BioMed Realty Trust, Inc. (NYSE:BMR)
2014 Investor Day Call
August 6, 2014 12:15 PM ET
Timothy Rowe – Founder and Chief Executive Officer, Cambridge Innovation Center
Bruce Katz – Vice President and Director, Brookings Institution
Ed Dondero – Director of Real Estate and Planning at Biogen Idec
John Fry – President, Drexel University
[Starts Abruptly] Investor Day 2014, on the 10th Anniversary of our IPO.
I'm Rick Howe, Senior Director of Corporate Communications for BioMed Realty and we are having very full and stimulating program planned for you today. So let's get started.
I have just a couple of quick housekeeping items for you. First off on the agenda, the presentation by Bruce Katz, the Brookings Institute, who will then moderate a blue-chip panel discussing among three – discussion, excuse me, among three top leaders of innovation in the country. We have planned a Q&A at the end of the panel discussion before we break at 1:15 to set up for the live Second Quarter Earnings Call.
Each of you has a card placed at your seat with an e-mail address, firstname.lastname@example.org, which you can use to submit a question at any time during the panel discussion. Questions will be relayed to Bruce at the conclusion of the panel.
As I mentioned, we will be breaking close to 1:15, as close as to 1:15 as possible. Our earnings call will begin promptly at 1:30, for those of you here with us please be back in the room promptly at 1:30 for us to get started on time.
Again, thank you for joining us and it is now my pleasure to introduce the Chairman and Chief Executive Officer of BioMed Realty, Alan Gold.
I got some prepared remarks and supposed to read directly from this thing, but maybe, I'm not going to do that. It just – I just want to say, welcome to everybody, and it is really an amazing journey to be standing here 10 years after our initial IPO. I look out and I can't tell you how excited I am about the things that we've accomplished and about what we have yet in front of us. The opportunities that are in front of us are just very exciting.
So, as Rick has said, we have a very exciting panel today. And I want to announce and introduce Bruce Katz. We are very pleased and honored to have Bruce who is joining us today to give us a deeper look into his highly acclaimed study on the new innovation paradigm. Now, this is The Rise of the Innovation Districts. All of you should have received a copy of the study on Monday and I hope that you've had a chance to be introduced to his important findings.
Now, Bruce is with the Brookings Institution and a Founding Director of the Brookings Metropolitan Policy Program. Along with the study which he will be discussing today, he also co-authored The Metropolitan Revolution, a book about the emerging metropolitan led next economy.
Bruce is a leading expert and a voice of the challenges and solutions in today's urban centers and we are honored to have Bruce join us today. So please welcome Bruce Katz.
So, thanks, Alan, for that introduction. And it's a pleasure to be here and what I want to talk about is the shifting geography of innovation primarily in the United States and Europe, how it is changing the landscape of city and metropolitan economies and really what it means for companies like BioMed Realty. And we will be joined by a great panel of leaders who are deeply involved in growing burgeoning districts really throughout the United States.
So, what's behind this shift? The first is to understand we're going through an evolution. In the late 19th century, early 20th century we had industrial districts, really the co-location of manufacturing facilities in a production oriented ecosystem.
Post-World War II, what we saw was the rise of science parks, and Silicon Valley, places really far away from the central cores, where corporations kept their secrets, secret. And what we're now seeing is the rise of innovation districts really in the cores of American cities and European cities near anchor institutions like advanced research, medical campuses, but really in an environment which is 21st century, where people can live, work and play.
Three big trends, first of all, the open innovative economy really craves proximity and density, and it extols the integration within sectors and across sectors. We basically live in a convergence economy where technology, the tech sector is permeating and disrupting every major sector of the economy. But when the tech economy basically meets up with health care or education or energy and manufacturing, what that basically does is value proximity and density.
The second piece is the demographic transformation in our country. Anyone here in this room who is a millennial or has a millennial, has a child knows that their preferences for where they work and therefore their preferences of where innovative companies want to locate have totally changed. We're in a world where a group of very talented workers can go anywhere and they are pricing places that are so called livable, walkable, bikeable, transit connected.
So we're revaluing cities and revaluing citiness in a country really from 1950 onwards was the land of sprawl and the land of decentralization and the land of dispersion. Let's see if this works, no, but we'll go to our definition of the innovation district.
So these are relatively small geographic areas, sometimes 100 acres, sometimes 200 acres, but relatively small places where you see this concentration of agglomeration of the anchor institutions, entrepreneurs, large companies with R&D, small companies, and a supportive network incubators, accelerators, concentrators as you'll hear from Tim Rowe, but again in this quality of place environment where people can bump and mingle so to speak and have their ideas shared with others and from that comes innovation.
We need innovation districts because in the United States as everyone in this room knows, we're still coming out of a recession and we're still dealing in a country which has general population growth. So we still need to grow 7 million jobs in this country to make up for jobs we lost, keep pace with population growth, labor market dynamics. When you grow this innovative economy, and you grow the tech economy it's the multiplier effect. For every one job, you get five more.
