The Cambridge–Boston area has become a world-leading center for innovation in the life sciences business. In recent years, the area has played a disproportionate role in the commercialization of therapeutics, particularly as new technological modalities—such as cell and gene therapies—have come to market. Given that California was home to early biotechnology firms such as Cetus and Genentech in the 1970s, it would not have been surprising if the Golden State had become the global center for novel therapeutics. Yet, in the late 1990s, New England replaced New York as the leading regional biotechnology hub in the Eastern United States.Footnote 1 By 2021, Massachusetts had surpassed California in the number of public companies, market capitalization, and research and development (R&D) expenditures in the biotechnology sector.Footnote 2 This paper explores how the Cambridge–Boston innovation ecosystem became the epicenter for translating scientific discoveries into ground-breaking therapeutic applications, pioneering the evolution of the field.
This article bridges existing business histories of therapeutics and industrial clusters. Previous scholarship has explored the history of the therapeutics sector, often focusing on pharmaceutical firms and on themes such as intellectual property, regulation, and corporate organization.Footnote 3 While studies have increasingly explored the business history of biotechnology-based therapies, few have examined recent technological modalities or have studied the sector from the perspective of geographic concentration.Footnote 4 Similarly, while prior business history scholarship has explored the rise—and decline—of industrial clusters on themes such as corporate organization, social networks, and industrial structure, many have focused on traditional manufacturing.Footnote 5 While some have examined high technology industries, few include therapeutics.Footnote 6
This article extends existing business history research on regional competitive dynamics by incorporating the concept of innovation ecosystems, defined as the constellation of diverse and interdependent actors required to commercialize new ideas.Footnote 7 With a business historical ecosystem perspective, the research reveals how an evolving network of complementary and interdependent actors—including therapeutics firms, universities, hospitals, and risk capital providers—coordinated their activities to commercialize novel therapeutics. It also shows how ecosystem capabilities strengthen over time as these actors co-evolve. The article also contributes to innovation ecosystems scholarship by deepening our understanding of ecosystem development processes and highlighting how structural advantage, serendipitous timing, and strategic actions shape innovation trajectories.
This paper refers to the modern therapeutics sector following the biotechnology revolution in the 1970s. Groundbreaking discoveries such as recombinant DNA and monoclonal antibody technologies generated unprecedented possibilities for novel therapeutics and transformed the industry. The sector encompasses both therapeutic biotechnology firms and conventional pharmaceutical firms. Biotechnology firms refer to firms founded since the 1970s that have taken biological approaches to drug discovery, for example, Genentech and Biogen. While the distinction between biotechnology and pharmaceutical firms has been blurring, the latter refers to the larger, established firms, such as Pfizer and Novartis, that have long used chemistry-based approaches to drug discovery.
This paper is based on archival sources and oral histories. The archival sources enabled an appreciation of the evolving industry context, including scientific advances, regulatory changes, and key players. Archival materials included the Henri A. Termeer Papers in the Baker Library at Harvard Business School (HBS), which provided industry reports and annual reports of Genzyme and affiliated companies. The Walter Gilbert Papers at Harvard University Archives and the Phillip A. Sharp Papers at Massachusetts Institute of Technology (MIT) Libraries’ Distinctive Collections offered documentation related to the operations and founding of Biogen, respectively. At Cold Spring Harbor Laboratory Archives, internal company documents were available in the Collections of Walter Gilbert, Charles Weissman (Biogen), and Tom Maniatis (Genetics Institute). Materials consulted at the State Library of Massachusetts included historical, region-specific industry reports. Combined with newspaper and journal articles, for example, from The Boston Globe and Nature, these sources provided both an industry-wide perspective as well as firm-specific insights into the evolving therapeutics sector.
The oral histories proved invaluable, particularly for understanding the undocumented perspectives and informal relationships between actors that were crucial to building the local ecosystem. The discussions also helped in appreciating the historical context that generated specific actions.Footnote 8 The oral histories consisted of 24 semistructured anonymous and non-anonymous interviews with a range of key figures in the local life sciences business, conducted between October 2023 and July 2024 following university ethics approval. The 19 non-anonymous interviewees included (in alphabetical order) Noubar Afeyan, Robert Carpenter, Cristina Csimma, Zoltan Csimma, Walter Gilbert, Bob Higgins, Wilbur Kim, Robert Langer, Harvey Lodish, Lita Nelson, Andrew Plump, Stephen Reeders, Scott Requadt, Jack Reynolds, William Schnoor, Matt Segneri, Phillip Sharp, Josef von Rickenbach, and George Whitesides. The conversations systematically explored similar themes relating to professional experience, historical industry trends, and reasons for the rise of the Cambridge–Boston area as a global epicenter of the therapeutics business.
The next section situates this research within existing scholarship and outlines the nature of the novel therapeutics industry. The article then follows the trajectory of the life sciences business in the Cambridge–Boston area. It shows how an exceptional combination of structural advantage, serendipity, and strategic actions cultivated a locus for translating emergent technologies into therapeutic applications.
