Biotechnology and Medical Device Industry in Washington State: An Economic Analysis

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Biotechnology and Medical Device Industry

in Washington State: An Economic Analysis
Prepared for:
Washington Biotechnology and Biomedical Association

Seattle, Washington

Ruth Scott, Executive Director
Prepared by:
Huckell/Weinman Associates, Inc.

Kirkland, Washington

Robert A. Chase, Principal Economist

December, 2002

Biotechnology and Medical Device Industry in Washington:

An Economic Analysis

Executive Summary

Biotechnology and medical devices represent one of Washington’s young and dynamic knowledge-based industries. While the state’s economy languishes through a prolonged recession, biotechnology and medical devices continue to prosper and grow adding high-wage jobs.
Overview of Washington’s Biotechnology and Medical Device Industry

Comprised of more than 190 firms, Washington’s biotechnology and medical device industry makes a substantial contribution to the economy of Washington State. The state’s world-renowned academic and biological sciences institutes attract a sizable share of the National Institutes of Health grant funding--$650 million in 2002. Combined with other government funds, the biotechnology and medical device industry garners more than $1.5 billion annually for research and development. More than 19,300 Washingtonians work in the industry, earning an average annual salary of $68,000, and generating an estimated $1.8 billion in revenues and nearly $500 million in exports.

Although biotechnology and medical devices represent a relatively small portion of total economic activity in Washington, the industry has enjoyed robust employment growth—between 1990 and 2002, annual employment has grown by over nine percent. The biotechnology and medical device industry is largely characterized by small firms, with over 70 percent of all firms employing less than 50 persons. Half of all biotechnology and medical device firms in Washington started since 1995.
Biotechnology and Medical Device Industry Defined

Biotechnology and medical devices represent two important and distinct sectors within the biosciences industry. Biotechnology is defined as the application of biological knowledge and techniques pertaining to molecular, cellular, and genetic processes to develop products and services. Biotechnology has potential applications in a wide variety of industries—from natural resources (genetic engineering of plants and animals) to manufacturing (food processing and chemical engineering) and even computing (bio-computers). The largest category of biotechnology applications is in health and medicine—diagnosing, treating, and preventing disease. As elsewhere, diagnostics and therapeutics firms account for the lion’s share of activity in Washington’s biotechnology sector. Biotechnology should not be equated with medical technology or high-tech medicine. Many medical technologies are unconnected to genetic and molecular manipulation of biotechnology.

Medical device manufacturers produce a wide range of products used for the diagnosis and treatment of ailments. These include surgical and medical instruments, electromedical and electrotherapeutic appartuses, surgical appliances and supplies, ophthalmic goods, in vitro diagnostics, and laboratory equipment. Most of Washington’s medical device firms produce diagnostic and therapeutic products.
Economic Impact of Biotechnology and Medical Device Industry

Using a state input-output model, estimates indicate that each biotechnology and biomedical industry employee generates another 2.23 jobs within the statewide economy resulting from biotechnology and medical devices firms’ purchases and consumer spending by employees. In other words, the 19,360 jobs in the biotechnology and biomedical industry result in total impact (both direct and indirect) on state employment of 62,530 jobs. Every dollar of output produced by biotechnology and medical device firms is associated with another 95 cents of goods and services produced by other firms in Washington. The combined industry’s contribution to the Washington Gross State Product was $3.5 billion, about 1.6 percent of total gross state product in 2000.

Biotechnology and Medical Device Clusters

Washington’s biotechnology and medical device industry has clustered in and around academic centers and research institutes of excellence. Eight out of every ten biotechnology and medical device companies are found in King and Snohomish Counties (principally Seattle, Bothell, and Redmond). The Seattle-Tacoma-Everett metropolitan area is recognized as one of the top ten biotechnology clusters in the nation. Other biotechnology and medical device clusters in Washington are located in Spokane and the Tri-Cities area. These clusters involve more than the critical mass of firms from these core sectors of biotechnology and/or medical devices; firms from auxiliary sectors—suppliers, specialized services—are attracted to these same areas. Besides the mutual locational attributes between biotechnology and medical devices, there are important linkages with electronics, precision metal makers, plastic manufacturers, software developers, and specialized legal, accounting, and financial investment services.

Cluster analysis of the biotechnology and biomedical device industry found significant strength in industry linkages as well as impacts on the wider statewide economy. Such linkages provide a measure of relative strength in stimulating expansion within the regional economy, as both a driver of the local economy as well as key supplier to goods and services to other industries in the region. These linkages are both internal—intra-cluster and external to the wider economy.
A critical component and comparative advantage of the Washington biotechnology and medical device industry is research and development activities within academic and research institutes. The biotechnology and biomedical device industry is a research and development powerhouse in the state. Significant federal funds from the National Institutes of Health exceeding $650 million flow into the University of Washington, Fred Hutchinson Cancer Research Center, Washington State University, Seattle Biomedical Research Institute, Virginia Mason Research Center, and Battelle Pacific Northwest Laboratory. Spending on institutional-based basic research stimulates innovation that can lead to new products and more jobs.
Policy Considerations

Is Washington doing enough to capitalize on the state’s position in the growing biotechnology and medical device industry? Washington’s share of the biotechnology and medical device marketplace is strong by some measures, but falls short in others. The biotechnology and medical device sector holds great promise as an economic development engine. With Washington’s signal achievements in basic and applied research in biosciences, the state stands to lose significant ground if it remains passive in its support. Many states understand that the economic returns from public investments in biotechnology and medical devices are likely to be dramatic.

Washington State public policy needs to address those issues that support and nurture the biotechnology and medical device industry. The implementation of successful programs elsewhere provide some policy guidance here in Washington Such elements could include:

  1. Promoting the state as a place for biotechnology and medical device research & manufacturing.

  2. Develop a formal liaison between the industry and the state’s legislative and executive branches.

  3. Solicit a three-way partnership between the state, industry, and university in creating institutes for science and innovation.

  4. Improving the structure for commercializing innovation, including skilled staff in licensing and a physical facility to serve new ventures formed from the initiative.

  5. Address the issue of high cost of doing business in Washington as an obstacle to growth.

  6. Revisit the state’s existing program of research and development credits and tax deferrals for the biotechnology and medical device industry.

  7. Encourage the development of an early-stage venture capital fund for Washington-based biotechnology and medical device companies.

In the absence of Washington State providing any significant support to the biotechnology and medical device industry, it would be highly prudent for state policy makers to avoid harming the policy environment and business climate.

Growth Prospects for Biotechnology and Medical Devices

The graying of the population and growth in worldwide per capita incomes and per capita health care expenditures provide a platform for stable and steady growth for biotechnology and medical devices. Federal government regulation by the FDA will continue to directly impact the industry’s growth and profitability.

In order to foster continued growth in biotechnology and medical devices and to keep Washington in the forefront of the industry, state public policy should focus on making strategic investments in education and technology infrastructure, instituting a more formal liaison between the industry and state policy makers, and encouraging a structure for commercializing innovation.
Washington State-led initiatives pale in comparison with other states in supporting the biotechnology and biomedical devices industry. A number of states now have instituted bioscience strategies with significant increases in funding for academic research, venture capital funds, and publicly funded incubators, research parks, and commercialization centers. If Washington State continues to be passive in light of increased competition from other states, there is good reason to question if Washington can sustain its robust growth rates and thus maintain its “market share” within biotechnology and medical devices.

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