Where are these places? They're in three parts of our cities and metropolitan areas. The first part are right snuggled up against the anchors, think MIT, think Drexel and University of Pennsylvania, because you need to be near the secret sauce, right? The places where they're doing basic science, but also the talent pool of advanced research places. They're also in areas along waterfronts, where old industrial parts of the city, think the Boston Seaport, think South Lake Union in Seattle, think even Brooklyn Navy Yard, they're getting repurposed for different innovative use.
And the reason you know this is really taking hold is in places like Raleigh, Durham and the Research Triangle Park, their number one item for growth is to redo the park as an urban landscape, because they are seeing the competition for innovative firms and talented workers with Downtown Raleigh and Downtown Durham.
So let's deconstruct this a little, because every district has three main elements but they manifest differently in different parts of the country because the platform for innovation, the kind of ecosystem you exist in obviously differs from city to city and metro to metro.
Let's talk about economic assets first. So, basically, your starting points are going to be these anchor institutions. In some places it might be advanced research, in some places it might be advanced medical, think the Texas Medical Center in Houston, in some places it may be large companies with large R&D. But you start with these anchors and from the anchors rose are cities of sectors and companies and clusters.
You start with high value research firms. We'll talk a lot about life sciences, obviously in Kendall Square, but in other parts of the country as well. You see the creative fields coming back into the city core. This is design; this is architecture; this is industrial design; that doesn't sit apart from your life sciences or energy sectors. It sort of collapses and connects to it.
And finally you're seeing even the growth of small batch manufacturing. This is a robot called Ardi [ph] in South Boston Seaport at a firm called Arteya [ph], which basically makes high-end ceramics for hotels and other convention centers.
All these are coming together again in relatively small geographies but these economic assets basically are ubiquitous across. The physical space is what's really interesting, because innovative firms and talented workers want to be in a quality community, a quality environment, a quality built environment. These were the kind of public spaces that are emerging, Barcelona on the left, Detroit in the middle, Eindhoven in Holland on the right, places again where the public space is used almost as an extension of the office, almost as an extension of the innovative activity that goes on within different companies.
And this is what happens inside the companies, the rise of co-working, the rise of collaborative space, the rise of shared infrastructure. So entrepreneurs and researchers have access to the most sophisticated equipment and they don't want to put that capital upfront, they can focus on their science, they can focus on their innovation. This is District Hall in Boston.
You're also seeing the rise of public-private spaces which becomes the town center essentially for innovation districts. So people sort of stream out of the office towers or in some places moderate rise buildings and come together afterhours or for particular forums to again share ideas and commercialize.
What you're also seeing is some dramatic infrastructure changes, this is Stockholm, on the left is what it looks like now, they're going to deck over some old freeways, build vertical, create value, all near advanced research institutions primarily around medical. John Fry will join us later, may want to talk about some of his ideas for Philadelphia along the same lines.
So physical really matters, right? This is not about an isolated campus 30 miles away from a central core where you need to get into your car, drive, disappear into the facility, go to the cafeteria in the basement and never meet anyone outside the four walls of your company, right? This is the rise of the open innovative networked economy where companies are working in collaboration. Finally that's networking.
There's two kinds of networking that matters, in an innovation district and they really rely on strong ties which tend to be people same sector, same discipline, understand the specialized language that they're engaged in, this is a picture out of Eindhoven, which is really a place making the devices that can be implanted in our bodies. So they're in the same space and they are sharing their ideas and looking towards discoveries for the market.
But what's as essential in innovation district so what's called weak-ties. So you might have the collision of a graphic designer or an industrial designer with some of the individuals in the prior photo, right? Engineering, architecture, design, marketing, branding, investment, finance, legal, accounting, those are weak-ties, people who really gone to different schools, have different discipline, but when they begin to collide together you get a two-plus-two-equals-five effect essentially, that's what innovation districts are about.
So, once you have all those three together and you have risk, because there have to be risk and you have access to capital, a variety of capital whether it's VC, whether it's small business, whether it's housing, whether it's infrastructure, whether it's for the skilling of workers, because a large portion of the jobs created by this innovation economy actually doesn't require baccalaureate degrees or PhD, sub-baccalaureate for technical skills, you have an innovation ecosystem.
The entire country frankly, any advanced economy basically builds off these small geographies. Philadelphia, 4% of the landmass, 50% of the jobs, we're seeing more and more in that concentration and the agglomeration happen.
Let's go to St. Louis to get first look at the Cortex District. This is basically a consortium of the Washington University Medical School Campus; Barnes-Jewish Healthcare; Schriener [ph], St. Louis, all come together around 200 acres and create a special district in the heart of St. Louis. What you see is the growth of these economic assets, both the related institutions that are doing advanced research, but also companies like Cofactor Genomics that are taking the research and basically commercializing for the market.
Then you see the physical space, which is the addition of light rail transit, so you can get that node and density effect within the core of the district so you can have those places, the commons where you can have the collision effect. And finally you got, which is really I think what makes this distinctive. It's not enough to build buildings. You have to have programming, so that you have the connections between different disciplines in different sectors.
