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  • CFO Magazine

Biotech Dreaming

Cities and states are vying to become biotechnology hot spots.

Two years after its founding in Boulder, Colorado, Sirna Therapeutics Inc. picked up and moved to San Francisco in 2005. While most CFOs might have balked at the idea of relocating to one of the most expensive real estate markets in the country, finance chief Greg Weaver saw the move as critical for Sirna’s growth.

“What we need to drive this company forward is to attract and retain the highest-quality talent,” says Weaver. “We needed a large, biotechnology-specialized employee and executive pool.” That’s why the tiny public company headed west to continue its work on RNA-interference therapies — techniques that suppress certain genes and viruses, potentially treating such conditions as macular degeneration and Huntington’s disease.

With just 68 employees, $5 million in revenues, and a 2005 loss of more than $20 million, Sirna seemed an unlikely candidate to attract attention from economic-development officials. But San Francisco mayor Gavin Newsom rolled out the red carpet for Sirna and its executives, meeting with them personally to discuss the move. “He essentially said, ‘If there’s anything you need to facilitate your relocation, let’s do it,’” says Weaver. Sirna subsequently caught the attention of pharmaceutical giant Merck, which bought the company in October for $1.1 billion.

Newsom is not alone in his eagerness to welcome biotechnology companies. At last count, some 41 states had programs in place targeting the industry, while many more countries, counties, and municipalities offer their own incentives. Attendance at the Biotechnology Industry Organization’s annual trade show has boomed, with exhibitors from Minnesota to Malaysia hoping to attract biotech business. “Everybody’s working on it, frankly,” says Bruce Johnson, lieutenant governor of Ohio and director of the Buckeye State’s economic-development activities.

“States and local governments are looking for the industry of the future,” says Gautam Jaggi, a senior manager with Ernst & Young’s Global Biotechnology Center. “There is more and more of a feeling among economic-development people that [biotech] has the potential to be the next big thing, and they’re all looking to figure out how to attract a piece of it.”

From its roots in the 1970s, the global biotech industry has grown to more than $60 billion in revenues and is expanding at a 16 percent annual rate. The industry comprises a range of applications, including new drugs, disease-resistant crops, waste remediation, biofuels, and more. U.S. biotech companies posted a collective net loss of $2.1 billion in 2005, according to Ernst & Young, but that was less than half the loss recorded the previous year. By 2015, spending on biotech drugs could make up a third of the entire pharmaceuticals market, predicts Sherrill Neff, a partner at Quaker BioVentures, a Pennsylvania-based venture-capital firm.

The Biotech Map

Most of biotech’s success stories so far have been concentrated in a handful of clusters around the country. According to a 2002 Brookings Institution study, five metropolitan areas — Boston, San Francisco, San Diego, Seattle, and Raleigh-Durham, North Carolina — accounted for 75 percent of the new venture capital invested in biopharmaceuticals between 1995 and 2001. Likewise, those areas received 74 percent of the value of research contracts from pharmaceutical firms, and 56 percent of the new biotech businesses formed during the 1990s.


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