Eat lunch at Legal Seafood in Kendall Square any weekday, and you are likely to be surrounded by biomedical scientists from academia and biopharmaceutical companies. You might find the occasional information technology worker, but they are few and far between. Why has the local innovation economy, once dominated by information technology, now shifted decidedly to biotech?
Over the last half century, Boston gave birth to legendary technology companies like DEC, Wang, Lotus, and EMC. Only EMC remains as a highly successful and independent Fortune 500 company today. Something shifted in the 1970s and 1980s, such that Boston, which was fertile ground for “hardware” innovation (computers and storage), mostly missed the Internet, software, and social media revolutions. With a few exceptions, such as Akamai, Boston has not created dominant new IT companies of late.
The characteristics of successful innovation ecosystems have been carefully dissected by academia, government, and media. These include: a highly educated workforce, world class universities, and a local government supportive of startups. But what to make of a city like Boston, which has slipped in IT while becoming the clear leader for biotech innovation? Boston appears to be the mirror image of San Francisco — in Silicon Valley, IT dominates and biotech plays second fiddle. Perhaps there are key Boston characteristics that drive success in one type of innovation industry versus another?
By highlighting a vital Boston strength, and pointing out a crucial weakness, perhaps we can understand the disparate fates of biotech and IT innovation in Boston. First to a key strength: Boston has world-class academic institutions and hospitals. In our city, enormous value is placed on groundbreaking academic discoveries. If cities are defined by a given industry (Washington by government, New York by finance, Los Angeles by entertainment), Boston is increasingly defined by fundamental biomedical discoveries — quantified in Nobel prizes — and their translation into drugs to treat previously intractable diseases. Boston’s cultural emphasis on fundamental discoveries might explain success in drug discovery and the city’s previous success in IT. Groundbreaking discoveries, many made in academia, drove the earliest stages of IT innovation — the hardware underlying computers. Hence, Boston was a leader at the dawn of the information technology revolution, which depended on fundamental academic discoveries.
Now to a Boston weakness. Boston seems to place a premium on scientific discoveries but appears to eschew more seemingly pedestrian, market-oriented innovations. Recent drivers of the IT industry like social media may be cases in point. A certain Harvard undergrad was famously snubbed by local venture capitalists and his own university, and decamped to San Francisco to build what is now one of the most valuable new companies in the world — Facebook. Perhaps Boston is more likely to question the value of a Facebook — who needs an online directory of pictures and people? — or, for that matter, a Google — yet another online search engine algorithm. Why, for that matter, would people want to broadcast 140 character snippets via a service like Twitter? In each instance, Silicon Valley was willing to take a bet on satisfying a demand in the marketplace, while Boston did not create category-leading companies in these spaces.
In contrast, the lifeblood of much of biotech locally has been the seminal discoveries coming out of the labs of Harvard and MIT, and the vibrant ecosystem built around this innovation pipeline. Biotech and pharma to this day remain highly focused on disruptive innovation, often based on fundamental discoveries in academia. Examples include the Nobel Prize-winning discovery of RNA interference, which led to the formation of the leading company in that field, Alnylam, with a market capitalization of well over $4 billion at this writing.
What might the future hold for Boston? Is Kendall Square, formerly a center of IT innovation, forever destined to be the world’s leading biotech hub? I am not so sure. As industries mature, they become less dependent on fundamental discoveries and evolve to become more and more focused on the marketplace and the needs of the customer. In order for Boston to remain the top biotech innovation cluster in the world, we will need to shed some of our disdain for incremental innovation and the needs of the customer. We will need to become a bit less attuned to the next Nobel Prize-winning scientific breakthrough and develop a better appreciation for what the health care customer wants and the health care market needs. If not, we will risk having the next Facebook of biotech move elsewhere.
Christoph Westphal is a biotech entrepreneur and partner at Longwood Fund. He was cofounder, CEO, and lead investor in five Boston companies that have gone public: Alnylam, Momenta, Sirtris, Verastem, and Acceleron.