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Fortune Favours the Prepared Region:The Case of Entrepreneurship and theCapitol Region Biotechnology ClusterMARYANN P. FELDMAN & JOHANNA L. FRANCISPublished online: 03 Jun 2010.

To cite this article: MARYANN P. FELDMAN & JOHANNA L. FRANCIS (2003) Fortune Favours thePrepared Region: The Case of Entrepreneurship and the Capitol Region Biotechnology Cluster,European Planning Studies, 11:7, 765-788

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European Planning Studies, Vol. 11, No. 7, October 2003

Fortune Favours the Prepared Region: The Case of

Entrepreneurship and the Capitol Region

Biotechnology Cluster

MARYANN P. FELDMAN and JOHANNA L. FRANCIS

[Paper first received, May 2002; in final form, December 2002]

ABSTRACT The US Capitol region ranks as one of the important biotech clusters in the US. This article

documents the general dimensions of the innovative milieu and highlights the historical development of the cluster.

The Capitol region biotechnology cluster, in essence, is the result of three reinforcing sets of factors: pre-existing

resources, entrepreneurship and the incentives and infrastructure provided by government. Due to significant

investments in science and technology the region was prepared to capitalize on technological opportunities in

biotechnology as well as institutional policy changes that facilitated technology-based entrepreneurship.

1. Introduction

Two decades ago, Gaithersburg, Frederick and Rockville, Maryland, were largely commuter

communities for US federal government employees. Today, these Washington suburbs host

one of the most dynamic and fast growing biotechnology clusters in the US (Ernst & Young,

2001). While the tendency for an innovative industry to cluster spatially has been well

documented, there are questions about the role government policy plays in cluster formation

and sustainability. This article focuses on the emergence of a biotechnology cluster in the

Capitol region. We describe this cluster as a prepared region borrowing from a famous quote

by Louis Pasteur, the father of bacteriology. When some claimed that his discoveries were due

to luck, Pasteur is noted to have said ‘fortune favors the prepared mind’. Cohen and Levinthal

(1990) have extended this metaphor to consider the evolutionary learning capability of firms.

We extend this notion to the ability of regions to adapt to new technological opportunities,

and to create and sustain start-up firms that are the basis of a technology intensive industrial

cluster.

This article begins by describing the resources relevant to biotechnology that exist in the

US Capitol region. These elements of the innovative milieu, however, are only part of the

story. Based on extensive interviews, we posit that a series of exogenous factors sparked the

Maryann P. Feldman, Rotman School of Management, University of Toronto, 105 St George Street, Toronto,

Canada. E-mail: [email protected]

Johanna L. Francis, Department of Economics, Johns Hopkins University, 3400 N. Charles Street, Baltimore,

MD 21218, USA.

ISSN 0965-4313 print/ISSN 1469-5944 online/03/070765–24 2003 Taylor & Francis Ltd

DOI: 10.1080/0965431032000121337

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766 Maryann P. Feldman and Johanna L. Francis

nascent entrepreneurial talent in the region, creating the sufficient conditions for the emerg-

ence of a biotechnology cluster. The Capitol region biotechnology cluster, in essence, is the

result of three sets of important factors: pre-existing resources, entrepreneurship and incentives

and infrastructure provided by government. This transformation was hastened by a series of

exogenous events that lowered the opportunity cost of entrepreneurship and promoted the

formation of new ventures. While these changes were national policy initiatives, the Capitol

region was in a unique position to capture the benefits. State government policies targeted to

the biotech industry reinforced rather than led the cluster formation. Our hypothesis is that

entrepreneurs and new firm formation are critical elements in the development of innovative

clusters and occur in those places at a time when the preconditions and incentives are

supportive.

This article documents the general dimensions of the Capitol region biotechnology cluster,

presenting the local innovative milieu and noting some of the public initiatives that provided

resources for the developing Maryland cluster. Section five considers the genesis of the

dedicated biotech companies and the role of entrepreneurship in the life cycle of the Maryland

cluster. Section seven provides reflective conclusions on the technology intensive cluster

development.

2. Dimensions of the Capitol Biotechnology Cluster: Some Basic Facts

Maryland has the third largest concentration of bioscience companies in the US, behind the

well-known clusters in California and Massachusetts. On a per capita basis, Maryland ranks

second in bioscience concentration behind Massachusetts (Ernst & Young, 2001). Many

industrial clusters name themselves perhaps either as an external marketing device or an

internal mechanism to create social cohesion and identity. Despite the flourishing biotech

cluster as well as the well known information, communication and telecommunications

industries around Washington, DC, the area has not agreed upon and adopted a moniker.

Perhaps this is due to the competition among the three political jurisdictions of Maryland,

Virginia and the District of Columbia that define the region.1 We therefore refer to this

technology-intensive industrial cluster as the Capitol Biotech Cluster to reflect the predomi-

nance of the US federal government. It is interesting to note that the natural physical features

of this region are far from the ideal for a population centre let alone a capital or high-tech

industrial conglomeration. The choice of the location of the US capital reflects a political

compromise in the early history of the republic rather than any other obvious geographic or

economic considerations. There is simply no other reason why a capital city would have been

located in what early observers regarded as a humid inhospitable swamp. The US Consti-

tution designated the District of Columbia as a 100 square mile area for the seat of the

government. Once established, the gradual process of urban expansion and suburbanization

extended the boundaries into the neighbouring states of Maryland and Virginia.

The Capitol region biotechnology cluster is contained almost entirely within the state of

Maryland, concentrated mainly in the cities of Gaithersburg, Rockville, and Frederick. The

industry has expanded along interstate highway 270 that originates near the National

Institutes of Health (NIH) in the suburb of Bethesda, Maryland and extends toward Frederick,

Maryland. The largest concentration of firms is in the adjacent communities of Gaithersburg

and Rockville, Maryland (see Figure 1).

Currently, it is estimated that approximately 15,000 biotech workers are employed in

Maryland firms, 17,000 in federal laboratories, and 9,000 in universities for a total of almost

50,000 dedicated biotechnology researchers and supporting staff (MdBio, 2002). The region

is diversified in terms of biotech-related activity and provides good career opportunities for

scientists. In 1999, there were approximately 8000 scientists or engineers with doctorates

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Capitol Region Biotechnology Cluster 767

Figure1.Bioscience

resources

inM

aryland.

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Table 1. Biotechnology in Maryland

Indicator State US Rank

Doctoral scientists, 1999 22,134.4 553,360 5

Doctoral scientists with Health Sciences Ph.D., 1999 926.8 19,310 6

S&E doctorates awarded, 2000 635 25,979 13

Of which, in biological sciences 29% 26% 9

S&E post doctorates in doctorate-granting institutions, 2000 1,572 41,548 6

S&E graduate students in doctorate-granting

institutions, 2000 9,563 435,612 13

Percentage professional and technical workers 24,1%

Personal income per capita, 2000 $33,621 $29,451 6

Federal spending

Total expenditures, 2000 (millions) $45,089 $1,615,468 10

R&D obligations, 1999 (millions) $8,094 $73,718 2

Total R&D performance, 1999 (millions) $8,087 $231,832 10

Industry R&D, 1999 (millions) $1,700 $177,171 22

Academic R&D, 1999 (millions) $1,380 $27,038 6

Of which, in life sciences 42% 57%

Number of SBIR awards, 1995–2000 1,255 26,424 4

Patents issued to state residents, 1999 (all patents

not just biotech) 1,510 83,901 17

Biotech patents granted 1997 128 2,175 4

Note: Rankings and totals are based on data for the 50 states, District of Columbia, and Puerto Rico.

