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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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768 Maryann P. Feldman and Johanna L. Francis
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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Capitol Region Biotechnology Cluster 769
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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770 Maryann P. Feldman and Johanna L. Francis
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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Capitol Region Biotechnology Cluster 771
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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772 Maryann P. Feldman and Johanna L. Francis
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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Capitol Region Biotechnology Cluster 773
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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774 Maryann P. Feldman and Johanna L. Francis
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%
Source: MdBio, 2002.
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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%
Source: MdBio, 2002.
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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Capitol Region Biotechnology Cluster 779
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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780 Maryann P. Feldman and Johanna L. Francis
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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Capitol Region Biotechnology Cluster 781
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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782 Maryann P. Feldman and Johanna L. Francis
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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Capitol Region Biotechnology Cluster 783
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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784 Maryann P. Feldman and Johanna L. Francis
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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Capitol Region Biotechnology Cluster 785
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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786 Maryann P. Feldman and Johanna L. Francis
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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Capitol Region Biotechnology Cluster 787
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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