Cambridge Innovation Center, Tim Rowe, will talk about tech shop. Boeing has some of their R&D sectors there as well. These are really different kind of collapsing and agglomeration of economic, physical and social, all in a very defined space. This is not a government program. This is not like Washington invented something that everyone around the country is doing. This is happening organically. The question then is just how do you supercharge it, so where are places going.
The first thing a place has to do if you got your natural assets, organic growth is to create a network. No mayor or university or medical campus or one company or a group of investors is going to create those by themselves. So, it's a network of stakeholders that are beginning to come together and design, finance and deliver these districts.
In Boston, that was led by the mayor, but in close collaboration with real estate and life sciences and other sectors. In university, it's a consortium of research institutions, most prominently led by Drexel and University of Pennsylvania. And the Research Triangle Park, you actually have a non-profit entity that basically owns and operates the park and works with all the different companies. But like cities, cities are not governments, innovation districts are not governments. They're networks, and once the networking comes together with some deliberation and purpose you can move.
The second piece is set your vision. This is following the great advice of Dolly Parton, right? Figure out who you are and do it on purpose. There is no cookie cutter to this. What Washington is really good at, Washington University or St. Louis, is quite different from what Kendall Square is or South Lake Union feeding off of University of Washington or Georgia Tech in Atlanta or other advanced research.
So what's your vision? This is the Cortex vision very much seen in the build-out off of their very enviable platform of advanced research and this is Boston. This is the Seaport of Yuland [ph] in Logan. You can look across and look at the seaport. It was an old industrial use, the old convention center is located, a bunch of hotels, a bunch of retail, now it's becoming a pure innovation space, with a very interesting mix of sectors and companies.
And finally, what are your strategies for success, right? Basically, when you look across the country there really are three things that places are focusing on, how do you attract and retain talent and provide the technology, particularly the connectivity, the gigabyte connectivity that you need to grow one of these districts. Washington – or Seattle, Washington is way ahead of this, partly, because they've been able to attract Amazon headquarter to consolidate and move. So the talent tends to gravitate towards these small geographies.
On capital investment, surprisingly Detroit is showing how you can crowd-fund philanthropy, corporate, local capital, global capital into the downtown and midtown because in a bankrupt city it's not going to be coming from the government, it's going to be coming really from the private-civic sector. And Philadelphia is really at the vanguard, since many of these anchor institutions are surrounded by low income neighborhoods, even public housing, how do you extend the growth of these districts on into the broader city and adjoining neighborhood so you can lift all boats.
That is the new geography of innovation. It is happening. It is very disruptive to a country particularly that saw most of its innovative hubs locate outside of central cores, but when you have a large demographic forces and economic forces that are basically pricing open innovation and convergence and the mash-up economy of tech and all these sectors, this is the physical manifestation and if you're really smart about it, as a company, as a cluster, as a city, you can really leverage the possibilities.
So that is the rise of innovation districts. So what I'd like to do now, and you have the bios in the papers before you is to call up three people who are really right at the heart of this to have a conversation.
First, John Fry, who is the President of Drexel University and has been long time involved in the remarkable growth in West Philadelphia because of his being Vice-President of University of Pennsylvania during their growth in the 1990s, former President, of course, of Franklin & Marshall, so John will talk about the Philadelphia story. Tim Rowe is the CEO of Cambridge Innovation Center.
They are really at the vanguard of collaborative innovation space in the United States. There's no one better to talk about this and he can help us sort of walk through this interplay between smart buildings but smart programming and why the entrepreneurial class need that.
And then Ed Dondero from Biogen Idec, who is the director of real estate which is a really interesting story about a company that left Kendall Square, moved out throughout 128 and then turned back and came back, because they understood they needed to be closer to the mother-ship of MIT and that interesting mix of innovative firms and talented workers.
So John, Tim and Ed, come on, come on down.
So, I'm going to start with John, because I think the West Philadelphia experience very much is emblematic of what's happening in other parts of the country and I thought maybe you could start by sort of describing this ecosystem that is really growing at rapid pace in West Philadelphian university city. What are the main opportunities from your perspective sitting at Drexel but as part of the larger group of stakeholders? What are some of the challenges you see to growing a globally significant innovation district in a Phila.
Thanks, Bruce. So, for those of you who needs a little help with geography, we're sort of immediately west of 30th Street Station in Philadelphia. So if you get off the train, you're in West Philadelphia, everything from there west, you hit the Drexel campus, University of Pennsylvania Campus, Children's Hospital of Philadelphia, Hospital University of Pennsylvania, University City Science Center. And that's sort of the first point. This is an amazing collection of intellectual and economic assets.