Dollar amounts are current dollars.

Sources: Compiled from National Science Foundation Division of Science Resource Studies, 1999, 2001a,

2001b; NBER Patent Database 2002.

working in the biological sciences in Maryland, ranking third in the US behind California and

New York. Table 1 presents some of the socio-demographic indicators relevant to biotechnol-

ogy. For reference, Maryland is a small state, ranking nineteenth, with less than 2% of the US

population (US Census Bureau, 2000). We quantify relevant human capital by considering the

number of doctoral scientists and doctoral candidates particularly in bioscience degree

programmes. Maryland ranked fifth in the US in the number of doctoral scientists and sixth

in terms of doctorates in health sciences in 1999.2 In 2000, Maryland ranked thirteenth by the

number of science and engineering doctorates awarded, 29% of which were in the biological

sciences. Maryland also has the sixth highest level of post-doctoral students. These students

comprise an important labour pool as scientists may remain in the state where they completed

their degree, if there are adequate career opportunities. As a result of the high level of

educational attainment, Maryland ranks first in the nation in the percentage of professional

and technical workers in its labour force (24.1%3).

These human resources attract large amounts of R&D funding. Maryland ranks second

among US states with regard to federal R&D obligations, second only to the state of

California. The majority of US federal R&D funds are channelled through the Departments

of Defense, Agriculture, Commerce, and the Department of Health and Human Services, as

well as through the National Aeronautics and Space Administration. Maryland ranks in the

top three states in terms of the total amount of funding received from each of these Federal

agencies. It is also notable that each of these agencies has a facility located in Maryland. In

addition, Maryland ranks sixth in terms of federal R&D expenditures to academic institutions.

One single university in the state, Johns Hopkins University located in Baltimore, is the largest

recipient of federal R&D expenditures.

These resources translate into measurable inventive activity. The state of Maryland ranked

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Table 2. The innovative milieu for biotechnology in Maryland,

2002

Type of activity Number of organizations

All biotechnology companies 282

Product companies 194

Service companies 97

Headquarters only 5

Venture capital companies 24

Incubators 11

Contract manufacturers 19

Source: Compiled from MdBio, 2002; Ernst & Young, 2001.

fourth in the number of biotech patents issued in 1997. It also ranked fourth in the number

of Small Business Innovation Research (SBIR) awards granted between 1995 and 2000. These

awards are given by government agencies hoping to encourage innovation in small firms and

are a good indicator of innovation (Black, 2002). Given that Maryland is a small state in terms

of population these rankings are impressive. The factors highlighted earlier have coalesced to

form a successful and rapidly growing biotechnology industry in the state of Maryland. As

then Maryland Lieutenant Governor, Katherine Kennedy Townsend (2002), points out, “A

healthy, well financed, and daring education system is the indispensable foundation for success

in biotechnology. But you also need entrepreneurs, capital, partnerships and a long-term

strategy for reaching your goal. Maryland has all that and more. In 1991, Maryland had

approximately 100 bioscience companies. Ten years later, that number had grown to over

300—second highest per capita—with a market capitalization of $28 billion as of last July.

Our biotechnology industry now employs 20,000 people with another 25,000 working in

related R & D—earning a total payroll of $2.1 billion.”4

3. The Innovative Milieu

Table 2 quantifies some of the major features of the Capitol region cluster. There were 282

companies active in biotech in Maryland in the fall of 2002. Firms are classified as biotech if

they produce products or services that involve the development, testing, or manufacturing of

biologically active molecules, devices employing bioprocesses, databases of biological infor-

mation or software used in the management of biological information. The majority of firms

are dedicated to developing and producing products (194 firms or 65%) and the rest provide

services ranging from laboratory research to cell cultures and clinical trial support as well as

manufacturing.

The Capitol Biotech cluster also includes some 24 venture capital firms that have made

investments in the industry. Venture capital firms diversify their investment portfolios by

investing in various industries; however, they typically locate near their investments. The

venture capital firms active in Maryland’s biotech scene established branch operations in the

state once they began providing funds to local firms and new venture capital firms have

spun-off. In 2000, according to Ernst and Young (2001) $69.6 million in private venture

capital was raised for biotech, approximately 4% of all venture capital in the state. Compared

to other biotech clusters Maryland firms rank last in the amount of private venture capital per

company (Ernst & Young, 2001). Notably, the study concludes that the lack of private venture

capital financing is not adequately being addressed by existing public funding programmes

and is a lobbying instrument for further state government initiatives.5

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Table 3. Government laboratories

Laboratory Location Scientific staff Research budget

Agricultural Research Centre Beltsville, MD 1040 $97,000,000

National Institutes of Health Bethesda, MD

(NIH) (main campus) 10,000 $17,800,000,000

National Institute of Standards Gaithersburg, MD 2800a $400,000,000b

& Technology (NIST)

Naval Medical Research Institute Bethesda, MD 150 NA

US Army Medical Research Aberdeen, MD 93 $16,689,000

Institute of Chemical Defense

US Army Medical Research Frederick, MD 138 $27,000,000

Institute of Infectious Diseases

Walter Reed Army Institute of Silver Spring, MD 392 $40,200,000

Research (WRAIR)

Food and Drug Administration Rockville, MD

(FDA) (headquarters &

some labs) 80,000a $1,414,000,000b

Bethesda, MD

(Labs)

a Not all scientists; some administrative and other staff included.b These figures for FY2002; entire budget, not only research.

NA, numbers not available.

Source: Laboratory websites; data for 2002.

In addition to venture capital that provides needed start-up or project capital, there are

a number of facilities that provide laboratories or manufacturing services for new companies.

There are 11 incubators dedicated to nurturing start-up firms and providing needed wet lab

space. The incubators may provide laboratory space, infrastructure such as secretarial

support, guidance in product or service development, and information on grant and venture

capital programmes. There are 19 firms that provide contract manufacturing and specialized

product development services. Contract manufacturing allows small start-up firms to produce

small product batches and experiment with scale-up production and thus extends their

capability. Other facilities and services that contribute to the performance of the cluster

include dedicated legal, financial and accounting services, although no numbers exist to

quantify their presence.

An important unique factor in the Capitol biotech cluster is the proximity of US

government departments and attendant biotech relevant laboratories. There are eight

significant government funded biotechnology relevant laboratories in the Capitol cluster.

Table 3 details these laboratories, their locations, number of researchers and research budget.

