Biotech Cluster Analysis 2006

UNIVERSITY OF CINCINNATI
Date: April 18, 2006
I, Ke Chen ,
hereby submit this work as part of the requirements for the degree of:
Doctorate of Philosophy (Ph.D.)
in:
Geography
It is entitled:
Biotechnology Cluster Analysis across Metropolitan Areas in the United
States
This work and its defense approved by:
Chair: Dr.Roger Selya

Dr.Howard Stafford
Dr.Robert South
Dr.Chris Kelton
Biotechnology Cluster Analysis across
Metropolitan Areas in the United
States
A dissertation submitted to the Division of Research and

Advanced Studies of the University of Cincinnati
In partial fulfillment of the requirements for the degree of

Doctorate of Philosophy (Ph.D.)
In the Department of Geography

Of the College of Arts and Sciences
2006
By
Ke Chen
B.S., Nanjing University, 1998
M.S., Beijing Normal University, 2001
Committer members:
Dr. Roger Selya (chair)
Dr. Howard A Stafford
Dr. Robert South
Dr. Chris Kelton
4/24/2006
Abstract
This dissertation explores the spatial distribution of biotechnology industry activities
across fifty major metropolitan areas in the United States in 2002. The biotechnology
industry is composed of the pharmaceutical and medicine manufacturing industry and the
physical, engineering, and life science research and development industry. When
measured by the number and density of establishments, employment amount and density,
and specialization, metropolitan areas where the majority of biotechnology industrial
activities are clustered in the United States in 2002 include New York City, Boston, San
Diego, San Francisco, Washington DC, Chicago, Los Angeles, Philadelphia, and Raleigh.
Using Porter’s (1990, 1998) cluster theory as analytical framework, this study finds out
that local input factor conditions, represented by local life science research base, local
biotechnology innovation capability, local supply of life science PhDs, and local
entrepreneurship are very important for biotechnology industry development. A local
atmosphere of creation and networking among biotechnology professionals is important
as well. Also, biotechnology industry is generally located close to its buying, related, and
supportive industries at metropolitan level. However, there is no clear agglomeration
effect from biotechnology anchor establishments, and anchor impacts may depend on
individual anchor’s business culture.
i
Acknowledgement
I am greatly indebted to Dr. Howard A Stafford for guiding me through the development
of this dissertation. He has consistently given valuable advice on this research and a
related research I did for the Hamilton County Regional Planning Commission. Professor
Stafford has a gift for posing questions and helping to structure research in a way that is
both rigorous and straightforward. I am also very grateful to professors Roger Selya,
Chris Kelton and Robert South for their instruction, comments, and kind help during my
dissertation writing. I thank all other geography faculty for their tutelage and moral
support. I am also grateful to my fellow students with whom I have established
friendships. Special thanks are given to Susan Jakubowski for her careful proofreading of
my dissertation. Finally, I thank my husband Lei Chen and my parents for their love and
support without which I would not have completed my four years of PhD study in the
United States.
i
Table of contents
Abstract ................................................................................................................................ i
Acknowledgement ............................................................................................................... i
Table of contents.................................................................................................................. i
List of tables....................................................................................................................... iii
List of figures...................................................................................................................... v
Chapter 1 Introduction ........................................................................................................ 1
Research problem statement ........................................................................................... 1
Development of biotechnology industry......................................................................... 1
Research objective .......................................................................................................... 4
Significance of research.................................................................................................. 6
Structure of the dissertation ............................................................................................ 9
Chapter 2 Spatial variation of biotechnology industry across fifty metropolitan areas in
the United States ............................................................................................................... 10
Biotechnology firms’ industry codes ............................................................................ 11
Survey by the United States Department of Commerce ........................................... 11
Biotechnology industry definition in three national studies ..................................... 13
Biotechnology firms in two business directories ...................................................... 14
Biotechnology industry distribution across fifty metropolitan areas............................ 18
Spatial distribution of biotechnology establishments ............................................... 20
Spatial variation in density of biotechnology establishment .................................... 24
Spatial distribution of biotechnology industry employment..................................... 26
Spatial variation in density of biotechnology industry employment ........................ 31
Spatial variation of biotechnology industry specialization....................................... 34
Overall comparison of biotechnology industry’s spatial distribution and biotechnology
clusters .......................................................................................................................... 38
Chapter 3 Literature review .............................................................................................. 46
Definition of industrial clusters .................................................................................... 46
Cluster theory and cluster diamond .............................................................................. 49
Importance of local factor input conditions .............................................................. 50
Local context............................................................................................................. 56
Demand conditions ................................................................................................... 58
Related and supporting industries............................................................................. 60
Firm strategy, structure and rivalry........................................................................... 61
Summary ....................................................................................................................... 64
Chapter 4 Hypothesis, methodology, and data ................................................................. 65
Hypotheses.................................................................................................................... 65
Methodology ................................................................................................................. 66
Data ............................................................................................................................... 71
Chapter 5 Results .............................................................................................................. 73
Importance of local factor input conditions .................................................................. 73
Life science research base, biotechnology innovation capabilities, life science PhDs,
and venture capital overall utilization....................................................................... 73
Local usage of biotechnology venture capital .......................................................... 96
Entrepreneurship ....................................................................................................... 99
i
Importance of local context - creativity and networking ............................................ 102
Spatial proximity between biotechnology industry and its value chain linked industries
..................................................................................................................................... 106
Biotechnology industry’s demand conditions, related and supportive industries... 107
Spatial proximity between biotechnology industry with its value chain linked
industries ................................................................................................................. 110
Agglomeration effects from biotechnology anchors................................................... 120
Pharmaceutical anchors .......................................................................................... 121
Physical, engineering, and life science research and development anchors ........... 128
Chapter 6 Conclusion...................................................................................................... 134
Major findings............................................................................................................. 134
Implications for economic development..................................................................... 138
Future research............................................................................................................ 140
References....................................................................................................................... 142
Appendix......................................................................................................................... 148
ii
List of tables
Table 2-1 Biotechnology establishments’ NAICS codes by the US Department of

Commerce (2003) ............................................................................................................. 12
Table 2-2 Biotechnology industry definition used in the Ernst & Young (2000) ............ 14
Table 2-3 Biotechnology firms in D & B million dollar database.................................... 15
Table 2-4 Comparison of biotechnology industry definition............................................ 17
Table 2-5 Top ten biotechnology clusters by different measurements ............................. 40
Table 2-6 Comparison of biotechnology cluster rankings................................................ 44
Table 5-1 Correlation matrix among various variables .................................................... 75
Table 5-2 Multiple regression (biotechnology employment as dependent variable, venture
capital excluded) ............................................................................................................... 88
Table 5-3 Multiple regression results (pharmaceutical employment as dependent variable,
venture capital excluded) .................................................................................................. 90
Table 5-4 Multiple regression results (R & D employment as dependent variable, venture
capital excluded) ............................................................................................................... 91
Table 5-5 Multiple regression results (biotechnology employment as the dependent
variable) ............................................................................................................................ 93
Table 5-6 Multiple regression results (pharmaceutical employment as the dependent
variable) ............................................................................................................................ 94
Table 5-7 Multiple regression results (R&D employment as Y)...................................... 95
Table 5-8 Comparing factor loadings from factor analysis using different methods ..... 108
Table 5-9 Frequency distribution of the pharmaceutical establishments........................ 121
Table 5-10 F test on the number of pharmaceutical establishments between metropolitan
areas that are not anchored and those with one pharmaceutical anchor ......................... 122
Table 5-11 T test on the number of pharmaceutical establishments between metropolitan
areas that are not anchored and those with one pharmaceutical anchor ......................... 122
areas that are not anchored and those with two pharmaceutical anchors ...................... 123
areas that are not anchored and those with two pharmaceutical anchors ....................... 123
Table 5-14 Frequency distribution of R & D establishments ......................................... 124
Table 5-15 F test on the number of R & D establishments between metropolitan areas that
are not anchored and those with one pharmaceutical anchor ......................................... 125
Table 5-16 T test on the number of R & D establishments between metropolitan areas
that are not anchored and those with one pharmaceutical anchor .................................. 125
are not anchored and those with two pharmaceutical anchors........................................ 126
that are not anchored and those with two pharmaceutical anchors................................. 126
Table 5-19 Description of the biotechnology R & D establishments ............................. 128
are not anchored and those with one R & D anchor ....................................................... 129
that are not anchored and those with one R & D anchor ................................................ 129
Table 5-22 Description of the pharmaceutical establishment groups............................. 130
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areas that are not anchored and those with one R & D anchor ....................................... 131
areas that are not anchored and those with one R & D anchor ....................................... 131
areas that are not anchored and those with two R & D anchors ..................................... 132
areas that are not anchored and those with two R & D anchors ..................................... 132
iv
List of figures
Figure 2-1 Histogram of biotechnology establishments ................................................... 21

Figure 2-2 Histogram of pharmaceutical establishments.................................................. 21
Figure 2-3 Histogram of research and development establishments ................................ 22
Figure 2-4 Spatial Distribution of the Biotechnology Establishments in 2002 ................ 23
Figure 2-5 Spatial Variation in Density of the Biotechnology Establishment.................. 25
Figure 2-6 Spatial Variation in Density of Pharmaceutical Establishment ...................... 25
Figure 2-7 Spatial Variation in Density of Physical, Engineering, and Life Science R & D
........................................................................................................................................... 26
Figure 2-8 Spatial Distribution of Biotechnology Industry Employment ........................ 27
Figure 2-9 Histogram of biotechnology industry employment......................................... 28
Figure 2-10 Histogram of biotechnology industry employment (log transformed) ......... 28
Figure 2-11 Histogram of pharmaceutical industry employment ..................................... 29
Figure 2-12 Histogram of pharmaceutical industry employments (log transformed) ...... 29
Figure 2-13 Histogram of employments in the R & D industry ....................................... 30
Figure 2-14 Histogram of employments in the R & D industry (log transformed) .......... 30
Figure 2-15 Spatial Variation in Density of the Biotechnology Industry Employment ... 32
Figure 2-16 Spatial Variation in Density of Pharmaceutical Industry employment......... 33
Figure 2-17 Spatial Variation in Density of R & D Industry Employment ...................... 33
Figure 2-18 Spatial variation of biotechnology industry’s specialization ........................ 35
Figure 2-19 Spatial variation of the pharmaceutical industry’s location quotients .......... 35
Figure 2-20 Spatial variation of physical, engineering, and life science research and
development industry’s location quotients ....................................................................... 36
Figure 2-21 Histogram of biotechnology industry’s LQ .................................................. 36
Figure 2-22 Histogram of pharmaceutical industry’s LQ................................................. 37
Figure 2-23 Histogram of R & D industry’s LQ............................................................... 37
Figure 2-24 Biotechnology establishment, employment, and location quotient .............. 38
Figure 2-25 US biotechnology clusters............................................................................. 43
Figure 3-1 Porter’s cluster diamond illustration ............................................................... 50
Figure 3-2 Marshall’s triad of external economies of industrial localization................... 52
Figure 5-1 Spatial variation of input factors in biotechnology industry........................... 74
Figure 5-2 Histogram of NIH funding .............................................................................. 76
Figure 5-3 Histogram of NIH funding (after log transform) ............................................ 77
Figure 5-4 Scatter plot between NIH funding and biotechnology R & D industry
employment....................................................................................................................... 77
Figure 5-5 Histogram of amount of patents filed in biotechnology.................................. 80
Figure 5-6 Histogram of patents after log transformation ................................................ 80
Figure 5-7 Scatter plot between patents and pharmaceutical industry ............................. 81
Figure 5-8 Scatter plot between patents and R & D industry .......................................... 81
Figure 5-9 Histogram of life science PhDs....................................................................... 83
Figure 5-10 Histogram of log transformed PhDs ............................................................. 84
Figure 5-11 Scatter plot between PhDs and biotechnology R & D industry employment84
Figure 5-12 Histogram of venture capital investment ...................................................... 86
Figure 5-13 Histogram of venture capital investment after log transformation ............... 87
Figure 5-14 Scatter plot between biotechnology employment and venture capital.......... 87
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Figure 5-15 Histogram of the local source of venture capital .......................................... 97
Figure 5-16 Percentage of local venture capital investors ................................................ 97
Figure 5-17 Hybritech family tree .................................................................................. 101
Figure 5-18 Histogram of creativity index...................................................................... 103
Figure 5-19 Scatter plot between creativity index and biotechnology employment ...... 103
Figure 5-20 Input output relationships among value chain linked industries to the
biotechnology industry.................................................................................................... 109
Figure 5-21 Histogram of the hospital employment ....................................................... 110
Figure 5-22 Histogram of the hospital employment (log transformed).......................... 111
Figure 5-23 Histogram of the ambulatory health care employment ............................... 111
Figure 5-24 Histogram of the ambulatory health care employment (log transformed).. 112
Figure 5-25 Histogram of the veterinary services employment...................................... 112
Figure 5-26 Histogram of the veterinary services employment (log transformed) ........ 113
Figure 5-27 Scatter plot between hospital employment and biotechnology employment
......................................................................................................................................... 113
Figure 5-28 Scatter plot between ambulatory health care services employment and
biotechnology employment............................................................................................. 114
Figure 5-29 Scatter plot between veterinary employment and biotechnology employment
......................................................................................................................................... 114
Figure 5-30 Histogram of medical equipment industry’s employment .......................... 117
Figure 5-31 Histogram of medical equipment industry’s employment (after log
transform)........................................................................................................................ 118
Figure 5-32 Scatter plot between medical equipment industry and biotechnology industry
employment..................................................................................................................... 118
Figure 5-33 Histogram of educational service industry’s employment.......................... 119
Figure 5-34 Histogram of educational service industry’s employment (log transformed)
......................................................................................................................................... 120
Figure 5-35 Scatter plot between educational service and biotechnology industry........ 120
vi
Chapter 1 Introduction
Research problem statement
The purpose of this dissertation is to explain the spatial variation of biotechnology
industry across major metropolitan areas in the United States.
Development of biotechnology industry
In the Merriam-Webster Dictionary, biotechnology is defined as “biological
science when applied especially in genetic engineering and recombinant DNA
technology”. Similarly, the National Library of Medicine, the National Agricultural
Library, and the Library of Congress state that biotechnology is “that body of knowledge
which relates to the use of organisms, cells, or cell-derived constituents for the purpose of
developing products which are technically, scientifically and/or clinically useful”. In
essence, biotechnology is the use of biological science to make products, such as drugs,
to improve human and animal health (Audretsch and Stephan, 1996; Biotechnology
Industry Organization, 2001; Brookings Institute; 2002; Paugh and LaFrance, 1997).
The branch of basic life science research that gives birth to biotechnology is
genetic research. It includes biochemical genetics, cytogenetics, ecological genetics,
extrachomosomal inheritance, gene mapping, gene sequencing, and gene
immunogenetics. Genetic research is then applied to genetic engineering, which includes
cell culture, conjugation, transformation, gene manipulation, gene transfer,
microinjection, and molecular cloning. Genetic engineering then leads to protein studies,
including protein crystallography, protein sequencing, and protein structure. Based upon
these studies, biotechnology products such as amino acids, antibiotics and anti-tumor
1
agents, antibodies, carbohydrates, enzymes and cofactors, food additives, and vaccines
become possible. These biotechnology products are applied in the fields of medicine,
therapy, drug design and therapy, gene therapy, diagnostic services, agriculture, plant
breeding, aquaculture, animal breeding, aquaculture, pest control, soil organisms, waste
treatment, environmental engineering, energy, chemical, feedstocks, and fermentation
and process engineering1
Biotechnology as an industry, and especially the commercial activities that utilize
biotechnology to make profits, started with the establishment of the first biotechnology
company, Genetech, in 1977 in San Francisco. The biotechnology industry then
developed quickly, especially since the 1990s. According to the Biotechnology Industry
Organization, from 1992 to 2001, total number of biotechnology establishments increased
by 18 percent, total employment by 140 percent, revenues increased by 250 percent, and
capital by 300 percent2. This fast growth of the biotechnology industry is due to its
success in the drug market for human and animal health care, which is the major source
of profits for biotechnology companies (United State Department of Commerce, 2003).
However, the process of making drugs using biotechnology is risky and time and
capital consuming. There are three major steps to produce drugs through the use of
biotechnology: research, development, and delivery. The first stage includes gene
identification, target identification, and lead identification. This stage takes two to ten
years. In the second stage, development, there comes the preclinical testing on animals
and then clinical trials on patients. Clinical trials are very time consuming and costly.
They include three phases. Phase I studies are primarily concerned with assessing the
1
Source: http://www.nal.usda.gov/acq/cdbiotec.htm
2
Data source : www.bio.org
2
drug's safety and are done on a small number of healthy volunteers. This initial phase of
testing typically takes several months. About seventy percent of experimental drugs pass
this initial phase of testing. Once a drug has been shown to be safe, it must be tested for
efficacy. This second phase of testing may last from several months to two years, and
involves up to several hundred patients. Only about one third of experimental drugs
successfully complete both Phase I and Phase II studies. In a Phase III study, a drug is
tested in several hundred to several thousand patients. This large-scale testing provides
pharmaceutical companies and the Federal Drug Administration (FDA) with a more
thorough understanding of the drug's effectiveness, benefits, and the range of possible
adverse reactions. Phase III studies typically last several years. Seventy percent to ninety
percent of drugs that enter Phase III studies successfully complete this phase of testing3.
Once a Phase III study is successfully completed, a pharmaceutical company can request
FDA approval for marketing the drug. Then there comes the last stage, the delivery of
biotechnology products. During this average 14-year trek to get a potential biotechnology
treatment to market, biotechnology companies can spend some $800 million to
commercialize a drug. [According to the Tufts Center for the Study of Drug
Development] (Thomas, 2005).
Despite this expensive, risky, and time-consuming process, biotechnology
industry is becoming a strong economic engine (Ernst & Young, 2004). The
biotechnology industry itself is a high paying industry. According to the Bureau of Labor
Statistics, in 2004, life science occupations have a mean hourly wage of $29, much
higher than average of $17.8 for all occupations. In addition, the biotechnology industry
can boost other economic sectors. In the Ernst & Young’s (2000) report, in 1999, one job
3
Source : http://www.answers.com/topic/clinical-trial-1
3
in a biotechnology firm could generate 1.9 jobs in its backward linked firms, and $1
revenue from the biotechnology industry could generate $1.3 revenues in its backward
linked firms. Although biotechnology firms’ 2003 employment multiplier of 1.9 is lower
than the overall manufacturing sector’s employment multiplier of 2.9 nationwide, it is
higher than health service sector’s employment multiplier of 1.2 and business services
sector’s multiplier of 1.54.
With the potential benefits that biotechnology firms can bring to the economy, it
is not surprising that many governments at various levels are eager to develop
biotechnology industries (Carlson, 2005; Bazley, 1999; Kemme, 2003). According to a
survey by the Biotechnology Industry Organization (2001), out of 77 local and 36 state
economic development agencies surveyed, 83 percent list biotechnology as one of their
top target industries.
Research objective
The objective of this dissertation is to understand the spatial variation of
biotechnology firms across major metropolitan areas in the United States. In other words,
why do some places have more biotechnology industry activities than other places?
Studies have shown that biotechnology firms are concentrated in certain places in
the United States. For example, according to the United State Department of Commerce
(2003), in 2001, California alone accounts for 25.6 percent of all biotechnology firms,
the other nine leading states are Massachusetts, Maryland, New Jersey, North Carolina,
Pennsylvania, Texas, Washington, New York and Wisconsin.
4
Data source: http://www.epinet.org/workingpapers/epi_wp_268.pdf
4
To understand this spatial variation, scholars have recognized that it is useful to
consider biotechnology industry development in a cluster frame, where markets,
competitors, suppliers and related institutions are tightly linked in a geographic area
(Feldman, 2002; Munroe el at, 2002; Porter, 1990, 1998; Sainsbury, 1999; San Diego
INFO, 2001). However, while most current studies are aimed at identifying
biotechnology centers or clusters (Brookings Institute, 2002; Milken Institute, 2004), few
have answered the question of why some metropolitan areas have developed more
biotechnology industry activities than other places. Without knowing location factors that
are important for biotechnology industries, it is hard for economic geographers or
economic planners to give solid policy suggestions for governments to initiate
development plans to boost biotechnology industry. This dissertation explores the
importance of various location factors for successful biotechnology industry
development, and thus offers some insights for economic development policies.
Questions to be answered in this dissertation include the following.
First, where are biotechnology industry clusters in metropolitan areas in the
United States in 2002? Second, for biotechnology industry developments, how important
are local factor input conditions, such as a research base, labor, capital, and
entrepreneurship? Third, how important is a local high technology creativity atmosphere
and the volunteer connection among biotechnology professionals for biotechnology
industry development? Fourth, how important is the local demand market size in
influencing biotechnology industry size? Fifth, how important is it for the biotechnology
industry to be located close to its related industries? Lastly, do biotechnology anchor
firms exert agglomeration effects and increase competition among biotechnology firms
5
of smaller sizes? These problems are analyzed by applying Porter’s (1998) cluster theory
(discussion below, chapter three).
Significance of research
There are three major contributions of this study. First, results from this study can
potentially help economic practitioners initiate their policies in regard to biotechnology
industry development. Second, it provides a possible way to test Porter’s (1990, 1998)
cluster theory. Third, by integrating appropriate quantitative techniques in econometric
analysis with traditional economic development measurements in the field of economic
geography, this dissertation improves methodology in industrial location analysis.
By measuring biotechnology industry across major metropolitan areas and
treating it as the dependent variable, this study is very helpful for governments to initiate
their economic development policies. The ability of giving policy suggestions from this
study is a big improvement upon many cluster studies where little explanation of
biotechnology industry clustering has been offered. Take the biopharmaceutical cluster in
Harvard Business School’s cluster mapping project for example. A biopharmaceutical
cluster is composed of three industries: biotechnology firms, health care product
manufacturers, and the container industry5. Which industries do the economic
development planning practitioners care: the biotechnology firms, health care product
manufacturers, or the container industry? Assuming that the biotechnology industry is
the focus for economic development planning practitioners, do we really need to have the
health care product manufacturers or container industry to develop biotechnology
industry? Or does the existence of the health care product manufacturers or container
5
Source: http://www.isc.hbs.edu
6
industry help to improve the competitiveness of biotechnology firms? If places do have a
great amount of biotechnology firms without having other industries, are they at a
disadvantage? What kind of policy suggestions can economic practitioners get without
analyzing the interdependence of biotechnology industry upon other industries or upon
other locational factors at the local level? This dissertation then aims to understand the
importance of various factors that explain why some places have more biotechnology
industry than others. If local infrastructure, such as research base, labor, capital, and
entrepreneurship, is tested to be important for successful biotechnology industry
development, governments may consider nurturing such factors in the local area. If there
is no causal link between biotechnology product market size and biotechnology industry
size, then a smaller market may not be a disadvantage for biotechnology industry
development. If the results indicate that it is important for biotechnology firms to be
close to their suppliers or other related firms, local governments may consider
developing suppliers in order to attract biotechnology firms. Another concern is about
biotechnology anchor firms, since many local governments try to boost biotechnology
industry development by offering tax incentives to big firms, such as did Hamilton
County in Ohio (Hamilton County Regional Planning Commission, 2005). But does the
existence of biotechnology anchor firms increase the overall competition among
biotechnology firms in the locality? By answering the above questions, the results could
be used directly for local government economic development agencies and business
communities.
Second, this dissertation provides a feasible way to test arguments put forward by
Porter (1990, 1998), which state that when various business and institutions are clustered,
7
the competitiveness of such a place is enhanced. Porter (1998), however, does not offer a
feasible way to test the validity of his clustering theory. Many scholars merely accept the
cluster concept but do not test it as a model (Bergman & Feser, 1999; Feser, 2000, 2002;
Feser & Bergman, 2000; Feser & Luger, 2002; Feser & Sweeney, 2000; Feser &
Sweeney; 2002). In this study, by testing whether there are strong spatial linkages
between biotechnology industry and other locational variables, I examine whether
Porter’s (1998) cluster model holds true for biotechnology industry. The methodology
used in this dissertation is also applicable to other industrial cluster analysis. In contrast
to Feser and Luger’s (2002) argument that cluster analysis should be adapted to the local
policy needs, I argue that the cluster model is subject to scientific testing.
Third, this study integrates appropriate quantitative techniques with traditional
economic development measurements and thus improves methodology in industrial
location analysis. Using statistical cluster analysis, metropolitan areas are grouped into
different classes according to their biotechnology industry’s size, structure, and
specialization. This is an improvement upon the traditional way of calculating a
composite index to compare regions with multiple measurements of industrial activities,
which blurs the difference among measurements. Another method used in this
dissertation is to do a principal component analysis on national input output table. While
input output analysis is used by regional economists, geographers are less familiar with it
as well as its related analyzing methods. This study then shows that principal component
analysis on the industry transaction matrix is a useful tool for geographers to understand
industrial linkages.
8
Structure of the dissertation
The remainder of dissertation is divided into five chapters. Chapter two describes
the spatial variation of the biotechnology industry in major metropolitan areas in the
United States in 2002. Chapter three then explores cluster theory and frames explanations
for the biotechnology industry in the cluster theory. Chapter four states the hypotheses,
methodology, and data source of the research. Chapter five tests hypotheses and
describes results. The sixth and last chapter summarizes the major findings of this
research.
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Chapter 2 Spatial variation of biotechnology industry
across fifty metropolitan areas in the United States
This chapter explores the spatial variation of biotechnology industry activities
across fifty metropolitan areas in the United States, and identifies biotechnology clusters
where these industrial activities are concentrated. Since biotechnology is a technology,
not a product, biotechnology industry has no corresponding industry codes in the North
American Industry Classification System (NAICS) system or the Standard Industry
Classification (SIC) system. Neither is there one universal NAICS code nor SIC code of
biotechnology industry in the literature. For example, the Biotechnology Industry
Organization’s (2001) bioscience survey of 29 US states shows that while drugs and
pharmaceuticals, research and development, testing and medical instruments are included
by a majority of states, other industries like animal and veterinary specialists, agriculture
and other organic chemicals, lab and analytical instrumentation, hospitals and medical
laboratories are not universally included. As a result, definitions of biotechnology
industry were investigated in various sources. This is explored in the first section in this
chapter. The second section then compares the spatial variation of biotechnology industry
across fifty major metropolitan areas in the United States. Though there is no agreed
upon geographic scale of an appropriate industrial cluster (Acs et al, 1994; Audretsch,
2001; Botham el at, 2001; Brookings Institute, 2002; Feldman, 2000; Lee et al, 2003;
Milken Institute, 2004; Munroe et al, 2002; Nettles, 2003; Porter, 1998; Prevezer, 1997;
Rex, 1999; Rey & Mattheis, 2000; Rosenfeld, 1997; Stanford, 2005; Swann and
Prevezer, 1996), in the United States Census definition, each metropolitan unit functions
10
as a distinct social, economic, and cultural area, and thus is an appropriate scale for
biotechnology industry cluster analysis. Fifty major metropolitan areas in this dissertation
include 18 Consolidated Metropolitan Statistical Areas (CMSA) and 32 Metropolitan
Statistical Areas (MSA). They are the same metropolitan areas as those in the Brookings
Institute’s study (2002) except San Juan, for which the industry data are not available in
the County Business Patterns database. Appendix 1 shows the list of fifty CMSAs and
MSAs as well as their component MSAs.
Biotechnology firms’ industry codes
Three groups of resources are used to identify biotechnology industry’s NAICS
Codes. The first resource group comes from the national biotechnology industry survey
by the United States Department of Commerce in 2003. The second resource group
comes from three national biotechnology studies, including the Ernst & Young’s “The
Economic Contributions of the Biotechnology Industry to the United States Economy” in
2004, the Brooking Institute’s “Signs of Life: The Growth of Biotechnology Centers in
the United States” in 2002, and the Milken Institute’s “America’s Biotech and Life
Science Clusters” in 2004. The last resource comes from two major business directories,
Dun & Bradstreet Million Dollar Database and Hoovers. Industries that appear in all of
the above resources are then defined as biotechnology industry. Thus this dissertation
adopts a narrow biotechnology industry definition.
Survey by the United States Department of Commerce
A survey by the United States Department of Commerce in 2003 reveals that
firms that label themselves biotechnology fall into over 60 NAICS codes, but scientific
11
research and development industry and pharmaceutical firms are the major players in
biotechnology commercial activity (Table 2-1).
Table 2-1 Biotechnology establishments’ NAICS codes by the US Department of Commerce (2003)
Biotechnology NAICS codes by Department of Commerce
Basic industries & materials NAICS codes Percent share of companies
Agriculture, forestry, fishing & hunting 11 1.1
Food, beverage, tobacco manufacturing 311, 312 1.6
Furniture & laboratory apparatus manufacture 337, 33911 .7
Other basic industries activity 22, 23, 323, 327, 3390 .5
Plastics & rubber products manufacture 326 .3
Paper & wood manufacture 322 .1
Chemical manufacture
Basic chemical manufacture 3251 1.8
All other chemical product manufacture 3250, 3259 1.5
Agricultural chemical manufacture 3253 .8
Resin, synthetic rubber & fibers manufacture 3252 .2
Paint, coatings, adhesives, cleaning, surface agent 3255, 3256 .1
Information & electronics
Instrument manufacture 334511-19 3.3
Software publishers 5112 .5
Computer systems design & related services 5415 .2
Motion picture & sound recording industries 512 .1
Semiconductor & related device manufacturing 334413 .1
Computer peripheral equipment & terminal manufacture 334113, 334119 .1
Machinery manufacture
Commercial & service industry machinery manufacture 3333, 33321, 33322, 333291-4 .1
Other industrial machinery manufacturing 333298, 3334, 3335, 3339 .5
Medical substances & devices
Non-diagnostic biological product manufacture 325414 12.3
Pharmaceutical & medicine manufacture 3254, 325412 11.3
In-vitro diagnostic substance manufacture 325413 4.8
Medicinal & botanical manufacture 325411 .7
Medical instruments, equip. & supplies manufacture 334510 3.5
Various services
Scientific R & D services 5417 32.3
Professional, scientific and technological services except test lab. 54 except 54138, 5415 & 5417 2.2
Computer & sci. R & D service
Testing laboratories 54138 1.9
Medical & diagonostic laboratories 6215 1.9
Wholesale & retail, transport & warehousing 42, 44, 45 excpet 45411, 48, 49 1.5
Management of companies & enterprises 55 .6
Other services 61, 62, 71, 72, 81 except 6215 .4
Admin., support, waste management & remediation 56 .1
Source: Department of Commerce (2003)
The biggest biotechnology group in the survey is scientific research and
development establishments (NAICS 5417), which make up 32.3 percent of all the
companies surveyed. In the NAICS definition from the census website6, scientific
research and development industry (NAICS 5417) includes two sub groups, NAICS
54171 and NAICS 54172. NAICS 54171 are those mainly engaged in research and
6
www.census.gov
12
development in physical, engineering, and life science, such as agriculture, electronics,
environment, biology, botany, biotechnology, computers, chemistry, food, fisheries,
forests, geology, health, mathematics, medicine, oceanography, pharmacy, physics,
veterinary, and other allied subjects. NAICS 54172 establishments are those mainly
engaged in research and development in social sciences and humanities. The second
group is made up of pharmaceutical and medicine manufacturers (NAICS 3254), which
make up 29.1 percent of the total firms surveyed. This industry comprises establishments
primarily engaged in one or more of the following: (1) manufacturing biological and
medical products; (2) processing (i.e., grading, grinding, and milling) botanical drugs and
herbs; (3) isolating active medicinal principals from botanical drugs and herbs; and (4)
manufacturing pharmaceutical products intended for internal and external consumption in
such forms as ampoules, tablets, capsules, vials, ointments, powders, solutions, and
suspensions.
These two categories make up 61.4 percent of all the firms surveyed. The rest of
the companies that label themselves biotechnology firms include navigational,
measuring, electromedical, and control instruments manufacturing (NAICS 3345), testing
labs (NAICS 54138), computer service (NAICS 5415), health care services (NAICS
6215), chemical manufactures (NAICS 3251), and wholesale trade (NAICS 42).
Biotechnology industry definition in three national studies
In the Ernst & Young’s (2000) study, biotechnology companies have SIC codes
of 2833, 2834, 2835, 2836 or 8731, whose corresponding industries in the NAICS system
are pharmaceutical and medicine manufacturing (NAICS 3254) and research and
development in physical, engineering, and life sciences (NAICS 54171) (table 2-2).
13
In the Brooking Institute’s study, it is stated that “most biotechnology firms are
assigned to one of two broader industry categories encompassing research and
development and drug manufacturing - namely, NAICS five-digit industry 54171
(research and development in the physical, engineering, and life sciences) or NAICS
industry group 3254 (pharmaceutical and medicine manufacturing)” (Brookings, 2002).
Table 2-2 Biotechnology industry definition used in the Ernst & Young (2000)
SIC Name in SIC system Corresponding Name in NAICS system
codes NAICS codes
2833 Medicinal Chemicals and 325411 Medicinal and Botanical
Botanical Products Manufacturing
2834 Pharmaceutical Preparations 325412 Pharmaceutical Preparation

