Midwest looks to biotech boom to replace high-tech bust

SIOUX FALLS, S.D. — Inside a laboratory built on converted farmland, a small group of scientists at Hematech have become this state’s best hope — and biggest gamble — for a piece of the biotech boom.

With its pioneering work in cattle cloning, Hematech is trying to find ways to produce antibodies that could be used to cure human diseases, such as anthrax and smallpox, and be tapped as a bioterrorism defense.

By P.J. Huffstutter, Los Angeles Times

http://www.boston.com/business/markets/articles/2004/03/28/midwest_looks_to_biotech_boom_to_replace_high_tech_bust/

It’s the kind of heady, scientific research that makes state government officials drool — even if they don’t quite understand what the company does.

”When we started the company in Massachusetts in 1998, we were one of hundreds of biotech companies in that area," said James Robl, president and chief scientific officer of Hematech. ”When we decided that we wanted to leave, you would not have believed how often our phone rang. We became the most popular folks in town."

As in the heady days of the dot-com boom, biotech holds the promise of big returns on big dreams. It’s an appealing pitch to many states in the Midwest, which is hungry for ways to shore up dwindling populations, boost depressed agriculture-based economies, and bounce back from the bust in information technologies.

Minnesota lost more than 10,000 high-tech jobs from 2001 to 2002, while Wisconsin watched an estimated 5,700 positions evaporate, according to a recent report from the American Electronics Association. South Dakota lost 12 percent of its jobs, dropping to 9,700 positions from 11,000.

Nationwide, high-tech industries dropped 540,000 jobs, falling 8 percent during that time.

But while the stock market was slumping in many other areas, biotech stocks were on the rise. The market value of the entire industry reached more than $300 billion last year, according to industry analysts, who attribute the boom in part to the Food and Drug Administration approving several cancer drugs.

In South Dakota and in many other states, universities are gearing up to train what they hope will be a flood of young, bright biotech students — bioengineers, biochemists, and geneticists — eager to launch companies locally or work for biotech companies that relocate to their area.

The reality is that many biotech companies run out of funding before they deliver an approved product — and most never turn a profit.

”If you’re in the drugs and pharmaceutical space, which is where much of this business is, it can take as much as 12 to 14 years to get to a point where you have a product to sell," said Walt Plosila, vice president of the research company Battelle Memorial Institute in Columbus, Ohio.

That hasn’t stopped the investing craze among government agencies nationwide.

Iowa has set aside about $503 million for economic development of biotechnologies, including a $205 million chunk aimed specifically at start-ups and life sciences infrastructure.

In Missouri, investors in St. Louis have raised nearly $285 million in venture capital for biotech efforts, nailed down funding for a new and private academic research center, and built two start-up business parks.

Last fall, Florida Governor Jeb Bush enticed San Diego-based Scripps Research Institute with more than $500 million in state and local funds to set up an extension laboratory facility in West Palm Beach.

In fact, 41 states had some sort of biotech initiative in place in 2002 — ranging from modest proposals to plans to spend hundreds of millions of dollars to attract companies, according to a report by the Biotechnology Industry Organization, an industry trade group.

California is the leader in the nation’s biotech race and has an estimated 450 publicly traded companies. That is double the number in Massachusetts, the state with the second-largest collection of biotech companies.

In the Midwest, there are fewer than 15 publicly traded biotech companies and only 1,500 workers at these businesses.

Eager to change that status, several Midwestern states sent emissaries last summer to an annual trade show hosted by the Biotechnology Industry Organization. Governors and political figures from nearly a dozen states — including Iowa, Kentucky, Missouri, and Wisconsin — attended the event and began wooing companies on the showroom floor.

Compared to offers from other states, South Dakota’s pool of funds is small and focused greatly on one company — privately held Hematech.

South Dakota has picked up half of the $15 million Hematech spent to expand its labs, thanks to a combination of state grants and loans, and has committed an additional $1.3 million to boost the construction of a nearby technology business center aimed at attracting other biotech companies to the area.

In the last two decades, promises of tax breaks and other perks attracted dozens of companies not in the biotech field to South Dakota. More than a dozen banking and financial services companies set up shop or expanded their presence here; computer maker Gateway Inc. moved its manufacturing and operation facility to the state.

And those incentives also lured Hematech from the East Coast to Sioux Falls in 2002. Several states offered moving incentives, Robl said, including nearby Iowa. But South Dakota was the most compelling, and the most aggressive.

The pitch? South Dakota has no income, personal property, or corporate taxes. And there was the intense schmoozing.

”We got calls from the governor, had lunch with South Dakota’s US senators, and had meetings with its congressman, the presidents of the two big state universities and the local university in Sioux Falls. If we have a problem, we pick up the phone and call the governor," Robl said. ”In Massachusetts, we couldn’t get a phone call returned."

When it moved to the state, Hematech had a staff of 12. Today it employs about 43 people in offices both here and at its animal management facilities in Sioux Center, Iowa.

© Copyright 2004 Globe Newspaper Company.