Just by their very presence over a $1 billion of NIH and NSF funding every year, so much capacity in terms of faculties and students, it's really an amazing gift and treasure for us. And so you start off with this collection of institutions and people. I think the second thing is what the institutions themselves have been doing really since the mid-1990s is taking very seriously their obligations to be better neighbors in West Philadelphia and also the sheer amount of construction and jobs that have been created. I think the institutions have started to really think about how do you not only build your institutions, but how do you also rebuild your neighborhoods.
I think the third thing for us that we're seeing and this is more recently, well, these institutions are finally taking seriously the fact that it's not enough just to have the collection of assets, you have to really think intentionally about the ecosystem and so now we're starting to see incubators, accelerators, funds. We just started something called Drexel Ventures which is coming on line right now.
Coaching, support, other capacity, building ways in which we can take the best ideas of our students and our faculty and put them into a business format, get them started as seed-stage companies and sort of move them to through the ecosystem with all the space and all the support that they need. The fourth thing we have is plenty of vacant land or land that has been underutilized forever.
And so at one point in West Philadelphia the old civic center next to the hospital and then Children's Hospital of Philadelphia, the collection of assets that were owned by the United States Post Office which are right at 30th Street Station, all these huge swathes of lands, and we own about 12 acres right next to 30th Street Station, have come available.
So we purchased them and we're now thinking about how do we creatively program them and do it in a way that supports this ecosystem and the last thing is 30th Street Station itself. Our transportation access is absolutely in parallel to a little over an hour up to New York, about two hours down to Washington. If high speed rail comes to the Eastern Seaboard, we're going to be at the 50 yard line of United States. And so you pull a lot of stuff together and you can't help and think that we can do something big and it's already starting as Bruce indicated. The big issue is the inclusion and the equity. We have some of the most impoverished neighborhoods in the United States immediately to the west and to north of us. They've made some improvements. We have a long way to go.
When you think about you niche in the U.S. and globally, life sciences, robotics, energy, and in Philly, it's got some really interesting position right now, which I don't think is totally understood, it's it sits between Washington and New York. Describe a little bit of what Philly has that enables you to – and beyond the institutions but the sort of sectoral with the cluster niche that you see.
Sure, well, again, Life Sciences, you have this huge cluster of pharmaceutical companies in the region. Many of whom are looking to partner with us because of the kind of innovative work that we're doing. And so I think we have an opportunity to really to grow the life sciences sector in a significant way and many of our partnerships are with BioMed. And so their networks and our networks and our capacity put together, I think give us a really good trajectory on life sciences.
Drexel has been an institution long devoted to computing and informatics. We have a big bet we're making right now in cyber security. So I think that's a whole other bet and the University of Pennsylvania, it has enormous resources in those areas.
Energy, you know the Marcellus Shale revolution, then it is a revolution, the amount of output now is just historic and Philadelphia as an energy hub is not something that should be dismissed. In fact, given all ports and our transportation infrastructure and our location we're the sort of natural center of gravity for what you do when you want to extract the shale gas and begin to think about how you distribute it across the United States.
So I'd say those three right now are the most significant thing and the institutions have really deep research and translational expertise in all these areas. And again, with partners like BioMed it gives us an opportunity to think about, so how do we take all these assets and begin to really develop in significant ways around the universities and throughout West Philadelphia.
So one thing to think about innovation districts is that again it's this mash-up of companies in clusters that connect across because of the small geography, so someone in the energy space or robotics space is connecting up to the life sciences space. That's what makes them ultimately so powerful.
Ed, you're from really one of the iconic life science companies in the United States and around the world, talk about what the New York Times learned about, which was this interesting location and then relocation of your firm and what kind of thoughts you were using around facility location.
So the reuniting of Biogen really started back in probably 2007. We were a fairly static company. We had two products at Biogen and one of Idec on the market. We hadn't had much growth in years, but the company was growing organically. And we looked around and there wasn't any – there wasn't any development in Cambridge for offices.
And the average age of our employees was getting older. We were becoming a much more mature company. So what attracted employees early-on was different now. Now we're talking about an employee that wants to raise a family, find affordable housing for that family. And when we did the sort of 45 minute commute from Cambridge it puts us in that center – Route 128 van for housing which is pretty expensive.
So then the idea was to move the center of gravity out to west in which it is 11 miles west. And we assumed that by moving out there and then you do that 45 minute commute. That puts this new base of employees in more affordable housing. And we did that and just at the time that we were getting ready to move in 2010, all of a sudden Biogen became this explosively dynamic company.
We had the ability – at that time we were looking at perhaps launching four new products within 18 months. And now – and then we bring in a new CEO, and now we're looking at the company in a much different way and that physical separation became problematic for us. So the move back to Cambridge for us was really this sort of reunion of what was the G&A function and commercial group that we have moved out back in with our research groups.
So in some ways the traditional real estate operations of these companies is colliding with human capital, recruitment, retention, growth within, which is a really interesting way.
Yes, when we moved out to west and the most of the employees that moved were used to living in the Cambridge environment. It was difficult, even though there was this advantage of housing. I think the notion of the separation in distance from Cambridge was still problematic even for them. Because we lost, they lost the connection not only to – we always were going to keep our research element in Cambridge, there was never any questions about that.
