How the closure of a Pfizer research center in Ann Arbor, Michigan led to the development of a more robust and independent biotech sector

Crain's Detroit Business has a very interesting article, "How Pfizer's closure planted a thousand seeds in Ann Arbor," about how the closure of the old "Parke-Davis Research Center" on Plymouth Road north of the University of Michigan's North Campus has seeded a biotech business cluster there.  (The article is locked but you can access it through printfriendly).

Postcard image of the Parke-Davis Research Laboratory in Ann Arbor.

Parke-Davis, a pharmaceutical company started in the 1850s in Detroit, was an example of how companies developed around the country, based on the expertise of the proprietors, before similar types of businesses tended to cluster into particular areas (Upjohn in Kalamazoo is another.  While the firm no longer really exists, Pfizer kept its production facilities there, and it is part of the coronavirus product manufacturing chain.)

Parke-Davis created the first drug-focused medical research laboratory in Detroit in the 1800s, and eventually moved its research to Ann Arbor in the late 1950s, buying land from the University of Michigan, and it became  one of the largest non-university, non-hospital employers in Washtenaw County.  The firm was acquired by Warner Lambert in 1970 and then Pfizer in 2002. 

Pfizer made the decision to shrink its research footprint and close the facility in 2007, and in 2009 it sold the facility "back" to the University of Michigan. 2,100 people were laid off with the closure.

Challenge to naive assumptions about business and technology development.  I have a series of articles about how DC could create a graduate medical education and biotechnology research initiative on the St. Elizabeths west campus, anchored by a new Southeast Hospital replacing the troubled United Medical Center.  

-- "Ordinary versus Extraordinary Planning around the rebuilding of the United Medical Center in Southeast Washington DC | Part One: Rearticulating the system of health and wellness care East of the River
-- "Part Two: Creating a graduate health and biotechnology research initiative on the St. Elizabeths campus"
-- "Part three: the potential for donations around an expanded program"
-- "Update on DC's plans to build a new United Medical Center"
-- "Community Health Improvement Planning"
-- "A glaring illustration of the need for comprehensive health and wellness planning in DC: Providence Hospital"

While the DC area does have a number of biotechnology firms, mostly centered in Montgomery County and anchored by activities of the National Institutes of Health and other federal laboratories and agencies ("University of Maryland could seed a complementary biotechnology and medical education initiative in Prince George's County"), charlie has pointed out that may not be enough, especially compared to Boston, San Diego, and San Francisco (although Greater DC and Baltimore is ranked #6 nationally in "Top Cities for Biotech 2021," Excedr).

Thinking about the implications of the Ann Arbor biotechnology cluster made me think about how creating viable products is not that easy, and while many universities and federal laboratories do have some success in fostering business development, there's a big difference between the creation of a few businesses, versus the creation of many to the point where it merits notice as a nationally significant cluster ("Life sciences is poised to be Boston’s dominant industry. Has the area become the Silicon Valley of biotech?," Boston Globe).

Reading about the successful development of a small biotechnology cluster in Ann Arbor, with seemingly great existing resources already in the University of Michigan generally, its medical and engineering programs, its hospital complex plus the VA and St. Joseph Hospital System, made me realize that not unlike college football, which has about six football programs that are at a quantum level beyond the other "Power 5 programs" ("How to break up Nick Saban's monopoly at Alabama to improve college football," USA Today), the reality is that there are six to seven universities that spin off successful start ups at a scale far beyond the rest:

• MIT and Harvard in Boston
• Stanford University in Palo Alto/Silicon Valley
• University of California San Diego
• University of California San Francisco
• maybe the University of Washington in Seattle (Microsoft located there because that's where its founders lived before leaving for college, Amazon started up in Seattle because of the entrepreneurial culture created by Microsoft, and over time UW has gotten more involved in that ecosystem)
• University of Texas Austin contributed to the development of an IT cluster in Texas, but key events like the creation of Texas Instruments had little to do with Austin ("The launch and evolution of a technology‐based economy: The case of Austin Texas," Growth and Change, 50:2, 2019).

Ann Arbor's development of a post-Pfizer biotechnology cluster.  As mentioned, Ann Arbor does have significant economic development advantages: a large university; with medical and engineering schools; major hospital systems and extensive medical research operations; an existing business development ecosystem; and high quality of life.

One of the problems with the hyper mergers in the pharmaceutical industry is that as the firms become bigger, companies seek to work on only those drug solutions that are likely to make many billions of dollars.  So they have slimmed down, focusing on areas where they believe they have extra-normal expertise, abandoning areas of research that may be successful, but lack the right level of economic impact ("Drug companies keep merging. Why that’s bad for consumers and innovation," Washington Post).

The research laboratory in Ann Arbor developed many successful drugs over the years, and had many potential successful drugs in the pipeline, they just no longer fit the direction at Pfizer.