Manufacturing
2835 In Vitro and In Vivo Diagnostic 325412 and Pharmaceutical Preparation
Substances 325413 Manufacturing
In-Vitro Diagnostic Substance
Manufacturing
2836 Biological Products, Except 325414 Biological Product (except
Diagnostic Substances Diagnostic) Manufacturing
8731 Commercial Physical and 541710 Research and Development in the

Biological Research Physical, Engineering, and Life
Sciences
Source: Ernst & Young (2000), edited by author
So both the Ernst & Young (2000) and the Brookings (2002) agree that
biotechnology industry may be defined as the combination of two industries: research and
development in physical, engineering, and life sciences (NAICS 54171) and
pharmaceutical and medicine manufacturing (NAICS 3254).
In the Milken Institute’s (2004) study, biotechnology firms also fall into these two
categories, although two subgroups within these industries, NAICS 325412 and NAICS
5417101 are excluded.
Biotechnology firms in two business directories
14
In the Dun & Bradstreet database, when the industry keyword “biotechnology” is
typed in the search engine, 126 records show up. Firms listed range from agricultural and
industrial chemical manufacturing to research service industries. Among them, 67.4
percent are commercial physical and biological research companies (SIC 873,
corresponding NAICS code is 54171); 8.7 percent belong to drug manufacturing
companies; 4.0 percent are medical and professional equipment companies; and 3.2
percent are medical labs (table 2-3).
Table 2-3 Biotechnology firms in D & B million dollar database

4-digit SIC Industry category Number of
companies
2048 Prepared Feeds & Feed Ingredients for Animals & Fowl, Except Dogs & 1
Cats
2741 Miscellaneous Publishing 1
2834 Pharmaceutical Preparations 5
2835 In Vitro and In Vivo Diagnostic Substances 2
2836 Biological Products, Except Diagnostic Substances 4
2844 Perfumes, Cosmetics, and Other Toilet Preparations 1
2869 Industrial Organic Chemicals 1
2899 Chemicals and Chemical Preparations 1
3821 Laboratory Apparatus and Furniture 1
3829 Measuring and Controlling Devices 1
3841 Surgical and Medical Instruments and Apparatus 1
4222 Refrigerated warehousing and storage 1
5047 Medical, Dental, and hospital equipment and supplies 3
5049 Other professional equipment and supplies 1
5122 Drugs, drug propritaries, and druggists’ sundries 1
7371 Computer programming service 2
7389 Other business services 1
8071 Medical laboratories 4
8731 Commercial physical and biological research 85
8733 Non-commercial research organizations 8
8734 Testing laboratories 1
Total 126
Source: Dun & Bradstreet, edited by the author
It appears that majority of biotechnology firms fall into NAICS 54171 categories.
However, a detailed examination of the most famous biotechnology firms reveals that
they are classified into the pharmaceutical industry. For example, the top five
15
biotechnology firms in terms of sales – Amgen, Genetech, Genzyme, Serono and
Centocor – have their primary industry codes in pharmaceutical manufacturing (NAICS
3254), but secondary industries codes in physical, engineering, and life science research
and development (NAICS 54171).
In Hoovers, biotechnology industry is a subdivision of pharmaceuticals.
Biotechnology firms include biopharmaceuticals & biotherapeutics firms, biotechnology
research equipment manufacturing firms, and biotechnology research services.
Several facts can be summarized from these two industry databases. One is that
biotechnology companies fall into broad NAICS industry codes, and this is in accordance
with the United States Department of Commerce’s (2003) survey finding. Second,
biotechnology companies are concentrated in a few fields, such as commercial
biotechnology research and development. Third, most successful biotechnology firms are
actively engaged in drug manufacturing.
To summarize findings from these three groups of sources, it is very clear that the
major players in biotechnology commercial activities are physical, engineering, and life
science research and development establishments (NAICS 54171) and pharmaceutical
manufacturing companies (NAICS 3254). They are the definition of biotechnology
industry in this dissertation. Table 2-4 shows that these two industries appear in all of the
sources examined, therefore they are used as the biotechnology industry definition in this
study. Other industries may also have some biotechnology activities; however, they do
not have big presentation in the arena of biotechnology and their primary activity is not
directly involved in biotechnology, thus they are not considered as major biotechnology
industry components in this dissertation.
16
Table 2-4 Comparison of biotechnology industry definition
Biotechnology cluster US Ernst & Brookin Milken Dun & Hoover Total
industries Dep. of Young, g Bradstr count
Comme eet
rce
NAICS 3251 Basic Chemical X 1
Manufacturing
NAICS 3313 Alumina and 1
Aluminum Production and
Processing
NAICS 3254 Pharmaceutical X X X X X X 5
(Excluding
and Medicine Manufacturing 325412)
NAICS 3259 Other Chemical X 1
Product and Preparation
Manufacturing
NAICS 334510 X 1
Electromedical and
Electrotherapeutic Apparatus
Manufacturing
NAICS 334516 Analytical X X 2
Laboratory Instrument
Manufacturing
NAICS 334517 Irradiation X 1
Apparatus Manufacturing
NAICS 3391 Medical X X 2
(339111)
Equipment and Supplies
Manufacturing
NAICS 42345 Medical X 1
equipment merchant
wholesalers
NAICS 42346 Ophthalmic X 1
goods merchant wholesalers
NAICS 4461 Health & X 1
personal care stores
NAICS 54138 testing X 2
laboratories
NAICS 5417 scientific X X X X X X 6
(5417102) (541710)
research and development
(including NAICS 54171 and
54172)
NAICS 5419 Other X 1
Professional, Scientific, and
Technical Services
NAICS 562211 Hazardous X 1
waste treatment & disposal
NAICS 621 Ambulatory X X X 3
(6215) (6215)
Health Care Services
NAICS 622 hospitals X 1
NAICS 623 Nursing & X 1
residential care facilities
Source: compiled by author
17
Biotechnology industry distribution across fifty metropolitan
areas
Five groups of measurements are used to compare the spatial variation of
biotechnology industry activities across fifty metropolitan areas: number of
biotechnology establishments, number of biotechnology establishments normalized by
metropolitan area size (establishment density), biotechnology industry employment size,
biotechnology industry employment size normalized by metropolitan area size
(employment density), and location quotients.
Number of biotechnology establishments is used to measure localization
economies (Atwood, 1928). It indicates the degree of co-location of “a group of”
biotechnology firms in metropolitan areas (Swann and Prevezer, 1996). A greater number
of biotechnology establishments should represent more of a perfect competitive market
(Porter, 1998).
Some metropolitan areas may be much larger than others in terms of land size,
and can in theory host more biotechnology establishments. For example, New York
CMSA is much larger than San Diego MSA in terms of land size. However, there may be
a higher biotechnology establishment density in a smaller metropolitan area, where the
average distance between establishments is smaller, and there may be more geographic
proximity between establishments. If the distance decay rule holds true, there may be
more interactions between establishments that are closer to each other than
establishments that are farther away. Due to this, the number of biotechnology
establishments in each CMSA or MSA is divided by the area size in square miles to
calculate establishment density. Higher establishment density indicates higher degree of
18
biotechnology industry co-locating. Although it is possible that biotechnology
establishments may be distributed unevenly within metropolitan areas, this problem is not
uncommon with other measurements when aggregated geographic units are used. For
example, the location quotient (described below), a well-adopted measurement for
industry specialization, when used at the metropolitan level, does not measure internal
variance either.
A third measurement is biotechnology industry employment size. Due to various
firm sizes, two metropolitan areas with the same number of biotechnology establishments
may have different employment size. Biotechnology industry with a greater employment
size contributes more to local economy and may be more competitive in the national
economy. Bigger size also leads to specialization and localization economies (Atwood,
1928; Hanson, 1996; Walters, 1984).
Employment size is also normalized to take effect of urban land size to compare
employment density.
Another way to measure industry development is location quotient (LQ), which
measures specialization of individual industry in a place and may be used to identify the
driving industry in a place (Hill and Brennan, 2000). The equation to calculate LQ is as
the following.
Eia / E a
LQia =
Ei / E n
Where LQia is the location quotient for industry i in area a, Eia is the employment
in industry i in area a, Ea is the total employment in area a, Ei is the employment in
industry i in the nation, and En is the total employment in the nation.
19
Fifty metropolitan areas are compared using these measurements for
biotechnology industry as well as its two component industries. Industry data come from
County Business Patterns, and metropolitan land size data come from the U.S. Census.
Since County Business Patterns do not provide exact employment data for many
metropolitan areas, a narrowing down process is used to get approximate employment
data. This procedure is listed in appendix 2. Establishments, employment, and LQ data
are listed in appendix 3. Rankings are provided in appendix 4. Finally, a statistical cluster
analysis is used to classify metropolitan areas according to their biotechnology industry
size, density and specialization.
Spatial distribution of biotechnology establishments
In 2002, there are 13,384 biotechnology establishments (including the two
component industries: pharmaceutical and medicine manufacturing, and physical,
engineering, and life science research and development industry) in the United States.
Among them, 74.0 percent are located in the fifty metropolitan areas under study. Among
these biotechnology establishments, 13.0 percent of them are pharmaceuticals, and 87.0
percent are physical, engineering, and life science research and development
establishments. Figures 2-1 to 2-3 show the histograms of establishments in
biotechnology industry as well as those in its two component industries7.
7
Physical, engineering, and life science research and development industry is also labeled R & D industry
in the following contents. Metropolitan is labeled metro in graphs.
20
Figure 2-1 Histogram of biotechnology establishments
Figure 2-2 Histogram of pharmaceutical establishments
21
Figure 2-3 Histogram of research and development establishments
Biotechnology establishments are highly concentrated in a few metropolitan
areas. The top ten metropolitan areas account for 49.1 percent of the total biotechnology
establishments in the United States in 2002. Among them, the number one location for
biotechnology establishments is New York CMSA with 1160 establishments in 2002. It
is also the number one location for biotechnology component pharmaceutical firms in the
nation. New York CMSA is followed closely by San Francisco CMSA with a number of
1049. Different from New York CMSA, San Francisco CMSA hosts the most physical,
engineering, and life science research and development establishments in the nation. The
third location is Washington CMSA, which hosts 1017 establishments. These three
metropolitan areas together host 24.1 percent of the total biotechnology establishments in
the United States in 2002. The other seven metropolitan areas in the top ten include Los
22
Angeles CMSA, Boston CMSA, San Diego MSA, Philadelphia CMSA, Chicago CMSA,
Denver CMSA, and Seattle CMSA. The number of biotechnology establishments in these
seven areas range from 268 to 780. When considering the spatial pattern, three of the top
ten metropolitan areas are located in the southwest of the US, four are in the northeast,
one is in the northwest, one in the Midwest, and one in the central region (figure 2-4).
Figure 2-4 Spatial Distribution of the Biotechnology Establishments in 2002
Figure 2-4 also shows that some metropolitan areas have comparatively more
pharmaceutical establishments than others. For example, Saint Louis is ranked 10th in the
number of pharmaceutical establishments, while 21st in the number of physical,
engineering, and life science research and development establishments. In contrast,
Seattle is ranked 10th in the number of engineering, and life science research and
23
development establishments, but 21st in the number of pharmaceutical establishments.
And Norfolk is ranked 47th in the number of pharmaceutical establishments, but 27th in
the number of research and development establishments.
Spatial variation in density of biotechnology establishment
When the density of biotechnology establishments is calculated through dividing
the number of biotechnology establishments by metropolitan areas’ land size8, the top ten
metropolitan areas with highest establishment density are Boston, San Diego, San
Francisco, Washington DC, New York, Raleigh, Philadelphia, Salt Lake City, Miami,
and Providence (figure 2-5). Among these ten metropolitan areas, New York City, San
Diego, and Boston have the highest establishment density in the biotechnology
component pharmaceutical manufacturing industry (figure 2-6), while Boston, San
Francisco, and San Diego have the highest establishment density in the biotechnology
component physical, engineering, and life science research and development industry
(figure 2-7). In general, the northeast and southwest metropolitan areas have higher
density of the physical, engineering, and life science research and development
establishment than other places.
Spatial variation of establishment density is quite different from spatial
distribution of establishments. For example, places like Salt Lake City, Miami, and
Providence rank higher in the area density than in their establishment numbers.
8
Unit: number of establishment per 10 square miles
24
Figure 2-5 Spatial Variation in Density of the Biotechnology Establishment
Figure 2-6 Spatial Variation in Density of Pharmaceutical Establishment
25
Figure 2-7 Spatial Variation in Density of Physical, Engineering, and Life Science R & D
Spatial distribution of biotechnology industry employment
Figure 2-8 shows the spatial distribution of employment in biotechnology industry
as well as its two component industries across fifty metropolitan areas. Figures 2-9 to 2-
14 are histograms of employment distribution in the biotechnology industry as well as in
its two component industries, and their corresponding log transformed distributions (data
is log transformed to minimize distortion by extreme values when correlation and
regression are conducted in the hypothesis testing chapter).
Biotechnology employees are highly concentrated. The top ten metropolitan areas
account for 57.5 percent of all biotechnology industry employment in the United States in
2002. These top tens are Washington DC CMSA, New York CMSA, San Francisco
CMSA, San Diego MSA, Boston CMSA, Los Angeles CMSA, Philadelphia CMSA,
26
Seattle CMSA, Chicago CMSA, and Raleigh MSA. Among them, New York CMSA, Los
Angeles CMSA, and San Francisco CMSA have the most pharmaceutical employees,
while Washington CMSA, New York CMSA, and San Francisco CMSA have the most
physical, engineering, and life science research and development employees.
Figure 2-8 Spatial Distribution of Biotechnology Industry Employment
27
Figure 2-9 Histogram of biotechnology industry employment
Figure 2-10 Histogram of biotechnology industry employment (log transformed)
28
Figure 2-11 Histogram of pharmaceutical industry employment
Figure 2-12 Histogram of pharmaceutical industry employments (log transformed)
29
Figure 2-13 Histogram of employments in the R & D industry
Figure 2-14 Histogram of employments in the R & D industry (log transformed)
30
This spatial distribution of biotechnology employment is different from the
distribution of biotechnology establishments. In the pharmaceutical component industry,
for example, Indianapolis is ranked 7th in terms of employment size, but 30th in terms of
the number of pharmaceutical establishments, suggesting industry concentration in a few
big pharmaceutical firms. Some similar cases include Grand Rapids and Rochester.
Grand Rapids is ranked 11th in pharmaceutical employment, but 34th in the number of
establishments; and Rochester is ranked 17th and 43rd individually. In contrast, Portland is
ranked 39th in terms of pharmaceutical employment, but 14th in the number of
establishments, suggesting that the majority of firms are of small or medium size.
Minneapolis is similar to Portland, with rankings of 25th and 11th accordingly. In the other
biotechnology component, physical, engineering, and life science research and
development industry, for example, Miami is ranked 32nd in the total amount of
employment, but 17th in the number of establishments, suggesting that majority of the
firms are small to medium sized. Columbus is the opposite. It is ranked 17th in the total
amount of employments, but 29th in the number of establishments, suggesting that there
are more medium to large sized establishments.
Spatial variation in density of biotechnology industry employment
The top ten metropolitan areas that have the highest employment density are San
Diego MSA, New York CMSA, Boston CMSA, San Francisco CMSA, Washington
CMSA, Philadelphia CMSA, Raleigh CMSA, Buffalo CMSA, Indianapolis MSA, and
Chicago CMSA (figure 2-15). Among these top ten, New York City, Indianapolis, and
Philadelphia have the highest pharmaceutical employment density (figure 2-16), while
31
San Diego, Washington DC, and Boston have the highest employment density in
physical, engineering, and life scientific research and development industry (figure 2-17).
Spatial variation of employment density is different from spatial distribution of
employment. For example, San Diego MSA, Indianapolis MSA, and Buffalo MSA rank
higher in employment density than their ranking in the absolute employment size,
suggesting more condensed spatial agglomeration of the industry.
Figure 2-15 Spatial Variation in Density of the Biotechnology Industry Employment
32
Figure 2-16 Spatial Variation in Density of Pharmaceutical Industry employment
Figure 2-17 Spatial Variation in Density of R & D Industry Employment
33
Spatial variation of biotechnology industry specialization
Location quotient (LQ) measures the degree of specialization in biotechnology
industry across fifty metropolitan areas. A metropolitan area with an LQ higher than one
is viewed as specialized in the biotechnology industry. Figures 2-18 to 2-20 show the
spatial variation of LQ in biotechnology industry as well as in its two component
industries. Figures 2-21 to 2-23 are histograms of LQs in the biotechnology industry as
well as in its two component industries in the fifty metropolitan areas under study.
Overall, eighteen metropolitan areas are specialized in biotechnology industry.
The most specialized metropolitan area in the biotechnology industry is San Diego, with
a location quotient of 5.3, followed by Raleigh with a location quotient of 3.6. The other
eight metropolitan areas in the top ten are Washington CMSA, San Francisco CMSA,
Buffalo MSA, Boston CMSA, New York CMSA, Austin MSA, Indianapolis MSA, and
Philadelphia CMSA.
Considering the pharmaceutical component of biotechnology industry, the most
specialized metropolitan area is Indianapolis MSA with a location quotient of 3.6,
followed by Grand Rapids MSA with a value of 3.4. As for the other biotechnology
component, physical, engineering, and life science research and development industry,
the most specialized metropolitan area is San Diego MSA, with a location quotient of
14.0. It is followed by Washington CMSA with a location quotient of 8.0 and Raleigh
MSA with a location quotient of 7.5.
34
Figure 2-18 Spatial variation of biotechnology industry’s specialization
Figure 2-19 Spatial variation of the pharmaceutical industry’s location quotients
35
Figure 2-20 Spatial variation of physical, engineering, and life science research and development
industry’s location quotients
Figure 2-21 Histogram of biotechnology industry’s LQ
36
Figure 2-22 Histogram of pharmaceutical industry’s LQ
Figure 2-23 Histogram of R & D industry’s LQ
37
Ranking of metropolitans by LQ is quite different from ranking by number of
establishments or by employment size. As figure 2-24 shows, the two most highly
specialized metropolitan areas, San Diego and Raleigh, are not the highest ranked in
terms of total number of biotechnology establishment or employment. In contrast, some
places rank high in terms of establishment and employment but are not highly
specialized, such as New York City.
Figure 2-24 Biotechnology establishment, employment, and location quotient
Overall comparison of biotechnology industry’s spatial
distribution and biotechnology clusters
Different measurements produce various rankings across the fifty metropolitan
areas. Table 2-5 shows the top ten metropolitan areas when five groups of biotechnology
industry activity measurements are used. Each measurement gives varied result of ten top
biotechnology clusters. For example, New York is the number one biotechnology cluster
38
when measured by biotechnology establishments; Boston ranks number one in
biotechnology establishment density; San Francisco ranks number one in the number of
physical, engineering, and life science research and development establishments;
Washington DC ranks number one in terms of biotechnology industry employment; and
San Diego is the number one biotechnology cluster in terms of biotechnology
employment density and location quotient.
39
Table 2-5 Top ten biotechnology clusters by different measurements
Establishment Establishment density Employment Employment density Location quotients
# of bio- # of phm # of R&D bio- est. phm est. R&D est. # of bio # of phm # of R&D bioemp. phm emp. R&D LQ of bio LQ of LQ of
est. est. est. den. den. den. emp. emp. emp. den. den. emp. den. phm R&D
1 New York New York San Boston New York Boston Washingt New York Washingt San Diego New York San Diego San Diego Indianapol San Diego
Francisco on on is
2 San Los Washingt San Diego San Diego San New York Los New York New York Indianapol Washingt Raleigh Grand Washingt
Francisco Angeles on Francisco Angeles is on Rapids on
3 Washingt San New York San Boston San Diego San San San Boston Philadelph Boston Washingt Raleigh Raleigh
on Francisco Francisco Francisco Francisco Francisco ia on
4 Los Boston Boston Washingt Philadelph Washingt Los Philadelph San Diego San San San San New York San
Angeles on ia on Angeles ia Francisco Francisco Francisco Francisco Francisco
5 Boston San Diego Los New York Salt Lake New York Boston Chicago San Diego Washingt Boston New York Buffalo San Diego Boston
Angeles City on
6 San Diego Philadelph San Diego Raleigh San Raleigh San Diego Boston Los Philadelph Chicago Raleigh Boston Rochester Buffalo
ia Francisco Angeles ia
7 Philadelph Washingt Philadelph Philadelph Miami Philadelph Philadelph Indianapol Philadelph Raleigh San Diego Philadelph New York Philadelph Norfolk
ia on ia ia ia ia is ia ia ia
8 Chicago Chicago Chicago Salt Lake Raleigh Salt Lake Seattle Washingt Seattle Buffalo Raleigh Buffalo Austin Richmond Austin
City City on
9 Denver Denver Denver Providenc Washingt Providenc Chicago San Diego Chicago Indianapol Grand Columbus Indianapol Austin San
e on e is Rapids is Antonio
10 Seattle St. Louis Seattle Miami St. Louis Seattle Raleigh Raleigh Raleigh Chicago Richmond San Philadelph San Seattle
Antonio ia Francisco
Abbreviation:
Bio represents biotechnology
Est. represents establishment
Phm. Represents pharmaceutical
Den. Represents density
R & D represents physical, engineering, and life science research and development
Emp. Represents employment
40
As different measurements reflect various characteristics of biotechnology
industry distribution, it is not appropriate to average the rankings in each measurement to
calculate a composite index since it blurs the difference among measurements. Instead, a
statistical cluster analysis is used to sort metropolitan areas into groups in a way that the
degree of association between two metropolitan areas is maximal if they belong to the
same group and minimal otherwise. The K-means algorithm method is selected since it
allows experimenting on cluster numbers (or the metropolitan area groups in this study)
and since the best number of clusters leading to the greatest separation (distance) is not
known as a priori, different numbers of clusters are compared using the supplementary
knowledge (NCSS software help).
A detailed discussion of K-means cluster statistics and experiment on K numbers
is listed in appendix 5. Based on various experiments, the 6-cluster method provides a
fairly satisfactory result, as it provides explainable groupings. Statistics for these
metropolitan areas are listed in appendix 6. Figure 2-25 shows the spatial distribution of
six types of metropolitan areas in terms of their biotechnology industry activities.
Cluster type one is labeled “super sized biotechnology cluster”. New York City is
this type. It has the largest amount of biotechnology establishment, biotechnology
employment, biotechnology employment density, and pharmaceutical establishment
density.
The second type of cluster is labeled “highly concentrated and specialized
biotechnology research clusters”. It has four metropolitan areas, including Boston, San
Diego, San Francisco, and Washington DC. They are second to New York in terms of the
absolute value of biotechnology establishments and employment. However, they have the
41
highest biotechnology establishment density, especially in physical, engineering, and life
science research and development establishment density among all the fifty metropolitan
areas. They are also most specialized in physical, engineering, and life science research
and development.
The third type of cluster is labeled “upper level biotechnology clusters”. It
includes four metropolitan areas: Chicago, Los Angeles, Philadelphia, and Raleigh. The
average value of establishment, employment, density, and specialization in these
metropolitan areas is smaller than that in type-two clusters. In terms of the specialization,
these four biotechnology clusters are more specialized in the physical, engineering, and
life science research and development than in the pharmaceutical manufacturing.
The fourth type of cluster is called “medium sized biotechnology centers”. It
includes seventeen metropolitan areas: Atlanta, Austin, Buffalo, Columbus, Denver,
Detroit, Houston, Kansa City, Miami, Minneapolis, Norfolk, Pittsburgh, Salt Lake City,
San Antonio, Seattle, Saint Louis, and Tampa. They are the medium biotechnology
centers in terms of the total number of biotechnology establishments and density,
employments and density, and specialization. In addition, these metropolitan areas are
relatively more specialized in the physical, engineering, and life science research and
development than in the pharmaceutical manufacturing.
The fifth type of cluster is called “highly dominated pharmaceutical centers”. It
includes four metropolitan areas: Indianapolis, Rochester, Grand Rapids, and Richmond.
They have the least amount of biotechnology establishments. However, their average
amount of the biotechnology employment is close to type-four clusters, and their average
pharmaceutical employment density is smaller than type-three clusters. These four
42
metropolitan areas are relatively more specialized in the pharmaceutical manufacturing
than in the physical, engineering, and life science research and development.
The sixth type of cluster is called “low level biotechnology centers”. It includes
twenty metropolitan areas: Charlotte, Cincinnati, Cleveland, Dallas, Greensboro,
Hartford, Jacksonville, Las Vegas, Louisville, Memphis, Milwaukee, Nashville, New
Orleans, Oklahoma City, Orlando, Phoenix, Portland, Providence, Sacramento, and West
Palm Beach. They have the lowest value of biotechnology industry employment and
density among fifty US metropolitan areas. They are not specialized in any biotechnology
component industry.
Figure 2-25 US biotechnology clusters
43
Type 1 – Super sized biotechnology cluster, Type 2 – Highly concentrated and specialized biotechnology
research clusters, Type 3 – Upper level biotechnology clusters, Type 4 – Medium sized biotechnology
centers, Type 5 – Highly dominated pharmaceutical centers, Type 6 – Low level biotechnology centers
This spatial distribution results are compared with the Brookings Institute (2002),
and the Milken Institute’s (2004) studies (table 2-6).
Table 2-6 Comparison of biotechnology cluster rankings

