Editor’s note: Allan Maurer writes a weekly column on biotech This is the first of a two-part series looking at the growing competition for biotech and life science business. All but a handful of the smaller states are mounting efforts – some very well funded – to attract more biotechnology companies and research, even as North Carolina’s budget woes have slowed funding for biotech initiatives here.

Barry Teater, communications director at the NC Biotechnology Center, tells Local Tech Wire, “At last count, more than 40 states have some sort of initiative. I was at BIO, the major industry conference in San Diego, and 15 percent of the exhibits on a huge floor were from states, regions or cities focused on their biotech economic development.

“They’re ramping up and we’re cutting back,” Teater says.

The state of North Carolina, for example, cut $1 million from the NC center’s budget and also refused to fund the new bioinformatics consortium, a public-private partnership formed in 2000.

Those are among the decisions that don’t bode well for a state that has developed a strong record for growing biotech companies over the past 20 years. And some people say rather than expanding what North Carolina has established through such initiatives as the Biotech center the state leadership is resting on its warn-won laurels.

Sam Taylor, director of NC Biosciences Organization, tells LTW, “North Carolina is ranked fifth in the Price Waterhouse study of states with strong biotechnology sectors. But we’re a distant fifth.”

NC places fourth or fifth among a large number of the rankings in a study called “Venture Capital Climate for BioScience in Maryland,” done for the state by Ernst & Young. You can read the Maryland study here: http://www.dbed.state.md.us/assets/document/VC%20Study%20-%20Final.pdf

We’re fourth behind California, Massachusetts, and Maryland in number of resident biotech companies, neck and neck with 100 according the Ernst & Young method of deciding whether or not a company is biotech or not. California has 400, Massachusetts over 200.

Maryland actually has claimed it has about 300 biotech companies, and NC says it has over 140, but Ernst & Young used the same methods for determining company status in all the states, so Maryland used the 100 figure for comparisons.

North Carolina is even number one amount of biotech venture capital raised compared to the total VC raised in the state (at 13 percent).

But many states are mounting serious efforts to provide competition for all the leaders. Maryland itself is considering legislation to create $100 million state venture fund and other methods of enhancing its biotech position.

Other states powering up

Initiatives in other states are impressive, to say the least.

Michigan, through its Life Sciences Corridor program, plans to spend $1 billion from its part of the tobacco industry settlement on research or projects that help develop life science companies. That’s $50 million a year for the next 20 years, a formidable amount of money.

Pennsylvania has committed more than $150 million to two early stage venture funds, with capital from state pension funds.

Georgia also is hatching serious plans. (See LTW’s Charles Davidson column on Georgia’s efforts: www.localtechwire.com/article.cfm?u=88 )

Maryland, already a “friendly competitor,” recently completed an extensive report aimed at pinpointing ways the state can bolster its already vigorous position just ahead of NC in the number of resident biotech companies.

The report, which included a look at other major state efforts in biotech, praised the NC Biotechnology Center as one extremely successful strategy. The report concluded that Maryland must spend more money to seed fund biotech venture efforts.

Why biotech is hot

The reasons why all these states and many regions and cities want to become biotech Meccas are clear: ROI and growth.

The returns on state investments in biotech have been high.

The Maryland report says that of about $10.5 million the state invested in biotech ventures since January 1994, the state realized a $20 million return on its investment with 85 percent of the companies still active. The success stories include Guilford Pharmaceuticals, Gene Logic, and Avalon Pharmaceuticals, which recently raised $70 million in private venture capital.

In North Carolina, the NC Biotechnology Center seed-funded 62 small companies that have gone on to attract $550 million from other investors. Part of the money was dispersed through the NC Bioscience Investment Fund managed by Eno River Capital in Durham.

The other reason: “It’s one of the few industries people see having prospects for long-term growth,” Teater says.

Aging baby boomers are seen as spending increasing amounts on health care, medicine, and tests in coming years. Increasing longevity means they will be major consumers of biotech products for the next 30 years. Already, they help make companies offering medical tests, such as Lab Corp in Burlington, earnings winners quarter after quarter.

Can NC move into the top tier?

Making sure NC keeps its leadership position in the face of increasing state competition is “Right at the top of our agenda,” says Teater. “We see how much all these different states are spending and we feel the heat.”

Teater points out that a number of the efforts lead to serious competition. “Michigan, certainly, because of the sheer amount of money they’re spending. Maryland, our neck and neck competitor. Pennsylvania, Georgia, Texas. Those are just the obvious ones.”

Taylor, the Biosciences organization director, says the question isn’t so much whether North Carolina keeps its ranking among the top five, but rather, “It’s about whether we can move from the second tier to the top tier. Unless we’re in the top tier, we’ll miss out on the best of the growth.”

It took decades to build a solid NC biotech backbone, but Teater points out, “If you throw enough money at it, you can certainly accelerate the process and get there pretty quickly.”

Next: What North Carolina must do to sustain its leadership position in biotech.

Related article: Georgia is pulling ahead of North Carolina in venture capital market www.localtechwire.com/article.cfm?u=306