Most important for the biotech industry is the NIH. The NIH is a collection of 27 institutes

and centres, each focusing on a specific disease or health topic. The NIH budget, which is

generally regarded as the largest scientific research budget in the world, was $23.56 billion in

2002. Most of this funding, 80–85% of the total budget, is allocated to extramural research,

granted mostly to researchers at public laboratories and universities. Approximately 11% is

allocated to intramural research conducted at the NIH headquarters in Bethesda, Maryland

(Baldwin, 2002). Although the NIH is the largest government medical research institution in

the area, two other very large government laboratories also have their main laboratories in

Maryland.

The Food and Drug Administration (FDA) and the National Institute of Standards and

Technology (NIST) each have budgets well over $250 million and more than 1000 employees.

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The FDA regulates all food and drug products and ensures they are both safe and effective.

The FDA is a particularly important regulatory body for biotech firms that wish to bring new

drugs and devices to market. For example, in order for a new drug to be made available to

the public, it must undergo extensive clinical trials. In the Capitol region, there is a large

network of hospitals and physicians who undertake late stage clinical trials as well as database

firms that manage the records and results of the trials. These resources have developed along

with the biotech sector. NIST is not a regulatory body but rather develops and promotes

measurements, standards and technology to enhance productivity, facilitate trade and improve

the quality of life. Its laboratories produce cutting edge research in technology and infrastruc-

ture. A number of biotech firms have used Cooperative Research and Development Agree-

ments (CRADAs) with NIST as a means to become established. Another large laboratory

based in Maryland, the Agricultural Research Centre, conducts research particularly relevant

to agricultural problems and food safety. There are several other important government

laboratories that are smaller and which have a military basis, though they have produced

important breakthroughs particularly in the area of vaccines and infectious diseases.

These government laboratories anchor the biotech industry in the Capitol region through

personnel movements, technology licensing and government sponsored cooperative research

agreements. Feldman (2001) and Schachtel and Heacock (2002) document the importance of

government organizations as a source of entrepreneurs. For example, entrepreneurs from the

Walter Reed Army Institute for Research (WRAIR) created some of the earliest dedicated

biotech start-ups. Also, at least 45 biotech entrepreneurs who were previously employed at the

NIH have started companies in the state of Maryland. In addition to NIH staff who left to

start companies, many more entrepreneurs passed through the NIH at some point, either as

post-doctoral fellows, graduate students or as visiting researchers. As well as company

founders, many of the young scientists recruited for local biotech companies come from

post-doctoral or graduate student positions as the NIH. In general, proximity to these

government laboratories provides a large body of scientists from which biotech companies can

recruit or use as consultants in addition to the ideas developed at these institutions. A number

of these scientists are either post-doctorial researchers or contract scientists that move easily

between their government contract and local companies. In this case, location is a key

determinant as it is simpler to recruit scientists who already work in the same geographical

area than to recruit from outside the region. The government laboratories also provided

contracts for early stage biotech companies, allowing them to develop slowly with an initial

guarantee of steady contract income.

A number of universities in the region have provided an important source of young talent.

World-renowned bioscience universities such as Johns Hopkins and the University of Mary-

land at Baltimore and at College Park were instrumental in training young scientists and

discovering new products, which could then be licensed to firms to be developed and

marketed. Johns Hopkins University and University of Maryland, although late entrants to the

field of technology transfer, now have active technology transfer offices that facilitate licensing

and movement of innovations from university laboratories to companies.6 In addition to the

large research universities located in the area, in the last 20 years a number of biotechnology

related educational programmes have been started at area colleges and universities to continue

to provide the range of trained personnel required by local biotech companies. Most

importantly, the region provides a menu of education programmes that train workers along

the entire spectrum of skills required for the developing industry.

In addition to the two large research universities, Johns Hopkins and the University of

Maryland, there are currently 26 educational institutions offering at least a certificate in

bioscience relevant fields. These certificates provide sufficient training to be a laboratory

technician in a biotech or medical laboratory. Bachelor of Science (B.Sc.) degrees provide

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Table 4. Contract manufacturing facilities

Company Location Facility size Services offered

Atlantic Pharmaceutical Owings Mills, MD 50,000 sq ft Pharma processing; clinical trials

Services Ltd (division of

Ltd. (division of GEA

Niro Ltd)

Alpharma USPD Baltimore, MD 250,000 sq ft Scientific support, FDA

(Division of larger compliance, manufacturing and

pharma co.) development

AmeriChrom Global Burtonsville, MD NA Chromatography services

Technologies

Bioprocess Scale-Up Facility College Park, MD NA Fermentation, separation,

(part of University of purification, bioscience problem

Maryland, College Park) solving

BioReliance Corp Rockville, MD NA CGMP compliant manufacturing

services

Cambex Bioscience Baltimore, MD NA CGMP production facilities;

mammalian cell culture

Capricorn Pharma Frederick, MD 40,000 sq ft CGMP manufacturing services

ChemPacific Corporation Baltimore, MD 12,000 sq ft Chemicals for pharma

Chesapeake Biological Baltimore, MD 71,000 sq ft Biopharam product development

Laboratories & production services

Paragon Bioservices Inc Baltimore, MD NA Cell culture production &

(JHU company) Bayview Campus JHU research services

Peptide Technologies NA NA Supply pure peptides

Pharmaceutics International Hunt Valley, MD 72,000 sq ft Manufacturing & analytic services

Roveko Ltd Gaithersburg, MD NA Diagnostic reagents & kits

University Pharmaceuticals Baltimore, MD NA Drug formulation & cGMP

of Maryland (part of research, contract drug

University of Maryland development & manufacturing

School of Pharmacy)

Source: MdBio, 2002; company web pages.

initial exposure to bioscience fields and students have sufficient preparation to do simple

laboratory work. An important factor of these degree programmes is that they develop human

capital and skills for biotech workers, involving a range of educational institutions and

providing training across the socio-economic spectrum.

3.1 Special Services

In the past 5 years, the state of Maryland has also developed contract manufacturing and

incubator facilities. These special services provide infrastructure to the young biotech industry

and special services that augment the internal capabilities of small dedicated biotech firms.

This investment may encourage continued growth in the industry by allowing young

companies to focus on research while contracting out for scale-up product development,

manufacturing, clinical trials or regulatory services. There are approximately 21 contract

manufacturing, drug development, and consulting services companies in the Capitol cluster.

A few of these are detailed in Table 4. Most of these contract facilities are private facilities,

although two of them, Bioprocess Scale-Up Facility and University Pharmaceuticals of

Maryland are part of a university programme.

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3.2 Incubators

The phenomenon of government sponsored business incubators is relatively new. In 1980,

there were fewer than 13 incubators in the US; by the end of 1990 there were between 400

and 500; today, there are an estimated 600 to 750 incubators in the US (Chappell & Sherman,

1998). Of course, not all of these incubators are appropriate to biotechnology industry, which

requires sophisticated and costly wet-lab space.