Right, got it.
Because of all of the obvious reasons of the Cambridge innovation area. But it was that separation and it for employees they were willing to sacrifice the commute and we saw the commute problem. We have a number of different ways to get our employees into Cambridge.
That's great. One other thing about commuting and to go to Kendall Square or to West Philly, the Red Line, the T, in Cambridge is the most innovative mile in the world. It was started in 1912, so a hundred years later, you're seeing the full ROI from that public investment. And what people have said to me in Kendall is, if we could just move the – more trains faster than we can even see more growth but that's a whole different conversation.
Of course there's an interesting side on that one. We're seeing – we've seen about 5 million new square feet of development in Kendall Square over the last decade. And we actually saw car traffic drop during that period. So we – I think it was about – we had about 7 million maybe to start with, so we almost doubled the commercial office space and saw car traffic drop. And at the same time we saw massive increase public transit use and shift to living in the town. People wanting to live in the cities, is part of this generational-shift you referred to.
So, one thing Tim, because to some extent what your company represents is Silicon Valley in a building, right? And I…
Yes, that's a good slogan. I think Silicon Valley…
But we heard about incubators, we've heard about accelerators, what you are doing with Cambridge Innovation Center is really creating a concentrator. So could you talk about that concept, why it works in Kendall and Cambridge and why it may be applicable to a much broader swathes of the United States and Europe.
I was just speaking with folks at our table here about TIC and accelerators and incubators and what's been around before. And I mentioned that we're in the Boston area about 300,000 square feet right now. And I saw a few faces like, really that big? And I think what we're seeing is a shift from the incubators that were a 5,000 or 10,000 square foot kind of space for maybe very early stage entrepreneurs into a shift on the kind of three-dimensions. We're seeing a massive increase in the scale of these facilities. We're seeing a maturation of the facilities in terms of what kinds of organizations are being concentrated.
Incubators always concentrated, the earlier stage entrepreneurs, people just starting out, just trying to figure things out. We're now seeing the more accomplished entrepreneurs the fast going hi-tech start-ups the venture capital firms and even innovation arms of larger companies. So for instance in St. Louis we saw Boeing corporation move it's venture group and its own incubated new companies within Boeing into the building with Cambridge Innovation Center there.
We're seeing this, so what's really happening is there is a compression effect when you put these innovators into a physical space very densely in the same physical space, they start to have interactions with each other, that are very similar to what Ed was talking about in terms of what Biogen is looking for with its research being in Kendall Square, those connections with the university and so forth.
When you increase the density and you bring all of the players in the innovation equation, not just the early stage entrepreneurs but also these other players like investors and larger companies you get those interaction. The rhythm, the rate of those interactions increases quite dramatically. So just put to some numbers around that, we've now seen more of venture capital concentrate in this place than the state of Texas in just two buildings in Cambridge, in Kendall Square.
We're seeing companies like Google Android, got started there with one guy with an idea for an open-source mobile operating system, transition over to couple of 100 people, get bought by Google, and then turned out into the world's leading version of that.
These kinds of big outputs from an innovation process happen best when all of the resources that people need are right around them. And I think the last thing we're seeing at this innovation center trend is the professionalization of the operation of them. Historically they were run, by not-for-profits and municipalities, and sometimes directly by universities, and I know how much universities love operating these things. John has talked about this.
And when they get big it's like trying to run a hotel as a not-for-profit. It just doesn't – we don’t see that in the real world. And so there is a new class of operators that are bringing what a more accomplished entrepreneur, a bigger company would look for in terms of a really high performing infrastructure for innovation.
Now you're involved in Lab Central, which obviously is deeply meshed in the life sciences sector. Could you talk a little bit about why is that similar but different from…?
Yes, so Cambridge Innovation Center is really a family of operations. One of them is LabCentral which is set up as a separate not-for-profit that was funded by the state and by a number of large biopharmas, Pfizer and Johnson & Johnson, and Novartis amongst others. We saw the need for a dense intense shared space for life sciences innovators. And as we really taught the sense of what do they need, they needed some millions of dollars of equipments that each individual start-up, a zero (inaudible) start-up with one or two employees really wanted access to $3 million, $4 million, $5 million worth of equipment for their own use, but they didn’t need to own it, right?
And what we constructed was a model where we've ultimately – it's about $22 million for this project. We bought literally the best-in-class equipment across the board in every field of life sciences endeavor. What you would see at a top life sciences firm for their own R&D, but it's intensively shared amongst, I think we'll ultimately 60, 70 small life sciences company sharing the same equipment.
It's worked out wonderfully. We opened less than a year ago. We will be full in less than a year and we're about to triple the size of it, just because the demand that we're seeing, I don't know if that addresses your question.
No, that's perfect. We've got one question from the audience so far. So let me just read that, because it gets to actually where I wanted to take this, because what's not the like, right, but the question is so what are the challenges to the natural evolution of these districts, but then also intentionality about whether it’s the inclusive effect on adjoining neighborhoods or the infrastructure that’s needed.