Metropolitan areas Rank in Label in Brooking Label in this dissertation
Milken
San Diego MSA 1 Biotechnology Centers Highly concentrated and specialized
biotechnology cluster
Boston PMSA 2 Biotechnology Centers Highly concentrated and specialized
Raleigh MSA 3 Biotechnology Centers Upper level biotechnology clusters
San Jose MSA (part of San 4 Biotechnology Centers Highly concentrated and specialized
Francisco CMSA) biotechnology cluster
Seattle PMSA 5 Biotechnology Centers Medium sized biotechnology centers (in the top
list among the mediums”)
Washington PMSA 6 Biotechnology Centers Highly concentrated and specialized
Philadelphia PMSA 7 Biotechnology Centers Upper level biotechnology clusters
San Francisco PMSA 8 Biotechnology Centers Highly concentrated and specialized
Oakland MSA (part of San 9 Biotechnology Centers Highly concentrated and specialized
Francisco CMSA ) biotechnology cluster
Los Angeles PMSA 10 Biotechnology Centers Upper level biotechnology clusters
Orange County MSA (par of Los 11 Biotechnology Centers Upper level biotechnology clusters
Angeles CMSA)
Austin MSA 12 Medium Medium sized biotechnology centers
(in the top list among the mediums”)
New York CMSA Biotechnology Centers Super sized biotechnology cluster
Chicago CMSA Research centers Upper level biotechnology clusters
Detroit CMSA Research centers Medium sized biotechnology centers
Houston CMSA Research centers Medium sized biotechnology centers
Saint Louis MSA Research centers Medium sized biotechnology centers
In the Milken Institute’s (2004) study, among their top twelve biotechnology
clusters, San Diego MSA, Boston PMSA, San Francisco CMSA, Washington PMSA, and
San Francisco PMSA correspond to “highly concentrated and specialized biotechnology
cluster” in this study, while Raleigh MSA, Philadelphia PMSA, and Los Angeles CMSA
correspond to “upper level biotechnology clusters” in this study. The only exceptions are
Seattle and Austin, which are labeled “medium sized biotechnology centers” in this
study.
44
The Brookings Institute (2002) identified nine “biotechnology centers”: Boston
CMSA, San Francisco CMSA, San Diego MSA, Raleigh MSA, Seattle CMSA, New
York CMSA, Philadelphia CMSA, Los Angeles CMSA, and Washington CMSA. In this
dissertation, New York is labeled “super sized biotechnology cluster”, Boston CMSA,
San Francisco CMSA, Washington CMSA, San Diego, and San Francisco CMSA are
labeled “highly concentrated and specialized biotechnology cluster”, Raleigh MSA,
Philadelphia CMSA, and Los Angeles CMSA are labeled “upper level biotechnology
cluster”, and Seattle is labeled “medium sized biotechnology cluster”. The Brookings
Institute also identified four “research centers”: Chicago CMSA, Detroit MSA, Houston
CMSA, and St. Louis MSA. In this study, while Chicago is labeled “upper level
biotechnology cluster”, Detroit, Houston and St. Louis appear in the “medium sized
biotechnology center”.
Obviously there is some commonality and some difference among the results of
this study and of the results of the Brookings Institute and the Milken Institute. The three
studies all suggest that some metropolitan areas’ biotechnology industry activities
measured by establishments, employment, density, and specialization are in general
accordance with other measurements, such as basic life science research, high quality
labor, and commercialization activities (Brookings, 2002; Milken, 2004). The difference
suggests that even though some places may be rich in non-industry measurements, they
do not necessarily have strong industry presence. And the difference further leads us to
the research question of this dissertation: does a place need to have all other elements,
such as life science research, human capital, and commercialization locally, to have a
strong biotechnology industry?
45
Chapter 3 Literature review
The objective of this dissertation is to explain the spatial variation of the
biotechnology industry across major U.S. metropolitan areas, using industrial cluster
theory as a framework. Thus it is necessary to understand literatures in these two fields of
biotechnology industry and industrial cluster. This chapter starts with literature on
industrial clusters, its definitions and theoretical foundations, and then discusses
explanatory factors for biotechnology industry development within the framework of
industrial cluster theory.
Definition of industrial clusters
There is no agreed upon definition of industrial clusters. There are at least three
types of cluster definition: one based on pure geographic concentration, one based on
value chain, and the other one based upon the geographic concentration of value chain
linked industries and other related institutions and infrastructure.
The first type of industrial cluster definition is based on the spatial concentration
of firms in the same industry (Schmitz and Nadvi, 1999; Swann and Prevezer, 1996). For
example, Swann and Prevezer (1996) define clusters as “groups of firms within one
industry based in one geographic area”. A similar cluster definition is seen in other
studies (Schmitz and Nadvi, 1999). There are three important elements in this definition.
First, an industrial cluster is the spatial concentration of firms in the same industry. This
implies that firms in different industries are not defined as a cluster. Second, it is a group
of firms that form a cluster. It is implied that a place with only one dominant producer
46
cannot be called a cluster, even though it has a big employment size or output. Third,
there is geographic concentration of firms. This implies that sparsely distributed firms
may not be labeled as a cluster. However, this type of cluster definition does not specify
any geographic scale and it is not clear in regard to the degree of concentration necessary
to form a cluster. In this dissertation, this type of cluster definition was adopted to
identify biotechnology clusters, as discussed in chapter two. The spatial variation of the
biotechnology industry across major metropolitan areas was treated as the dependent
variable.
A second type of industrial cluster is defined as the spatial concentration of firms
that are linked by input-output relationships. For example, Feser and Lugar (2002) define
regional clusters as “concentrations of businesses that co-locate because of trading
(buyer-supplier) relationships and/or sharing common factor markets (including
infrastructure, knowledge resources, and labor) and/or common goods markets.” This
definition echoes the industrial district concept proposed by Isard (1956) and Isard et al
(1959) and the industrial complex concept proposed by Czamanski (1971, 1974). To
simplify this definition, an industrial cluster is composed of firms in the same industry or
in different industries as long as they are linked in some way in a value chain.
By relaxing the cluster definition from one industry to include various inter-
connected industries, this definition loses precision. There may be hundreds of materials
or services that a firm needs to buy in order to operate. How can we determine which are
to be included and which are not in the cluster? For example, biotechnology companies
surely need chemicals, so they satisfy the “trading relationship” condition in Feser and
Lugar’s (2002) definition, and can be put into one cluster. But how about glass, furniture,
47
postal services, or sanitary services? These services all have trading relationship with
biotechnology firms. So this definition from the very beginning is confusing, and makes
numerous methodology variations possible.
The third definition of clusters is based on neo-classical micro economics and
agglomeration economies. The most influential scholar is Porter (1990, 1998),
who defines industrial clusters as “geographic concentrations of inter-connected
companies and institutions in a particular field. Clusters encompass an array of linked
industries and other entities important to competition. They include, for example,
suppliers of specialized inputs such as components, machinery, and services, and
providers of specialized infrastructure. Clusters also often extend downstream to channels
and customers and laterally to manufacturers of complementary products and to
companies in industries related by skills, technologies or common inputs. Finally, many
clusters include governmental and other institutions - such as universities, standard-
setting agencies, think tanks, vocational training providers, and trade associations - that
provide specialized training, education, information, research, and technical support”.
This Porter type cluster definition covers both the first and the second type of cluster
definition, and includes more demand and cost factors as well as urban infrastructure and
related institutions.
Though Porter’s cluster has gained great popularity among scholars and
economic practitioners, it has been criticized as “fuzzy” (Martin and Sunley, 2003). It is
fuzzy in the sense that the two key elements - the links among economic sectors that are
both vertical (buying and selling chains) and horizontal (complementary products and
services, the use of similar specialized inputs, technologies or institutions, and other
48
linkages), and the geographic concentration - are both vague (Martin and Sunley, 2003).
Since anything (firms, institutions, or consumers) that is related to any other thing could
be grouped into a cluster, the cluster becomes so general that no one can even define one,
as most businesses are connected in some means. In this sense, it lacks the same
precision that the value chain type cluster definition lacks.
In my view, Porter’s cluster definition is fuzzy because it combines the definition
of industry concentration and the explanatory factors together. If the ultimate advantage
of a cluster lies within firms as Porter (1998) claims, then all other elements in Porter’s
cluster, such as suppliers, customers, and institutions should be considered as
explanatory factors that have helped the formation of advantageous industries. In other
words, because cost factors, market conditions, and supportive infrastructures work well
in an area, firms there are more competitive than other places without these conditions.
So, if we treat an individual industry as the dependent variable and all other input-output
conditions as independent variables, Porter’s cluster theory and the claimed comparative
advantage is easier to understand. It is also subjected to hypothesis testing.
Cluster theory and cluster diamond
Porter (1998) further illustrates his cluster concept by drawing a diamond (figure
3-1). A cluster diamond includes four parts, “factor conditions”, “demand conditions”,
“related and support industries”, and “firm structure and rivalry”, and in the center is the
“local context”. A detailed examination of Porter’s competitive diamond reveals that his
cluster model is built up upon multiple theoretical foundations, such as economic growth
theory (Cobb & Douglas, 1928), localization economies (Marshall, 1890), urbanization
economies (Hoover, 1948), and product life cycle (Vernon, 1966). The following sections
49
explore these theoretical foundations for Porter’s (1998) cluster diamond, and situate
explanation for biotechnology industry development in this frame work.
Figure 3-1 Porter’s cluster diamond illustration
Importance of local factor input conditions
In economic growth theories, Cobb-Douglas production functions include capital,
labor, and technology (Cobb & Douglas, 1928). More than these traditional production
factors, entrepreneurship, as a human capital, also exerts positive impacts upon economic
growth by offering knowledge spillover, increased number of enterprises, and providing
diversity among firms (Audretsch, 2002). While economists neglect the importance of
distance upon economic growth, geographers have done much research on how these
factors interact with space and how they combined impact production. In localization
economy theory, it is emphasized that pooling of specialized labor force is a natural
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process of firm clustering (Marshall, 1890. figure 3-2). According to Marshall (1890), the
concentration of firms attracts a deep pool of workers, and the dominance of a given
industry in a place can lead to a particular culture of expertise not only of the producers,
but also of the workers they employ. He says that “Good work is rightly appreciated,
inventions and improvements in machinery, in processes and the general organization of
the business have their merits promptly discussed: if one man starts a new idea, it is taken
up by others and combined with suggestions of their own; and thus it becomes the source
of further new ideas” (Marshall, 1890). Geographic proximity then facilitates the
exchange of skills and ideas and further improves productivity. For example, in
knowledge intensive industries, the so called tacit knowledge that creates competitive
advantage often requires proximity or regular face-to-face interactions and trust in order
to be effectively communicated (Almeida and Kogut, 1999; Desrochers, 2001; Pinch et
al, 2003; Sainsbury, 1999).
Porter (1990, 1998), however, gives a different perspective in regard to the
generation of production factors. With emphasis on local context, he argues that the key
factors of production such as skilled labor, capital, and infrastructure are created through
a great amount of investment rather than a natural process, which in turn leads to local
industry’s competitive advantage. Non-key factors or general use factors, such as
unskilled labor and raw materials, however, can be obtained by any company and hence
do not generate sustained competitive advantage (Porter, 1998).
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Figure 3-2 Marshall’s triad of external economies of industrial localization
Source: http://www.kiet.re.kr/files/econo/20030516-WP244.pdf
In the field of biotechnology industry, the most emphasized production factors
include the availability of a life science research foundation, bio-scientists, and venture
capital (Baum & Silverman, 2004; Boehm and Schuehsler, 2003; Feldman, 2002;
Kenney, 1986; Munroe et al, 2002; Prevezer, 1997; Ross, 2004; Zeller, 2001).
Local academic life science research base
Biotechnology industry developed from university labs. The practitioners of
genetic engineering before 1976 were almost without exception located around
universities and research institutes (Kenney, 1986). When the biotechnology industry
began to develop, many new biotechnology firms were formed around licenses of
university patents and maintain strong ties with academic researchers, while university
52
faculties are also actively involved in commercialized biotechnology activities by either
offering consultant services, or by forming startup companies themselves (Dalpe, 2003;
Feldman, 2002; Kenney, 1986; Prevezer, 1997; Zeller, 2001). A quotation from Kenney
(1986) illustrates the tight link between life science academia and the biotechnology
industry:
“Biotechnology, a science that is capable of being commercialized, has been totally

dependent on university research. In no other fledging industry have university scientists
played such an all-encompassing role. Other sciences (organic chemistry, electrical
engineering, computer science, and physics) have undergone a transformation from a
science to a technology, with some scientists leaving academe to start companies. But
none of these earlier technologies was developed entirely in academia. The computer
industry, for example, attracted developers who were not university professors or PhDs
(Steven Jobs of Apple Computer, Edson D. deCastro of Data General, and Mitchell
Kapor of Lotus Development Corporation). Furthermore, professors left universities to
launch computer firms; they generally did not remain in the university, nor was it
common for administrators to attempt to use professors’ work in private industry as a
source of university income.”
The second reason that life science universities are important in biotechnology
industry development is that they provide a quality labor force (Kenney, 1986). It is
generally agreed that universities educate and train graduates that later become scientists
and technicians needed in biotechnology firms. Some argue that life science PhDs who
have more education are mobile and are more likely to move longer distance, and they do
it more for work-related reasons (Paytas et al, 2004). For example, in San Diego, the
percentage of biotechnology scientists in the industry drawn from local universities is
only 25 percent, compared to 50 percent in Boston (Audretsch and Stephan, 1996).
However, there could be locational inertia for the life science PhDs when they finish their
degrees. In interviews done by Feldman (2000), scientists are asked where they would
like to set up shop if they could locate anywhere in the world. The response is that even
though they are part of global networks, have international opportunities, and easily could
locate anywhere and still stay connected with new telecommunications technologies, they
53
typically want to stay where they are. Working spouses, children, and familiar
surroundings, among other factors, create what may be termed locational inertia. This
seems especially true if they are going to start a new company. Staying in a location that
one knows minimizes the disruption and uncertainty that result from adapting to a new
environment. Most importantly, local networks and resources provided the catalyst for
start-ups and these are the resources that the start-up attempts to leverage and build upon.
Some disagree with this life-science-institute argument. For example, Swann and
Prevezer (1996) claim that the growth in the science base does not seem to promote
growth in the biotechnology industry, but the strength comes more from the industry
itself.
Venture capital utilization in local context
As the first biotechnology firm was established as a combined effort by a
biochemist and a venture capitalist, it is argued that biotechnology had emerged from the
university labs to an industry largely because of one economic institution: venture capital
(Kenney, 1986; Miller, 1999).
Although the percentage of venture capital in total financial formation is only
19.7 percent in 2003, venture capital is crucial for biotechnology firms in their early stage
of development (Boehm and Schuehsler, 2003). One company needs tens of millions of
dollars to get started and there is no guarantee of success (Ross, 2004). While larger firms
can rely more on in-house resources or parent firm funding, smaller startup firms have to
depend on venture capital, which is specialized to invest money in startup companies
with a lot of growth potential (United States Department of Commerce, 2003).
54
The value of interaction between venture capitalists and biotechnology firms goes
even beyond a simple dollar figure. Venture capital firms are perhaps the dominant
source of selection shaping the environment within which new ventures evolve by acting
as a ‘‘scout’’ able to identify future potential and as a ‘‘coach’’ that can help realize it
(Baum & Silverman, 2004). Venture capitalists are actively involved in biotechnology
firms’ development when they are in the early critical stage by becoming board members
and management advisers, suggesting strategic partnerships and helping to refine
business plans (Munroe et al, 2002). Very often a venture capitalist provides not simply
cash but also contacts, information, advice and a set of networks in the region that prove
to be very important to the success of the ventures they fund (Saxenian, 1991, 1994).
Thus it is of interest to explore the importance of venture capital and the local
availability of venture capital for a biotechnology firm’s development.
Entrepreneurship
The presence of life science excellence and financial abundance are not enough
for the development of the biotechnology industry. A climate of entrepreneurship also
counts. For example, an effort to develop a biotechnology industry in Dartmouth failed,
although Dartmouth College Medical Center is home of a large number of scientists
involved in biomedical research. One major reason is that there is no existence of an
entrepreneurial culture (Audretsch, 2001; Cooper, 2000).
Entrepreneurship is defined as “the creation of an innovative economic
organization for gain or growth under conditions of risk and uncertainty” (Witriol, 2004).
Findings in university labs or brilliant ideas need a lot of factors to turn them into
products and money, so a clear and thorough business plan is essential for a new
55
biotechnology startup’s future. An entrepreneur will use a business plan to convince
investors that the proposal will earn a high return on investment based on a solid financial
plan, management approach and implementation and growth strategy. This initial phase
of any entrepreneurial endeavor, the planning phase, can prove to be the most challenging
aspect of entrepreneurship (Witriol, 2004). When the company gets started, entrepreneurs
are mostly responsible for hiring people, raising additional working capital, and
establishing the company as a sustainable and credible entity (Witriol, 2004).
Local context
In the center of Porter’s cluster diamond is local context, which is “the local
environment that encourages appropriate forms of investment and sustained upgrading”
(Porter, 1998). Though the so-called “local environment” may include multiple formats,
and all other pillars in Porter’s cluster diamond are set up in local context, a place’s
creativity and the manner in which people in the same industry are connected are some
important aspects of this local environment.
Creativity
Biotechnology is a knowledge-based industry, depending on the creativity of
people. Thus it is reasonable to link Florida’s (2003) creativity class argument with
biotechnology industry development levels. Florida (2003) argues that the emerging
geography of the creative class is dramatically affecting the competitive advantage of
regions across the United States. The core creative class includes scientists, engineers,
architects, educators, writers, artists, and entertainers. Their economic function is to
create new ideas. The creative class also includes a broader group of creative
56
professionals in business and finance, law, health care and related fields. Geographic
centers of the creative class are more likely to attract great minds, become dynamic in
creative ideas and become economic winners. They are the source of new ideas, new
technology, and new creative content. Similar ideas of creativity are also seen in
Huggins (2004).
According to Florida (2003), regions characterized by three T's – talent,
technology, and tolerance – have comparative advantage over other places. Conventional
wisdom holds that, to boost an area's economy, it is necessary to attract large companies
and thus create jobs. However, Florida (2003) argues that companies locate where
talented people are and that all the tax breaks in the world would not bring a large
company to an area if they cannot find the quality of employees they want there. Also,
talent itself will generate new companies and create jobs. As for the link between talent
and tolerance, Florida (2003) states that creative people prefer to be where there is a
tolerant culture. Florida (2003) then calculated a creativity index for the major cities in
the Unites States measuring these three Ts from 2000 census data. The higher the
creativity index a place has, the more creative that place is, and more competitive it is.
Though few biotechnology studies have mentioned this creativity index, it is
worthwhile to explore whether biotechnology firms are located in metropolitan areas
where there are plenty of creative people, measured by a composite creativity index
provided by Florida (2003).
Networking
In the field of biotechnology, networking in general refers to the linkages or
cooperation among entrepreneurial biotechnology firms, life science research universities
57
and institutions, governments, and all related entities (Audretsch, 2001; Kenney, 1986;
Mytelka, 1999; Saxenian, 1994). Networking is not confined to electronic
communication, but also includes face-to-face shop talk and gossip of workers in bars
and restaurants, at trade association meetings and in more formal business-sharing
arrangements (Saxenian, 1994).
In general, networking allows people to react more quickly to a changing
environment than does a more closed, vertically integrated industrial structure (Saxenian,
1994). It also holds true for biotechnology industry. According to Alan Auerbach, vice
president and biotechnology analyst of San Francisco-based First Security Van Kaspar &
Co., "Geographical location plays into things, for a number of reasons…You have a
number of biotechnology communities that are quite tightly knit. They support one
another. The proximity encourages companies to communicate and potentially
collaborate with one another"9. In addition, good networking could also help to get
funding from National Institute of Health (NIH) that prefers collaborative approaches and
expects institutions to develop those collaborations (Bonfield, 1998, 2001, 2003).
If cluster factors can be nurtured as Porter (1998) states, is it true that places with
early consciousness of biotechnology networking have developed more biotechnology
industry activities than others that have lagged in biotechnology networking?
Demand conditions
In traditional economic theory, demand from consumers is one fundamental force
that decides the commodity price and thus allocates resources and manages production.
Location theory and international trade theory further specify how demand condition,
9
http://www.sciencemag.org/feature/e-market/benchtop/bio.shl
58
combined with other factors, could impact industrial production location selection. In
classical location theory, proximity to market in terms of transportation costs is one of the
largest concerns for manufacturing plants interested in minimizing their production costs
(Smith, 1966; Weber, 1909). Proximity to market also helps manufactures get instant
response from consumers (Cornish, 1997). In traditional international trade theory,
utilization of outside demand markets, or exporting, helps nations to specialize and thus
to improve productivity and their competitive advantage. In the new international trade
theory, Krugman (1980, 1992) also states that locating close to the home market reduces
production costs and agglomeration effects accrue. In the study of global expansion of
multi-national corporations, Vernon (1966) argues that market demand change exerts
strong influence upon firm location. According to Vernon’s product cycle theory, when
products are in the innovative stage, firms and businesses are usually located in high
income areas where people are able to afford high technology products. Also, feedback
from the demand market helps to form the products as the production goes from
innovation to more mature stages. When products gain more market with the decreased
cost from technology standardization, firms are more likely to locate their plants where
there is lower production cost, especially labor.
In Porter’s (1998) cluster diamond, he argues that a sophisticated domestic market
is an important element to producing competitiveness. Firms that face a sophisticated
domestic market are likely to sell superior products because the market demands high
quality and a close proximity to such consumers enables the firm to better understand the
needs and desires of the customers. Porter (1998) also states that a large local market is
believed to allow local companies to exploit economies of scale and improve
59
competitiveness. But when productivity drives competitiveness and firms can easily
access national and international markets, the quality rather than quantity of local demand
is what becomes important (Porter, 1998).
In studying the biotechnology clustering in the United States, Prevezer (1997)
finds that the therapeutics sector in health care is attractive to new biotechnology firms.
The creation of new markets in research centers and therapeutics for specialist equipment
and diagnostic kits encourages entry of new firms into those sectors (Prevezer, 1997). In
addition, demand in drug market may influence the direction of biotechnology research
(Traore, & Rose, 2003). Public knowledge about biotechnology may also be helpful for
the industry’s innovation (McMillan et al, 2000).
With these debates in mind, it will be interesting to explore whether proximity to
biotechnology product markets or users of health products will attract biotechnology
firms.
Related and supporting industries
Porter (1998) argues that spatial proximity of downstream industries is important
to the competitiveness of firms through the enhanced exchange of information and ideas.
This echoes ideas from localization economies and urbanization economies.
In the theory of localization economies, it is argued that when firms cluster close
to each other, their suppliers locate close to them so that transportation cost is minimized
(Marshall, 1890). Geographical proximity between a supplier and its customers further
increases the speed of delivery, saves the buyer warehousing space and reduces the risk
of running out of a needed item while it is being shipped across a long distance
(Desrochers, 2001, Rey & Mattheis, 2000).
60
In addition, there are mutual benefits that value chain linked firms may enjoy
from locating close to each other. On one hand, Isard (1956) states that the multiplier
effect among industries that have input-output relationships helps local economy boom.
On the other hand, in a modern economy, firms need to buy inputs from diverse
suppliers, such as equipment supplies, office supplies, material supplies, consulting
services, employment services, law services, and transportation services; and the
employees need household services, plus all kinds of urban amenities. Being close to
other businesses then is the best location choice. Cities in general are able to offer all of
these services and so are, as a result, the favorable place.
In the field of biotechnology, some claim that the large medical equipment
companies can attract small biotechnology companies because medical equipment
companies are profitable and thus would have the cash flow to invest in new technology
(Marasco, 2004).
Based on the above arguments, it will be of interest to examine whether suppliers
of biotechnology firms are one of reasons that attract them to certain places.
Firm strategy, structure and rivalry
Beside the above reasons, Porter (1998) also argues that competition among rival
firms influences that industry’s competitiveness. Porter (1998) proposes that a
competitive market structure may enhance the innovation abilities, while dominance of a
few big producers, or anchor firms, may have negative impacts. Similarly, Rosenfeld
(1997) argues that branch plants and large corporations undermine value and
sustainability of clusters, since branch plants depend heavily on services provided
through organization’s headquarters, and are subject to strategic decisions made at some
61
distance from the core of the cluster and community. In the worst case scenario, branch
plants can abandon their communities for places where costs are lower (Rosenfeld,
1997). As a result, although it seems that anchor establishments may have great
contribution for regional economics, the role of small businesses should not be neglected
(Seley, 1981).
One reason that competitive market structure is beneficial to the whole industry is
technology spillover among firms (Fosfuri and Ronde, 2003; Porter, 1998; Saxenian,
1994; Yamawaki, 2002). Such spillovers may be the result of voluntary exchanges of
information, informal talks among employees, mobility of workers, or even industrial
espionage (Almeida and Kogut, 1999). For example, Saxenian (1994) has documented
how engineers and technical workers in Silicon Valley change jobs repeatedly (the
annual turnover rate among highly-skilled personnel was approximately 20 to 25 percent
in the early 1990s), thus contributing to the creation of technology spillovers.
In contrast to this competitive market argument, Feldman (2002) hypothesizes the
one way technology spillover from big companies to smaller ones occurs, arguing that the
established anchor firms who use a new technology may create knowledge externalities
that benefit smaller dedicated biotechnology firms and increase overall innovative output
in the region. The Milken Institute (2004) also suggests that San Diego needs more
biotechnology anchor firms to stabilize biotechnology industry development in the
region. The reason is that by creating a critical mass of experienced managers and
workers, providing a customer and supplier base, the existence of anchor firms makes it
easier for new biotechnology firms to recruit new employees with biotechnology research
and development or manufacturing skills (Audretsch, 2001; Feldman, 2002; Westlund,
62
2000). In addition, when there is a regional anchor with a sophisticated expertise in some
new drugs, new start-up firms may be likely to specialize in that direction. Once the
region is noted to have developed an expertise, others that work on the application or in
the product market may be encouraged to start firms in the region. Over time, a cluster
may develop around a specialized expertise. This implies a regional path dependency that
stems from the existence of an anchor firm to the specialization of new firms that enter
the industry in that location. As a result, the fortunes of technologies, firms, and regions
are jointly determined (Feldman, 2002).
In particular, big pharmaceutical anchors may be especially attractive to small
biotechnology firms (John, 2004). The rational for this anchor effect is determined by the
expensive, risky, and time-consuming nature of developing biopharmaceutical products.
Small firms and university labs can move quickly during drug discovery, but when it
comes to development, preclinical work, and human trials, they usually do not have
plenty of money or managerial resources to complete the cycle. In contrast to the slight
profit margins that make biotechnology research such a risky proposition, pharmaceutical
firms have profit margins of around 70 percent – among the highest for any industry.
Thus alliance between small biotechnology firms and big biotechnology (they are in the
drug manufacturing stage) firms and big pharmaceutical firms not only secures the
financial source for small biotechnology firms to survive, but allows young
biotechnology firms to get experienced executives in the pharmaceutical companies to
manage regulatory approval processes (Gwynne and Page, 2004).
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With the notion that anchor firms contribute to the local economy in terms of both
employment and wealth in larger scales than small firms, it is interesting to explore
whether the existence of biotechnology anchor firms attract more biotechnology firms.
Summary
This chapter reviewed literature on explanation for biotechnology industry in an
industrial cluster framework. Though there are different types of industrial cluster
definitions, this dissertation adopts the one that defines biotechnology clusters based
upon the geographic concentration of biotechnology firms, and uses Porter’s (1998)
cluster diamond to explain competitiveness of biotechnology industry in a local context.
There are four corners in Porter’s (1998) cluster diamond: “factor conditions”, “demand
conditions”, “related and support industries”, and “firm structure and rivalry” and one
center: “local context”. For the biotechnology industry, the important factor conditions
include life science research base, venture capital utilization, and entrepreneurship; the
local context that is related to biotechnology includes Florida’s (2003) creativity class
and networking; its demand condition may be represented by the size of the
biotechnology product market that may be attractive for firm location; the related and
support industries may also have a positive impact upon the biotechnology industry; and
biotechnology industry structure and rivalry means that there might be agglomeration
effects from anchor firms.
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Chapter 4 Hypothesis, methodology, and data
Based upon the literature in chapter three, important locational factors for
biotechnology industry development at the metropolitan scale may be analyzed in
Porter’s (1990, 1998) cluster diamond. These factors include, first, local input factors,
such as life science research base at universities and institutions and venture capital
utilization in biotechnology; second, local context, such as creativity and networking;
third, proximity to biotechnology product market and related and supportive industries;
and last, agglomeration forces exerted by biotechnology anchor firms. These form the
bases for the four groups of hypotheses in my dissertation.
Hypotheses
The first group of hypotheses assumes that, at the metropolitan scale, local factor
input conditions are important for a strong biotechnology industry development. Factor
input conditions include local life science research base, local biotechnology innovation
activities, local supply of quality labor force, venture capital utilization, local source of
venture capital, and local entrepreneurship. These factor conditions are grouped to form
three sets of hypotheses. The first part of hypotheses group one conjectures that local life
science research base, local biotechnology innovation activities, local high labor force
availability, and overall venture capital utilization are important factors for biotechnology
industry development. The second part that defines hypotheses group one assumes that it
is important for biotechnology firms to get their venture capital locally. The third part of
65
hypotheses group one supposes that local entrepreneurial activities are vital for successful
biotechnology industry development.
The second group of hypotheses assumes that local context, represented by
creativity and awareness of networking, are important for successful biotechnology
industry development.
The third group of hypotheses proposes that it is important for biotechnology
industry to be located close to its value chain linked industries at the metropolitan scale.
The last group of hypotheses assumes that there are agglomeration economies
exerted by biotechnology anchor establishments. Though there is a debate upon the
importance of big firms (Porter, 1998; Feldman, 2002; Milken, 2004), this dissertation
hypothesizes that metropolitan areas that are anchored by big biotechnology
establishments have more biotechnology establishments than metropolitan areas that are
not anchored.
Methodology
For the first part of group one hypotheses, the dependent variables are
biotechnology industry employment as well as employment in its two component
industries across fifty metropolitan areas in 2002. The independent variables are local life
science research base, measured by the amount of National Institute of Health (NIH)
funding each metropolitan area received from 2000 to 2002 (variable name: NIH)
(Brookings, 2002; Milken, 2004); local biotechnology innovation activities, measured by
patents received in each metropolitan area from 1990 to 1999 (variable name: patents)
(Brookings, 2002); local high labor force availability, measured by the number of life
science PhD graduates (variable name: PhDs) (Brookings, 2002); and overall local
66
venture capital utilization from 1990 to 1999 (variable name: VC). Although dependent
variable and independent variables are not from the same year, it is reasonable that it
takes time for variable factors to take effect on industry formation.
For these four independent variables, histograms and maps are created to examine
both statistical and spatial distributions. If the histogram shows skewed distribution of
any variable, the data set is log transformed to avoid distortion in statistical analysis,
since a few exceptionally large values in a data set may distort correlation or regression
results. After this preparatory work is done, correlations and scatter plots are used to
examine the relationship between the dependent variable and the independent variable.
Significantly high correlation coefficients then suggest that biotechnology industry is
strong where there is such a local condition of the independent variable under
consideration. Next, two multiple regressions are conducted to examine how much of the
spatial variation of biotechnology industry employment size may be explained by the
local input conditions. In the first multiple regression, three independent variables, NIH,
patents, and PhDs across fifty metropolitan areas are regressed upon dependent variables.
In the second multiple regression, all four independent variables, NIH, patents, PhDs, and
VC across 37 metropolitan areas are regressed upon the dependent variables10. Regression
results, such as R squared, F stats, T stats, and coefficients for each independent variable,
are analyzed. Higher R squared, more explanatory power do the independent variables
have. F statistics shows the overall test of significance of independent variables, and T
statistics shows the significance of individual independent variable’s contribution.
Residuals are also analyzed to identify metropolitan areas that are under-estimated and
those that are over-estimated.

