The Big Bet on Roanoke’s Biotech Cluster

Virginia Tech Carolion Research Institute and medical school. Photo credit: Roanoke Times

Virginia Tech Carolion Research Institute and medical school. Photo credit: Roanoke Times

by James A. Bacon

Just as Inova Health System and George Mason University are investing hundreds of millions to build a center of excellence around personalized medicine in Northern Virginia, Virginia Tech and Carilion Clinic are spending hundreds of millions to build a comparable center in Roanoke. While the dollars committed in Roanoke may be smaller, the enormity of the investment looms larger for western Virginia, where the regional economy has been hollowed out far worse than Northern Virginia’s and local leaders are even more desperate to find an economic sector that can thrive in the knowledge economy.

In a Saturday article, the Roanoke Times describes how Tech and Carilion are building upon the medical school and research institute they established eight years ago. Tech will move components of its biomedical engineering program and its nascent neuroscience discipline — 500 to 1,000 undergraduates, graduate students, faculty and scientists — to Carilion’s Riverside campus in Roanoke. The plan calls for 25 new research teams capable of attracting private investors, who in theory will spawn start-up companies and large-firm satellite offices. Tech has stated its intention to invest $100 million in health sciences and technology in the next eight years.

Meanwhile, Carilion has doubled its complement of physicians to 1,000, recruiting more specialists and subspecialists, to expand its clinical capabilities. Most recently, it opened an Institute for Orthopaedics and Neurosciences.

Just as Inova and GMU hope to establish a foot-hold in the area of personalized medicine, an emerging field in which treatments are tailored to the unique genetic make-up of patients, Virginia Tech and Carilion are aiming, as Thanassis Rikakis, the Virginia Tech provost overseeing the initiative, tells the Roanoke Times, to “[corner] the market on a big-data approach to personalized medicine in rural areas — something that could significantly change public health.”

Inova-GMU and Virginia Tech-Carilion enter a crowded field. It’s not as if they are the only academic-health system collaborations to have stumbled upon the idea of exploiting the fast-expanding fields of big data and personalized medicine. The Obama administration unveiled a precision medicine initiative in January 2015, backed by $215 million in federal funding, calling upon “academic medical centers, researchers, foundations, privacy experts, medical ethicists, and medical product innovators to lay the foundation” for the effort. Presumably, every other major medical research institute in the country is vying for a piece of the action.

Inova and GMU have an advantage in being located in the Washington metropolitan area, home to a significant biomedical industry cluster, which provides an advantage in recruiting from a large, highly skilled labor pool and an edge in recruiting world-class faculty. Recruiting talent to the smaller Roanoke-Blacksburg labor market might prove more difficult. On the other hand, Virginia Tech-Carilion have identified a niche — rural personalized medicine — that might enable it to complete effectively for a slice of the pie.

Another difference: The focus of the Inova-GMU initiative will be in the old Exxon-Mobil suburban headquarters office outside Tysons Corner and GMU’s Prince William County campus outside Manassas. Traffic congestion will present a huge quality-of-life issue for researchers and businesses choosing to locate there, which may be a factor behind Governor Terry McAuliffe’s $2 billion commitment to increase the capacity of Interstate 66 which connects both facilities.

By contrast, Virginia Tech and Carilion are pursuing an “innovation district.” The campus there is located on the fringe of downtown Roanoke. The idea is to create a cluster with urban amenities — walkability, access to transit, access to mixed-use office, housing and retail, where the medical school and educational facilities are connected to start-ups, business incubators and accelerators. Such an environment arguably would be more attractive to students and young professionals than traffic-clogged highways.

Another plus for Inova-GMU is the existence of a robust venture capital industry in the Washington metro region, which Southwest Virginia does not have. Moreover, Inova has pledged to commit $100 million to create a venture fund in support of its initiative; Carilion has not announced anything comparable. Carilion, which serves a large, rural population in western Virginia, is not as profitable as Inova, which supports a largely affluent, suburban market, nor does it generate excess profits of the same magnitude that it can steer into its biomedical initiative. Where Inova generates roughly $100 million a year over and over the 4% profit margin considered desirable for non-profit hospitals, Carilion generates less than $20 million a year over that benchmark.

Virginia Tech’s Rikakis acknowledges that the Tech-Carilion initiative cannot compete on the same basis as a University of Virginia or Duke University, which have much larger research programs with clinical service and research under the one roof. “Virginia Tech is not set up to do this. Taking it on would destroy us,” he says. But the UVa-Duke model is so 20th-century. He envisions Virginia Tech-Carilion instead as a node in a network of collaborations and partnerships.

The Roanoke initiative will be supported by $46.7 million in state bonds to be matched by $14 million from Tech, $5 million from Carilion, and $2 million in in-kind land contribution.