Currently there are 11 incubator facilities in Maryland. The earliest incubator facility

began in 1994 (Hagerstown Technical Innovation Centre) and four of the facilities have been

created since 2000. Each of these incubators offers office space and a variety of services,

including business advice and support services. Seven of these incubators offer wet-lab space

suitable for a start-up biotech. These seven incubators are detailed in Table 5. Three of the

incubators are affiliated with universities and one is affiliated with a community college

however all of these are on the (geographic) periphery of the cluster. Most of the incubators

receive a mix of public and private funding. A new study, which examines six of these

incubators, concludes that incubators have been instrumental in increasing employment

growth (RESI, 2001). In addition, current incubator firms generate between $240,000 and

$400,000 in annual revenues and graduated incubator firms generate between $4 and $7.5

million in revenues. These figures include the direct economic impact of incubator facilities.

Estimated indirect and induced economic impacts of the incubators suggest that the total

impact on jobs was estimated as an increase of 2200 to 6800 jobs and an increase of between

$184 and $530 million dollars in gross state product. These numbers are frequently cited as

a rationale for further government investment in incubators.

3.3 Public Financing Programmes

MdBio, a non-profit industry organization, created in 1991, provides funding to eligible

biotech firms in the state. MdBio uses revenues from a multi-tenant GMP facility, equity

investments in start-up companies, among other sources to fund two biotech investment

programmes: the Project Accelerator Awards Programme and the Equity Investment Pro-

gramme. The Project Accelerator Awards Programme promotes the commercial development

of bioscience products and services as well as manufacturing and facility upgrades in

Maryland. MdBio funds approximately 50% of the costs, typically providing financial support

of between $25,000 and $200,000 in exchange for royalties on revenues or sales of products

or services. The Equity Investment Programme also promotes commercial development but

works on the angel concept. MdBio works with a set of early stage investment groups to

provide matching funds between $25,000 and $200,000. To be eligible, firms must operate in

Maryland and they must have a majority of their employees and their headquarters in the

state. For both programmes, firms must operate in Maryland and remain in the state for a

minimum of 3 years following the award.

The Maryland state government provides a number of dedicated financing programmes

for technology companies. In 1998, the Maryland Technology Development Corporation

(TEDCO) was created to “foster the development of a technology economy that will create

and sustain businesses throughout all the regions of the State of Maryland”.7 TEDCO

predominantly works to enhance the transfer of technology from universities and federal

laboratories to the private sector as well as to promote the growth of innovative companies.

To accomplish these goals, TEDCO facilitates partnership and licensing opportunities be-

tween government laboratories and private companies, as well, it provides a limited amount

of funding or loans for start-up companies.

The Maryland Department of Business and Economic Development (DBED) provide a

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Table

5.Biotechnology

incubators

inMaryland

Receivestate

Incubatorname

Location

funding?

Sizeoffacility

Specialservices

EmergingTechnology

Baltimore

No

38,890sq

ftWet

labspace

Centre(3

facilities)

Technical

InnovationCentre

Hagerstown

No

30,000sq

ftWet

labspacefor

Community

testing

College,

Hagerstown,MD

MarylandTechnology

Rockville,

MD

Yes

58,000sq

ft24wet-labs

DevelopmentCentre

Techcenter@

University

of

NearBaltimore

Yes

320,000sq

ftWet-labs;some

MarylandBaltimore

County

Washington

(inbuildingstage)

scientific

airport,MD

equipment

Technology

Advancement

University

of

Yes

NA

Laboratory

space;

Program

me

Maryland,

scientific

CollegePark,

MD

equipment

AlphaCentre

JohnsHopkins,

No

18,000sq

ftWet-lab

space;

Baltimore,MD

(wet-lab

space)

equipment

BardLaboratories

Baltimore,MD

Yes

38,000sq

ftLaboratory

space

Source:MdBio,2002;MarylandBiotech

IncubatorAssociation(M

BIA

)web

site

at

http://www.m

dbusinessincubation.org

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Table 6. Maryland state biotechnology financing programmes

Programme Description

Maryland Industrial Matching grants to help companies pay for collaborative projects with

Partnerships (MIPs) University of Maryland faculty

(DBED) Challenge Provides up to $50,000 to start-up companies with well constructed business

Programme plans and intellectual property

(DBED) Enterprise Will provide up to $500,000 (receives equity stake) to companies if it is

Investment Fund matched 3�1 with private sector dollars

Emerging Technology Venture Capital firm with a $40 million VC fund—Genomics Fund-

Partners exclusively for investing in genomics companies

Maryland Health Care An investment fund to promote commercial development of government

Product Development funded technologies

Corporation

number of financing programmes for technology firms. These initiatives, as demonstrated in

Table 6, range from pure public venture capital funds to loans or loan guarantees. Maryland

has developed financing programmes that are predominantly matching funds programmes:

grants will be given when firms can also raise matching private funds. The Challenge

Investment programme provides funds to start-up companies. The programme requires

matching funds and is available only for companies located in Maryland. The Enterprise

Investment Fund is a state supported venture capital fund in which the Fund directly invests

in companies. This programme has a three to one matching funds requirement and compa-

nies must agree to maintain their main operations in Maryland for at least 5 years. Most

importantly, these programmes provide financing for bioscience firms from the start-up phase

to the later product development stage.

4. Maryland’s Dedicated Biotech Companies

At the heart of any industrial cluster are firms and the entrepreneurs who start them.

Maryland hosts 282 dedicated biotech firms, reflecting the efforts of entrepreneurs who left

other employment in the area to start their own firms. These companies range from

one-person private start-ups like Protiga, Inc. which provides protein purification services and

contract research, to large product development companies like GenVec, which employs 75

people and is publicly traded. Leading companies in the region include Human Genome

Sciences (HGS) and Celera Genomics Corporation, two key actors in the international effort

to map the human genome. In addition, another local company, MedImmune, is currently the

world’s eighth largest dedicated biotech company with five FDA approved products on the

market. Table 7 details the focus of the product producing companies that currently comprise

the Capitol cluster.

The region is internationally noted for its concentration in genomics and bioinformatics

and vaccines. Geonomics and bioinformatics are related to bioscience software applications

and therefore have a natural synergy with the highly developed software design expertise in

the region.8 Delivery systems are related to vaccines development and are complementary in

the sense that delivery systems are the mechanism by which a vaccine reaches its target.

Today’s vaccines are highly sophisticated; typically the development of the vaccine and the

design of the delivery vector are produced in different companies.

Companies are also dedicated to product development on specific disease targets such as

AIDs or cancer. Table 8 depicts the breakdown of disease targets for the 83 companies that

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Table 7. Maryland biotechnology companies by type

Product type Number of companies

Therapeutic 62

Diagnostic products 39

Reagents 38

Genomics/bioinformatics 17

Vaccines 15

Devices/materials 15

Bioscience software applications 13

Agricultural 13

Delivery systems 10

Culture media 7

Devices/instruments 6

Environmental 5

Veterinary 4

Generic drugs 4

Transgenic animals 2

Source: MdBio, 2002.

have provided this information. The largest number of Capitol biotech companies focus on

developing products related to various types of cancer (31%) or infectious diseases (28.9%).

