Biotech Isn't in the DNA

Despite Chicago's efforts to foster a local life-science community, the metro area trails second-tier genetics centers—and is way behind the leaders

by Stuart Luman

Stephen Savage

At the end of a daylong conference of the Illinois Biotechnology Industry Organization, Norbert Riedel, chairman of the nonprofit outfit and Baxter International's (BAX) chief scientific officer, summed up the high points of the previous 12 hours. He segued from the new Institute for Genomic Biology at the University of Illinois in Urbana-Champaign to startups spinning out of Northwestern University and its $350 million nanotechnology institute, to efforts by Monsanto (MON) and Tate & Lyle to develop crop-based alternatives in Illinois for fuels and petrochemicals.

"A lot of fantastic research is going on here in Illinois," he reminded the dozens of executives and academics in the audience, citing as an example a 340-acre farm that U of I is offering near its flagship campus for a BP (BP) biofuels project. "I haven't seen anything like that on the East Coast or the West Coast."

Riedel, a tall man with cropped blond hair, a light German accent, and seemingly boundless energy, concluded with a rallying cry: "Let's keep going. Make it happen."

Outside the February symposium at the Hyatt Regency Chicago, however, it's hard to see what all the excitement is about. Despite years of work by iBIO, as Riedel's group is known, and its corporate, university, and government allies, Chicago remains a biotech backwater. In 2007, eight Illinois biotechnology startups received a total of $115.8 million of private investment, according to a report by PricewaterhouseCoopers and the National Venture Capital Assn. That compares with 477 biotech deals worth $5 billion nationwide. That means Illinois as a whole is snagging just 2% of all venture funding in biotech, while Chicago, which received $1 million for one company, isn't even a blip.

As a partner at Clarus Ventures, Dr. Jeffrey M. Leiden sees similar figures. Leiden, who stepped down as president and chief operating officer at Abbott Laboratories (ABT) in 2006, says the Cambridge (Mass.) partnership probably reviews 1,000 proposals a year from life-science startups seeking cash. Last year, pitches came from up and down both seaboards, as well as Canada and Europe. Chicago didn't submit one. In fact, he says, metro Chicago ranks behind such second-tier biotech sites as Minneapolis, Austin, Tex., and Madison, Wis.

Chicago's underachiever status comes down to a half-dozen interrelated deficits. The area lacks early-stage money, business-savvy researchers, serial entrepreneurs, public-sector financial and regulatory support, cooperation among institutions, and practical infrastructure. Any one could prevent an idea from ever becoming more than that. Combined, they seem to doom all hope. Notes William O'Neill, who has been a professor of bioengineering at the University of Illinois at Chicago for 42 years: "It's the biggest city with the fewest things going on."

One by one, say Riedel and other biotech boosters, they're filling in Chicago's gaps—by opening a business incubator with rentable lab space, say, and linking up scientists and executives. They also point to some successes. Nanosphere (NSPH), for instance, a Northbrook company that has combined biotech and nanotech to come up with a supersensitive diagnostic test, raised $102 million last fall in an IPO. "If I were living in some other place in the U.S., I would probably say it would be nice, but it's naive," Riedel says of creating a biotechnology cluster. "But here it's very real; it's very doable."

Chicago also can take comfort that other cities have built themselves into biotech hubs. But these same role models also work against Chicago. Up-and-coming researchers, entrepreneurs, venture capitalists—they all tend to flock where their kind are already established. Thus, Chicago is no longer battling only San Francisco and Boston, the nation's biotech capitals; it's up against San Diego and North Carolina's Research Triangle, to name a couple of the newer centers, as well as dozens of other wannabes. "I like the city," says Arnold Oronsky, a veteran biotech investor and general partner of InterWest Partners in Menlo Park, Calif. "But this is a daunting task for Chicago. It's sort of a vicious circle."

Amgen Defection

The fever to become the next biotech hot spot is understandable. Jobs in biotechnology pay some 75% to 100% more than average private-sector positions, and the highly educated folks who do this work are the types that cities and states crave. While older industries fade, the sector is growing, as aging and wealthier populations around the world demand new treatments for disease. The technology is also a marvel: the manipulation of genes and cells to create new pharmaceuticals, engineered organisms, and medical devices.

Had only a few events unfolded differently, Chicago might have been bubbling with these businesses today, including heavyweight Amgen (AMGN). The company is the biotech industry's largest, with a market cap of more than $43 billion and annual sales of $14.77 billion. Its first blockbuster was Epogen, an anemia drug derived from research at the University of Chicago. The company's founding chief executive was George Rathmann, a former Abbott vice-president for research and a Northwestern grad, and Abbott itself was an early investor. But Rathmann left Chicago to help start Amgen in 1980 in Thousand Oaks, Calif., because that's where the biophiles in venture capital were.

Why were the VCs there? Four years earlier, the world's first biotech company, Genentech (DNA), opened in South San Francisco. The Genentech story has a what-if element, too: Its president from 1985 to 1995 was G. Kirk Raab, who also decamped from Abbott's North Chicago campus, where he had been president and chief operating officer.