First question, how do we manage risks of intrusion to intellectual property in the new connected innovation economy? So we hear this at Brookings a lot, because you have in some parts of the country, it might not be life sciences, it might be another sector, some of the larger company still holding the IP and the question is how do you begin to collaborate across broader networks of entrepreneurs, firms, and researchers, have you come across this?
If I may take a quick step, this is really a non-issue. We have been in business for 15 years. We've had 2,000 companies come to our doors. I do not have a single complaint of somebody being concerned that another company took their intellectual property. In St. Louis, they have a wonderful not-for-profit called BioGenerator, which has been operating for a number of years in a life sciences shared space mode.
They innovated, they have a few private rooms that you can take for those most private parts of your work away from others, away from other eyes. But what we found is that the shared environments actually are working fine. So if someone can walk by your bench, it does not mean that they understand what particular protease inhibitor that you are working with.
Not an issue.
I agree. I actually – we're behind where, Tim, is at this point, but even the work that we are doing right now, which is very promising putting these various companies together and groups, we haven’t seen anything like this, yes.
It’s more of a cultural issue than a real issue…
And what we were seeing is, the younger innovators, they're just not thinking about this. Well, what they are thinking about is that, when they go out for lunch with a guy who is sitting next door, the girl down at the end of the call, and they stand struggling with this problem, they can benefit from the knowledge of all these other companies and solve that problem.
Very interesting. I mean, if you want to see an interesting in the marker space, GE Appliances opened up essentially an ideas factory in Louisville, next to the University of Louisville. And all these makers and tinkerers come in on a daily basis to sort of crack the code on, really real market challenges that they have. And they get royalties if their idea basically makes into the market.
And once you are in these spaces, you never do another company in another way, because you say, this is just a better way to do it.
Interesting question about the backlash that is happening in San Francisco, from your perspective and this obviously will apply to Boston and Cambridge, it will apply to New York, it will apply maybe to a lesser extent to Philadelphia, but it may be perceived. How do we deal with these issues of affordable housing, displacement gentrification, the Google Bus Protests, and these are big issues which obviously…
I want this problem.
You want this problem…
Could you give me this problem? I think you guys might have more experience with that, we're waiting that problem...
But I think – but the record show Philadelphia wants…
We want that problem, and then we are already with this Promise Zone designation, where one of five Promise Zones designated by President Obama this year, one of only three in a city. And we are already thinking deeply about the issues of – as we develop all the opportunities that we have and we have lots and lots of opportunities in Philadelphia, how do we also do right by the neighbors and I don’t want to get away from the question, but that’s multiplier slide that you showed that is so important.
If we can do what we hope to do in this innovation district, the areas that are really been suffering for generations and generations around those, if we do our work right, actually some of those jobs are going to go to them. And we will work with them on workforce training and bringing them into the opportunities that we have right now. But we are way pre that problem right now.
And I think the City of Cambridge has done a lot. I mean back when we did have this issue in 2007, where there just wasn’t space for us. I think this additional growth it’s been allowed in Cambridge has been offset the requirement of developers to build affordable housing. So they are the City of Cambridge's house issue.
Another dimension that I – we have an active dialog with the neighborhoods about this stuff. Cambridge about 25% of Cambridge's revenue right now comes from the core part of Kendall Square, where Ed and I have our operations. This is the difference between a school-system which is sort of struggling to train teachers and which – between the City of Boston.
And so in Cambridge, where we spend more per student than most private schools, so the economic development has huge positive impacts for the community, and I love your answer, John, that you want to have those problem, because it – when you get past the rhetoric and you look at the real impact on building new schools, new public libraries, new police stations and so forth, Cambridge is an unbelievable place to live as a result of what's here. There is a second piece though, it’s not just about, hey, you’ve got these benefits.
There is also an integration of the activities that we've found is helpful where VCIC [ph] are now the second largest destination of high school interns in the City of Cambridge, the largest is Harvard University.
And what we found is that when you place a high school kid, they are all from economically disadvantaged background, the kids that we work with, in a start-up you will have the CEO, two co-founders and the high school kid, right? And day one the high school kid comes in and kind of looking down his seat, like all that. And the CEO says, okay, so we are kind of busy here. You’ve got the U.S., you’ve got Europe, kid, you’ve got Asia. And it's like go after, because this is not your typical internship, where you are going to be filing or answering phone calls. In a start-up, it just doesn’t work like that. Everybody, it's all hands on deck.
And so these kids are getting experiences that they would never get any other way. So I really think with the innovation economy there is a lot of opportunity for this kind of engagements. And these kids end up getting hired full-time after they graduate. The connections are real and they are sustaining.
So I think that really raises this interesting proposition that the STEM economy, biggest life sciences is clearly a key part of the STEM economy in the United States, Science, Technology, Engineering, Math, is really open to a much broader group of people than an individual with baccalaureate or master's or doctoral degrees.
