridiculous yo.
David 07.27.08 at 4:39 pm
I mean send out flyers in texas, not just houston. ut, am smu, rice, ttu etc…
Michael Dilling 10.20.08 at 12:49 pm
Very interesting and provocative site Graham. Having been a part of the university tech transfer scene here in Texas Medical Center for about the past nine years, I think that in order to meaningfully accelerate the rate of biotech commercialization here in Houston, we need an infusion of experienced talent. With the acquisitions of Tanox and Encysive and the downsizing of Lexicon, I’m confident that our local biotech community has lost some experienced talent over the past year or so. Those folks will go wherever the opportunities are. If you are employed at a local biotech company and you lose your job, it can be very difficult to find another job at a local company.
Investors like to invest in companies that are being run by management who has “been there, done that”, and the pool of local individuals who can lay claim to successfully commercializing drugs/vaccines/therapeutics is just not that deep. The device arena is a little different - there is more depth there.
I’ve heard the oft-repeated mantra that local academic institutions need to “do more” to stimulate technology commercialization. That may well be true (although I think the Rice Alliance is doing an outstanding job as it is), but the local academic institutions are only a part of the local innovation ecosystem. A number of years ago, our institution was under pressure to “start more companies” because that was going to be the route by which we could “catch up” to the Bostons and San Diegos of the world. The act of starting companies in and of itself won’t address the problem if many of the companies end up being undercapitalized and can’t successfully advance their technologies.
I really think that in order to catalyze the next “leap forward”, a mechanism needs to be found to bring in more experienced human capital. There has been talk of trying to lure a pharma R&D presence to the Houston area, but I’m not sure about the level of resources that have been committed to such an effort.
Of course, we’re all going to have to wait out the current bout of economic turmoil before we can worry too much about trying to grow the local biotech industry.
Graham 10.20.08 at 3:52 pm
Michael, thank you for your comments. A couple of months ago, I had coffee with Mike Lowe, CEO of OrthoAccel, and this topic of experienced management came up. Mike asked, “Why can’t we tap into the experienced management in all the energy companies here in Houston?” That’s an interesting question. Houston is home to more Fortune 500 companies than any other U.S. city, save for New York. We’ve got lots of experienced business talent, they’re just in different industries. And, importantly, they have much deeper ties to Houston.
Sure, ideally, we’d want experienced Big Pharma executives, but a lot of leadership and business skills will translate. The big energy companies in town do a great job of executive development. They move their stars around so that they get exposure and experience in multiple aspects of business. Many of them could adapt quickly to leadership roles in life sciences startups.
The big question is: how many of these execs would be willing to take a chance on a life sciences startup? There probably aren’t many, but how many do we need? Given where we are, if we could place 10 Houston execs in leadership positions at life science startups, wouldn’t that make a difference? Maybe this economic downturn will set a couple of these executives free?
It’s something to consider. Given the number of layoffs in the pharma industry these days, I’m not going to hold my breath for a large R&D facility to be built here.
Michael Dilling 10.22.08 at 8:41 am
Graham, you raise a good point. I believe that leadership and business skills can certainly translate from one industry to another. Rick Barsky, the CEO of Agennix, provides such an example. The challenge is that it can be very difficult to move from one local biotech company to another - if a company fails, the executive will likely have to switch industries or move to another city. I know some folks who have been displaced by recent events in the local biotech community and it creates a very difficult situation for them.
I agree, we probably aren’t going to see any sort of big pharma presence in Houston in the near term future. The economy will recover, although it remains to be seen what will happen in the pharma industry - if government forays into healthcare result in the institution of drug price controls, etc., who knows what will happen.
We live in interesting times, to be sure.