10
Only 37 metropolitan areas have data in their venture capital investment
67
Beside these quantitative methods, some selected firms are examined in regard to
who they are partnered with and where these partners are located. Are they cooperating
with university labs or institutions? If so, are their research university or institution
partners mainly from the local metropolitan area, from the rest of the United States, or,
from the rest of the world? If they are mainly collaborating with local university labs or
institutions, then the hypothesis that local life science research base is important for
biotechnology industry development is supported.
To test the second part of group one hypotheses, which states that local source of
venture capital is important, the percentage of local venture capital investors divided by
all investors is calculated for a sample of biotechnology firms. A ratio close to one means
that the majority of venture capital comes from the local metropolitan area, and a close to
zero ratio indicates that little money is provided locally. Comments by biotechnology
professionals are also cited in terms of their view upon the importance of local
availability of venture capital. One venture capital firm is examined in terms of to where
its investment has gone. Does it finance mainly local biotechnology firms? Or does it
finance biotechnology firms no matter where they are? In addition, one biotechnology
firm is examined in regard to where it gets its venture capital. Does it get its capital
mainly from the local metropolitan area, or from somewhere else? If results show that
local usage of venture capital is essential for biotechnology industry development, this
hypothesis is supported.
The third part of group one hypotheses supposes that entrepreneurship is vital for
successful biotechnology industry development. Since entrepreneurship is not easy to be
quantified, two case metropolitan areas are compared. One metropolitan area is San
68
Diego, a widely cited biotechnology cluster (Milken, 2004), and the other is Cincinnati, a
less successful metropolitan place (Brookings, 2002). For San Diego, the number of
biomedical companies started by faculties at University of California at San Diego is
examined. Development history of the first biotechnology company in San Diego as well
as its family tree is explored to investigate the entrepreneurial spirit in industry. In
Cincinnati, personal interviews were conducted with local biotechnology experts in
regard to the degree of entrepreneurial activities in both academics and industry, and the
related impacts of these activities upon biotechnology industry development. If there is
stronger entrepreneurial spirit in San Diego than in Cincinnati, there is reason to
conjecture that this entrepreneurship factor is vital.
The second group of hypotheses assumes that local context, such as creativity and
awareness of networking, are important for successful biotechnology industry
development. For the factor of creativity index, it is correlated with biotechnology
industry employment. Correlation coefficients and scatter plots are examined. If
correlation coefficients are significantly high, it is reasonable to believe that
biotechnology industry is developed where there is a concentration of a creative class. As
for the importance of awareness of networking, three successful biotechnology clusters,
San Diego, Boston, and Raleigh are compared with one less successful metropolitan area,
Cincinnati. Major biotechnology network organizations in these four cities are examined
in terms of their founding years and responsibilities. If it is true that all three
biotechnology centers have developed successful biotechnology networks in early stages
while Cincinnati did not have biotechnology networking at an early stage, there is reason
69
to believe that awareness of biotechnology networking at an early stage is very important
to nurturing biotechnology industry development.
To test the third group of hypothesis, which proposes that biotechnology industry
is located close to its value chain linked industries at the metropolitan scale, there are two
major steps. The first step is to identify what industries are related to biotechnology
industry in the national input output transaction table. The method used here is principal
component analysis, where industries that share common supply source industries and
common product market industries are grouped together (Czamanski, 1979; Feser and
Sweeney, 2000; Feser 2000, 2003; Latham, 1976; O’hUallachain, 1984; O’hUallachain &
Reid, 1991; Patton, 2003; Roepke et al, 1974; Simpson, 1965). A detailed discussion of
technical manipulation of PCA analysis is provided in appendix 8. In the second step,
correlations and scatter plots between biotechnology industry employment and its value
chain linked industries’ employment are conducted for fifty metropolitan areas. If the
correlation coefficients are significantly high, this means that in general biotechnology
firms are located where its value chain linked industries are. Beside these statistical tools,
growth history of one selected firm is examined in term of the contributing factors upon
the firm formation, which reveals the importance of regional factors (Markusen, 1993).
Have the biotechnology product market or the supportive industries played important
roles in creating biotechnology business?
To test the last group of hypotheses, which assumes that there are agglomeration
economies exerted by biotechnology anchor establishments, methods used are T
statistics, personal interviews, and selected biotechnology firm development histories.
Anchor establishments refer to those with 500 or more employees. This dividing number
70
comes from the United States Small Business Administration, where the standard size for
small business in manufacturing is 50011. T tests are conducted to examine whether the
mean number of biotechnology establishments in metropolitans that are anchored is
significantly higher than that in metropolitan areas with no anchors. Furthermore,
personal interviews were conducted with biotechnology professionals in Cincinnati. Their
opinions regarding the importance of anchor firms are investigated. For example, would
anchor firms enhance the overall industry competitiveness in the region? In addition to
personal interviews in Cincinnati, the reaction of one biotechnology firm in San Diego is
also examined. This special biotechnology firm in San Diego was acquired by another
biotechnology giant, thus its reaction after acquisition reflects the impacts from
biotechnology anchors upon other businesses. If statistical results show that where there
are biotechnology anchors there are more biotechnology establishments, which is further
supported by expert opinions and selected firm acquisition experience, then this last
hypothesis of anchor agglomeration effect may be true.
Data
All employment and establishment data come from the County Business Patterns.
Data for NIH funding from 2000 to 2002 for fifty metropolitan areas comes from the NIH
website12. Data on patents filed in biotechnology from 1990 to 1999 for fifty metropolitan
areas come from tables in the Brooking Institute’s (2002) study. Data on life science PhD
graduates from 2000 to 2002 for fifty metropolitan areas come from the National Science
Foundation website13. Data for overall venture capital investment between 1995 and 1999
11
http://www.sba.gov/size/summary-whatis.html
12
www.nih.gov
13
www.nsf.org
71
come from tables in Brooking Institute’s (2002) study. However, data for 13 metropolitan
areas are not available. Data for sources of venture capital for a sample of biotechnology
firms come from MoneyTree 2005 first quarter survey14. The creativity indexes in 2000
for fifty metropolitan areas come from Florida’s (2003) book. All the above data are
listed in appendix 7. National input output tables are from the Bureau of Economic
Analysis for 1997.
Firms that are studied for this dissertation are from BizJournals15. Other
secondary materials, such as expert opinions upon the local usage of venture capital and
entrepreneurship in San Diego, networking information in San Diego, Boston, and
Raleigh, are collected from journals, magazines, various organizations’ websites,
including Triangle Business Journal16, Chemical and Engineer News17, Science E-
Market18, Connect19, Massachusetts Biotechnology Council, Inc20 and North Carolina
Biotechnology Center21.
Personal interviews were conducted with local biotechnology experts from
Bio/Start and the Ohio Valley Affiliates for Life Science (OVALS) in Cincinnati in the
spring of 2005.
14
http://www.pwcmoneytree.com/moneytree/
15
www.bizjournals.com
16
http://triangle.bizjournals.com/triangle/stories/1996/09/23/editorial4.html
17
http://pubs.acs.org/cen/coverstory/7910/7910sci3.html
18
19
http://www.connect.org/about/index.htm
20
http://www.biospace.com/company_profile.cfm?CompanyID=1429,
21
http://www.ncbiotech.org/ouractivities/business/bizptnr.cfm
72
Chapter 5 Results
Importance of local factor input conditions
This section tests the first group of hypotheses, which assumes that local factor
conditions are important for biotechnology industry development at metropolitan scale.
These factor conditions include three parts: first, the local life science research base, local
biotechnology innovation activities, local high labor force availability, and overall
venture capital utilization; second, the local-based venture capital resource; and third, the
entrepreneurial spirit in the local metropolitan area.
Life science research base, biotechnology innovation capabilities, life
science PhDs, and venture capital overall utilization
For four biotechnology industry factor conditions, local life science research base
measured by NIH funding each metropolitan area received from 2000 to 2002, local
biotechnology innovation activities are measured by the number of patents filed in the
field of biotechnology from 1990 to 1999, the local supply of high quality labor is
measured by the number of locally graduated life science PhDs from 2000 to 2002, and
overall utilization of venture capital is measured by the amount of venture capital
investments in biotechnology industry from 1995 to 1999. Their corresponding variables
names are NIH, Patent, PhDs, and VC. Figure 5-1 shows the spatial distribution of these
four continuous variables across fifty metropolitan areas22. Table 5-1 shows correlation
22
Note: venture capital data for the other 13 metropolitan areas is not available in Cortright & Mayer’s
(2002) table.
73
coefficients between biotechnology industry employment with these variables as well as
other variables that are used in this chapter.
Figure 5-1 Spatial variation of input factors in biotechnology industry
74
Table 5-1 Correlation matrix among various variables
Med CrtIdx
R&D- Hos- Amb Vet- Eqp. Edu
BioEmp PhmEmp Emp NIH Patent PhD VC Emp Emp Emp Emp Emp
BioEmp 1
Phm-
Emp. 0.81 1
R&D-
Emp. 0.92 0.58 1
NIH 0.63 0.52 0.66 1
Patent 0.82 0.72 0.78 0.81 1
PhD 0.61 0.50 0.68 0.90 0.78 1
VC 0.66 0.58 0.64 0.51 0.59 0.48 1
Hos
Emp. 0.71 0.51 0.72 0.61 0.71 0.58 0.41 1
Amb
Emp 0.75 0.61 0.75 0.58 0.75 0.57 0.51 0.92 1
VetEmp 0.74 0.59 0.72 0.50 0.71 0.50 0.47 0.85 0.92 1
MedEqp
Emp 0.62 0.67 0.53 0.54 0.67 0.47 0.57 0.66 0.71 0.65 1
Edu
Emp 0.72 0.59 0.68 0.65 0.76 0.59 0.47 0.88 0.90 0.83 0.69 1
CrtInx 0.60 0.53 0.60 0.48 0.67 0.53 0.57 0.87 0.90 0.83 0.69 0.56 1
Abbreviations:
BioEmp. represents employment in biotechnology industry across fifty metropolitan areas in 2002
PhmEmp. represents employment in biotechnology component industry, pharmaceutical industry (NAICS
code 3254) across fifty metropolitan areas in 2002
R&DEmp. represents employment in biotechnology component industry, physical, engineering, and life
science research and development industry (NAICS code 54171) across fifty metropolitan areas in 2002
NIH represents funding from the National Institute of Health from 2000 to 2002
VC represents venture capital invested in the field of biotechnology industry from 1995 to 1999
HosEmp represents employment in hospital (NAICS code 622) in 2002
AmbEmp. Represents employment in ambulatory health care industry (NAICS code 621) in 2002
VetEmp. Represents employment in veterinary services (NAICS code 54194) in 2002
MedEqpEmp. Represents employment in medical equipment industry (NAICS 3391) in 2002
EduEmp. Represents employment in educational services (NAICS 61) in 2002
CrtInx represents creativity index
Note: all data are log transformed except creativity index.
The amount of NIH funding that research universities and institutions received is
one measurement of the life science research base in life science academics. They are the
source of the creations of biotechnology, but cover more than research fields that are
directly related to the biotechnology. Histograms in figures 5-2 and 5-3 show
distributions of the original data set and a log transformed one. Top ten metropolitan
areas in terms of NIH are New York CMSA, Boston CMSA, Washington CMSA, San
Diego MSA, Philadelphia CMSA, Seattle CMSA, Raleigh MSA, San Francisco CMSA,
75
Los Angeles CMSA, and Houston MSA. They account for 62.8 percent of the NIH
funding all fifty metropolitan areas received during 2000 and 2002. In contrast, Phoenix,
Las Vegas, Orlando, Grand Rapids, Charlotte, Norfolk, Jacksonville, West Palm Beach,
Hartford, and Sacramento are the bottom ten metropolitan areas that have received least
amount of NIH funding, all combined accounting for only 0.3 percent among all fifty
metropolitan areas.
Figure 5-2 Histogram of NIH funding
76
Figure 5-3 Histogram of NIH funding (after log transform)
Figure 5-4 Scatter plot between NIH funding and biotechnology R & D industry employment
Correlation coefficient of NIH with the biotechnology industry employment is
0.63, with the pharmaceutical component industry is 0.52, and with the physical,
engineering, and life science research and development component industry is 0.66, all at
77
0.01 significant level23 (for convenience, physical, engineering, and life science research
and development industry is also called biotechnology research and development industry
in the following sections). This suggests that there is a positive and moderate relationship
between local life science research base and biotechnology industry employment size,
especially in biotechnology research and development industry.
A scatter plot was drawn between NIH funding and biotechnology research and
development industry (figure 5-4). The general pattern is that where is more NIH
funding, there is more biotechnology industry. Some places deviate from general fitting
lines. For example, Phoenix, Les Vegas have the least amount of NIH funding received,
which suggests that they have comparatively weak life science research base in
academics, they have comparatively more biotechnology industry activities than others.
This is especially true for Norfolk, which is categorized into “medium biotechnology
centers” when multiple measurements are used (see chapter two for details). In contrast,
Louisville has comparatively more NIH than its industrial employment, suggesting that
development in academics has not been transformed into commercial activities.
These results suggest that on one hand, the existence of local life science research
is useful to increase the chances for biotechnology industry development; they may not
guarantee success in actual industry development. On the other hand, it suggests that
places that lack local life science research base also have a chance to excel, and the
collaboration between university labs and biotechnology firms in different places may
compensate for the lack of local science research ability. For example, Argos
Therapeutics Inc. in Raleigh collaborates with scientists at Rockefeller University, Duke
University, University of Erlangen in Germany, University of Montreal in Canada,