And we think from our own work at Brookings that it could be 40% of the STEM economy is accessible to people with no baccalaureate degrees, but who have special skills. And so then the focus is can you bring that into the high schools or even starting as you are doing, John, in K through 8.
Or intercommunity colleges that have customized training for some of these occupations. So do you see that’s a reality in Philadelphia and is everyone on the program so to speak?
It’s a reality on an opportunity, and part of the problem is that, we have a school district that is really disabled at this point in terms of its funding model, in terms of the politics surrounding that. And as an institution that really wants to drive forward and take advantage of the opportunities we're basically now beginning to plan for creating our own K through 8 STEM-based school on the University City High School side, which is a failed high school that just closed. We purchased the site with BioMed.
BioMed is going to do about 3 million square feet of development on that site and we are taking our piece to do this K through 8 STEM school, because the key to attracting the kind of people who we want to work in this neighborhood is life style and part.
I mean, they want to be able to bike to work, and eventually when they have families, they want to be able to send their kids to a decent local public school. And guess what, if we can't provide that, they are out to the suburbs and that really undermines the whole premise here. And so the education piece, I would say, is as vital piece of infrastructure as anything we are working on right now.
And when you get that right, it comes back around. So for instance, the Cambridge Public High School, Cambridge Rindge & Latin, it is now the number one school for the private school's kids to go to. They are not going anymore mostly to private schools, they are going into the public schools system.
And one of the things that we developed about six or seven years ago with this community lab within Biogen, it's staffed by Biogen research scientists, and starting a couple of years ago, every student that graduates from Cambridge has gone through our lab. And even you showed the bands of growth and you had that research center of North Carolina, we were part of that. So we went down there in 1995 and we bought 190 acres in the park.
And the idea was that we were certainly going to do manufacturing down there for all the obvious reasons, but we have the ability to grow a lot more down there and we've always – we get to these decision trees of where we do we grow certain parts of our company, we look to North Carolina and I think it’s somewhat resource constraint because of this issue of education.
So I think we've answered another question, was will this trend exacerbate income disparity in the United States, will innovation districts become the haves of cities and metropolitan areas, separated from the have-not. I think one other thing to add to what you all said, is if you think about RTP, Research Triangle Park, and how far away that is from the cores of North Carolina cities, of the Raleigh–Durham or Chapel Hill, you could fall out of bed in Kendall Square and be in a public housing project or vice versa. So it isn't accessibility, if we are smart about this and if we are intentional about it, it was purposeful to do that.
Let me ask you a question about threats, because when I look at innovation districts around the United States, maybe less so in Europe, but in the United States, in a way you're building of a platform of large scale federal investments in basic science, frankly, less applied research, bit basic science, infrastructure investments to some extent and education and skilled investments to some extent. But the real purpose of our national government is to invest in R&D. What happens if – it’s the biggest threat to start, it’s the biggest threat that our national government continues to be on frolic and detour and doesn’t really have a reliable, consistent, and predictable stream of funding around basic science and R&D.
Is that the biggest threat from the national dysfunction or is there another series of threats that you see from could be around immigration, it could be around some others?
All I would say is that, yes, but instead of just basic research I would also add infrastructure, because so much of what we need to do at least maybe in our particular situation is to kind of rearrange things, and we have enormous opportunity. We have a 75-acre really are right adjacent to the 12 acres we are developing right now., which will yield about 6 million or so feet.
If we could figure out how to and we are studying this right now, take advantage of the air rights and platform over this 75-acre rail yard, we can really do something long-term on the order of, I think what Cambridge has achieved. But without the Federal Government supports on some of those infrastructure moves, it’s just not in the cards. And that will be such a tragic thing if we lose. This is the 5th largest city in the country with the third busiest train station, where it’s unnatural to look at that rail yard and say, how do we do something really smart like they are doing within Stockholm.
That’s the kind of far side of Federal Government we need to have. And if we don’t have that, we are going to limit ourselves. So, I would say, yes, basic research, we're all very nervous about the discussion and the trends, but also the infrastructure.
Our researchers needs to get better. 90% of research dollars is really goes to its products, but never see the market. So we need to improve the efficiency of research and we are – we've discovered ironically enough, it was part of the move back to Cambridge, we revaluated how people work you mentioned about where people want to live. We took a one stop further and really evaluated how people work.
And over the last 20 years, we've tried to turn our homes into offices and now what we are really, we are doing here in our new buildings is we are turning our offices into homes. But by doing that, we also found out that we had a lab building that was 20 years old, and it was old, they need it refreshed. And we looked at how research is being done today, and where that collaboration is happening. And because of the technologies, because of automation, because of imaging, collaboration is happening in different places.
The good news is that for the development community, we don’t need less space, but we need different space. So we need to improve that 90% failure rate.
We were just talking about this and how to apply what we are learning in start-up to other larger companies.
And threats from your perspective, there are more macro we have less control of them, but since this is a public-private partnership to begin with.
So there is a national threat, and that, we are seeing other countries really begin to engage on this stuff in a way that they haven’t before.