The remaining 35% of Maryland’s biotechnology companies are service companies: compa-

nies that are not involved in their own innovations and product development, but rather

perform services, such as contract research, production of reagents and cell cultures for

product development companies, government and university laboratories and other entities.

In fact, during the early stages of the cluster’s development (1973–1980), the first companies

were service companies that provided contract research services, produced reagents, medical

test kits, or other specialized services for the NIH and various US military departments (see

Feldman, 2000). Table 9 breaks down the type of services offered.

From Table 9, we see that the largest number of service companies offer laboratory

research services as well as clinical trial support and contract work. These companies support

traditional pharmaceuticals interested in establishing a foothold in biotechnology products as

well as young start-ups, by providing facilities and data management for clinical trials and

other FDA testing, as well as research and development work that may be beyond the reach

Table 8. Disease targets of Capitol biotech companies

Disease target Number of companies

Cancer 26 31.3%

Infectious diseases, excluding AIDS 24 28.9%

Neurological 10 12.1%

Immunological 7 8.4%

Cardiovascular 6 7.2%

AIDS 5 6.0%

Dermatological 2 2.4%

Pulmonary 2 2.4%

Gastrointestinal 1 1.2%


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Table 9. Service company types

Service type Number of companies offering

Laboratory research 34 35.1%

Immunology 12 12.4%

Nucleic acid services 11 11.3%

Protein services 7 7.2%

Viral cell culture 5 5.2%

Mammalian cell culture 4 4.1%

Bacterial cell culture 2 2.1%

Clinical trail support 20 20.6%

Contract work 20 20.6%

Pre-clinical development/toxicology 18 18.6%

Manufacturing/process development 18 18.6%

Data management 11 11.3%

Drug discovery/screening 9 9.3%

Repository/cell banking 6 6.2%

Generic testing/forensics 3 3.1%


of the contracting company’s resources, but which compliments their activities. Although

service companies are not as flashy as product development companies, they play an

important role in maintaining the cluster and promoting growth. Outsourcing is often a

cost-efficient means for young and as well as established companies to bring their innovations

to market faster and with less risk for example, by contracting with service companies that

have a long history in navigating FDA approval procedures.

5. The Genesis of the Maryland Biotech Cluster

Although the precursors to the biotechnology industry were put in place much earlier in the

twentieth century with the discovery of DNA and advances in genetics, the modern biotech

industry really began with the Cohen and Boyer discovery of ways to cut and paste DNA to

reproduce new DNA inside bacteria in 1973 as well as the production of the first monoclonal

antibodies in 1975. Through applying for patents and licensing their innovations to compa-

nies, this scientific knowledge gained commercial value. These early successful forays into

commercial markets encouraged scientists to begin taking their discoveries out of the labora-

tory and into their own companies.

Patents are important in the biotechnology industry as both a measure of commercial

activity and success, albeit a noisy indicator of the latter. To describe the development of the

biotech industry in Maryland, Table 10 depicts the state’s relative position in biotechnology

patents.

In 1970, prior to the Cohen–Boyer patents, only 258 biotech patent applications were

submitted in the entire US. The relatively lowly placement of Maryland in biotechnology

patenting up to 1980 reflects the genesis of the cluster and the fact that most of Maryland’s

biotechs were service companies at that time. Notably in 1980 there were no pharmaceutical

companies located in the state. Patenting activity among Maryland’s biotech firms increased

dramatically between 1985 and 1995, with Maryland patents comprising almost 7% of total

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Table 10. Biotechnology patent applications Maryland*

Year Number of patents Percentage of US State rank

1970 5 3.5 11th

1975 6 3.1 12th

1980 9 2.9 11th

1985 27 5.6 6th

1990 44 6.1 5th

1995 212 6.9 3rd

1997 103 6.2 4th

* Patent applications here include only patents also granted up to 1999. Patent

applications are used rather than patents granted because they more accurately

reflect the timing of the innovation. The length of time between patent appli-

cation and granting results from the US Trade and Patent Office evaluation

procedures and does not reflect firm behavior or timing of innovations.

Source: Hall et al., 2001; calculated by the authors from the National Bureau of

Economic Research (NBER) Patent Database.

US patents and ranking third overall in biotech patenting.9 In contrast, the state with the

largest biotechnology activity, California had almost 30% of US biotech patent applications

in 1995 (and ranked first in activity)

Correspondingly, Figure 2 provides the starting dates for the universe of known companies

in the Capitol biotech cluster. Vertical bars give an indication of start-up activity over time.

Prior to 1973, there were 11 known bioscience companies in the region that were engaged in

more traditional technologies and in providing services to government institutions, such as the

WRAIR, the US Army and Navy Medical Research Institutes and the NIH.10 Some of these

early companies were able to adapt to the changing climate and focus on bioscience methods.

Companies such as BioReliance, a Rockville, Maryland company established in 1949 to

provide development and manufacturing services, and Biomedial Research Institute, estab-

lished in 1968 to do contract research on vaccines for government agencies, were the

precursors to the modern cluster that were able to survive the changes.

From Figure 2, it appears that biotech companies were created in Maryland in waves, the

first beginning in approximately 1984 and continuing for approximately 8 years. In the next

10 years, another 30% of the current companies were founded. In 1997 alone, almost 8% of

the current companies were formed, and in 2000, the largest number of start-ups in a single

year, 9%, was created. It took one decade to double the number of firms in 1980 and after

that less than a decade to triple the number of firms. In the last year, fewer start-ups have been

observed than the prior 2 years, reflecting the national economic slowdown and in particular

the slowing of venture capital funds and initial public offerings.

6. Entrepreneurship and the Capitol Biotech Cluster

The region around the US role of entrepreneurship in Capitol has recently emerged as a

hotbed of entrepreneurial activity in biotechnology and attendant wealth creation and

economic growth. This reflects a transformation of the region from an economy dominated

by public sector employment and, in general, not considered innovative or supportive of

private sector activity (Feldman, 2001). The emergence of this cluster, rather than the result

of direct government intervention, reflect a three-stage process of cluster formation (Feldman

& Francis, 2002). In this section we discuss the development of the Capitol biotech cluster and

the stages of cluster formation.

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Table

11.MajorUSpolicy

initiativesfavouringscience-basedentrepreneurship

Nameanddate

Description

Implicationforentrepreneurship

Stevenson–Wydler

Facilitate

thetransfer

oftechnologiesthat

Employees

could

becomeentrepreneurs

by

TechnologyInnovation

originatedandare

owned

byfederal

licensingtechnologydeveloped

atfederallaboratories.

Act

(1980)

laboratories

totheprivate

sector.

Other

firm

scould

view

federallaboratories

asasource

oftechnologyfortransfer.