23
Note: all data set is log transformed
78
Academic Medical Center in Amsterdam, McMaster University in Canada, and the
Baylor Institute for Immunology Research in Dallas24. Another example is Athersys in
Cleveland. Athersys has developed strategic partners that include pharmaceutical
companies, health care companies and universities25. Collaborators include 3-
Dimentional Pharmaceuticals and its affiliate, Johnson & Johnson Pharmaceutical
Research & Development (headquartered in New Jersey, with a branch in California);
Pfizer (headquartered in New York City, with branches in Groton, Connecticut;
Parsippany, New Jersey; Lititz, Pennsylvania; and Terre Haute, Indianapolis); BMS
(Bristol-Myers Squibb, headquartered in New York City, with branches in New York,
North Carolina, Indianapolis, Connecticut, Massachusetts, and Arizona); and the
University of Minnesota.
The second independent variable is the amount of patents filed by the
biotechnology industry in each metropolitan area from 1990 to 1999. Patents are a marker
or barometer indicating the level of biotechnology research activity26. Figures 5-5 and 5-6
show the histograms of Patents and log transformed data distribution. Among fifty
metropolitan areas, the ten that have filed most patents are New York CMSA, San
Francisco CMSA, Philadelphia CMSA, Boston CMSA, Washington CMSA, San Diego
MSA, Chicago CMSA, Los Angeles CMAS, Indianapolis MSA, and the Cincinnati
CMSA. They account for 73.7 percent of all the patents among the fifty metropolitan
areas from 1990 to 1999. Ten metropolitan areas that have filed the least amount of
patents are Orlando MSA, Charlotte MSA, Jacksonville MSA, Louisville MSA, Grand
24
http://www.argostherapeutics.com/current_investors.html
25
http://www.athersys.com/
26
http://www.bizjournals.com/portland/stories/2005/05/09/story6.html?GP=OTC-MJ1752087487
79
Rapids MSA, Norfolk MSA, Greensboro MSA, and Nashville MSA. They account for
only 1 percent of all patents filed by fifty metropolitan areas.
Figure 5-5 Histogram of amount of patents filed in biotechnology
Figure 5-6 Histogram of patents after log transformation
80
Figure 5-7 Scatter plot between patents and pharmaceutical industry
Figure 5-8 Scatter plot between patents and R & D industry
81
The correlation coefficient of Patents with biotechnology employment is 0.82,
with pharmaceutical component industry employment size is 0.72, and with physical,
engineering, and life science research and development component industry is 0.78, all
significant at 0.01 level27. This relationship is stronger than that between NIH and
biotechnology industry employment size (table 5-1). However, there might be
endogenous problem related with patents, since the source of patents might come from
both academics and industry.
Figure 5-7 shows the scatter plot between Patents and pharmaceutical component
industry’s employment size. Among those metropolitan areas that have relatively more
pharmaceutical employments than patents filed, Grand Rapids is a typical one, which is
categorized into “highly dominated pharmaceutical centers” in chapter two. This
indicates that metropolitan areas that are dominated by pharmaceutical manufacturing
plants are not necessarily biotechnology innovation centers. On the other side, it also
suggests that big pharmaceutical manufacturing plants may be located without
consideration for the local biotechnology innovation ability. On the contrary,
metropolitan areas such as New Orleans and Orlando have comparatively less
pharmaceutical employment than patents. This indicates that biotechnology innovation
ability may not automatically transform into pharmaceutical manufacturing activities.
Some places have relatively more patents filed than their industry size, such as Rochester
(figure 5-8). This may be the result of licensing patents from universities and the export
of biotechnology innovations. Others, such as Norfolk and Las Vegas, have more
employment in biotechnology research and development component industry, despite the
fact that their biotechnology innovation ability in the past few years is not strong.
27
Note: all data is log transformed
82
The third variable is the number of life science PhDs graduated from 2000 to
2002 (figures 5-9 and 5-10 show histogram of data and log transformed data28). The top
ten metropolitan areas are New York CMSA, Boston CMSA, Washington CMSA, Los
Angeles CMSA, Raleigh MSA, Chicago CMSA, San Francisco CMSA, Philadelphia
CMSA, Detroit CMSA, and San Diego MSA. They account for 57.6 percent of all life
science PhDs graduated during 2000 and 2002 among the fifty metropolitan areas.
Among fifty metropolitan areas, three MSAs, Phoenix, Jacksonville, and Grand Rapids
do not have any life science PhDs graduated during these three years.
Figure 5-9 Histogram of life science PhDs
28
Note: the value for the three metropolitan areas that have “0” in the original dataset is also set to “0”
when log transformed data set.
83
Figure 5-10 Histogram of log transformed PhDs
Figure 5-11 Scatter plot between PhDs and biotechnology R & D industry employment
The correlation coefficient of PhDs is 0.61 with the biotechnology industry, 0.50
with the biotechnology component pharmaceutical industry, and 0.68 with the other
component, biotechnology research and development industry, all significant at 0.01
level (table 5-1). This result indicates a stronger relationship between availability of local
84
life science PhD graduates and biotechnology research and development component
industry, and in general, biotechnology firms are located where there is sufficient supply
of life scientists. However, it does not mean that places with high quality supply would
surely become biotechnology centers. For example, in the scatter plot (figure 5-11), some
metropolitan places like Louisville has relatively more life science PhD graduates than
biotechnology research and development industry’s employment size. This implies that
since PhDs are mobile, they go where they can finds jobs. It also suggests that the
metropolitan areas’ biotechnology industry size may not be constrained by the
availability of locally graduated life science PhDs and there is always chance to hire from
other places.
Another “factor input condition” is the amount of venture capital invested in
biotechnology firms from 1995 to 1999. The top ten biotechnology venture capital
receivers are San Francisco CMSA, Boston CMSA, San Diego MSA, New York CMSA,
Philadelphia CMSA, Seattle CMSA, Raleigh MSA, Los Angeles CMSA, Denver CMSA,
and Detroit CMSA. They account for 89 percent of all venture capital investment in the
biotechnology firms among fifty metropolitan areas. Thirteen metropolitan areas do not
have any amount of venture capital in the Brookings Institute’s (2002) table, so they are
excluded in later correlation and regression analysis. Figures 5-12 and 5-13 show the
histogram distributions of the venture capital data and log transformed data.
The correlation coefficient of venture capital investment with biotechnology
industry employment size is 0.66, with the pharmaceutical component industry
employment size is 0.58, and with biotechnology research and development component
industry employment size is 0.64, all significant at 0.01 level. Figure 5-14 shows the
85
scatter plot between venture capital and the biotechnology industry employment size in
37 metropolitan areas. Some metropolitan areas such as Louisville and Jacksonville have
relatively more venture capital invested than their industry employment size. This
indicates that venture capital investment by itself is not sufficient to boost biotechnology
industry development when other factors are not working well. In contrast, some other
metropolitan areas, such as Columbus and Washington DC, have a substantial
biotechnology industry size despite relatively smaller amount of venture capital
investment. The result indicates that in general venture capital utilization is important to
biotechnology industry development, especially for the research and development firms,
but that venture capital investment does not guarantee industry development.
Figure 5-12 Histogram of venture capital investment
86
Figure 5-13 Histogram of venture capital investment after log transformation
Figure 5-14 Scatter plot between biotechnology employment and venture capital
Since thirteen metropolitan areas do not have venture capital data, three local
variables, NIH, Patents, and PhDs are regressed upon biotechnology industry
employment (Variable names: BioEmp) for fifty metropolitan areas. All data are log
87
transformed. They explain 66 percent of the variation in the biotechnology industry as a
whole. The regression model is the following:
log( BioEmp) = 1.74 − 0.66 log( NIH ) + 0.83 log( Patents) − 0.01log( PhDs) …….Equation 5-1
Table 5-2 Multiple regression (biotechnology employment as dependent variable, venture capital excluded)
Dependent variable: log(BioEmp)
Observation: 50
Model statistics Model 1- 1 Model 1-2 Model 1-3 Model 1-4
R squared 0.66 0.66 0.26 0.23
F statistics 31.9*** 98.0*** 18.0*** 15.6***
Log(NIH) -0.06 0.44***
Log(Patents) 0.83*** 0.75***
Log(PhDs) -0.01 0.50***
Abbreviation:
BioEmp represents employment in biotechnology industry
Note: the cells are the coefficients, *** stands for statistical significance at 0.01 level, ** stands for
statistical significance at 0.05 level, and * stands for statistical significance at 0.1 level.
In model 1-1 (table 5-2), only Patents is significant, while NIH and PhDs are both
insignificantly negative at 0.05 significant level. This does not mean that NIH or PhDs
are negative factor for the biotechnology industry development, but because NIH,
Patents, and PhDs are mutually correlated, there is multicollinearity problem in the
results of the regression model (Table 5-1 shows the correlation coefficient between
Patents and NIH is 0.81, and between Patents and PhDs is 0.78). High correlation
coefficients between independent variables make one of them highly significant while
others insignificant and the individual T statistics may be quite misleading. Actually,
partial regression models 1-2 to 1-4 in table 5-2 where Patents, NIH and PhDs each acts
as the only independent variable show that their impacts towards biotechnology industry
development are significantly positive. Although the overall explanatory power of the
regression model 1-1 is not harmed by the multicollinearity problem, one must be very
88
cautious when making interpretations in which the importance of the individual
independent variable is considered.
Analyzing residuals from this regression model (appendix 9), the ten most under-
predicted metropolitan areas, where their actual biotechnology industry employment is
smaller than their predicted value, are Hartford, Cincinnati, Memphis, Louisville,
Jacksonville, Sacramento, New Orleans, Rochester, Oklahoma City, and Saint Louis. It
means that although these metropolitan areas have comparatively good factor input
conditions represented by life science research base, biotechnology innovation
capabilities, and availability of high quality life science PhD graduates, their
biotechnology industry activities are not strong yet due to other reasons. In contrast, the
ten most over-predicted metropolitan areas where their actual biotechnology industry
employment is larger than the predicted value are Las Vegas, Grand Rapids, Norfolk,
Washington DC, Austin, Los Angeles, Buffalo, San Diego, Kansas City, and New York
City. This result suggests that with the current factor input conditions when combined
with other factors, these metropolitan areas are performing exceptionally well in
biotechnology commercial activities.
When the biotechnology component industry, pharmaceutical’s employment size
is the dependent variable, the regression model is the following:
log( PhmEmp) = 0.77 − 0.10 log( NIH ) + 1.00 log( Patents) + 0.06 log( PhDs) …Equation 5-2
This regression model explains 54 percent of the variance in pharmaceutical
manufacturing employment data set across fifty metropolitan areas. Model 2-1 (table 5-3)
shows the regression results where all three variables are independent variables in the
regression model. There is also a multicollinearity problem in the regression model 2-1 in
89
table 5-3 as the partial regression results from model 2-2 to 2-4 (table 5-3) show that the
impacts from all three individual variables are significantly positive.
Table 5-3 Multiple regression results (pharmaceutical employment as dependent variable, venture capital
excluded)
Dependent variable: log(PhmEmp)
Observation: 50
Models Model 2-1 Model 2-2 Model 2-3 Model 2-4
R squared 0.54 0.51 0.23 0.23
F statistics 17.9*** 52.8*** 18.0*** 15.6***
Log(NIH) -0.10 0.44***
Log(Patents) 1.00*** 0.89***
Log(PhDs) 0.06 0.49***
Abbreviation:
Phm emp represents employment in biotechnology component, pharmaceutical industry
predicted metropolitan areas, where their actual pharmaceutical industry employment is
smaller than their predicted value, are New Orleans, Orlando, Hartford, Nashville,
Cincinnati, Houston, Seattle, Norfolk, Jacksonville, and Louisville. This indicates that
although these metropolitan areas have comparatively good factor input conditions
represented by life science research base, biotechnology innovation capabilities, and
availability of high quality life science PhD graduates, their pharmaceutical
manufacturing industry activities are not strong yet due to other reasons. It also suggests
that they have potential in the pharmaceutical manufacturing industry given the current
assets. On the contrary, the ten most over-predicted metropolitan areas, where their actual
biotechnology industry employment is bigger than the predicted value, are Grand Rapids,
Greensboro, Charlotte, Austin, Richmond, Kansas City, Los Angeles, Tampa, Buffalo,
and Cleveland. This result suggests that with the current factor input conditions well
90
combined with other factors, these metropolitan areas are performing exceptionally well
in pharmaceutical manufacturing industry.
When the biotechnology component industry, physical, engineering, and life
science’s employment size is the dependent variable (variable name: R&Demp), 63
percent of its variance is explained by three variables. In model 3-1 (table 5-4), only
Patents is significantly positive. However, the same multicollinearity problem exists as
shown in models 3-2 to 3-4 (table 5-4). The regression model is as the following:
log( R & DEmp) = 1.44 − 0.16 log( NIH ) + 0.70 log( Patents) + 0.14 log( PhDs) ...Equation 5-3
Table 5-4 Multiple regression results (R & D employment as dependent variable, venture capital excluded)
Dependent variable: Log(R&DEmp)
Observation: 50
Models Model 3-1 Model 3-2 Model 3-3 Model 3-4
R squared 0.63 0.60 0.42 0.44
F statistics 25.7*** 76.1*** 37.7*** 40.2***
Log(NIH) -0.16 0.45***
Log(Patents) 0.70*** 0.78***
Log(PhDs) 0.14 0.54***
Abbreviation:
R&Demp represents employment in biotechnology component, physical, engineering, and life science
industry
predicted metropolitan areas, where their actual pharmaceutical industry employment is
smaller than their predicted value, are Rochester, Hartford, Memphis, Louisville,
Cincinnati, Indianapolis, Sacramento, Oklahoma City, Saint Louis, and Milwaukee. This
means that although these metropolitan areas have comparatively good factor input
conditions represented by life science research base, biotechnology innovation
capabilities, and availability of high quality life science PhD graduates, their
biotechnology research and development industry is not strong yet due to other reasons. It
91
also suggests that they have potential in biotechnology research and development
industry given the current assets. On the contrary, the ten most over-predicted
metropolitan areas, where their actual biotechnology industry employment is larger than
the predicted value, are Las Vegas, Norfolk, Washington DC, Orlando, San Diego,
Buffalo, Austin, San Antonio, Pittsburgh, and Columbus. This result suggests that with
the current factor input conditions well combined with other factors, these metropolitan
areas are performing exceptionally well in pharmaceutical manufacturing industry.
Then the fourth variable, the amount of venture capitals (variable name: VC), is
included with the other three variables, NIH, Patents, and PhDs as independent variables
to regress on employment in the biotechnology industry for the 37 metropolitan areas.
These four variables combined explain 82 percent of total variation in the biotechnology
industry employment, 56 percent in the component pharmaceutical industry, and 80
percent in the component biotechnology research and development industry. These R
squared numbers are higher than regression models where venture capital is not included,
suggesting the importance of the venture capital utilization.
When biotechnology industry’s employment size is the dependent variable, and
NIH, Patents, PhDs, and VC are the independent variables, 82 percent of the variation is
explained in the regression model. In the regression model, Patents is significant at 0.01
level, and VC is significant at 0.05 level, while NIH and PhDs are not significant at 0.05
level. Regression statistics are shown in model 4-1 ( table 5-5).
92
Table 5-5 Multiple regression results (biotechnology employment as the dependent variable)
Dependent variable: Log(BioEmp)
Observation: 37
Models Model 4-1 Model 4-2
R squared 0.82 0.82
F statistics 42.2*** 88.1***
Log(NIH) 0.04
Log(Patents) 0.69*** 0.75***
Log(PhDs) 0.03
Log(VC) 0.14** 0.14**
Abbreviation: BioEmp represents employment in biotechnology industry, and VC represents venture capital
The regression model is the following:
log( BioEmp) = 1.49 + 0.04 log( NIH ) + 0.69 log( Patents) + 0.03 log( PhDs) + 0.01log(VC ) ..
......................................................................................................................................................Equation 5-4
Due to the multicollinearity problem among NIH, Patents and PhDs, when NIH and
PhDs are excluded from the regression model in 4-2 (table 5-5), the result of the
regression is slightly changed. This does not mean that NIH and PhDs are not important.
Along with this general pattern, residual analysis shows (appendix 9) that the top
ten metropolitan areas that are under-predicted are Louisville, Cincinnati, Minneapolis,
Sacramento, Oklahoma City, Nashville, New Orleans, Jacksonville, Detroit, and Saint
Louis. Among these, Louisville, Cincinnati, and Saint Louis are also in the top ten under-
predicted metropolitan areas in previous regression model 1-1 (table 5-2), where venture
capital is not included. This result suggests that in places like these three metropolitan
areas, even with the venture capital investment in the recent history, the biotechnology
industry activities in 2002 are still not developed up to their potential. The top ten
metropolitan areas that are over-predicted in model 5-1 (table 5-5) are Columbus, Kansas
City, Austin, Washington DC, Tampa, Los Angeles, Charlotte, Greensboro, San Antonio,
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and New York City. Washington DC, Kansas City, and New York City are also among
the top ten over-predicted metropolitan areas in previous regression model 1-1 (table 5-
2), where venture capital is not included, suggesting that factors other than venture
capital have contributed to their biotechnology industry commercial development.
When the biotechnology component pharmaceutical industry is considered, the
regression model becomes:
log( PhmEmp) = 1.03 − 0.59 log( NIH ) + 1.1log( Patents) + 0.21log( PhDs) + 0.19 log(VC) …
…….…………………………………………………………………………………………..Equation 5-5
Regression results are listed in model 5-1 (table 5-6). Partial regression results
from model 5-3 to 5-5 (table 5-6) illustrate that Patents has the highest explanatory
power, followed by VC, and that all individual variables have a significantly positive
impact.
Table 5-6 Multiple regression results (pharmaceutical employment as the dependent variable)
Dependent variable: Log(PhmEmp)
Observation: 37
Models Model 5-1 Model 5-2 Model 5-3 Model 5-4 Model 5-5
R squared 0.61 0.51 0.31 0.26 0.23
F statistics 15.0*** 52.8*** 18.0*** 18.1*** 15.0***
Log(NIH) -0.59** 0.45***
Log(Patents) 1.11*** 0.89***
Log(PhDs) 0.21 0.50***
Log(VC) 0.19* 0.50***
Abbreviation:
Phm emp represents employment in biotechnology component, pharmaceutical industry
VC represents venture capital
When considering residuals (appendix 9), the top ten metropolitan areas that are
under-predicted in their pharmaceutical employment are New Orleans, Sacramento,
Nashville, Houston, Seattle, Louisville, Cincinnati, San Francisco, Jacksonville, and
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Minneapolis. This means that given life science research base and venture capital
investment, these places still have not developed a sufficient pharmaceutical industry due
to other reasons. In contrast, Columbus, Greensboro, Los Angeles, Tampa, Kansas City,
Richmond, Cleveland, Austin, Chicago, and Saint Louis have developed an especially
strong pharmaceutical industry given their current life science research base, high quality
labor supply, and venture capital investment.
When biotechnology component industry, physical, engineering, and life science
research and development industry is considered (variable name: R&DEmp), the
regression model becomes:
log(R & DEmp) = 1.10 + 0.30 log( NIH ) + 0.49 log( Patents) + 0.04 log( PhDs) + 0.12 log(VC )
……….………………………………………………………………………………………..Equation 5-6
Partial regression models from model 5-2 to 5-5 (table 5-7) shows that Patents are
most associated with the variation in the dependent variable.
Table 5-7 Multiple regression results (R&D employment as Y)

Dependent variable: Log(PhmEmp)
Observation: 37
Models Model 5-1 Model 5-2 Model 5-3 Model 5-4 Model 5-5
R squared 0.82 0.60 0.40 0.42 0.44
F statistics 42.1*** 78.1*** 24.0 37.7*** 40.2***
Log(NIH) 0.30 0.45***
Log(Patents) 0.49*** 0.78***
Log(PhDs) 0.04 0.54***
Log(VC) 0.12 0.47***
Abbreviation:
R&Demp represents employment in biotechnology component, physical, engineering, and life science
industry
VC represents venture capital
Residuals tell the performance of each metropolitan area, given their assets in
factor input conditions. The top ten metropolitan areas that are under-predicated are Saint
Louis, Louisville, Indianapolis, Oklahoma City, Richmond, Cincinnati, Greensboro,
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Minneapolis, Nashville, and Philadelphia. The ten metropolitan areas that are over-
predicted include Columbus, Washington DC, Austin, Kansas City, Tampa, San Antonio,
San Diego, Los Angeles, Denver, and Charlotte.
Local usage of biotechnology venture capital
In the previous section, the importance of venture capital was explored, but it did
not reveal the source of the venture capital. If there is “clustering” between the
biotechnology firms and the venture capitalists, then I assume that the source of the
venture capital is basically from the local area. This part, then, tests whether the source of
venture capital is from the local metropolitan area.
In the Moneytree survey, 65 biotechnology companies are recorded to have
received venture capital investment in the first quarter of 2005. Among them, 21
companies get their entire venture capital from outside the metropolitan area and 20
companies get their entire venture capital from local venture capitalists. On average, 43
percent of investors are local venture capitalists for the 65 companies under study. Figure
5-15 shows the histogram of the percentage of local investors for these 65 biotechnology
companies.
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Figure 5-15 Histogram of the local source of venture capital
Percentage of local venture capital investors
Rochester NY
Houston
Minneapolis
NYC
Raliegh
Seattle
Sacramento
Nashville
Dallas
Atlanta
0.00 0.20 0.40 0.60 0.80 1.00 1.20
Figure 5-16 Percentage of local venture capital investors
These 65 companies are located in 19 metropolitan areas, among which 17
companies are in San Francisco, 11 companies in Philadelphia, 7 companies in Boston, 5
in Washington DC, and 4 in San Diego. Companies in Rochester, Washington DC,
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Houston, Minneapolis, and Portland have the majority of their venture capital resources
from local metropolitan areas, while the rest depend more on sources not in the local
metropolitan areas and even receive some capital from overseas. Figure 5-16 shows the
percentage of local investors in the biotechnology companies in 19 metropolitan areas.
From the data source used, it seems that the source of the venture capital is not
restricted to the metropolitan area, but it can come from other places in the United States
and even from foreign countries. Alan Auerbach, vice president and biotechnology
analyst of San Francisco-based First Security Van Kaspar & Co says that local access to
capital is not essential, stating, "The key for a venture capitalist is finding an investment
that's going to make him money. If he has to go to Botswana to do it, and he's going to
make money, he'll do it." Mark Skaletsky, CEO of Waltham, Massachusetts, firm GelTex
has the similar opinion by saying that "You do not have to be located in the proximity of
capital…the key is communication. Financiers want you to keep in touch." (Science &
AAAS website29).
There are many such examples. In 1999, members of Los Angeles’ Brentwood
Venture Capital, Silicon Valley's Institutional Venture Partners and Orange County's
Cross-point Ventures formed Versant Ventures, raising $250 million to devote solely to
biotechnology and health care. In one year, Versant, with offices in Newport Beach and
Menlo Park, invested in 12 companies, most of which were biotech firms, but none of
which are located in Los Angeles. The reason - "There aren't too many (L.A. biotech
startups) we can point to that are highly successful" said Versant Managing Director Bill
Link (Los Angeles Business Journal, Nov 6 200430).
29
30
http://www.findarticles.com/p/articles/mi_m5072/is_45_22/ai_67006179
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Another example is illustrated by Argos Therapeutics, Inc in Raleigh. Its source
of the venture capital comes from all over the world, including ABN Amro Capital, a
wholly owned private equity subsidiary of ABN AMRO Bank N.V. of the Netherlands,
Aurora Funds in Durham, Intersouth Partners Based in Durham, MDS Capital Corp. and
affiliates, located in Cambridge, CDP Capital Technology Ventures, an investment arm
of the Caisse de Depots et Placements de Quebec, GeneChem Therapeutics Venture Fund
L.P based in Montreal, TFG Capital AG, a pioneer of Germany’s venture capital culture,
and Techno Venture Management (TVM), a German based venture capital company that
has offices in Munich and Boston31.
Entrepreneurship
The above analysis indicates that given the same value of local life science
research base, biotechnology innovation base, availability of life science PhD graduates,
and venture capital investment, some metropolitan areas may be better off than others in
terms of their biotechnology industry employment size. Some other factors may counter,
such as entrepreneurship, without which it is hard to translate research in life science in
academics to productivity and job increase in private sectors. In this study, one successful
biotechnology center, San Diego, and a less successful one, Cincinnati, are compared in
terms of entrepreneurial spirit in academics and in biotechnology businesses. Though two
metropolitan case studies may not give conclusive results in regard to the importance of
entrepreneurship, they do reveal important information.
Entrepreneurs in the biotechnology industry are the people who are not only
talented and hard working, but are capable of bringing people together, shape common
31
http://www.argostherapeutics.com/current_investors.html
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goals and elicit their best efforts, according to James Vincent, the chairman and CEO of
Biogen. Entrepreneurs require certain qualities, especially the willingness to take
reasonable risks. The entrepreneurial leader must be able to create an idea-based
corporate culture with decentralized operations - that achieve the maximum potential of
small companies - while being united by a centralized vision and strategy32.
The best example is San Diego, which is one of the “highly concentrated and
specialized biotechnology research clusters” (identified in chapter two) with the smallest
metropolitan area size and which belongs to the over-predicted category in regression
models when biotechnology research and development is considered. In San Diego, there
is a strong sense of entrepreneurship in the academics. For example, in 2001, a report on
California's biomedical industry issued by the California Health Institute lists the number
of biomedical companies started by University of California at San Diego faculty at 63,
bested only by Stanford's 64, but higher than UC Berkeley, UC San Francisco, and
California Institute of Technology33. As well as in the academics, there is strong
entrepreneurial activity in the industry. The experience of the Hybritech is a good
example. Hybritech is the first biotechnology company in San Diego, a joint effort
between the UC San Diego faculties and business elites. When it was bought by Eli Lilly,
Hybritech employees were not excited because most people had joined Hybritech
because they wanted to be in a small, independent company and Lilly was a big firm that
moved slowly and conservatively. Eventually the Lilly culture swamped Hybritech's wild
and crazy crowd. And so one by one the Hybritech leaders left Lilly and started their own
companies, producing a family of companies that includes Gensia Laboratories, Ligand
32
http://triangle.bizjournals.com/triangle/stories/1996/09/23/editorial4.html
33
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Pharmaceuticals, IDEC, Dura Pharmaceuticals, and Nanogen, to name just a few, as well
as several venture-capital companies34. Figure 5-17 shows Hybritech family tree.
Figure 5-17 Hybritech family tree

Source http://pubs.acs.org/cen/coverstory/7910/7910sci3.html
In contrast to excellent performance of biotechnology industrial activities in San
Diego, Cincinnati belongs to the under-predicated group in the previous section’s
regression models, although its local factor condition inputs are not insufficient. One of
the important reasons that Cincinnati lags behind in the biotechnology industry is its
conservative business culture and lack of entrepreneurship in both academics and in
business. In an interview with the vice president from Ohio Valley Affiliates for Life
34
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Science, I learned that although life science research is active in local research university
and institute – University of Cincinnati and Cincinnati Children’s Hospital Medical
Research Center – many of the biotechnology patents that are filed were licensed instead
of establishing firms and manufacturing drugs. According to Carol Frankenstein,
president of the BioStart, a local biotechnology incubator, people in Cincinnati are quite
risk-averse, and are unwilling to invest money in highly risky biotechnology firms.
Importance of local context - creativity and networking
This part tests the second hypothesis, which conjectures that local context,
represented by creativity and awareness of networking, are important for successful
A histogram of the creativity index distribution across fifty metropolitan areas is
shown in figure 5-18. The top eleven most creative places in 2000 according to Florida
(2003) are San Francisco, Austin, Boston, San Diego, Seattle, Raleigh, Houston,
Washington DC, New York City, and Dallas together with Minneapolis. The top ten least
creative places are Memphis, Norfolk, Las Vegas, Buffalo, Louisville, Grand Rapids,
Oklahoma City, New Orleans, Greensboro, and Providence.
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Figure 5-18 Histogram of creativity index
Figure 5-19 Scatter plot between creativity index and biotechnology employment
The correlation between the creativity index and biotechnology industry
employment size (after log transformation) is 0.60, with the pharmaceutical component
industry is 0.53, and with biotechnology research and development component industry is
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0.60, all significant at 0.05 level. This suggests a moderate relationship between cities’
creativity and their biotechnology industry’s employment size. Figure 5-19 shows the
scatter plot between creativity index and biotechnology industry employment size for
fifty metropolitan areas.
A second aspect of local context is networking among biotechnology
professionals, and the hypothesis is early consciousness of biotechnology networking is
important for industry success. Three successful biotechnology clusters, San Diego,
Boston, and Raleigh are compared with one less successful metropolitan area, Cincinnati
in terms of their consciousness of biotechnology networking. These case studies are not
inclusive, but they do reveal important information.
In San Diego, the first biotechnology networking organization is CONNECT,
founded in 1985 at University of California – San Diego (UCSD). UCSD CONNECT is
widely regarded as the nation's most successful regional program linking high-technology
and life science entrepreneurs with the resources they need for success: technology,
money, markets, management, partners, and support services. Part of the UCSD,
CONNECT has a dual role in accelerating growth: it provides added value and delivers
targeted, high-level expertise to San Diego's technology business community by teaming
up with the region's most prominent industry-specific organizations and individuals, and
by partnering with world-class UCSD resources, such as the School of Medicine, Jacobs
School of Engineering, San Diego Super Computer Center, and Scripps and Salk
Institutes. CONNECT's services are tailored to meet the varying needs of San Diego
entrepreneurs at all stages of their business life cycles and growth. Since its inception,
CONNECT has assisted more than 800 technology companies. Its programs serve as a
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catalyst for the development and exchange of ideas, a forum to explore new business
avenues and partnerships, and an opportunity to network with peers. The result of the
networking by CONNECT is an energetic, resource-rich environment for honing ideas,
pursuing personal growth and professional development, and exploring innovative
business opportunities. Because of its success, the CONNECT model has been replicated
in other cities and countries, including Scotland, Denmark, Norway, and Sweden35.
In Boston, the Massachusetts Biotechnology Council (MBC) was founded in 1985
It is a not-for-profit organization committed to advancing the development of critical new
science, technology and medicines. Representing over 400 biotechnology companies,
academic institutions and service organizations involved in biotechnology and healthcare,
the MBC works with public leaders to advance policy and promote education, while
providing member programs and services. As of March 2003, total membership includes
403 companies and institutions36.
In Raleigh, the North Carolina Biotechnology Center, a private, non-profit
corporation was created by the State in 1984 and supported by the General Assembly. Its
mission is to provide long-term economic and societal benefits to North Carolina through
support of biotechnology research, business and education37.
Obviously, these metropolitan areas, that later gained great success in the
biotechnology industry, created a network of biotechnology professionals when
biotechnology industry was at a quite young stage (the first biotechnology firm was
established in late 1970s).
35
http://www.connect.org/about/index.htm
36
http://www.biospace.com/company_profile.cfm?CompanyID=1429
37
http://www.ncbiotech.org/ouractivities/business/bizptnr.cfm
105
In contrast, formal networking organization in Cincinnati started only in 1996
with the establishment of BioStart, a biotechnology incubator. Compared to those
successful centers, there is a 10 years’ lag in terms of the consciousness of the
biotechnology industry’s development potential and concerted effort to promote industry
development.
Spatial proximity between biotechnology industry and its value
chain linked industries
This part tests the third group of hypotheses, which states that geographic co-
location between the biotechnology industry and its value chain linked industries is
important, and that the biotechnology industry locates where there are sufficient buyers
and or sellers at metropolitan level. Co-location does not warrant direct input output
relationship at the metropolitan level, but it is the necessary condition if such a
transaction happens. There are two major steps in this hypothesis testing. First, to identify
industries that are linked with the biotechnology industry in the value chain, principal
component factor analysis (PCA) on the 1997 national input-output table was conducted.
Industries that are similar to the biotechnology industry in their buying and selling
patterns were identified. Correlation analysis of the employment in the biotechnology
industry with employment in its value chain linked industries was then followed to test
the geographic proximity between them at the metropolitan level.
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Biotechnology industry’s demand conditions, related and supportive
industries
National MAKE and USE tables from 1997 were used to calculate the national
transaction table that illustrates dollar flows between each pair of the 127 industries. Most
of these 127 industries are aggregated at the 4 digit NAICS code level, with a few
services industry at 2 digit NAICS level, such as educational services. The industries
among these 127 that are mostly related to biotechnology are the pharmaceutical
manufacturing industry (NAICS 3254) and the scientific research and development
services industry (NAICS 5417). There is no exact physical, engineering, and life science
research and development industry (NAICS 541710) in the transaction table.
PCA analysis on this 127 by 127 industry national transaction matrix generates 30
factors that have Eigenvalues greater than 1, which explains 85 percent of the total
variance in the matrix. This grouping classifies industries that are similar in the buying
pattern and share common factor markets. Each factor is represented by the industries
that have highest loadings on it and is interpreted by those industries. In factor 26,
pharmaceutical industry has the highest loading of 0.85, other professional and technical
services (NAICS 5419) has the second highest loading of 0.46, followed by ambulatory
health care services (NAICS 621) with a loading of 0.27, hospitals (NAICS 622) 0.26,
and medical equipment manufacturing (NAICS 3391) 0.26. The scientific research and
development industry does not have any predominant factor loading on any factor.
The transposed transaction table reveals sales information of the column
industries. PCA analysis then groups industries based on their selling patterns, which
means that the grouped industries share a common market. Factor analysis on the 127 by
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127 transposed transaction table generates 34 factors that have Eigenvalue greater than 1,
which explain 84 percent of the total variance. The pharmaceutical industry has the
highest loading on factor 28 with a value of 0.86. Other industries that show up in this
factor include scientific research and development service (NAICS 5417) with a loading
of 0.39, educational services (NAICS 61) 0.36, and medical equipment manufacturing
0.24. All the loadings are shown in the table 5-8. Scientific research and development
service industry itself does not have any predominant loading in any factors.
Table 5-8 Comparing factor loadings from factor analysis using different methods
PCA on Transaction table PCA on Transposed transaction
(factor 26) Loading Table (factor 28) Loading
Pharmaceutical manufacturing 0.85 Pharmaceutical manufacturing 0.86
Other professional technical service 0.46 Scientific research and development 0.39
Ambulatory health care 0.27 Educational services 0.36
Medical equipment 0.26 Medical equipment 0.24
Hospitals 0.26
Detailed examination of these industries from census definitions and transaction
tables reveal that they not only share commonality in a factor market or customers with
the biotechnology industry (pharmaceutical manufacturing and scientific research and
development), but they also have a direct buy-sell relationship with it. Figure 5-20 shows
the buy – sell relationship among these industries. When the transaction between two
industries is among each other’s top ten buyers or sellers, there is a link between them.
Hospitals (NAICS 622) are the number one client of pharmaceutical products and
medical equipments. Ambulatory health care services (NAICS 621) are also among the
top buyers for pharmaceutical products. As for other professional services (NAICS
5419), it is its sub-group, veterinary services (NAICS 54194) that provide animal health
care, that is among the biggest buyers for drugs. The medical equipment industry
(NAICS 3391) delivers biotechnology instruments to hospitals and health services, but
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does not have much of a direct buy-sell relationship with pharmaceutical or physical,
engineering, and life science research and testing establishments. As for the educational
service industry (NAICS 61), it does not have much direct buy-sell transaction with any
of the other five industries, but is viewed as an important part of the infrastructure for
Hospitals
Scientific R & D Pharmaceuticals
Ambulatory
Service
Educational Medical equip