You are seeing recognition of – United States used to be 80% of the world's venture capital, eight out of every $10 of venture capital was spent in the United States. And the capital came from all over the world, invested into funds here, invested here. And that's shifting with major focus on the venture capital's innovation, infrastructure development, a shift toward more commercialization within universities.
And so, there is a question, more of a national competitive in this question, what does America need to do in order to maintain its edge, we don’t have the low labor cost that some places have.
We've always survived, because we've been smart, in a way, we've been innovating faster and better than most countries. Can we maintain that edge? And this does come back to the ongoing R&D investments that the Federal Government makes to our Universities. We got to keep that up if we want to compete the way we have and the way we've won over the last six, seven decades.
Let me end with this question. Let’s say I'm a mayor of a midsize city in the United States. I've got a decent university, it’s obviously not MIT or University of Pennsylvania or Drexel, but decent, right. I've got some companies that make quality products, that provide quality services, export to the world, get foreign investments, I've got an interested group of philanthropies, I've got base of the educators, whether they are in high schools or below, or in a community college, ready to put shoulder to the wheel, that’s the advice you have, because I couldn’t tell you right now, there is a line of about 25 or 35 midsize markets in the United States out the door, who are basically saying we've got the ingredients for a world-class innovation district. What do they do?
Okay. Yes, sorry, sorry. Okay. So there's some data out there that U.S. Census Bureau and the Kauffman Foundation did a little analysis where jobs are coming from. And what they found was that over the last 30 years or so, give or take, existing – all existing companies in the United States collectively were shedding about a million jobs a year on that. That's the jobs they create, minus the jobs that they destroy. And that new companies and this is companies five years old and younger were creating about 3 million new jobs a year on net.
For a net-net over 2 million jobs created each year in the United States. What this says is that existing enterprises across the United States are slowly dying, we know this. And that they are being replaced by a new generation of companies. This is kind of a truism about economies, but they put some numbers around them that we now understand better. So if I'm the mayor of one of these cities…
And I've got some successful older line businesses. I need to prepare for the fact that a percentage of them every year is going to die. And if I don’t replace them, then I won't have a town. I won't have a viable – I would be like Rochester after Kodak fell, right? And so the two things that we see that you should do, mayors out there, are first of all, you really need to focus on education what John said.
If you can develop a cadre of capable, let’s say, software engineers, I don’t care, where you are in the United States, Google will set up an office, because there are not enough good software engineers anywhere. You figure out how to educate the same would go for life sciences. So get entrepreneurial, use some of those new education models, shake things up, shed the teachers that aren’t working out, and fix your education. That’s the first one, and this is hard, right, but that’s the long-term.
The second is, do concentrate what you have. You would be surprised that how these smaller towns have some remarkable entrepreneurs, some remarkable business people. St. Louis, you might have thought of is not the leading city in the nation, but it actually is the second richest city in the United States in unearned income. It means there is a lot of old money in St. Louis. So if you are in St. Louis, what you got to do is convert your old money into angel capital, venture capital, people that are engaging in the new economy.
So figure out what assets you have and concentrate them, and I think innovation districts to the topic of this panel is one of the ways of concentrating and drawing in the assets you have. John, do you have anything else?
I would just say from my experience in Lancaster, Pennsylvania, which is a 50,000 person city, so probably a tier below what you are talking about. I don’t think you can put enough emphasis on building these public-private partnerships. It’s amazing what has happened in that city as a result of partnerships between Armstrong, Franklin & Marshall College, Lancaster General Hospital, and Amtrak, I mean not the usual suspects in terms of pulling these groups together, but with a committed mayor and city council and all those other institutions going together there has been quite a transformation.
Again, that’s a city that sort of up against the two by its location and all sorts of other historic factors that is really now becoming a cool innovative little city. But I would say the public-private partnerships are absolutely key, because there just not enough hands to go around, so you have to get all the hands to join together.
And I'd bang that same drum on investments in human resources. If you go back to 1995, Biogen's 500 people in Cambridge. We set up operations in North Carolina. We're kind of a 100 people down there. You fast-forward today, we've got 3,000 people in Cambridge. I think we've got 600 people in North Carolina, and purely because of its access to really the – that's I think the resource elements came.
So I think this has been a great introduction to not just innovation districts, but shifting nature and the geography of innovation in the United States and Europe and other economies. And I think what so interesting about this company is you are really at the vanguard of something that is quite remarkable in our country. That if we could grab a hold off and work with literally dozens of cities in the United States, we could have – we could do well and do good. I mean this is really a remarkable collision between market and demographic forces and smart public-private partnerships.
So thank you very much for the opportunity.
Thank you very much, everyone. We are going to take a 15-minute break for you to stretch and hopefully network a little bit. And we are going to be for the benefit of people on the webcast, we will be putting a pause on the webcast and please be back in the seats as it is close to before 1:30 as possible, so we can get started. Thank you very much.
[No formal Q&A for this event]
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