Crowding into Biotech’s Densest Supercluster

Is Boston going to pass Silicon Valley as the ground zero for the biotechnology industry? Some people think it might.

In July, MIT Technology Review will begin publishing a month-long report about “innovation clusters.” Sounds like a fortified breakfast cereal for entrepreneurs, right?

Instead, what I’m talking are those intense geographic concentrations of related companies, researchers, and labs that always seem to dominate new technology. The most famous cluster in the world is Silicon Valley. And it has ruled for years in both computer technology and biotechnology.

But recently, there are signs that Boston and adjacent Cambridge – specifically the area around Kendall Square, near MIT – might just break away and take the lead.

Just a few blocks on a side, Kendall is tightly packed with big academic laboratories like the Broad Institute. I’m guessing it’s probably the densest concentration of deep thinkers in genetics, neuroscience and genome research anywhere in the world.

Boston has always had some large, home-grown biotechnology firms, like Genzyme. But Jean-Francois Formela, an investor at Atlas Venture, says the region began to accelerate in 2002 when Swiss drug outfit Novartis decided to move its global R&D operations to Cambridge. Since then, more and more drug companies have arrived. Just yesterday, I got a press release from Johnson & Johnson saying that it would be unveiling a 9,000 square foot “innovation center” in the area.

The space will have an open floor plan, the kind of place people can come and go and just bat around ideas (“A very different kind of space than J&J usually has,” a press representative told me.) And J&J left no doubt about what they are looking for: the word “innovation” appeared 20 times in the email they sent us. 

When I think of drug companies, I usually picture a corporate campus somewhere in New Jersey floating in a square mile of bright-green lawn. But that model isn’t working any more. Drug companies are having a hard time coming up with enough new medicines on their own.

Part of what’s happening is a shift from chemistry to biology as a way to find drugs. The exciting new ideas are coming out of research into the human genome—often, the drugs being developed are actually biological molecules. That’s exactly the kind research taking at places like MIT and Harvard’s Longwood Medical campus, across the Charles River.

Another reason to be near the heart of a cluster is to be close to where the deals get made. Venture outfits like Formela’s Atlas Venture and Third Rock Ventures are the ones that pull together the new science and package it into startup companies that companies like J&J can buy into.

Formela says the exceptionally tight concentration of biotechnology talent in Boston is what lets him do that. “I can build a team with incredible speed,” he says. Unlike in Silicon Valley, which is spread out, in Boston people don’t have to re-locate to take a new job. “A lot of times people don’t even have to change buildings, they just move floors,” says Formela.

Companies are paying dearly for a seat near the action. Boston’s biotech cluster overlaps with a fast-growing concentration of technology firms—Google, Nokia, Amazon, and PayPal have all expanded into the area—and rents have spiked to around $70 per square foot, twice what they were six or seven years ago.

“You have big pharma coming in on top of a resurgence of tech companies, so it’s a real cocktail for high rents,” says Kevin Malloy, who leases office and lab space at real-estate company Avison Young. “They are all looking for those unplanned meetings, those situations where you can run into someone and be collaborative.”

The big question is whether Boston will take the biotech crown from Silicon Valley. According to Formela, Boston now leads in many metrics, including government funding for medical research. One area where Silicon Valley is still ahead is total venture capital dollars invested. According to Pricewaterhouse Coopers, Silicon Valley biotechnology companies raised $1 billion in 2012, versus $860 million for Massachusetts companies. The two regions are about neck in neck when it comes to early, seed-stage investments.

Of course, California has been fighting back, putting out reports reminding people it’s still the largest concentration of biomedical companies in the world. But the Boston-Cambridge cluster is going to get bigger, and denser too. In April, the Cambridge City Council approved an MIT petition to develop 26 acres around its campus and put up buildings twice as high as currently.

“The gravity field is going to be overwhelming,” Formela predicts. “It will be the biotech center of the world.”