service
Prof. Service
PCA grouping from transposed
transaction table
PCA grouping from transaction table
Figure 5-20 Input output relationships among value chain linked industries to the biotechnology industry
If we use Porter’s (1998) cluster to frame this finding, we conclude that the
demand industries for the biotechnology industry are three health care sectors: hospitals,
ambulatory health care service, and veterinary services. Medical equipment industry and
educational service are biotechnology industry’s supportive and related industries.
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Spatial proximity between biotechnology industry with its value chain
linked industries
After identifying the biotechnology industry’s demand, supportive and related
industries, they were examined in terms of their spatial co-location with the
biotechnology industry.
Spatial proximity between biotechnology industry with its “demand conditions” –
health care sectors
Figures 5-21 to 5-26 show histograms of employment size in hospitals,
ambulatory health care services, and veterinary services and their corresponding log
transformed histograms in fifty metropolitan areas.
Figure 5-21 Histogram of the hospital employment
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Figure 5-22 Histogram of the hospital employment (log transformed)
Figure 5-23 Histogram of the ambulatory health care employment
111
Figure 5-24 Histogram of the ambulatory health care employment (log transformed)
Figure 5-25 Histogram of the veterinary services employment
112
Figure 5-26 Histogram of the veterinary services employment (log transformed)
Figure 5-27 Scatter plot between hospital employment and biotechnology employment
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Figure 5-28 Scatter plot between ambulatory health care services employment and biotechnology
employment
Figure 5-29 Scatter plot between veterinary employment and biotechnology employment
The correlation coefficient of hospital employment with biotechnology industry is
0.71, with pharmaceutical component industry is 0.51, and with biotechnology research
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and development component industry is 0.72: all are significant at 0.05 level. The
correlation matrix (table 5-1) suggests that, in general, the biotechnology industry,
especially the biotechnology research and development industry, is located where there
are large health care sectors (figure 5-27). Despite this general pattern, some successful
metropolitan areas do not have large local market size. Take San Diego for example, one
of the top biotechnology clusters, it ranks 6th in the total biotechnology employment, but
24th in hospital employment. Another example is Raleigh: it ranks 9th in biotechnology
employment, but 34th in hospital employment. Opposite examples are Louisville and
Jacksonville. Both have relatively smaller biotechnology industry employment than their
hospital employment size.
The fact that the biotechnology component research and development industry has
a higher correlation coefficient with hospital employment than pharmaceutical
manufacturing industry suggests that biotechnology research and development firms are
more attracted by urbanization economies (hospitals are usually where people are) than
are the pharmaceutical manufacturing firms. Another reason is that since some hospitals
also do research, they could exert strong attraction to life scientists and leading to the
locality becoming a hotbed for biotechnology firms. The formation of Athersys Inc in
Cleveland is such an example. In 1994, two Stanford graduates, Gil Van Bokkelen and
his friend John Harrington, followed their old Stanford mentor, geneticist Huntington
Willard, to University Hospitals in Cleveland in 1994, with no plans to stay. The idea was
to finish work with Willard on the world's first artificial chromosome, then use that
breakthrough to launch a biopharmaceutical firm back home in California's high-tech
hothouse. But after they stayed in University Hospital for some time, they found that
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could tap world-class talent and facilities at University Hospitals, Case Western Reserve
University and the Cleveland Clinic (Frolik, 2002). In 1995, they established Athersys
Inc, locating it near the world renowned Cleveland Clinic, and Case Western Reserve
University.
A second biotechnology market is ambulatory health care sector. The correlation
coefficient of the ambulatory service sector’s employment size with biotechnology
industry employment size is 0.75, with pharmaceutical component industry is 0.61, and
with biotechnology research and development component industry is 0.75: all significant
at 0.05 level. As for the third biotechnology market, veterinary services, its correlation
coefficient with biotechnology industry employment size is 0.74, with pharmaceutical
component industry is 0.59, and with biotechnology research and development
component industry is 0.72. This result suggests that, in general, biotechnology industry
especially biotechnology research and development industry are more attracted to
urbanization economies than pharmaceutical firms. Figure 5-28 shows the scatter plot
between ambulatory health care services employment and biotechnology employment,
and figure 5-29 shows the scatter plot between veterinary service industry’s employment
size and biotechnology industry’s employment size.
Spatial proximity between biotechnology industry with its “related industry” –
medical equipment manufacturing industry
The medical equipment manufacturing industry (NAICS 3391) is complementary
to the biotechnology industry in the sense that both share common clients and a factor
market. Its primary client is hospitals, but it has little direct buy-sell transaction with
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either pharmaceutical industry or physical, engineering, and life science research and
development industry.
The histogram of the medical equipment employment in figure 5-30 shows a
skewed distribution and one close to normal distribution after log transformation in figure
5-31. At the metropolitan scale, the correlation coefficient of medical equipment industry
employment with the biotechnology industry employment size is 0.62, with the
pharmaceutical component industry is 0.67, and with the biotechnology research and
development component industry is 0.53, all significant at 0.05 level. This result suggests
a moderate correlation between biotechnology industry size and medical equipment
manufacturing industry size. Some metropolitan areas have comparatively more
biotechnology industry employment than medical equipment manufacturing industry’s
employment, such as Washington DC and Raleigh. In contrast, Jacksonville has more
medical equipment industry than biotechnology industry.
Figure 5-30 Histogram of medical equipment industry’s employment
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Figure 5-31 Histogram of medical equipment industry’s employment (after log transform)
Figure 5-32 Scatter plot between medical equipment industry and biotechnology industry employment
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Spatial proximity between biotechnology industry with its “supportive industry” –
educational services
The educational services industry is supportive of biotechnology industry. Figures
5-33 and figure 5-34 show histograms of employment data and log transformed
employment data in educational services across fifty metropolitan areas. The correlation
coefficient of educational service industry employment size with biotechnology industry
employment size is 0.72, with pharmaceutical component industry is 0.59, and with
biotechnology research and development component industry is 0.68. The scatter plot
between biotechnology industry employment size and educational service industry
employment size is shown in figure 5-35. Results suggest that the biotechnology industry
has a moderate tendency to locate in the metropolitan areas that have sufficient
educational services; however, sometimes, the size of the educational service industry
may not be a necessary or sufficient condition for a metropolitan area to have strong
biotechnology industry. For example, San Diego, one of the top biotechnology clusters,
ranks only 20th in the total employment of the educational services.
Figure 5-33 Histogram of educational service industry’s employment
119
Figure 5-34 Histogram of educational service industry’s employment (log transformed)
Figure 5-35 Scatter plot between educational service and biotechnology industry
Agglomeration effects from biotechnology anchors
This part tests the last hypothesis, which assumes that biotechnology anchor firms
have agglomeration effects upon other biotechnology firms. This section tests this anchor
hypothesis by examining whether the metropolitan areas that have anchor establishments
120
have more biotechnology establishments than metropolitan areas that do not have any
anchor establishments. Anchor establishments are here defined as those with more than
500 employees. Biotechnology industry’s two component industries are examined in
terms of their attraction to the establishments in their own industry and to the
establishments in the other biotechnology component industry.
Pharmaceutical anchors
In 2002, half of the fifty metropolitan areas have at least one big pharmaceutical
establishment (table 5-9). The average number of pharmaceutical establishments for 25
metropolitan areas that are not anchored is 11, and the standard deviation is 8.4. While
Jacksonville has only one pharmaceutical establishment in total, Minneapolis has 29. The
average number of pharmaceutical establishments for 15 metropolitan areas with one
anchor is 15, and standard deviation is 9.8. Among these 15 metropolitans, Richmond has
only two pharmaceutical establishments in total, while Denver has 32 establishments.
Table 5-9 Frequency distribution of the pharmaceutical establishments

# of phm. # of metro areas Min. # of phm. Max.# of phm. Avg. # of phm. Std. of the # of
anchors Est. Est. Est. per metro phm Est.
0 25 1 29 11 8.4
1 15 2 32 15 9.8
2 5 10 65 37 21.7
3 1 74 74 74 0.0
5 1 62 62 62 0.0
7 2 77 125 101 33.9
18 1 234 234 234 0.0
Abbreviations:
# represents number; Phm represents pharmaceutical; Metro represents metropolitan; Est. represents
establishment; Min represents minimum; Max represents maximum; and Std. Represents standard deviation
A variance test between these two groups, one not anchored and the other
anchored by one pharmaceutical establishment, reveals that there is no significant
difference between the two, as shown in table 5-10. The T test in table 5-11 accepts the
null hypothesis that the number of pharmaceutical establishments in metropolitans that
121
have one anchor is not significantly higher than that in metropolitans that are not
anchored at 0.05 significance level.
Table 5-10 F test on the number of pharmaceutical establishments between metropolitan areas that are not
anchored and those with one pharmaceutical anchor
Metro with no phm anchor Metro with 1 phm anchor
Mean 11 14.5
Variance 69.9 97.4
Observations 25 15
Degree of freedom 24 14
F 0.72
P(F<=f) one-tail 0.23
F Critical one-tail 0.45
Table 5-11 T test on the number of pharmaceutical establishments between metropolitan areas that are not
anchored and those with one pharmaceutical anchor
Metro with no phm anchor Metro with 1 phm anchor
Observations 25 15
Hypothesized Mean
Difference 0
Degree of freedom 38
t Stat -1.21
P(T<=t) one-tail 0.12
Five metropolitan areas are anchored by two big pharmaceutical establishments.
The average number is 37 and the standard deviation is 21.7. While Indianapolis has
only ten pharmaceutical establishments, Raleigh has 23, and San Diego has 65. The F test
in table 5-12 shows that there is significant difference in the variance between the
metropolitans that do not have any pharmaceutical anchors and the metropolitans that
have two anchors. And the T test in table 5-13 shows that metropolitans with two
pharmaceutical anchors have significantly more pharmaceutical establishments in
metropolitans with no anchor.
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anchored and those with two pharmaceutical anchors
Metro with no phm anchor Metro with 2 phm anchors
Mean 11 36.6
Variance 69.9 470.3
Observations 25 5
F stat 0.14
anchored and those with two pharmaceutical anchors
Observations 25 5
Hypothesized Mean
Difference 0
Degree of freedom 4
t Stat -2.6
Abbreviations:
Phm represents pharmaceutical; and Metro represents metropolitan
The rest five metropolitan areas are anchored by more than three big
pharmaceutical establishments. Among them, Boston is anchored by three and has 74
pharmaceutical establishments in total; Philadelphia has five anchors and 62
establishments; Los Angeles is anchored by seven and has 125, San Francisco is also
anchored by seven but has 77 establishments in total, and New York City is anchored by
18 establishments and has 234 establishments. The number of pharmaceutical
establishment in these metropolitan areas is much larger than others with fewer anchors.
Statistical tests are not conducted due to little degree of freedom.
The finding above reveals that, while the number of metropolitan areas that have
pharmaceutical anchors tend to have more pharmaceutical establishments than the
metropolitan areas that do not have any pharmaceutical anchors, the statistical support for
the anchor hypothesis is not strong. In addition, it has not been proved here that anchor
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firms attract smaller to medium firms, or the association between the number of
pharmaceutical anchors and total number of pharmaceutical establishments is because the
locality is attractive to both big firms and smaller firms.
The second part of this section examines the relationship between pharmaceutical
anchor number and the number of biotechnology research and development
establishments across fifty metropolitan areas. Table 5-14 shows the statistical
description of biotechnology research and development establishments in metropolitan
areas that are anchored by different number of pharmaceutical establishment.
Table 5-14 Frequency distribution of R & D establishments

# of phm. # of metro areas Min. # of R & Max.# of R & Avg. # of R & Std. of the #
anchors D Est. D. Est. D. Est. per of R & D Est.
metro
0 25 18 294 78 59.3
1 15 16 249 78 57.7
2 5 45 967 392 359.6
3 1 702 702 702 0.0
5 1 331 331 331 0.0
7 2 655 972 814 224.2
18 1 917 917 917 0.0
Abbreviations:
# represents number; Phm represents pharmaceutical; Metro represents metropolitan; R & D represents
physical, engineering, and life science research and development; Est. represents establishment; Min
represents minimum; Max represents maximum; and Std. Represents standard deviation
In the 25 metropolitan areas that do not have any pharmaceutical anchor
establishment, the average number of physical, engineering, and life science research and
development establishment is 78 per metropolitan, and the standard deviation is 59.3.
Louisville has the least amount with 18, while Seattle has the maximum amount of 294.
The statistical distribution of physical, engineering, and life science research and
development establishment in the 15 metropolitan areas that have one pharmaceutical
anchor is similar to that in the not-anchored-metropolitans. Grand Rapids has the
minimum of 16 physical, engineering, and life science research and development
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establishments, and Denver has the maximum of 249 establishments. The average
number is 78 per metropolitan, and the standard deviation is 57.7.
Table 5-15 F test on the number of R & D establishments between metropolitan areas that are not anchored
and those with one pharmaceutical anchor
Metro with no phm
anchor Metro with 1 phm anchor
Mean 78.04 77.6
Variance 3521.3 3325.4
Observations 25 15
F 1.06
Table 5-16 T test on the number of R & D establishments between metropolitan areas that are not anchored
and those with one pharmaceutical anchor
Metro with no phm Metro with 1 phm
anchor anchor
Observations 25 15
Pooled Variance 3449.1
t Stat 0.02
t Critical one-tail 1.69
F test in table 5-15 shows that there is no significant difference in the variance of
the two groups. The mean number of biotechnology research and development
establishments in metropolitan areas that have one pharmaceutical anchor is not
significantly different from that in metropolitan areas that are not anchored by any
pharmaceutical establishment, as shown in T test in table 5-16.
For the five metropolitan areas that are anchored by two pharmaceutical anchors,
there is also a large difference in the number of physical, engineering, and life science
research and development establishments. Indianapolis has only 45 establishments,
Raleigh has 203 establishments, and Washington has 967 establishments. The average
number is 392 and the standard deviation is 359.6. An F test on the number of R & D
establishments between the metropolitan groups that have no pharmaceutical anchor and
125
the metropolitan groups with two anchors, as table 5-17 shows, indicates that the variance
between the two groups is significantly different. And the T test in table 5-18 shows that
the number of R & D establishments in metropolitans with two pharmaceutical anchors is
not significantly higher than that in metropolitans with no pharmaceutical anchors at 0.05
level.
and those with two pharmaceutical anchors
Mean 78.0 391.8
Variance 3521.3 129330.7
Observations 25 5
F 0.03
P(F<=f) one-tail 6.65E-10
and those with two pharmaceutical anchors
Observations 25 5
Hypothesized Mean
Difference 0 0
t Stat -1.94
The other five metropolitan areas are anchored by more than three anchor
establishments. Among them, Boston is anchored by three anchors and has 702 physical,
engineering, and life science research and development establishments in total;
Philadelphia has five anchors and 331 establishments; Los Angeles is anchored by seven
and has 655, San Francisco is also anchored by seven but has 972 in total, and New York
City is anchored by 18 establishments and has 917 establishments. These numbers are
much higher than numbers in metropolitan areas that are not anchored by big
pharmaceutical establishments.
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The results from above analysis are not conclusive and the importance of anchor
firms needs to be further scrutinized. For example, the acquisition of San Diego’s
Hybritech by Eli Lilly discouraged the entrepreneurship of Hybritech’s previous
personnel. As people left Hybritech one by one and formed their own companies, Eli
Lilly sold Hybritech and pulled out of San Diego in the mid-1990s38. This example
indicated that pharmaceutical anchors might have negative impacts upon the overall
biotechnology industry development. Different opinions are given by the Milken Institute
(2004), which states that San Diego should have more anchors to stabilize the whole
industry.
In a discussion I had with John Lewis from the Ohio Valley Affiliate for Life
Science, the enterprise culture of the anchor firms is very important. When the anchor
firm’s culture is internal and not collaborative, new firms are not encouraged to locate
nearby. Take Indianapolis for example. Although the metropolitan place is anchored by
Eli Lily and the industry employment size is large, there are few medium and small sized
biotechnology companies. On the contrary, when the culture of the anchor firm(s) is open
and collaborative, the locality is attractive to new firms. In John Lewis’ opinion, Proctor
& Gamble has a strong open business culture, and Cincinnati, as a result, may be an
attractive place for biotechnology firms, as they can form partnership with Proctor &
Gamble.
38
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Physical, engineering, and life science research and development
anchors
This section examines the relationship between the number of physical,
engineering, and life science research and development (also called biotechnology
research and development) anchors and the total number of biotechnology research and
development establishments and the number of pharmaceutical establishments. In 2002,
27 metropolitan areas out of 50 do not have any research and development anchor
establishment (table 5-19).
Table 5-19 Description of the biotechnology R & D establishments

# of R&D # of metro areas Min. # of R&D. Max.# of R&D. Avg. # of R&D. Std. of the # of
anchors Est. Est. Est. per metro R&D Est.
0 27 16 151 59 36.5
1 8 45 178 91 48.2
2 8 44 250 161 93.6
3 1 655 655 655 0.0
4 2 331 972 651 453.3
6 1 702 702 702 0.0
8 1 494 494 494 0.0
9 1 917 917 917 0.0
15 1 967 967 967 0.0
Abbreviations:
# represents number; R&D represents physical, engineering, and life science research and development;
Metro represents metropolitan; Est. represents establishment; Min represents minimum; Max represents
maximum; and Std. Represents standard deviation
Among the 27 metropolitan areas that do not have any biotechnology research and
development establishments, Grand Rapids has the least number of biotechnology
research and development establishments, 16, and Atlanta has the maximum number of
151. The average number of biotechnology research and development establishments for
these 27 metropolitan areas is 59, and the standard deviation is 36.5. Among the eight
metropolitan areas that have one biotechnology research and development anchor, the
average number of establishments is 91. Indianapolis has the least amount of
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establishments with 45, and Houston has the maximum amount with 178. The standard
deviation is 48.2.
The F test in table 5-20 shows that there is no significant difference in the two
groups’ variances, and the T test result in table 5-21 shows that the number of the
biotechnology research and development establishments in metropolitans with one
biotechnology research and development anchor is significantly higher than that in
metropolitans with no R & D anchor at 0.05 level.
and those with one R & D anchor
Metros with no R & D Metros with 1 R & D
anchor anchor
Mean 59.4 90.6
Variance 1334.7 2320.2
Observations 27 8
F 0.57
and those with one R & D anchor
anchor anchor
Observations 27 8
Hypothesized Mean
Difference 0
t Stat -1.97
Eight metropolitan areas have two biotechnology research and development
anchors. Among them, Las Vegas has a minimum of 44 biotechnology research and
development establishments as a minimum, and Chicago has 250 as a maximum. The
average number of biotechnology research and development establishments in these eight
metropolitan areas is 161. Seven other metropolitan areas are anchored by more than two
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big establishments. Among them, Los Angeles is anchored by three and has 655
establishments in total. Philadelphia is anchored by four and has 331 in total, while San
Francisco also has four anchors but has 972 in total. Boston has six anchors and 702
biotechnology research and development establishments in total. San Diego has eight
anchors and 494 in total. New York City has nine anchors and 917 in total. Washington
DC has the highest number of 15 anchors, and it also has the highest number of total
biotechnology research and development establishment of 967 in total.
So in general, when the metropolitan areas are anchored by big biotechnology
research and development establishments, they tend to have more small and medium
sized R & D establishments.
The second part of this section examines whether metropolitan areas with
biotechnology research and development anchors have more pharmaceutical
establishments in total than those in metropolitan areas with no biotechnology research
and development anchors. Table 5-22 shows the number of pharmaceutical
establishments in metropolitan areas that have different number of R & D anchors.
Table 5-22 Description of the pharmaceutical establishment groups