Bacon’s bottom line: Virginia Tech and Roanoke leaders have been talking for literally decades about combining the strengths of both regions. Creation of the medical school and research center was the first tangible example of such a collaboration. Now both partners are upping their commitment to a level that has the potential to create a critical mass that employs not only doctors and scientists but spins off new businesses and creates private-sector jobs.

I’ve lived long enough to see rah-rah projects soak up a lot of money before crashing and burning, and I think a commitment like this deserves close scrutiny. I would ask the same question of Carilion that I would of Inova: To what extent is Carilion funding its participation with monopoly profits extracted from its rural/small metro service area — in other words, are working- and midde-class patients subsidizing job creation for affluent doctors and scientists? How much will the Tech-Carilion initiative soak up in public money — bond proceeds for new buildings, state support of the medical school, routine economic-development incentives — along the way, and what are the odds of creating an economically sustainable research-business cluster?

At the same time, I would say this: If politics dictate that the Commonwealth lavish tens of millions of dollars on bolstering the economy of the Roanoke Valley, this might well be the best bet going.

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12 responses to “The Big Bet on Roanoke’s Biotech Cluster

  1. You know, this should go to all the legislators and substitute Carilion or Tech for their favorite windfall thing. You do know profits from US people goes to also pay for lobbyists to not have mandatory nursing ratios? Yeppers.

    ” To what extent is Carilion funding its participation with monopoly profits extracted from its rural/small metro service area? Are working- and midde-class patients subsidizing job creation for affluent doctors and scientists? How much will the Tech-Carilion initiative soak up in public money — bond proceeds for new buildings, state support of the medical school, routine economic-development incentives — along the way, and what are the odds of creating an economically sustainable research-business cluster?

  2. re: ” working- and middle-class patients subsidizing job creation for affluent doctors and scientists? ”

    I’m abused by the continuing perspective about “subsidizing” and let me give an example:

    1 – E911 – In the last 10-20 years – how fire/ems has changed enormously in that across Virginia 911 dispatch centers have been created, upgraded, streets renamed.. houses re-addressed, automated call centers built and staffed and companies that provided products and services for these centers have enormously profited and – how they are “funded” or “subsidized”…

    was all this “stuff” .. actually “subsidized”?

    and I guess that depends on your philosophy …

    does the fact that we’re all paying for it – whether we like it or not mean we are “subsidizing” it? Does the fact that it’s the govt doing it by taxing us – mean it’s subsidized? Does the fact that we can all use the service without “paying a fee” means it is subsidized?

    so make a slight shift in your thinking on this – to a world where employer-provided health insurance, Medicare, MedicAid and Obamcare exist and let’s ask that same question again.. specifically : ” working- and midde-class patients subsidizing job creation for affluent doctors and scientists? ”

    what do you think?

  3. This is probably the biggest waste of money in the entire state budget (and that’s saying something).

    The Inova-GMU partnership is very promising. The Roanoke effort is, in effect, a start up investment with state dollars in an area without a start up culture or venture capital.

    Virginia has 2 of the better medical schools in America in U.Va. and VCU. Why is this investment necessary except as political pork to SWVA? Imagine what either VCU or U.Va. could do with this money as they are already nationally recognized institutions with plenty of venture capital/wealthy individuals looking for investment opportunities in their respective areas.

    46 million of your tax dollars for a start up, folks.

    • Ouch! Harsh. So, I guess you rate the chances of creating an economically sustainable industry cluster as minimal.

      • As someone in the biotech industry, I can assure you the chances of true commercial success are minimal.

        How commercially successful has Virginia Tech’s Bioinformatics initiative been? How about VPI’s disaster in Danville (“the Institute”)? Both had the same premises of economic development riches.

    • “in an area without a startup culture”
      tech has an extremely strong tech community, one of the most active code for america brigades in the state, and hacksburg has commited to broadband on us fiber, just to point out a few. they don’t call it hacksburg for nothing.

  4. They just can’t stand it when Tech does something good…

    JBH Physics ’50.

  5. maybe we need to discuss the CONCEPT of any locality or the state involving itself in economic development on ANY level?

    It just seems to me that Jim and others here pick and choose what they want to question .

    is there ONE criteria in play here or does it vary by some specific aspects?

    should we NOT DO – ANY economic development AT ALL?

    give me some sort of rational approach that is consistent and not arbitrary according to your personal views.. about things…

    I don’t get it .. seriously…

    health care ESPECIALLY is one of the areas which are growing and has opportunities.

    is that something the state should just stay out of all together and just let it do what it’s going to do without any support from the state – or what?

    • Yes, economic supporting of businesses was never envisioned originally: everyone was to go out and go for it.

      Unless you want health care like internet like Cox Communications, Comcast, which are protected by the govt. businesses. That is why the service is horrid, the people can feel free to manipulate you any way they want.

  6. Not sure your point. You can economic development AND regulation that ensures competition… if done right. Medicare currently is the driver for keeping prices down for specific procedures and treatment.

    No other market force is doing that in the US nor other First World countries – it’s the govt doing it.

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