Bayh–Dole

University

Permittedsm

allbusiness,universities

and

Encouraged

universities

toactivelyengagein

andSmallBusiness

not-for-profitinstitutionsto

retain

titleto

technologytransfer

tolicense

inventionsto

PatentAct

(1980)

inventionsresultingfrom

federallyfunded

industry.Allowed

federalcontractsto

engagein

grantsandcontracts.

commercialization.

SmallBusiness

Established

theSmallBusiness

Increasedfundingavailable

fortechnologically

InnovationDevelopment

InnovationResearchProgramme

orientedsm

allbusiness.

Act

(1982)

within

majorfederalagencies.*

NationalCooperative

Easedantitrustpenaltiesoncooperative

Facilitatedjointprojectsandmadeiteasier

for

ResearchAct

(1984)

research.

smallfirm

sto

findnichemarketswithem

erging

technologies/

FederalTechnology

Amended

theStevenson-W

ydlerAct

toAllowed

smallfirm

sto

extendR&D

capabilities

Transfer

Act

(1986)

authorize

Cooperative

Researchand

bycollaboratingwithfederallaboratories

andagencies

DevelopmentAgreem

ents(CRADAS)

oncommercialization.

betweenfederalagencies

andprivate

firm

s.

National

Part

ofaDepartmentofDefense

Increasedthepoolofpotentialpartnersand

Competitiveness

authorizationbill,amended

theStevenson

researchprojects.

TechnologyTransfer

Act

WydlerAct

toallow

government-owned

(1989)

contractor-operatorlaboratories

toparticipate.

*Allfederalagencies

withanR&D

budget

greaterthan$100millionare

required

tosetasideacertain

percentageofR&D

fundsforsm

allbusiness

defined

asthose

withless

than500em

ployees

andless

than$2.5

millionin

annualsales.

Sou

rce:Feldman,2001.

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Entrepreneurs are a critical element in the formation and the vibrancy of clusters of

technology-intensive firms (Feldman, 2001). Schumpeter (1942, p. 132) described en-

trepreneurs, not as passive forces in the economy, but as active agents who organize resources

and actively refine the environment to be conducive to their pursuits. Through the process of

creating new companies, entrepreneurs spark regional industrial transformation, a transform-

ation that exhibits path dependence, adaptivity, and self-organization. Entrepreneurs, in the

process of furthering their individual interests, act collectively to shape their local environ-

ments by building institutions that promote their industry needs. The cluster and the

characteristics of the cluster therefore emerge over time from the individual activities of the

entrepreneurs and the organizations and institutions that co-evolve to support them.

Entrepreneurship is an inherently local phenomenon. Individuals start companies based

on their prior experience and interests, typically fulfilling some niche that a larger corporation

may judge too small, exploiting a new opportunity that may have a risk profile unsuited to an

existing company, or using a unique set of skills and knowledge to develop applications from

licensed patents. In building their companies, entrepreneurs rely on their local contacts,

connections, and knowledge of the business environment. Many individuals have location

inertia due to reasons such as family mobility constraints, locational preferences, familiarity of

the environment, the relatively higher costs associated with changing residence, or the high

cost of establishing a new company in a thickly populated environment where office and

housing costs tend to be higher. As one entrepreneur rhetorically asked, “If you are changing

your job, would you also want to complicate your life by changing your residence?”11 The

entrepreneurs involved in the creation of the Capitol biotech cluster came from government

institutes, academic institutions and companies based in Maryland. These ‘home-grown’

entrepreneurs were already in the region working in another local company, at the National

Institutes of Health (located in Bethesda, Maryland) or other government institutions, or

employed at Johns Hopkins University or University of Maryland as post-doctorial students or

researchers.

In the case of the Capitol region, prior to 1973, only 10 companies related to biotechnol-

ogy existed, providing services to government laboratories (MdBio, 2002; Feldman, 2000).

The movement from latent to active entrepreneurship requires some shock possibly to the

demand for entrepreneurs or traditional business, whether private or public sector, as well as

a reduction in the opportunity cost of entrepreneurship or an increase in the supply of

entrepreneurs; these are discussed later. In 1980, as a response to declining American

competitiveness, a new era in the transfer of publicly funded intellectual property to industrial

firms began with the passage of the Stevenson–Wydler Technology Innovation Act and the

Bayh–Dole University and Small Business Patent Act. With these changes, the large numbers

of federal and university laboratories in the Capitol region were allowed to license their

innovations to private firms. These institutional changes allowed enterprising individuals to

license technology out of their own laboratories in order to create start-up companies. Some

had tried earlier but noted that they faced formidable barriers. These policy changes were

designed to facilitate the process of commercializing research findings and provided a stimulus

for entrepreneurship. As well, federal funding was provided for specific projects in small and

medium sized enterprises, with the idea that the federal government could leverage R&D

activity in the US by spurring private enterprise to partner with government institutions.

Table 11 details these institutional changes. The SBIR programme was created in 1982 by

federal legislation that required all federal agencies with an R&D budget greater than $100

million to set aside a certain percentage of R&D funds for small business.12 The Act greatly

increased the funding available to technologically oriented small business (Lerner, 1996).

In addition, CRADAs, initiated by the Federal Technology Transfer Act in 1986, allow

federal agencies to partner with young firms in developing new technologies and drugs. These

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Figure 2. Biotechnology company start dates.

agreements provide matching resources rather than direct funding. A large number of

Maryland companies are described to be CRADA-babies, firms formed around a cooperative

agreement with a government laboratory, although no data exist to quantify this claim. These

programmes were founded on the basis that small businesses in the US could provide

innovative ideas that meet the research and development needs of the federal government.13

Although the policy changes detailed in Table 11 were national policies, they had a

disproportional effect on previously employed scientists and engineers in the Capitol region,

in part because there was a highly skilled and trained body of scientists and engineers already

working in the government agencies (especially the NIH and the WRAIR). As well, the

generally higher level of awareness of the programmes in Maryland due to the flow of

scientists from the public to the private sector and vice versa, has facilitated agreements

between federal agencies and area biotechnology companies. Weighted by population,

Maryland ranks third through sixth in each of the previous 5 years in SBIR total dollars

received. Maryland also received approximately 5% of all SBIR funding for the last 5 years,

although it has approximately 1.9% of total US population in each of those years (see Table

12 for SBIR funding and population weighted rankings).

Although these were national institutional changes, which should have affected all 50

states more or less equally, other exogenous factors promoted biotech development in the

Capitol region that did not exist as strongly in other states. Simultaneously with the

opportunities provided by federal legislation came changes in federal government employment

conditions. Previously, government employment of scientists and engineers was very secure

and well compensated. The federal downsizing and switch to outside contracting that began

under the Carter Administration, provided an additional push for scientists and engineers to

take opportunity of the technology developed in their government laboratories, and license it

for start-ups. It is perhaps both of these factors coming together that promoted the formation.

The second phase of cluster development was dominated by increased entrepreneurial

activity as an adaptation to the earlier changes in the external environment. The new start-up

firms created soon after the policy changes, became particularly fruitful in generating second,

third and fourth generation start-ups. In the earliest time period, 1973–

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Table

12.Marylandstate

SBIR

funding

Rank

Phase1

Phase1

Phase2

Phase2

Total

SBIR/

Percentage

Year

Awards

Dollars

Awards

Dollars

Awards

TotalDollars

pop.