# of R & D. # of metro areas Min. # of phm. Max.# of phm. Avg. # of phm. Std. of the # of
anchors Est. Est. Est. per metro phm Est.
0 27 1 31 10 8.7
1 8 6 29 15 7.8
2 8 2 35 19 23.3
3 1 125 125 125 0.0
4 2 62 77 70 10.6
6 1 74 74 74 0.0
8 1 65 65 65 0.0
9 1 243 243 243 0.0
15 1 50 50 50 0.0
Abbreviations:
# represents number; Phm represents pharmaceutical; Metro represents metropolitan; R & D represents
physical, engineering, and life science research and development; Est. represents establishment; Min
represents minimum; Max represents maximum; and Std. Represents standard deviation
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For the 27 metropolitan areas that have no biotechnology research and
development anchors, the range of the number of pharmaceutical establishment is from 1
to 31. Jacksonville has the minimum value while Saint Louis has the maximum value.
The average number of pharmaceutical establishment for these 27 metropolitan areas is
10, and the standard deviation is 8.7. For the eight metropolitan areas that have one
anchor, the range of the number of the pharmaceutical establishments is from 6 to 29.
Columbus has the minimum while Minneapolis has the maximum. And the standard
deviation is 7.8.
The F test on these two groups in table 5-23 shows that there is no significant
difference among their variance. Neither is there significant difference between the
means, as illustrated in T test result in table 5-24.
anchored and those with one R & D anchor
anchor anchor
Mean 10.7 15
Variance 75.29 61.42
Observations 27 8
F 1.22
anchored and those with one R & D anchor
anchor anchor
Observations 28 7
Hypothesized Mean
Difference 0
t Stat -1.25476
Eight metropolitan areas are anchored by two big biotechnology research and
development establishments each. Among them, Norfolk has two biotechnology research
131
and development establishments as a minimum and Chicago has 35 as a maximum. The F
test in table 5-25 shows that the variance in the two groups of metropolitans with no
anchor and those that have two anchors are not significantly different, while the mean in
the metropolitans that have two anchors are significantly higher than the mean value in
the metropolitans with no biotechnology research and development anchor (table 5-26).
anchored and those with two R & D anchors
anchor anchor
Mean 10.7 19
Variance 75.29 131.4
Observations 27 8
F 0.57
anchored and those with two R & D anchors
anchor anchor
Observations 28 2
Hypothesized Mean
Difference 0
t Stat -2.20
Other metropolitan areas with more than two biotechnology research and
development anchors have results as follows. Los Angeles has three anchors and 125
pharmaceutical establishments in total. Boston has six biotechnology research and
development anchors but 74 pharmaceutical establishments in total. San Diego has eight
biotechnology research and development anchors and 65 pharmaceutical establishments
in total. New York City has nine anchors and 243 pharmaceutical establishments.
Washington has 15 anchors but 50 pharmaceutical establishments in total. It seems that
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the metropolitan areas that have more R & D anchor also tend to have more
pharmaceutical establishments.
133
Chapter 6 Conclusion
Major findings
This dissertation explains the spatial variation of the biotechnology industry
across fifty metropolitan areas in the United States. Here are the major findings.
First of all, this study defined biotechnology industry as composed of the
pharmaceutical and medicine manufacturing industry (NAICS 3254) and the physical,
engineering, and life science research and development services industry (NAICS 54171,
I also label it biotechnology research and development industry in this dissertation).
Measured by establishment numbers, establishment density, employment, employment
density, and location quotients in the biotechnology industry as well as in its two
component industries, fifty metropolitan areas under study were divided into six
categories. New York CMSA is the only “super sized biotechnology cluster” with
supreme amount of overall biotechnology establishment, pharmaceutical establishment
density, overall biotechnology employment, and overall biotechnology employment
density. Boston, San Diego, San Francisco, and Washington DC are distinguished as the
“highly concentrated and specialized biotechnology research clusters” with overall
biotechnology establishment density and the highest biotechnology research and
development establishment density, as well as the highest specialization in biotechnology
research and development. Four other metropolitan areas, Chicago, Los Angeles,
Philadelphia, and Raleigh, are the “upper level biotechnology clusters”. Seventeen
metropolitan areas are grouped into “medium sized biotechnology centers”, including
134
Atlanta, Austin, Buffalo, Columbus, Denver, Detroit, Houston, Kansa City, Miami,
Minneapolis, Norfolk, Pittsburgh, Salt Lake City, San Antonio, Seattle, Saint Louis, and
Tampa. Close to the “medium sized biotechnology centers” in terms of biotechnology
employment, four metropolitan areas, Indianapolis, Rochester, Grand Rapids, and
Richmond are separated as the “highly dominated pharmaceutical centers” with a few
pharmaceutical establishments. Finally, twenty metropolitan areas are grouped into “low
level biotechnology centers”. These include Charlotte, Cincinnati, Cleveland, Dallas,
Greensboro, Hartford, Jacksonville, Las Vegas, Louisville, Memphis, Milwaukee,
Nashville, New Orleans, Oklahoma City, Orlando, Phoenix, Portland, Providence,
Sacramento, and West Palm Beach.
Four groups of hypotheses are proposed to explain why some metropolitan places
have gained more biotechnology industry activities than other places. These hypotheses
come from various biotechnology related literature, and are analyzed in Porter’s (1998)
cluster theory.
The first group of hypotheses assumes that local input conditions are important
for biotechnology industry development. Statistical correlation and regression analysis
show that a local life science research base, represented by NIH funding, biotechnology
innovation capability, represented by patents, quality labor supply, represented by life
science PhDs graduates, are positively related to biotechnology industry size measured by
employment. This positive relationship is stronger between these conditions and
biotechnology component research and development industry. This means that, in
general, these input conditions are important for biotechnology industry development.
With these assets metropolitan areas have potential to boost their biotechnology industry.
135
At the same time, selected biotechnology firm case studies illustrate that it is also
possible for biotechnology firms to form collaboration with university research labs or
institutions outside the local metropolitan area. This implies that benefits from a life
science research base may not be restricted inside local metropolitan area. As for venture
capital, local investment might not be essential for biotechnology industry. When the
importance of entrepreneurship is concerned, in San Diego, a study of magazine accounts
and firm development histories (as mentioned on pages 100 and 101) shows that
university faculties are actively involved in forming biotechnology business. People
already in biotechnology industry in San Diego are also very risk-taking and have a
strong willingness to start their own businesses. In contrast, a personal interview with a
biotechnology professional in Cincinnati reveals that people in Cincinnati (as mentioned
on pages 101 and 102) are risk-averse in biotechnology, and thus the industry
development is negatively affected. As a result, it may be concluded that local
entrepreneurship is very important.
The second group of hypotheses proposes that local context is important for
biotechnology industry development. There are two important elements in local context,
creativity and networking. Statistical correlation analysis shows that, in general, the more
creative one metropolitan area is, the more employment biotechnology industry will
develop. As for networking, though biotechnology-networking organizations as well as
the nature of their responsibilities were established, evidence from San Diego, Boston,
Raleigh, and Cincinnati shows that the first three successful biotechnology clusters have
nurtured biotechnology professionals’ networks in the early stages of biotechnology
136
industry development in the mid-1980s, while Cincinnati began to form its networks ten
years later. It then may be inferred that early networking may be important.
The third group of hypotheses conjectures that biotechnology industry is located
where its buying, related, and supportive industries are. Statistical correlation results
show that, in general, biotechnology industry employment size corresponds to the
employment size of their client industries: hospitals, ambulatory health care, and
veterinary services; a related industry: medical equipment manufacturing firms; and their
supportive industry: educational services. Among these value chain related industries,
hospitals have special importance, as research atmosphere in hospitals may be attractive
for biotechnology research and development.
The last group of hypotheses proposes that biotechnology anchor establishments
attract more biotechnology establishments. Descriptive statistics shows that metropolitan
areas with anchors also tend to have more biotechnology establishments. However, T
statistics give very inconclusive results. For the effect from pharmaceutical anchors, T
statistics show that there is no statistically significant difference of the number of
pharmaceutical establishment or biotechnology research and development establishment
between metropolitans with no anchor and those with one anchor. For the effect from
biotechnology research and development anchors, T statistics shows that the number of
biotechnology research and development establishment in metropolitan areas with one
anchor is significantly higher than that in metropolitan areas with no anchor. In a
personal interview, one biotechnology expert in Cincinnati views that the agglomeration
effect from the anchor firm depends on the cooperate culture of that anchor. If the
anchor’s culture is open and collaborative, then there is agglomeration effect, vice versa.
137
Acquisition experience of one biotechnology firm in San Diego by pharmaceutical giant
Eli Lily seems to support this view.
To summarize, the spatial distribution of biotechnology industrial activities may
be explained in the following ways. First, local input factor conditions in terms of a local
life science research base, biotechnology innovation capability, life science PhDs, and
entrepreneurship are important factors for biotechnology industry development. Second,
as for the importance of local context, a local atmosphere of creation is important for
biotechnology industry development, as well as early consciousness of biotechnology
professionals’ networking. Third, at metropolitan level, biotechnology industry is
generally located in where its buying, related, and supportive industries is. Last, there is
no clear agglomeration effect from biotechnology anchor establishments; but any anchor
impacts may depend on an individual anchor’s business culture.
Implications for economic development
Results from this dissertation may be used for biotechnology industry
development policies in at least three ways.
First, realizing that local life science research base, local life scientists, and local
entrepreneurship are important for biotechnology industry to succeed, local governments
should build up all these factors and not focus only on a research base. As the results
show, there is always the possibility that firms in one place could form collaboration with
universities and research labs outside the metropolitan area. As a result, a strengthened
life science research base in one metropolitan area may benefit biotechnology industry
development as a whole in a nation, but does not necessarily boost the local
biotechnology industry development; especially there is not enough entrepreneurship or
138
other local factors. For metropolitan areas with strong life science research assets but lag
in industrial activities, it is very important to know where their weak links are. Is it due to
lack of entrepreneurship or due to other reasons? Of special importance is the attitude
towards venture capital. This dissertation shows that it is not essential to get local venture
capital. So the economic policy implication is: let the market forces work. When there is
a good biotechnology business development plan, there are always means to get
investment funds. In this contest, government funded venture capital may be helpful, but
must be invested very smartly. As for a quality labor force, increased local supply of life
science PhD graduates may be important to attract firms, but it is also important to create
local jobs, to take advantage of local talents or to encourage them to have their own
business. Otherwise, you are only training life scientists for other places. On the other
hand, policy makers should not only look at the resources in the local area either, but also
explore the resources outside the metropolitan area and link local business development
in the global production network (Humphrey & Schmitz, 2002).
Second, metropolitan areas should improve its image of creativity to attract
talented biotechnology professionals. It is also very important to have a well-connected
biotechnology professional network.
Third, this dissertation shows that although in general, biotechnology firms are
located close to their markets or related industries, there are some successful
biotechnology clusters where there is no strong biotechnology market or related or
supportive industries. This has at least three implications. First, biotechnology products
have strong exporting abilities. If you have a small local market, it would not necessarily
be a constraint. Second, though the medical equipment industry seems to share a common
139
market with biotechnology industry, biotechnology industry’s development may be
independent of it. As a result, local governments may need to have clear business
development plans. Do we focus on biotechnology industry, or on medical equipment
industry? As for the educational services, the implication for the government policy
makers is that the overall size of the education service does not matter much. However, it
does not mean that quality education service is not important.
Finally, if local government decides to attract anchor firms, they must do this very
carefully. Would the existence of anchor firms make it too competitive for other firms to
survive and thus harm the business climate among small and medium firms? Having an
anchor establishment while losing other biotechnology firms may not be a picture at
which policy makers want to look. Plus, since the local government has less power upon
the location decisions of anchor firms, the possible future relocation of anchor
establishment is surely a concern that local government needs to consider seriously.
Future research
Results from this dissertation leads to at least four directions for future research.
First, what is the right scale of firm clustering in biotechnology industry? This
dissertation uses metropolitan area as the study unit, while neglecting the internal
distribution pattern of biotechnology firms. Actually this area unit problem is not
uncommon among geography research work. It would be more scientific to examine the
spatial clustering of firms using their real addresses. With more accurate firm database
and geocoding tools, the study of spatial distribution of firms may become available.
Second, the contribution of local factors upon biotechnology industry
development needs to be further investigated. Co-location does not necessarily mean real
140
interaction. To understand more about the real interaction between local life science
research base and biotechnology industry development, a large-scale study of actual
linkages inside one metropolitan area, via interviews and questionnaires, would be
helpful.
Third, while Porter (1998) emphasizes more of the importance from local
communities, what role does the product life cycle and global production network play in
the local industry development? As a high technology industry, would biotechnology
industry outsource once the industry itself gets mature and face strong competitions from
either outside the region or even outside the country?
Finally, since this study on biotechnology industry provides one possible way to
examine Porter’s (1998) clustering argument, the methodology may be applied to other
industries, such as pharmaceutical industry and computer software industry.
141
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Appendix
Appendix 1 Fifty MSA / CMSA areas
Detroit—Ann Arbor—Flint, MI Minneapolis—St. Paul, MN—WI

Austin—San Marcos, TX MSA CMSA MSA Richmond—Petersburg, VA MSA
Atlanta, GA MSA • Ann Arbor, MI PMSA Nashville, TN MSA Rochester, NY MSA

Boston—Worcester—Lawrence,
MA—NH—ME—CT CMSA • Detroit, MI PMSA New Orleans, LA MSA Sacramento—Yolo, CA CMSA
• Boston, MA-NH PMSA New York - Northern New Jersey - Long
• Flint, MI PMSA Island, NY - NJ - CT - PA, CMSA • Sacramento, CA PMSA
Grand Rapids-Muskegon-Holland, • Bergen-Passaic, NJ
• Brockton, MA PMSA MI MSA PMSA • Yolo, CA PMSA
• Fitchburg-Leominster, Greensboro—Winston-Salem—
MA PMSA High Point, NC MSA • Bridgeport, CT PMSA St. Louis, MO—IL MSA
• Lawrence, MA-NH
PMSA Hartford, CT MSA • Danbury, CT PMSA Salt Lake City—Ogden, UT MSA
Houston—Galveston—Brazoria, TX • Dutchess County, NY
• Manchester, NH PMSA CMSA PMSA San Antonio, TX MSA
San Diego, CA MSA
• Lowell, MA-NH PMSA • Brazoria, TX PMSA • Jersey City, NJ PMSA
• Galveston-Texas City, • Middlesex-Somerset- San Francisco—Oakland—San
• Nashua, NH PMSA TX PMSA Hunterdon, NJ PMSA Jose, CA CMSA
• Monmouth-Ocean, NJ
• New Bedford, MA PMSA • Houston, TX PMSA PMSA • Oakland, CA PMSA
• Portsmouth-Rochester, • Nassau-Suffolk, NY • San Francisco, CA
NH-ME PMSA Indianapolis, IN MSA PMSA PMSA
• Worcester, MA-CT • New Haven-Meriden,
PMSA Jacksonville, FL MSA CT PMSA • San Jose, CA PMSA
Seattle—Tacoma—Bremerton, WA • Santa Cruz-Watsonville,
Buffalo—Niagara Falls, NY MSA CMSA • New York, NY PMSA CA PMSA
Charlotte-Gastonia-Rock Hill, NC-
SC MSA • Bremerton, W A PMSA • Newark, NJ PMSA • Santa Rosa, CA PMSA
Chicago-Gary-Kenosha, IL-IN-WI • Newburgh, NY-PA • Vallejo-Fairfield-Napa,
CMSA • Olympia, WA PMSA PMSA CA PMSA
• Seattle-Bellevue- • Stamford-Norwalk, CT Tampa-St. Petersburg-Clearwater,
• Chicago, IL PMSA Everett, WA PMSA PMSA FL MSA
Washington—Baltimore, DC—MD—
• Gary, IN PMSA • Tacoma, W A PMSA • Trenton, NJ PMSA VA—WV CMSA
• Kankakee, IL PMSA Kansas City, MO—KS MSA • Waterbury, CT PMSA • Baltimore, MD PMSA
Los Angeles—Riverside—Orange Norfolk-Virginia Beach-Newport
• Kenosha, WI PMSA County, CA CMSA News, VA-NC MSA • Hagerstown, MD PMSA
Cincinnati-Hamilton, OH-KY-IN • Los Angeles-Long • Washington, DC-MD-
CMSA Beach, CA PMSA Oklahoma City, OK MSA VA-WV PMSA
• Cincinnati, OH-KY-IN • Orange County, CA West Palm Beach-Boca Raton, FL
PMSA PMSA Orlando, FL MSA MSA
• Hamilton-Middletown, • Riverside-San Philadelphia-Wilmington-Atlantic
OH PMSA Bernardino, CA PMSA City, PA-NJ-DE-MD CMSA
• Atlantic-Cape May, NJ
Cleveland-Akron, OH CMSA • Ventura, CA PMSA PMSA
• Philadelphia, PA-NJ
• Akron, OH PMSA Louisville, KY-IN MSA PMSA
• Cleveland-Lorain-Elyria, • Vineland-Millville-
OH PMSA Memphis, TN—AR—MS MSA Bridgeton, NJ PMSA
• Wilmington-Newark, DE-
Columbus, OH MSA Memphis, TN-AR-MS MSA MD PMSA
Dallas—Fort Worth, TX CMSA Miami—Fort Lauderdale, FL CMSA Phoenix-Mesa, AZ MSA

• Fort Lauderdale, FL
• Dallas, TX PMSA PMSA Pittsburgh, PA MSA
• Fort Worth-Arlington, TX
PMSA • Miami, FL PMSA Portland—Salem, OR—WA CMSA
Denver—Boulder—Greeley, CO • Portland-Vancouver,
CMSA Milwaukee—Racine, WI CMSA OR-WA PMSA
Boulder-Longmont, CO PMSA Milwaukee-Waukesha, WI PMSA • Salem, OR PMSA

Providence—Fall River—Warwick,
• Denver, CO PMSA Racine, WI PMSA RI—MA MSA
Raleigh—Durham—Chapel Hill, NC
• Greeley, CO PMSA MSA
148
Appendix 2 Approximation of employment data
County Business Patterns does not provide exact employment data for every metropolitan
place, but breaks down the number of establishments into 9 groups according to the employment
size and gives the range for the total employment, as shown in the following table. When this
happens, a narrowing down process to estimate employment data is used when no exact
employment data is given.
Illustration of establishments’ category by employment size
Employment Number of Establishments by Employment-size class
1-4 5-9 10-19 20-49 50-99 100-249 250-499 500-999 1000 +
Range
Suppose the range of the total employment data given in the CBP is from x1 to x2 , the
minimum employment value in each employment category is ai ( i =1 to 9), the maximum
employment value in each employment group is bi ( i =1 to 9) (For “1000+” category, a
maximum of 5000 is taken), and the number of establishment in each group is ni . So the
minimum employment for the metropolitan area under consideration is
9
xmin = ∑ ai ni
i =1
And the maximum of employment is
9
xmax = ∑ bi ni
i =1
If we use the maximum between x1 and xmin , add the minimum between x2 and xmax , the
resulting mid value is the estimation of the employment y:
y = (max( x1 , xmin ) + min( x2 , xmax )) / 2
149
Appendix 3 Spatial distribution of biotechnology activities in 2002
Bio Pham R & D Bio Pham R&D
Pham R&D est est est Bio Pham R&D emp emp emp Pharm R&D
CMSA/MSA Bio est est est den. den. den. emp emp emp den. den. den. Bio lq lq lq
Atlanta 171 20 151 0.28 0.03 0.24 4862 1418 3445 7.83 2.28 5.55 0.45 0.33 1
Austin 112 11 101 0.26 0.03 0.24 5286 1944 3342 12.35 4.54 7.81 1.82 1.67 3.61
Boston 776 74 702 1.25 0.12 1.13 31370 7564 23806 50.66 12.21 38.44 2.00 1.20 4.75
Buffalo 56 10 46 0.24 0.04 0.19 5095 1345 3750 21.53 5.68 15.84 2.06 1.35 4.73
Charlotte 37 6 31 0.11 0.02 0.09 1044 813 231 3.03 2.36 0.67 0.25 0.49 0.17
Chicago 285 35 250 0.31 0.04 0.27 18383 10792 7591 19.77 11.61 8.17 0.86 1.26 1.11
Cincinnati 70 10 60 0.18 0.03 0.16 2328 825 1504 6.02 2.13 3.89 0.48 0.43 0.98
Cleveland 101 11 90 0.16 0.02 0.14 2877 1166 1711 4.58 1.86 2.73 0.42 0.43 0.79
Columbus 67 6 61 0.21 0.02 0.19 4854 1105 3750 15.32 3.49 11.83 1.21 0.69 2.93
Dallas 138 25 113 0.15 0.03 0.12 3844 1654 2190 4.06 1.75 2.31 0.29 0.31 0.52
Denver 281 32 249 0.33 0.04 0.29 8416 2862 5554 9.84 3.35 6.49 1.28 1.08 2.64
Detroit 199 22 177 0.28 0.03 0.25 5664 1482 4183 8.04 2.10 5.93 0.48 0.31 1.10
Grand Rapids 24 8 16 0.04 0.01 0.03 3945 3750 195 6.80 6.47 0.34 1.43 3.39 0.22
Greensboro 41 8 33 0.10 0.02 0.08 1909 1524 386 4.87 3.88 0.98 0.62 1.23 0.39
Hartford 40 4 36 0.23 0.02 0.21 433 59 375 2.52 0.34 2.18 0.15 0.05 0.39
Houston 199 21 178 0.23 0.02 0.20 6915 464 6451 7.88 0.53 7.35 0.66 0.11 1.93
Indianapolis 55 10 45 0.16 0.03 0.13 7388 6047 1341 20.86 17.07 3.79 1.77 3.61 1.01
Jacksonville 22 1 21 0.07 0.00 0.07 253 75 178 0.81 0.24 0.57 0.10 0.07 0.22
Kansas City 68 21 47 0.12 0.04 0.09 3840 1957 1883 7.00 3.57 3.43 0.83 1.05 1.27
Las Vegas 53 9 44 0.01 0.00 0.01 2272 163 2109 0.57 0.04 0.53 0.61 0.11 1.76
Los Angeles 780 125 655 0.22 0.04 0.19 34037 17872 16165 9.64 5.06 4.58 1.02 1.33 1.51
Louisville 21 3 18 0.10 0.01 0.09 224 70 154 1.06 0.33 0.73 0.09 0.07 0.18
Memphis 26 4 22 0.08 0.01 0.07 716 419 297 2.31 1.35 0.96 0.27 0.40 0.35
Miami 138 25 113 0.37 0.07 0.30 3328 2234 1094 8.87 5.96 2.92 0.44 0.73 0.45
Milwaukee 49 12 37 0.12 0.03 0.09 1195 762 433 2.90 1.85 1.05 0.27 0.43 0.31
Minneapolis 174 29 145 0.27 0.05 0.23 3751 1172 2579 5.89 1.84 4.05 0.45 0.35 0.96
Nashville, 35 2 33 0.08 0.00 0.08 787 37 750 1.90 0.09 1.81 0.24 0.03 0.71
New Orleans 40 2 38 0.05 0.00 0.05 827 10 818 1.12 0.01 1.11 0.30 0.01 0.91
New York 1160 243 917 0.88 0.19 0.70 87632 51036 36596 66.80 38.91 27.90 1.91 2.78 2.50
Norfolk 68 2 66 0.19 0.01 0.18 3819 69 3750 10.65 0.19 10.46 1.24 0.06 3.82
Oklahoma City 49 9 40 0.11 0.02 0.09 1019 606 413 2.37 1.41 0.96 0.44 0.65 0.56
Orlando 54 2 52 0.13 0.00 0.13 771 5 766 1.92 0.01 1.91 0.18 0.00 0.57
Philadelphia 393 62 331 0.57 0.09 0.48 24627 10834 13794 36.01 15.84 20.17 1.73 1.90 3.03
Phoenix 109 21 88 0.07 0.01 0.06 1573 750 824 1.08 0.51 0.56 0.21 0.25 0.35
Pittsburgh 91 9 82 0.19 0.02 0.18 4128 378 3750 8.82 0.81 8.01 0.75 0.17 2.14
Portland 130 24 106 0.18 0.03 0.15 1959 441 1518 2.77 0.62 2.15 0.39 0.22 0.95
Providence 50 5 45 0.37 0.04 0.33 930 173 757 6.85 1.28 5.58 0.27 0.13 0.37
Raleigh 226 23 203 0.64 0.06 0.57 11249 3750 7500 31.64 10.55 21.09 3.61 3.00 7.51
Richmond 35 2 33 0.12 0.01 0.11 2516 1875 641 8.30 6.19 2.12 0.98 1.82 0.78
Rochester 35 4 31 0.07 0.01 0.06 2313 1905 409 4.31 3.55 0.76 0.98 2.01 0.54
Sacramento 82 8 74 0.15 0.02 0.14 1795 716 1079 3.38 1.35 2.03 0.52 0.52 0.98
Salt Lake City 120 19 101 0.57 0.09 0.48 2736 838 1898 13.02 3.99 9.03 0.87 0.67 1.89
San Antonio 79 13 66 0.24 0.04 0.20 4569 819 3750 13.62 2.44 11.18 1.39 0.62 3.58
San Diego 559 65 494 1.24 0.14 1.09 30292 4795 25497 66.94 10.60 56.34 5.30 2.09 13.95
San Francisco 1049 77 972 1.19 0.09 1.10 43446 11219 32227 49.38 12.75 36.63 2.56 1.65 5.95
Seattle 268 19 249 0.33 0.02 0.30 8998 750 8248 11.02 0.92 10.10 1.14 0.24 3.28
St. Louis 131 31 100 0.20 0.05 0.15 4635 3008 1627 7.08 4.59 2.48 0.73 1.19 0.80
Tampa 95 15 80 0.29 0.05 0.24 2817.5 1455 1362.5 8.46 4.37 4.09 0.53 0.68 0.80
50736.
Washington 1017 50 967 0.97 0.05 0.92 5 5580.5 45156 48.36 5.32 43.04 2.86 0.78 7.96
West Palm Beach 50 8 42 0.21 0.03 0.18 759 466 293 3.18 1.95 1.23 0.31 0.48 0.38
Abbreviations:
Bio – biotechnology
Phm – pharmaceutical
R & D – physical, engineering, and life science research and development
Est –number of establishments
Emp –employment
Den. – density (per 10 square mile)
150
Appendix 4 Ranking of the biotechnology activities in 2002
Bio Pham R & D Bio Pham R&D
Pham R&D est est est Bio Pham R&D emp emp emp Pharm R&D
CMSA/MSA Bio est est est den. den. den. emp emp emp den. den. den. Bio lq lq lq
Atlanta 15 20 14 16 21 16 17 23 19 25 26 21 32 34 24
Austin 21 26 20 18 22 17 15 16 20 14 16 16 8 9 8
Boston 5 4 4 1 3 1 5 6 5 3 5 3 6 15 5
Buffalo 32 29 33 20 17 22 16 24 14 8 12 8 5 11 6
Charlotte 43 39 45 40 37 40 40 31 47 38 25 46 44 27 50
Chicago 8 8 8 13 15 13 8 5 9 10 6 14 21 13 21
Cincinnati 28 28 30 30 25 28 32 29 29 30 27 25 31 29 26
Cleveland 23 27 22 31 34 31 28 26 26 33 30 29 36 30 32
Columbus 31 38 29 24 32 24 18 27 15 11 22 9 15 21 12
Dallas 16 12 16 33 27 35 23 19 22 35 33 31 40 36 38
Denver 9 9 9 11 14 12 11 13 12 17 23 18 13 17 13
Detroit 12 16 13 15 20 14 14 21 13 23 28 19 30 35 22
Grand Rapids 48 37 50 49 45 49 22 11 48 29 9 50 11 2 47
Greensboro 40 36 42 41 38 42 36 20 43 32 19 41 26 14 40
Hartford 41 41 41 22 31 19 48 47 44 41 43 32 48 47 41
Houston 13 17 12 21 30 21 13 38 11 24 41 17 25 42 16
Indianapolis 33 30 34 32 26 33 12 7 31 9 2 26 9 1 23
Jacksonville 49 50 48 47 48 45 49 44 49 49 45 47 49 44 48
Kansas City 29 19 32 36 19 37 24 15 25 27 20 27 22 18 20
Las Vegas 35 32 36 50 50 50 34 43 23 50 48 49 27 43 18
Los Angeles 4 2 5 23 18 23 4 2 6 18 14 22 17 12 19
Louisville 50 44 49 42 41 41 50 45 50 48 44 45 50 45 49
Memphis 47 43 47 44 42 44 47 40 45 43 36 43 43 32 44
Miami 17 13 17 9 7 10 27 14 32 19 11 28 34 20 39
Milwaukee 38 25 40 37 28 38 39 32 40 39 31 40 42 31 46
Minneapolis 14 11 15 17 11 18 26 25 21 31 32 24 33 33 27
Nashville, 45 48 43 43 47 43 44 48 38 45 47 37 45 48 34
New Orleans 42 47 39 48 49 48 43 49 35 46 50 39 39 49 29
New York 1 1 3 5 1 5 1 1 2 2 1 5 7 4 14
Norfolk 30 45 28 28 39 27 25 46 18 16 46 11 14 46 7
Oklahoma City 39 33 38 39 36 39 41 36 41 42 34 42 35 24 36
Orlando 34 46 31 35 46 34 45 50 36 44 49 36 47 50 35
Philadelphia 7 6 7 7 5 7 7 4 7 6 3 7 10 7 11
Phoenix 22 18 23 45 43 46 38 34 34 47 42 48 46 37 45
Pittsburgh 25 31 24 27 33 26 21 41 17 20 39 15 23 40 15
Portland 19 14 18 29 24 30 35 39 28 40 40 33 37 39 28
Providence 37 40 35 10 13 9 42 42 37 28 37 20 41 41 43
Raleigh 11 15 11 6 8 6 9 10 10 7 8 6 2 3 3
Richmond 46 49 44 38 40 36 31 18 39 22 10 34 18 8 33
Rochester 44 42 46 46 44 47 33 17 42 34 21 44 19 6 37
Sacramento 26 34 26 34 35 32 37 35 33 36 35 35 29 26 25
Salt Lake City 20 22 19 8 6 8 30 28 24 13 18 13 20 23 17
San Antonio 27 24 27 19 16 20 20 30 16 12 24 10 12 25 9
San Diego 6 5 6 2 2 3 6 9 4 1 7 1 1 5 1
San Francisco 2 3 1 3 4 2 3 3 3 4 4 4 4 10 4
Seattle 10 21 10 12 29 11 10 33 8 15 38 12 16 38 10
St. Louis 18 10 21 26 12 29 19 12 27 26 15 30 24 16 30
Tampa 24 23 25 14 10 15 29 22 30 21 17 23 28 22 31
Washington 3 7 2 4 9 4 2 8 1 5 13 2 3 19 2
West Palm Beach 36 35 37 25 23 25 46 37 46 37 29 38 38 28 42
151
Appendix 5 Statistical cluster analysis results
Since too few groups of metropolitan areas produce poor generalization, and too
many groups causes confusion, this study experiments with clusters numbering from
three to seven. There are 15 variables: number of biotechnology establishments, number
of pharmaceutical establishments, number of physical, engineering, and life science
research and development (R & D) establishments, biotechnology establishment density,
pharmaceutical establishment density, R & D establishment density, biotechnology
industry employment, pharmaceutical employment, R & D employment, biotechnology
employment density, pharmaceutical employment density, R & D employment density,
biotechnology industry LQ, pharmaceutical LQ, and R & D LQ.
When three clusters are used, six metropolitan areas, Boston, Raleigh, San Diego,
Philadelphia, San Francisco, and Washington are grouped into cluster 1. While New
York forms a single cluster, the rest of the 43 metropolitan areas are grouped together.
This result suggests that Boston, Raleigh, San Diego, Philadelphia, San Francisco,
Washington, and New York have much more biotechnology industry activities than do
the others in most of the measurements. However, the 3-cluster grouping does not reveal
much information about the rest of the 43 metropolitan areas, while it is obvious that
Chicago has much more biotechnology industry than Louisville (refer to appendix 3 and
4).
When four clusters are used, cluster one includes four metropolitan areas, Boston,
San Diego, San Francisco, and Washington, while Raleigh and Philadelphia are grouped
with 8 other metropolitan areas, Austin, Buffalo, Chicago, Denver, Grand Rapids,
Indianapolis and Los Angeles. New York is an independent group, and the rest of the 36
metropolitan areas are grouped together. It is very doubtable that Grand Rapids and
Indianapolis, dominated by big pharmaceutical firms, are similar to Raleigh and
Philadelphia, where there are more pharmaceutical and R & D establishments. So it
seems that more clusters are needed.
When five clusters are used, Cluster one includes four metropolitan areas, Boston,
San Diego, San Francisco, and Washington. Cluster two includes three metropolitan
areas, Los Angeles, Philadelphia, and Raleigh. Cluster three includes 13 metropolitan
areas, Austin, Buffalo, Chicago, Columbus, Denver, Grand Rapids, Indianapolis, Kansas
City, Miami, Richmond, Salt Lake City, San Antonio, and St. Louis. Cluster four
includes 29 metropolitan areas, Atlanta, Charlotte, Cincinnati, Cleveland, Dallas, Detroit,
Greensboro, Hartford, Houston, Jacksonville, Las Vegas, Louisville, Memphis,
Milwaukee, Minneapolis, Nashville, New Orleans, Norfolk, Oklahoma City, Orlando,
Phoenix, Pittsburgh, Portland, Providence, Rochester, Sacramento, Seattle, Tampa, and
West Palm Beach. And New York is a separate cluster. This grouping reveals more
information, but still, some metropolitan areas that have great difference are put into the
same cluster, such as Chicago and Indianapolis.
When cluster number is increased to six, cluster one still includes four
metropolitan areas, Boston, San Diego, San Francisco, and Washington. This is the same
result as in the 5-cluster method. Cluster two includes four metropolitan areas, Grand
Rapids, Indianapolis, Richmond, and Rochester. These metropolitan areas are similar to
each other in that they have very few pharmaceutical establishments but the
pharmaceutical industry size is big. Cluster three includes four metropolitan areas,
152
Chicago, Los Angeles, Philadelphia, and Raleigh. Compared to 5-cluster method, this
result groups Chicago with the other three giants. Cluster four only has New York. This
is the same as the results from 5-cluster method. Cluster five has 20 metropolitan areas:
Charlotte, Cincinnati, Cleveland, Dallas, Greensboro, Hartford, Jacksonville, Las Vegas,
Louisville, Memphis, Milwaukee, Nashville, New Orleans, Oklahoma City, Orlando,
Phoenix, Portland, Providence, Sacramento, and West Palm Beach. They have the least
amount of the biotechnology industries. And cluster six includes 17 metropolitan areas:
Tampa. They have medium amount of the biotechnology industries.
When seven clusters are used, cluster one includes ten metropolitan areas:
Atlanta, Detroit, Houston, Kansas City, Miami, Minneapolis, Providence, Salt Lake City,
Saint Louis, and Tampa. Cluster two includes Chicago, Los Angeles, Philadelphia, and
Raleigh. Cluster three includes four metropolitan areas: Grand Rapids, Indianapolis,
Richmond, and Rochester. Cluster four includes 20 metropolitan areas: Charlotte,
Cincinnati, Cleveland, Dallas, Greensboro, Hartford, Jacksonville, Las Vegas, Louisville,
Memphis, Milwaukee, Nashville, New Orleans, Oklahoma City, Orlando, Phoenix,
Pittsburgh, Portland, Sacramento, and West Palm Beach. Cluster five includes Boston,
San Diego, San Francisco, and Washington DC. Cluster six includes six metropolitan
areas: Austin, Buffalo, Columbus, Denver, San Antonio, and Seattle. And in cluster seven
there is only New York. Compared to 6-cluster method, 7-cluster method separates six
metropolitans, Austin, Buffalo, Columbus, Denver, San Antonio, and Seattle out from the
cluster 6 in 6-cluster method. Comparing these six metropolitan areas with Atlanta,
Detroit, Houston, Kansas City, Miami, Minneapolis, Providence, Salt Lake City, Saint
Louis, and Tampa, although on average the former have more R & D establishments,
employment, and specialization, there is a wider variance among these 4 metropolitan
areas than in the other ten metropolitan areas. As a result, the rule that the purpose of
cluster analysis is to minimize the variance in between clusters and maximize variance
among clusters is not satisfied. The other cluster component metropolitan areas are the
same.
All the results in the cluster analysis using different numbers are presented in the
following table.
153
K-means cluster analyses results on fifty metropolitan areas
Cluster number = 3 Cluster 1: Boston, Raleigh, San Diego, Philadelphia, San Francisco, Washington
Cluster 2: the rest of 43 metropolitan areas except New York
Cluster 3: New York
Cluster number = 4 Cluster 1: Boston, San Diego, San Francisco, Washington
Cluster 2: Austin, Buffalo, Chicago, Denver, Grand Rapids, Indianapolis, Los
Angeles, Philadelphia, Raleigh
Cluster 3: Atlanta, Charlotte, Cincinnati, Cleveland, Columbus, Dallas, Detroit,
Greensboro, Hartford, Houston, Jacksonville, Kansas City, Las Vegas, Louisville,
Memphis, Miami, Milwaukee, Minneapolis, Nashville, New Orleans, Norfolk,
Oklahoma City, Orlando, Phoenix, Pittsburgh, Portland, Providence, Richmond,
Rochester, Sacramento, Salt Lake City, San Antonio, Seattle, St. Louis, Tampa,
West Palm Beach
Cluster 4: New York
Cluster 2: Los Angeles, Philadelphia, Raleigh
Cluster 3: Austin, Buffalo, Chicago, Columbus, Denver, Grand Rapids,
Indianapolis, Kansas City, Miami, Richmond, Salt Lake City, San Antonio, St.
Louis
Cluster 4: Atlanta, Charlotte, Cincinnati, Cleveland, Dallas, Detroit, Greensboro,
Hartford, Houston, Jacksonville, Las Vegas, Louisville, Memphis, Milwaukee,
Minneapolis, Nashville, New Orleans, Norfolk, Oklahoma City, Orlando, Phoenix,
Pittsburgh, Portland, Providence, Rochester, Sacramento, Seattle, Tampa, West
Palm Beach
Cluster 5: New York
Cluster 2: Grand Rapids, Indianapolis, Richmond, Rochester
Cluster 3: Chicago, Los Angeles, Philadelphia, Raleigh
Cluster 4: New York
Cluster 5: Charlotte, Cincinnati, Cleveland, Dallas, Greensboro, Hartford,
Jacksonville, Las Vegas, Louisville, Memphis, Milwaukee, Nashville, New Orleans,
Oklahoma City, Orlando, Phoenix, Portland, Providence, Sacramento, West Palm
Beach
Cluster 6: Atlanta, Austin, Buffalo, Columbus, Denver, Detroit, Houston, Kansa
City, Miami, Minneapolis, Norfolk, Pittsburgh, Salt Lake City, San Antonio,
Seattle, Saint Louis, Tampa
Cluster number = 7 Cluster 1: Atlanta, Detroit, Houston, Kansas City, Miami, Minneapolis, Providence,
Salt Lake City, Saint Louis, Tampa
Cluster 2: Chicago, Los Angeles, Philadelphia, Raleigh
Cluster 3: Grand Rapids, Indianapolis, Richmond, Rochester
Cluster 4: Charlotte, Cincinnati, Cleveland, Dallas, Greensboro, Hartford,
Jacksonville, Las Vegas, Louisville, Memphis, Milwaukee, Nashville, New Orleans,
Oklahoma City, Orlando, Phoenix, Pittsburgh, Portland, Sacramento, West Palm
Beach
Cluster 5: Boston, San Diego, San Francisco, Washington
Cluster 6: Austin, Buffalo, Columbus, Denver, San Antonio, Seattle
Cluster 7: New York
154
Appendix 6 Biotechnology clusters
Cluster type 1 - Super size biotechnology cluster: New York
Standard
Mean Deviation Minimum Maximum Range
Bio est 1160 0 1160 1160 0
Pham est 243 0 243 243 0
R & D est 917 0 917 917 0
Bio est den. 0.88 0 0.88 0.88 0
Pham est den. 0.19 0 0.19 0.19 0
R & D est den. 0.70 0 0.70 0.70 0
Bio emp 87632 0 87632 87632 0
Pham emp 51036 0 51036 51036 0
R & D emp 36596 0 36596 36596 0
Bio emp den. 66.80 0 66.80 66.80 0
Pham emp den. 38.91 0 38.91 38.91 0
R & D emp den. 27.90 0 27.90 27.90 0
Bio lq 1.91 0 1.91 1.91 0
Pharm lq 2.78 0 2.78 2.78 0
R & D lq 2.50 0 2.50 2.50 0
Cluster type 2 - Highly concentrated and specialized biotechnology research clusters

