Turning concepts into going concerns; Study: Region lags in developing businesses

While the Philadelphia region has 88 colleges and research centers and attracts hundreds of millions of dollars in federal funding and grants, there's a gap in turning academic discoveries and ideas into businesses and commercial ventures, a new study says.

Philadelphia stacks up pretty well among nine metropolitan areas in some measures of connecting promising academic innovations to industry - called "technology transfer" - in order to promote regional economic development, according to a report by the Economy League of Greater Philadelphia.

But the region falls significantly behind in venture capital investment, ranking seventh among the nine between 2002 through 2006.

The lack of venture capital - and more broadly a lack of entrepreneurial culture - is the "greatest impediment to technology commercialization" in the Philadelphia region, says the 36-page study, commissioned by a group of 70 CEOs and the Greater Philadelphia Chamber of Commerce.

The study was released yesterday at an annual biotechnology and life-sciences meeting, at the Loews Hotel in Center City.

"Why is it we have all these great scientists and NIH [National Institutes of Health] funded work and we don't have mature companies that come out of it?" said Russel Kaufman, president and chief executive officer of the Wistar Institute, who chairs the CEO committee that worked on the study.

For starters, the culture here is different from those on the West Coast or even Boston, he said in an interview.

"Philadelphia is a very conservative place, from a financial point of view. It doesn't take really big risks. It lacks this entrepreneurial spirit where it's OK to fail. And it goes all the way back to the universities," said Kaufman, who is board chairman of BioAdvance, one of three Pennsylvania "greenhouses" that give state tobacco settlement funds to promising early-stage companies and research.

However, scientists at places like the Massachusetts Institute of Technology "have a degree of financial security that many Philadelphia-area scientists don't have," said Kaufman, who came to Wistar from Duke University more than five years ago.

Philadelphia-area scientists rely on "soft money" - grants - to fund research, while at MIT scientists receive "a lot more salary supported by the institutions - hard money - from the university's endowment," he said. Often faculty scientists here are more concerned about getting NIH funding than commercializing their work, Kaufman said.

Among the Economy League's findings:

Philadelphia was fourth among the nine regions in college degrees granted; second in inventions disclosed by faculty; fourth in U.S. patents issued; and third in licensing and "option" deals.

While Philadelphia is home to a lot of start-up companies, it lags in attracting venture investment. Only Research Triangle Park, N.C., and Pittsburgh were behind Philadelphia. The biggest venture capital investment was in the San Francisco Bay area, followed by Boston.

One reason there is such a big funding gap is "there are more venture capitalists in the Bay area," said Brenda Gavin, partner at Quaker BioVentures, a life sciences venture fund in Philadelphia.

"Somebody has to be here to put a stake in the ground and lead a deal," Gavin said in an interview. Since 2003, Quaker has invested $85 million in 16 companies in Southeastern Pennsylvania. An additional $353 million came into these companies from other venture investors. "We put the stake in. We formed a syndicate and we brought people in," she said.

"That's one reason we formed Quaker. There just wasn't enough focus on this area," Gavin said. "A lot more attention now is being paid here, but this is a relatively new phenomenon. We are just on the cusp. We have tons of opportunity here. Honestly, we'd like to see more venture capitalists here. If we had another big fund, similar to us, that would result in more companies being formed."

The chamber's CEO Council is working with 42 people from local universities, businesses, venture capitalists and nonprofit funding firms on a multipoint plan of action.

One project would be to open a center in Philadelphia, possibly in the new Convention Center or the Navy Yard, which would be a "hub" to bring together entrepreneurs, venture capitalists, scientists and academics.

Efforts now are "fragmented," Kaufman said. "You don't have the hub where it all comes together." Since 1984, the State of North Carolina has invested $170 million in the North Carolina Biotechnology Center, a collaborative "clubhouse" for government, universities, businesses and entrepreneurs.

The group also wants to:

Create a grant fund for scientists whose federal funding may have run out and who need a small amount to do "proof of concept" tests before they can attract early "seed" and venture investment. The money could come from the state's tobacco settlement funds, Kaufman said.

Work with colleges and universities to develop entrepreneurial programs to train prospective entrepreneurs and provide internships.

Market the region as a center of innovation to attract venture capital and entrepreneurs.

The Economy League study is an outgrowth of BIO 2005, the international biotechnology meeting in Philadelphia two years ago that attracted 18,000 CEOs and scientists, bankers and venture capitalists.

"Our CEO Council said, 'How can we sustain this. Let's create a committee and look at what it's going to take,' " Kaufman said. "We commissioned this report, and came up with a plan to go forward. Some will take a little money, but some just takes us being advocates for the region."

Venture Funding Needed

Those advocating more technology-transfer activity point out that the amount of venture capital invested in the Philadelphia region pales compared with the hottest entrepreneurial areas. Ranked by five-year average.

Region 2006 Average

San Francisco $9.1 million $7.7 billion

Boston $2.6 billion $2.4 billion

New York $1.9 billion $1.7 billion

San Diego $1.2 billion $1.1 billion

Baltimore-D.C. $1.1 billion $989.3 million

Seattle $966.1 million $666.6 million

Philadelphia $507.4 million $414.5 millionResearch Triangle $327.5 million $328.3 million

Pittsburgh $256.2 million $137.5 million

SOURCE: PricewaterhouseCoopers MoneyTree reports.

Contact staff writer Linda Loyd at 215-854-2831 or lloyd@phillynews.com.