USawards

1997

184

$15,537,000

55

$34,120,005

239

$49,662,000

64.4%

1998

134

$11,491,000

68

$41,909,000

202

$53,400,000

35.1%

1999

186

$17,396,535

57

$32,817,271

243

$50,213,806

54.9%

2000

135

$12,921,490

71

$43,703,954

206

$56,625,444

45.3%

2001

164

$16,334,967

71

$37,595,495

235

$53,930,462

54.7%

Source:www.sbirworld.com

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1980, 20% of the start-up entrepreneurs came from the NIH. Between 1981 and 1985, one

third of the entrepreneurs came from the NIH. Notably, however, the majority of en-

trepreneurs came from private laboratories or companies (65%) in the combined time period,

1973–1985. Between 1986 and 1995, approximately half of the biotechnology entrepreneurs

came from government agencies such as the NIH and the WRAIR as well as the local

universities (predominantly Johns Hopkins University or the Hopkins Medical School).

Having the experience and example of the initial start-ups, the industry becomes self-sustain-

ing: entrepreneurs attracted physical and human capital to the area, public and private

networks built up to support and facilitate the ventures, relevant infrastructure was created

through public and private initiatives and services grew up to feed these companies. For some

regions, an exogenous shock, such as corporate mergers and acquisitions, may compact the

industrial sector into a small number of large multi-national firms or a more research oriented

cluster, such as the case of the New Jersey electronics industry (Leslie & Kargon, 1997).

In the Capitol region, conditions favoured new firm formation, perhaps in part due to the

lack of an established large pharmaceutical company that could engineer mergers or acquisi-

tions. It was during this phase that state and local government policies reinforced en-

trepreneurship and firm development. Networks of entrepreneurs, policy-makers, and

secondary industry contractors sprung up; universities, colleges and technical centres recog-

nized the need for high-tech trained personnel and offered programmes to satisfy that

demand. The success and experience of the initial activity further generates local recognition

of the nascent industry. Local recognition, a reduction in risk, and more opportunities created

by the initial companies, contribute to more start-up activities. In this stage a critical mass of

resources are established, some developed within the region and other resources, such as

venture capital, locating in the area. It is also at this stage we see the creation of regional

public sector financing and grant giving programmes. The critical mass of start-up activity has

spawned the necessary infrastructure to sustain it, which has in turn attracted more activity

to the region. We see that once a minimum efficient level of activity was in place, venture

capital was attracted from other parts of the nation. Venture capital lags cluster formation;

with firms being attracted to new clusters once there is substantial economic activity with the

expectation of future profits.

Over time, as the earliest start-up companies grew and went public, or were bought out

by other companies, the dynamics of the region changed. Most notably, local entrepreneurs

who made large fortunes engaged in institution building to support their activities and to

encourage further entrepreneurship. Also important was the emergence of networks of

supportive social capital that began as membership organizations to promote networking.

These activities were primarily private sector initiatives, financed with private funds. By

collaborating with state and local government programmes, these initiatives resulted in

cross-fertilization and a common mission to promote the development of industry in the

region. There are several cases where early entrepreneurs, who had made personal fortunes,

started private incubators to nurture other new companies and made endowments to local

universities. These founders were motivated to share their expertise and give something back

to the local community. In the process, they contributed to building regional capacity.

Two basic features in this interpretive history stand out: although the Capitol region did

not have the generally regarded prerequisites for high technology development, a confluence

of unrelated events created an opportunity for entrepreneurial individuals to create start-ups.

Second, the organizations and entrepreneurial ventures co-evolved. The advent of en-

trepreneurship was reactive and adaptive. Locational inertia kept the entrepreneurs in the

area and government policies eased the transition to entrepreneurship. The earliest start-ups

were service firms, not originally involved in the types of R&D-intensive activities that

generate new industries. For example, firms such as Bethesda Research Laboratories were not

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launched as flashy product development firms although they evolved in that direction over

time. Thus, the cluster had rather humble beginnings—service firms do not typically attract

attention from venture capital or local economic development officials. But these firms were

relatively less costly to start and provided a means for entrepreneurs to get started. Today,

product development firms characterize the cluster, although service companies continue to

comprise approximately 35% of the companies.

The third phase of cluster formation is a fully functioning entrepreneurial environment

within an innovative and adaptable industrial cluster. The success of the initial start-ups, and

the synergy between them, has generated new possibilities for further entrepreneurship. Over

time, generations of new firms spun-off from the earliest start-ups and entrepreneurs who

cashed in from one new venture created other companies. It is now possible to construct

family trees for various technologies (Eaton et al., 1998; Schachtel & Heacock 2002). A region

may be classified as mature, in the biotech industry, once significant spin-off activity is

observed and the region has attracted venture capital, created state funding programmes, and

offers steady employment, (see Baptista & Swann, 1999). In addition, industrial clusters able

to withstand financial shocks, such as recessions or re-structuring of the industry, are typically

considered mature. This appears to be the current observable phase for this cluster although

only time will tell.

In conclusion, entrepreneurship in the region was a response to exogenous factors:

underemployed skilled labour brought about by changes in federal employment policy

coupled with new opportunities for the private sector to contract with the federal government

and commercialize new technologies. Most importantly, entrepreneurship picked up momen-

tum in the cluster and generations of new firms spun-off from the earliest start-ups. En-

trepreneurs who cashed in from one venture created other companies. Entrepreneurs also

lobbied for government resources and worked to change the stance of local universities. As

entrepreneurship caught hold, the cluster emerged and the familiar virtuous, self-sustaining

cycles appear to be in place.

7. Conclusions

Certainly the state of Maryland has a vibrant biotechnology industry. The emergence of the

Capitol biotechnology cluster can be traced back to institutional changes that occurred in the

early 1980s that favoured entrepreneurship. Maryland was in a particular position to capture

this change due to the large number of scientists and engineers employed by federal

government laboratories and the large number of bioscience students who were attracted to

the region by prominent universities such as Johns Hopkins and University of Maryland.

While it is difficult to determine the exact role that regional government policy plays in cluster

formation, our view is that entrepreneurs were the most critical ingredient to cluster formation

in a technology intensive industry. Regional programmes such as the creation of incubator

facilities, state funding and tax initiatives favour new firm formation. However, these activities

lagged rather than led cluster formation in the Capitol region and reinforced rather than

generated the formation of the cluster. Government policy is useful in promoting and

furthering the growth of an already existent industry, but it cannot generate a self-sustaining

cluster itself. Initiatives undertaken in the US by individual states to create a high technology

cluster where there was none, have largely failed or the result was different than anticipated.

There is a strong evolutionary component to cluster formation.