Boston, San Diego, San Francisco, and Washington
Standard
Bio est 850 229.24 559.00 1049.00 490.00
Pham est 66.50 12.12 50.00 77.00 27.00
R & D est 783.75 230.69 494.00 972.00 478.00
Bio est den. 1.16 0.13 0.97 1.25 0.28
Pham est den. 0.10 0.04 0.05 0.14 0.10
R & D est den. 1.06 0.10 0.92 1.13 0.21
Bio emp 38961.00 9858.13 30292.00 50736.50 20444.50
Pham emp 7289.50 2866.80 4795.00 11218.50 6423.50
R & D emp 31671.50 9697.61 23806.00 45156.00 21350.00
Bio emp den. 53.83 8.79 48.36 66.94 18.58
Pham emp den. 10.22 3.39 5.32 12.75 7.43
R & D emp den. 43.61 8.90 36.63 56.34 19.71
Bio lq 3.18 1.46 2.00 5.30 3.30
Pharm lq 1.43 0.56 0.78 2.09 1.31
R & D lq 8.15 4.09 4.75 13.95 9.20
155
Cluster type 3 - Upper level biotechnology clusters
Chicago, Los Angeles, Philadelphia, and Raleigh
Standard
Bio est 421 249.12 226 780 554
Pham est 61.25 45.52 23 125 102
R & D est 359.75 203.81 203 655 452
Bio est den. 0.43 0.20 0.22 0.64 0.41
Pham est den. 0.06 0.03 0.04 0.09 0.06
R & D est den. 0.38 0.18 0.19 0.57 0.39
Bio emp 22073.75 9668.28 11249.00 34036.50 22787.50
Pham emp 10811.50 5765.31 3749.50 17871.50 14122.00
R & D emp 11262.25 4400.02 7499.50 16165.00 8665.50
Bio emp den. 24.26 11.92 9.64 36.01 26.37
Pham emp den. 10.76 4.44 5.06 15.84 10.78
R & D emp den. 13.50 8.37 4.58 21.09 16.51
Bio lq 1.80 1.26 0.86 3.61 2.75
Pharm lq 1.87 0.80 1.26 3.00 1.74
R & D lq 3.29 2.93 1.11 7.51 6.40
Cluster type 4 - Medium sized biotechnology centers

Tampa.
Standard
Bio est 136.29 69.50 56 281 225
Pham est 17.94 8.67 2 32 30
R & D est 118.35 64.11 46 249 203
Bio est den. 0.27 0.10 0.12 0.57 0.45
Pham est den. 0.04 0.02 0.01 0.09 0.08
R & D est den. 0.23 0.08 0.09 0.48 0.40
Bio emp 4924.09 1765.24 2735.50 8997.50 6262.00
Pham emp 1370.41 826.57 69.00 3008.00 2939.00
R & D emp 3553.68 1872.89 1094.00 8248.00 7154.00
Bio emp den. 10.42 3.87 5.89 21.53 15.63
Pham emp den. 2.98 1.78 0.19 5.96 5.76
R & D emp den. 7.45 3.65 2.48 15.84 13.36
Bio lq 0.96 0.49 0.44 2.06 1.62
Pharm lq 0.66 0.47 0.06 1.67 1.62
R & D lq 2.17 1.30 0.45 4.73 4.28
156
Cluster type 5 - Highly dominated pharmaceutical centers
Indianapolis, Rochester, Grand Rapids, and Richmond
Standard
Bio est 37.25 12.92 24.00 55.00 31.00
Pham est 6.00 3.65 2.00 10.00 8.00
R & D est 31.25 11.90 16.00 45.00 29.00
Bio est den. 0.09 0.05 0.04 0.16 0.11
Pham est den. 0.01 0.01 0.01 0.03 0.02
R & D est den. 0.08 0.05 0.03 0.13 0.10
Bio emp 4040.25 2346.97 2313.00 7388.00 5075.00
Pham emp 3393.88 1974.19 1874.50 6047.00 4172.50
R & D emp 646.38 497.61 195.00 1341.00 1146.00
Bio emp den. 10.07 7.38 4.31 20.86 16.55
Pham emp den. 8.32 5.98 3.55 17.07 13.52
R & D emp den. 1.75 1.56 0.34 3.79 3.45
Bio lq 1.29 0.39 0.98 1.77 0.79
Pharm lq 2.71 0.93 1.82 3.61 1.79
R & D lq 0.64 0.34 0.22 1.01 0.78
Cluster type 6 - low level biotechnology centers

Charlotte, Cincinnati, Cleveland, Dallas, Greensboro, Hartford, Jacksonville, Las Vegas,
Louisville, Memphis, Milwaukee, Nashville, New Orleans, Oklahoma City, Orlando,
Phoenix, Portland, Providence, Sacramento, and West Palm Beach
Standard
Bio est 59.85 34.50 21.00 138.00 117.00
Pham est 8.70 7.12 1.00 25.00 24.00
R & D est 51.15 28.21 18.00 113.00 95.00
Bio est den. 0.13 0.08 0.01 0.37 0.36
Pham est den. 0.02 0.01 0.00 0.04 0.03
R & D est den. 0.12 0.07 0.01 0.33 0.32
Bio emp 1375.43 936.62 223.50 3843.50 3620.00
Pham emp 536.35 496.23 5.00 1653.50 1648.50
R & D emp 839.08 641.37 153.50 2190.00 2036.50
Bio emp den. 2.87 1.72 0.57 6.85 6.28
Pham emp den. 1.17 1.02 0.01 3.88 3.87
R & D emp den. 1.70 1.26 0.53 5.58 5.05
Bio lq 0.32 0.15 0.09 0.62 0.53
Pharm lq 0.32 0.29 0.00 1.23 1.23
R & D lq 0.59 0.38 0.17 1.76 1.59
157
Appendix 7 Factors for 50 metropolitan areas
Venture Creativity Anchor Anchor
NIH 00-02 capital index 54171 3254
CMSA/MSA ($M) Patents PhDs ($m)
Atlanta $633.05 323 358 57.30 940 0 0
Austin $109.48 110 131 58.40 1028 0 1
Boston $3,433.86 3007 1146 1915.65 1015 4 4
Buffalo $224.04 129 124 609 2 1
Charlotte $4.24 23 3 787 0 0
Chicago $1,106.09 1444 497 61.84 935 2 3
Cincinnati $376.58 972 123 1.50 742 0 0
Cleveland $690.05 147 157 83.32 774 0 0
Columbus $365.65 183 244 0.20 832 1 1
Dallas $455.54 434 365 960 1 1
Denver $521.30 389 166 156.16 940 3 1
Detroit $861.10 655 384 95.10 708 1 0
Grand Rapids $3.01 38 0 0.00 639 0 1
Greensboro $73.74 64 64 38.90 697 0 1
Hartford $32.10 206 145 922 0 0
Houston $1,353.74 634 284 72.62 980 0 0
Indianapolis $178.86 1036 32 15.50 891 1 1
Jacksonville $7.20 25 0 5.50 715 0 0
Kansas City $63.17 103 48 12.00 818 1 2
Las Vegas $1.55 18 7 0.00 561 1 0
Los Angeles $1,443.18 1399 721 180.76 942 2 6
Louisville $63.17 36 146 8.90 622 0 0
Memphis $258.70 191 67 530 0 0
Miami $162.99 229 83 775 0 0
Milwaukee $250.18 118 73 736 0 0
Minneapolis $605.64 554 273 81.60 960 0 0
Nashville, $540.55 71 169 11.52 711 0 0
New Orleans $187.12 109 59 3.70 668 0 0
New York $3,679.06 6800 1389 639.10 962 12 17
Norfolk $4.94 39 33 0.00 555 1 0
Oklahoma City $80.26 118 64 34.75 668 0 0
Orlando $2.55 19 1 752 0 0
Philadelphia $1,950.01 3214 389 457.55 927 1 4
Phoenix $0.52 92 0 909 0 1
Pittsburgh $1,019.61 180 175 47.03 715 1 0
Portland $428.63 164 73 4.30 929 0 0
Providence $235.12 77 71 13.00 698 0 0
Raleigh $1,496.12 796 557 379.69 996 2 2
Richmond $176.17 116 102 83.33 711 0 1
Rochester $369.80 379 117 877 0 1
Sacramento $39.63 282 311 26.00 872 0 0
Salt Lake City $364.01 252 125 60.50 798 0 0
San Antonio $350.75 172 86 90.44 737 1 0
San Diego $2,127.51 1632 378 1505.90 1015 4 0
San Francisco $1,456.97 3991 490 3028.92 1057 4 5
Seattle $1,735.25 770 357 419.95 1008 1 0
St. Louis $1,098.13 780 252 8.80 770 0 2
Tampa $79.28 103 53 3.80 804 0 1
Washington $2,557.14 2162 770 85.15 964 2 2
West Palm Beach $7.50 37 6 852 0 0
Source: NIH funding comes from NIH website; other data come from Coright & Mayer’s study. Number
in red is 2000 data.
158
Appendix 8 Principal component analysis on national input output matrix
National transaction table is calculated from US 1997 MAKE (127 commodities

by 127 industries) and USE table (127 industries by 127 commodities), as equation 3-1
shows.
T = M (diag (OC )) −1U ………………………………………………………………...……Equation 0-1
Where T is the transaction matrix, M is the MAKE matrix, and Oc is the B B
commodity outputs. T matrix reveals the dollar value from row industry to column
industry, or the backward linkages. Its transposed matrix T’ reveals the dollar value from
column industry to row industry or the forward linkages.
After national transaction matrix is ready, principal component analysis is used to
group industries that are similar in the buying patterns or the factor conditions. The
grouping of the industries is illustrated in the equation 3-2.
y1 = a11 x1 + a12 x2 + L + a1 p x p
y2 = a21 x1 + a22 x2 + L + a2 p x p
…………………………………………………………Equation 0-2
M
y p = a p1 x1 + a p 2 x2 + L + a pp x p
Y stands for the groupings of industries, or the factor, and Xi (i=1 to p) represents
B B
the industry in the transaction table. The highly correlated Xs will have high loadings in
the same factor Y. The factor where the biotechnology industry has the highest loading is
examined, and the industries that have high loadings on it are selected.
The same process is repeated for the transposed transaction table, so that the
industries similar in the selling patterns or the demand markets are grouped. The factor
where the biotechnology industry has the highest loading is examined, and the industries
that have high loadings on it are selected.
159
Appendix 9 Regression residuals in regression models
Dependent variable Bio. emp Phm. Emp. R & D emp. Bio. emp Phm. Emp. R & D emp.
Independent variables NIH, Patents, PhDs. NIH, Patents, PhDs, Venture Capital
Atlanta 0.06 0.14 0.08 0.04 0.10 0.06
Austin 0.43 0.67 0.41 0.41 0.39 0.49
Boston 0.12 -0.08 0.21 -0.18 -0.27 -0.12
Buffalo 0.38 0.47 0.45
Charlotte 0.19 0.75 -0.06 0.18 0.26 0.04
Chicago 0.12 0.34 -0.03 0.16 0.34 0.01
Cincinnati -0.67 -0.69 -0.53 -0.23 -0.40 -0.12
Cleveland 0.12 0.40 0.09 -0.01 0.47 -0.14
Columbus 0.25 0.26 0.30 0.00 0.69 0.00
Dallas -0.16 0.05 -0.22
Denver 0.23 0.32 0.29 0.11 0.24 0.15
Detroit -0.12 -0.17 -0.04 -0.16 -0.21 -0.10
Grand Rapids 0.58 1.11 -0.20
Greensboro 0.17 0.78 -0.31 0.17 0.56 -0.25
Hartford -0.91 -1.21 -0.78
Houston -0.01 -0.65 0.20 -0.05 -0.52 0.06
Indianapolis -0.22 0.06 -0.51 0.01 0.14 -0.33
Jacksonville -0.44 -0.35 -0.09 -0.24 -0.35 0.06
Kansas City 0.30 0.64 0.25 0.45 0.52 0.47
Las Vegas 0.59 0.15 0.86
Los Angeles 0.41 0.60 0.28 0.33 0.51 0.21
Louisville -0.55 -0.26 -0.62 -0.43 -0.47 -0.36
Memphis -0.61 -0.25 -0.71
Miami -0.02 0.38 -0.24
Milwaukee -0.21 0.25 -0.41
Minneapolis -0.25 -0.22 -0.18 -0.27 -0.27 -0.21
Nashville, -0.19 -0.75 -0.07 -0.15 -0.55 -0.12
New Orleans -0.35 -1.64 -0.10 -0.13 -1.44 0.06
New York 0.27 0.36 0.14 0.14 0.25 0.00
Norfolk 0.58 -0.48 0.78
Oklahoma City -0.32 0.09 -0.46 -0.28 -0.12 -0.35
Orlando 0.11 -1.44 0.59
Philadelphia -0.03 -0.03 0.03 -0.16 -0.07 -0.17
Phoenix -0.19 -0.09 0.09
Pittsburgh 0.21 -0.16 0.37 0.14 0.03 0.16
Portland -0.10 -0.12 0.05 0.09 0.21 0.13
Providence -0.17 -0.20 -0.04 -0.11 -0.08 -0.05
Raleigh 0.13 0.18 0.14 -0.07 0.09 -0.09
Richmond 0.11 0.64 -0.28 0.02 0.47 -0.34
Rochester -0.33 0.12 -0.81
Sacramento -0.40 -0.23 -0.47 -0.22 -0.79 0.02
Salt Lake City -0.12 -0.04 -0.03 -0.15 -0.06 -0.09
San Antonio 0.24 0.12 0.41 0.14 0.11 0.24
San Diego 0.31 -0.05 0.50 0.00 -0.17 0.11
San Francisco 0.13 -0.12 0.30 -0.17 0.00 0.02
Seattle 0.05 -0.51 0.24 -0.17 -0.53 -0.07
St. Louis -0.26 0.05 -0.46 -0.06 0.34 -0.35
Tampa 0.17 0.53 0.11 0.43 0.55 0.41
Washington 0.44 -0.09 0.61 0.44 0.01 0.56
West Palm Beach -0.10 0.33 -0.14 0.04 0.10 0.06
160

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UNIVERSITY OF CINCINNATI

Date: April 18, 2006

This work and its defense approved by:

Chair: Dr.Roger Selya

A dissertation submitted to the Division of Research and

In partial fulfillment of the requirements for the degree of

In the Department of Geography

This dissertation explores the spatial distribution of biotechnology industry activities

and specialization, metropolitan areas where the majority of biotechnology industrial

entrepreneurship are very important for biotechnology industry development. A local

atmosphere of creation and networking among biotechnology professionals is important

supportive industries at metropolitan level. However, there is no clear agglomeration

individual anchor’s business culture.

support. I am also grateful to my fellow students with whom I have established

Table 2-1 Biotechnology establishments’ NAICS codes by the US Department of

Figure 2-1 Histogram of biotechnology establishments ................................................... 21

Research problem statement

The purpose of this dissertation is to explain the spatial variation of biotechnology

industry across major metropolitan areas in the United States.

Development of biotechnology industry

In the Merriam-Webster Dictionary, biotechnology is defined as “biological

science when applied especially in genetic engineering and recombinant DNA

technology”. Similarly, the National Library of Medicine, the National Agricultural

developing products which are technically, scientifically and/or clinically useful”. In

genetic research. It includes biochemical genetics, cytogenetics, ecological genetics,

extrachomosomal inheritance, gene mapping, gene sequencing, and gene

immunogenetics. Genetic research is then applied to genetic engineering, which includes

cell culture, conjugation, transformation, gene manipulation, gene transfer,

treatment, environmental engineering, energy, chemical, feedstocks, and fermentation

and process engineering1

Biotechnology as an industry, and especially the commercial activities that utilize

company, Genetech, in 1977 in San Francisco. The biotechnology industry then

Organization, from 1992 to 2001, total number of biotechnology establishments increased

of profits for biotechnology companies (United State Department of Commerce, 2003).

treatment to market, biotechnology companies can spend some $800 million to

Development] (Thomas, 2005).

Despite this expensive, risky, and time-consuming process, biotechnology

than the overall manufacturing sector’s employment multiplier of 2.9 nationwide, it is

sector’s multiplier of 1.54.

biotechnology industries (Carlson, 2005; Bazley, 1999; Kemme, 2003). According to a

economic development agencies surveyed, 83 percent list biotechnology as one of their

top target industries.

The objective of this dissertation is to understand the spatial variation of

Pennsylvania, Texas, Washington, New York and Wisconsin.

consider biotechnology industry development in a cluster frame, where markets,

are important for biotechnology industries, it is hard for economic geographers or

economic planners to give solid policy suggestions for governments to initiate

development plans to boost biotechnology industry. This dissertation explores the

importance of various location factors for successful biotechnology industry

Questions to be answered in this dissertation include the following.

First, where are biotechnology industry clusters in metropolitan areas in the

entrepreneurship? Third, how important is a local high technology creativity atmosphere

and the volunteer connection among biotechnology professionals for biotechnology

industry to be located close to its related industries? Lastly, do biotechnology anchor

(discussion below, chapter three).

potentially help economic practitioners initiate their policies in regard to biotechnology

cluster theory. Third, by integrating appropriate quantitative techniques in econometric

analysis with traditional economic development measurements in the field of economic

geography, this dissertation improves methodology in industrial location analysis.

By measuring biotechnology industry across major metropolitan areas and

Harvard Business School’s cluster mapping project for example. A biopharmaceutical

cluster is composed of three industries: biotechnology firms, health care product

manufacturers, and the container industry5. Which industries do the economic