Can cash create clusters?

Financial incentives have attracted the Max Planck Society and an MIT lab to Florida. But can clusters be built on money alone? Our series on clusters continues.

Snapping up labs: Florida reaches out.

When the Massachusetts Institute of Technology (MIT) spin-out Draper Laboratory wanted to set up two new R&D centres, it considered its home state of Massachusetts, but instead chose Florida.

In late July, Governor Charlie Crist announced that Florida’s Innovation Incentive Fund would provide Draper with $15 million to set up its BioMEMS R&D Center at the University of South Florida in Tampa and the Multi Chip Module Center in St Petersburg, creating 165 new jobs between them with an average wage of $75,000 per year.

Draper will be a research partner with the University of South Florida and the technology company, SRI International, forming the nucleus of a micro-technology cluster, and in the process boosting the state’s growth of innovation workers and economic development.

Another recent transplant to the state, Germany’s Max Planck Society, is the result of a trade mission by Florida’s governor to Munich. The state in late July approved $86.9 million for the building of the Max Planck Florida Institute, a biomedical research facility, on the campus of Florida Atlantic University in Jupiter, FL, near Scripps.

Max Planck’s President Peter Gruss said the society located its first overseas institute in the US because “…in the coming years we will urgently need excellent junior scientists from abroad if we are to remain competitive at an international level.”

Florida representatives estimate the institute could create more than 1,800 direct and indirect jobs over the next decade and generate more than $2 billion in economic activity.

Money not the only lure

“Our first criterion wasn’t financial incentives,” said Len Polizzotto, senior executive director responsible for strategic business development at Draper, a nonprofit R&D lab based in Cambridge, MA. “The most important thing was whether there was a strategic fit.”

On the short list of requirements was a research university close by that had a clinical hospital and a medical school, and a partner facility that was focused more on the clinical than the pure research side of things. Draper also wanted a job pool with the right people and a location near its potential partners.

It helped, Polizzotto said, that Florida already had drawn in investments by Scripps Research Institute and The Burnham Institute of Medical Research, as well as pharmaceutical companies. Under former Governor Jeb Bush, Florida in 2004 provided $310 million in incentives to attract Scripps, which aims to employ 500 researchers by 2010.

Scripps Florida already has gone to the next step of successful innovation and technology transfer with the spin out last week one of cuRNA, a company set up to commercialise non-coding RNA technology developed at the institute.

In addition, The Burnham Institute of Medical Research plans a facility in Orlando, near the University of Central Florida’s new medical school; Torrey Pines Institute for Molecular Studies plans one in Port St. Lucie, and the technology firm SRI International is to locate a branch in St Petersburg, all contributing to Florida’s competitiveness as a top life sciences hub.

Synergies are key

“Part of our strategy is to attract businesses that will establish here and be catalysts for other businesses to follow and partner with,” said Bob Rohrlack, senior vice president for business recruitment and retention at Enterprise Florida Inc, the state’s economic development organisation based in Orlando, a city that has about 150 biotech and life science companies.

Rohrlack said his organisation first worked with SRI in St Petersburg, which in turn wanted to work with Draper. “We succeeded in showing them the potential of how they could succeed here,” he added.

Florida looked to Europe and other US states as models when setting out to create a high tech cluster, and then went after high value-added investments, said Rohrlack. “What works for us is that we never sought to be the state with the largest list of incentives or the largest amount of money,” he said. “We focused on strategic business for companies to succeed.”

Specialties attract

Human capital and local expertise also figure in the recent rise of another state -– Maryland – as a technology investment destination. In the latest ranking from the independent think tank, the Milken Institute, Maryland bumped California out of its number two spot.

Milken’s “State Technology and Science Index” takes into account the impact that intangibles such as a trained workforce and high quality of life have in attracting high tech investment.

San Diego, Milken’s third ranked investment location is looking over its shoulder, worried about losing jobs, researchers and investors to less expensive states with attractive resources. Similar stories are spreading throughout the US as other states take a run at Massachusetts and California to offer investors cost-competitive alternatives.

For Maryland, concentrations of specialist resources, such as having the most federal laboratories of any US state, make a huge difference. But the state also as other attractions for inward investors: it was ranked first by the Milken Institute for human capital investment, and is closing in on first-place Massachusetts in a broad range of other intangible investment factors.

“Our state doesn’t necessarily have the edge in terms of financial incentives, but we have strength in our infrastructure combination,” said Rick Zakour, executive director of MdBio, the bioscience arm of the Technology Council of Maryland. “We have some of the best research institutions in the country, including Johns Hopkins University, as well as state and federal laboratories such as the National Institutes of Health and Fort Dietrick, which has spun off lots of companies.”

Zakour said the state’s governor has made biotechnology a priority, having announced an initiative similar in size to the $1 billion in state funds Massachusetts recently directed to biotech. Maryland aims to invest $1.1 billion in biosciences between now and 2020.

“We’re trying to be proactive with private-public partnerships,” Zakour said. The state already has a $6 million biotechnology investment incentive tax credit act. In its first year it took nine months for the monies to be fully subscribed. This year – the second year of the programme – the funds were fully subscribed in the first day, Zakour said.

The state has attracted biotech and pharmaceutical companies from elsewhere with the UK/Swedish pharmaceutical company AstraZeneca recently acquiring Medimmune Inc. of Maryland, Wisconsin’s OpGen is relocating to the state, and vaccines developer Intercell AG of Austria recently acquired Iomai Corp. of Maryland to expand in the US market. Federal lab contracts play a role in locations of other types of technologies to the state.

“We’ve seen companies move into the area to be proximal to the federal agencies handing out contracts,” said Larry Mahan, senior bioscience executive at the Maryland Department of Business and Economic Development.

That includes startup companies. “We have a lot of home-grown entrepreneurs, but companies also have moved to the area to be closer to Fort Dietrick [a military research lab] or the Aberdeen Proving Ground,” said Renee Winsky, president of the Maryland Technology Development Corp. (TEDCO), which was started by the state.

TEDCO puts the first money into a company doing business with a federal laboratory or university. It also funds technology transfer and startups, which can get up to $75,000 if they have 16 or fewer employees. Winsky said one of the state’s strengths is the multitude of potential civilian uses for military technology. “For example, researchers at Aberdeen Proving Ground are working on how to track soldiers in the field of battle without GPS, with RFID and other technologies,” she said. “One entrepreneur is looking at applying that to firefighters going into a burning building.”

TEDCO actively attracts researchers and new companies, holding showcases for investors and entrepreneurs four to five times a year in collaboration with federal laboratories. It also holds “Power of 10” events at which it hand picks 10 companies out of the University of Maryland, Johns Hopkins and other labs to make a pitch to early-stage investors, angel investors and venture capitalists.

Economic constraints

Winsky and others point out that with increasingly tight fiscal constraints within states with many states moving from a surplus to a very tight cash situation in the past year, attracting companies and creating an ongoing entrepreneurial climate goes well beyond incentives. “It also involves quality of life, where employees choose to work and live,” Winsky said.

Mahan of Maryland said states that make a big splash with large monetary gestures are unlikely to sustain that level of investment for the next batch of companies coming in. “Most incentives are a fraction of the capital expenditures a company will need ultimately,” he said. “Biotech start-ups could require 10 to 15 years to get momentum. Seeding [clusters] has a long growth curve.”