Other studies have also pointed out the idiosyncratic nature of regional development in

biotech (Cortright & Mayer, 2001). This suggests that there are no one-size-fits all models for

high technology industrial clusters. Rather cluster development is better described as a

complex, self-organizing process (Feldman & Francis, 2002). We emphasize that entrepreneurs

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are part of this idiosyncratic region specific component. Every region has a given set of

technical workers and entrepreneurs. The interests and expertise of these individuals shape the

type of cluster that forms.

The role of government in industrial development in general and biotechnology develop-

ment in particular, is not one-dimensional. Various levels of government have unique roles to

play, particularly in high risk, potentially high return industries such as biotechnology. In the

development of the biotechnology industry, the federal government’s role has included setting

a national research agenda with broad funding priorities through its laboratories and grants,

and establishing regulations and standards for the industry as a whole. The federal govern-

ment has historically supported R&D, mostly through its laboratories and grants to research

universities, but also to private industry through grants and tax incentives

Local government, such as state and county government, has played and continues to play

a different role in the development of the biotech industry. Not only is local government

involved with more mundane issues such as issuing building permits for special laboratory

facilities that require current Good Manufacturing Procedures (cGMP), but also it is more

focused on attracting firms to its location. States and counties within states, actively compete

with each other to gain promising firms, by providing tax incentives, dedicated funds, and

grants to aid in SBIR application preparation, incubators and other business services and

educational opportunities. The reasoning behind the support of private commercial enterprise

with public funds is that every dollar invested yields a return many times greater in terms of

job creation and contribution to tax revenues.

The cumulative and reinforcing creative environment that anchors an industry depends on

a sound infrastructure. The state strategy for long-term growth relied less on firm-specific

incentives but instead focused on developing an infrastructure and business climate to support

industrial development, especially in building shared resources that augmented individual

company innovative capacity. The state infrastructure includes councils and agencies that

work with business; access, quality, and logistics of transportation networks; school systems;

and utilities. Subsequently, special tax provisions and financing programmes aimed at

stimulating the biotech industry have led to a substantial investment but this appears to have

reinforced the development of the cluster. Developing or fine-tuning the role of state

government in growing a biotech industry requires an understanding of how firms develop;

policy must be technologically specific or industry-specific to provide maximum benefit. Each

industry, building on a unique set of technologies and applications, has correspondingly

unique challenges in its development and growth stages. Perhaps most importantly in our

specific case, state policy may facilitate the conditions that affect the formation and develop-

ment of entrepreneurial firms that are the building blocks of an industrial cluster.

Acknowledgements

We wish to acknowledge financial support from MdBio for work that preceded this article. In

addition, MdBio and the Maryland Department of Business and Economic Development

(DBED) provided data and assistance. Specifically we would like to thank Bob Eaton of

MdBio and Will Baber of DBED for their assistance. In addition we would like to thank the

individuals who have been interviewed during the course of this project.

Notes

1. The fact that the region spans two states and the federal district gives it a special nature particularly

because each state is constitutionally responsible for the welfare and education of its constituents and

by extension economic development. This makes it difficult to coordinate government action across

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the jurisdictions even though they compose one region in terms of a unified labour market with

strong interrelationships. Indeed, the two states of Maryland and Virginia are well known as

competitors rather than collaborators and have been known to engage in bidding companies away

from one another rather than promoting a regional agenda (Anderson, 1996).

2. These rankings are based on doctoral scientists currently employed in Maryland. Professional and

technical workers are defined as workers with special training (such as graduate level education)

employed in a scientific or technical position; this category also includes lawyers, doctors and

accountants.

3. Information available at www.choosemaryland.org/orientation/topten.asp. More detailed infor-

mation available at US Department of Labour Bureau of Labour Statistics.

4. The discrepancy in these numbers relative to those presented earlier in the article depends on the

precise definitions used and the time frame considered. Market capitalization for example, is a

volatile number and can be very different depending on at which quarter and year the data is

sampled.

5. Although the Ernst and Young study does raise valid concerns about funding for expansion, it does

not determine why the Capitol region has less available venture capital than other clusters. One

potential reason may be that the cluster has a large number of service companies (approximately

35% of biotech firms) which are not as likely to attract venture capital funding. Further, many of the

Capitol cluster companies are headed by scientists who may have goals that are not commensurate

with venture capitalists’ goals and methods of achieving those goals (Feldman, 2000).

6. For example, the Johns Hopkins Medical School opened its dedicated technology transfer office in

1986 and an Office of Business Development in 2001.

7. TEDCO website www.marylandtedco.org/who/index.html

8. Northern Virginia is a fast growing software and internet start-up region. Some of these companies

have been involved in developing software for the bioinformatics industry reflecting a regional

cross-fertilization. There are a small number of dedicated biotech firms in northern Virginia.

9. The reason patenting activity appears to have decreased from 1995 to 1997, is likely an artefact of

the dataset construction and US TPO patent policy. That is, the decrease reflects only the length of

time between applying for a patent and having it granted. Since the database ends at December

1999, patents that were applied for in 1997, 1998 and 1999 but not granted by December 1999, are

not included here, therefore giving the appearance of a slowdown in patenting activity.

10. This list cannot be regarded as complete due to the disappearance and lack of evidence on

companies that were started but did not survive. These data are an indication of the activity in the

region.

11. See Feldman (2001) for interview results.

12. Eligibility requires the business to be smaller than 500 employees and to be an incorporated for-profit

organization. Five federal agencies reserve a portion of their R&D funds to be awarded via the

SBIR/STTR programme to small business/non-profit research institution partnerships. These

agencies are: Department of Defense, Department of Energy, National Aeronautics and Space

Administration, Department of Health and Human Services and the National Science Foundation.

The SBIR programme involves ten federal agencies, including the Department of Agriculture, the

Department of Commerce, the Department of Defense, the Department of Education, the Depart-

ment of Energy, the Department of Health and Human Services, the Department of Transportation,

the Environmental Protection Agency, the National Aeronautics and Space Administration, and the

National Science Foundation.

13. For example, BioSpace International (BSI) is a Pharma/Protein products company begun in 1997

with funding from SBIR awards from NASA and the NIH as well as an investment from the

founding members. The company began in a space in the University of Maryland, College Park

incubator and was able to conduct their work with collaboration from the Centre for Research in

Biotechnology in Rockville, Maryland. Subsequently, through the CRADA programme, they began

a partnership with NIST where they were able to gain access to sufficient laboratory space to

conduct their experiments. In addition, through the CRADA with NIST they were able to gain

access to people which, as a small start-up company they “were certainly not in a position financially

to hire the caliber of talent that NIST has provided for BSI nor did we have a laboratory”. Two

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years later they moved into a new facility in Gaithersburg, Maryland with an onsite laboratory as

well as several new staff. They have developed and patented an electro-mechanical ‘Dynamically

Controlled Crystallization System’ known as DCCS. Protein crystallization is a necessary process

involved in the discovery of new drugs. Today, BSI has several strategic partnerships, one patent as

well as two patents pending, and has been able to create jobs for 13 people. Source: Senior Vice

President of Biospace International; Hearing before the Subcommitte on Technology, 2000.

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