Viable drug candidates needed new homes.  In closing the laboratory, Pfizer was not vindictive, and they were willing to support the transition of drug solution research programs to new firms. 

Because many of the staff had worked and lived in Ann Arbor for a long time, they had relationships with other actors in the industry, professors and others at the university, and a preference to stay, and they were motivated to create new firms to continue the research that they had been engaged in at Pfizer.

So a big difference between say DC trying to create a biotechnology hub is that the Ann Arbor lab closure wasn't just about space, like Walter Reed was or the St. Elizabeths campus, it also had viable drug products in the development pipeline.

Normally these products would be shifted off to other parts of the company as they became viable, approved, manufactured, marketed, and distributed.  So those parts of the product development chain weren't present in Ann Arbor heretofore.  

Ann Arbor's pre-nascent biotechnology cluster was presented with facilities, a research ecosystem, and potential products.  For example, Richard Florida's Rise of the Creative Class was based on the idea that Pittsburgh, despite the success of Carnegie Mellon University in sparking business development, didn't have a fully developed business ecosystem, and as the firms grew they left the area for cities with more talent and a more developed venture capital system.  Although maybe unexpectedly, at least to Professor Florida, eventually Pittsburgh's business development ecosystem became more developed, and better able to retain start ups as they grew, became larger, and/or moved from concept to production.

Viable, realizable, saleable products already in the pipeline made the difference.  When Pfizer made the decision to slim its research portfolio and research centers, the Ann Arbor facility had as many as 25 drugs beyond the discovery stage, potentially efficacious and therefore viable business candidates,  At the outset, fifteen firms were created immediately as a result of the lab's closure.  Today there are 250 biotechnology firms in the area, and about two-thirds of the lab's 2,100 workers still live in Ann Arbor-Washtenaw County.

The economic development lesson is that Ann Arbor  was "presented" with a more complete and functional biotechnology cluster from the outset, rather than needing to create products and each business subsystem from scratch, which ordinarily requires a long period of time, which sometimes is successful but often isn't, which is why such economic development initiatives often fail or take decades to be realized.

One big firm versus many small firms.  One of the points made in the Crain's article is that the Pfizer lab was a large employer, with 2,100 employees.  But while it was a big employer, it was less resilient as an element of the Ann Arbor economy, if circumstances were to change.  By comparison 70 companies each with 30 employees employs the same number of people, but if a few firms shutter, it has less negative impact than if the large firm shutters.

(By comparison see Rochester, New York, which has been devastated by the diminishment of Kodak and to some extent Xerox, as well as by IBM's closure of facilities etc. "Kodak's long shadow," Rochester Beacon, "Last days of Kodak town: the decline and fall of the city photography built," Guardian).

The other element that the article didn't mention was the entire product design, development, manufacturing, and distribution chain.  With a large company, the bulk of the profit generating activities are performed elsewhere.  With smaller firms, it's possible to capture locally more of the chain of revenue generating activities.

A key element: venture capital.  Unlike MIT, which has a venture capital arm as part of its endowment investment program, the University of Michigan isn't that active in that space of start up development, and unlike the early 1900s (capital surpluses from the Michigan forest and mining industries helped to fund the nascent auto industry), Michigan was a venture capital laggard.

This began changing in the late 1990s.  So when Pfizer made its announcement, and the imprimatur of firms having grown out of Pfizer and the institutional prominence of the University of Michigan, start ups were able to raise capital, including from local firms.  But had the research center closed earlier, capital to support this scale of new business development might not have been available, stunting the creation of a biotechnology cluster in Ann Arbor.

An interesting research question: what makes universities good or not good at spinoff business development?  Not being an economist, I'm not up with all of the research and literature on business development.  Certainly, Saxenian's book, Regional Advantage: Culture and Competition in Silicon Valley and Route 128, has influenced me greatly. (She has a newer book, The New Argonauts: Regional Advantage in a Global Economy, which I haven't read.)  

The article on Austin cited above ("The launch and evolution of a technology‐based economy: The case of Austin Texas," Growth and Change, 50:2, 2019) looks at "institutional factors" like presence of other companies, universities, etc., which has always been my focus. 

-- "The East-West Divide | DC area regional economic development: anchors and where they are placed matter + airports | But military spending matters the most,," 2021
-- "Aerotropoli and rethinking the scale of mobility networks in the context of a global economy," 2013
-- "DC area airport planning," 2021
-- "Better leveraging higher education institutions in cities and counties: Greensboro; Spokane; Mesa; Phoenix; Montgomery County, Maryland; Washington, DC," 2016
-- "Naturally occurring innovation districts | Technology districts and the tech sector," 2014   

But can the factors that separate the top seven universities (at least the ones that I think are the top) for business start up development, from the rest, with the aim of helping universities do a better job at this?

(On the other hand, maybe the type of people who work at universities and federal labs are different from the people who work in the private sector? and that's a key factor.)