Extending the Business Histories of Therapeutics and Industrial Clusters
This research builds upon two strands of business history scholarship: therapeutics and industrial clusters. The business history of therapeutics includes micro-level firm studies and meso-level industry studies around the world.Footnote 9 While many have focused on chemistry-based pharmaceutical firms, a growing number of works have studied biotechnology firms founded on biological sciences.Footnote 10 Such studies have examined founders of companies such as Biogen and Genzyme, firms such as Genentech and Vertex, and new entrants who diversified into biotechnology-based therapies, such as Kirin.Footnote 11 Others have examined the role of institutional context or exogenous factors—such as technological or regulatory change—in reshaping the industry. Some executives have also reflected upon the industry’s evolution through their professional experience.Footnote 12 A recent book on Kendall Square near MIT offers textured documentation on how the district became a global innovation hub.Footnote 13 Augmenting existing business histories with an ecosystem-based perspective, this article considers how the alignment of structure, serendipity, and strategy cultivated conditions that enabled the translation of scientific discoveries into novel therapies in the Cambridge–Boston area.
Business historians have long examined the importance of geographic concentration and inter-firm relations, well before the seminal work of Michael Porter and industrial clusters.Footnote 14 Research on industrial districts illustrated how specialized skills within a network of small firms employing flexible production methods enabled regions to maintain competitiveness.Footnote 15 Porter’s studies discussed how factor conditions, skilled labor, infrastructure, and supporting industries determined cluster formation and success—as well as the enduring significance of local clusters amidst globalization.Footnote 16 Studies of industrial clusters thus focused on innovation, inter-firm relationships, supporting institutions, and competitive advantage. For instance, Annalee Saxenian’s work on regional advantage elaborated on how local institutions and corporate forms shaped distinct advantages for the semiconductor and computer industries in Silicon Valley compared with Route 128.Footnote 17 A range of business history work has examined the role of key actors in building industrial clusters, such as the state or academia in Silicon Valley.Footnote 18 Business historians have also questioned whether institutional path dependence cultivates or undermines subsequent industrial development.Footnote 19 For example, the knowledge, skills, and networks from past industries may continue to support subsequent industries, as in the case of the UK outdoor trade around Lancashire during the second half of the twentieth century.Footnote 20 This may not be the case when complementary institutions are conducive to supporting a specific technology; small firms are acquired by larger, less innovative firms; or exogenous shocks obliterate supporting institutions. While Cleveland’s decline from a center of technological innovation may be attributed to such factors, this article suggests that the Cambridge–Boston area’s industrial legacies were largely favorable to the subsequent rise of the therapeutics sector.Footnote 21
Business histories of regional industry development can be enriched by the concept of innovation ecosystems, defined as the configuration of relationships between an interdependent collective of multiple actors that enable the commercialization of new ideas.Footnote 22 Prior scholarship on industrial clusters has focused on competitive dynamics, while that on regional systems of innovation (RSI) has emphasized governance and policy interventions within defined administrative regions.Footnote 23 By incorporating the ecosystem framework, this article illustrates how multilateral interactions between complementary and interdependent actors were critical for translating scientific discoveries into commercial applications.
Existing scholarship on innovation ecosystems includes longitudinal studies that consider ecosystem emergence, evolution and the coevolution of technologies, actors, and institutions.Footnote 24 This research also contributes to these works by illuminating how serendipity and nonlinearity interact in ecosystem development. Here, serendipity refers to “unanticipated, anomalous, and strategic” alignments—such as the timing of scientific discoveries—which are historically contingent and momentary.Footnote 25 Nonlinearity refers to the uncertain and unordered process of innovation that challenges deterministic perspectives. The research illustrates how a delicate confluence of structural advantage, serendipity, and deliberate interventions shape the nonlinear trajectory of innovation ecosystems.
The Nature of the Industry
The features of the modern therapeutics industry should be noted in exploring its history. Comparisons have been made between the Cambridge–Boston therapeutics sector and Silicon Valley’s high technology sectors, as there are several shared features. These include rapid technological advances, requirements for risk capital, interdisciplinary collaboration, and entrepreneurial spirit. Yet, closer inspection reveals that the two areas are not entirely comparable. The modern therapeutics sector features much longer lead times along with higher levels of uncertainty, risk, technological complexity, regulatory intervention, and cost.Footnote 26
Even in pharmaceutical firms, where chemistry was the dominant technology until the 1980s, therapeutic R&D had been subject to much higher costs, longer lead times, and significant risk of failure compared with most industries. Until outsourcing to contract research organizations (CROs) became more commonplace in the 1990s, pharmaceutical R&D was usually based in large firms and involved the large-scale scanning of chemical substances that might safely and effectively remedy certain symptoms of disease. The discovery of a potential therapy was therefore based on considerable serendipity. Given requirements to gain regulatory approval across several phases of clinical trials, many firms developed therapies for ailments shared across a large patient population or chronic ailments, to maximize revenue and recoup the cost of R&D. For medicines approved in the 1980s, for example, the average cost of development was estimated at US$231 million (in 1987 dollars), with a lead time of 12 years, and an average success rate of 23%.Footnote 27 By comparison, Moore’s Law—which observed that the number of transistors on a microchip doubled biennially—revealed a more rapid rate of development and significantly shorter lead times for semiconductors.Footnote 28
The risks involving uncertainty and cost in therapeutic development increased with advances in biotechnology. Since the early 1970s, recombinant DNA technology—developed by Paul Berg, Herbert Boyer, Stanley Cohen, and others—enabled scientists to engineer genetic material to produce proteins as therapeutic agents (e.g., insulin, hormones, and enzymes) in host cells (e.g., bacteria and yeast).Footnote 29 The discovery of hybridoma technology by Köhler and Milstein in 1975 enabled scientists to create an immortal cell that could produce large amounts of identical/monoclonal antibodies to interact with disease-specific proteins.Footnote 30 Therapeutics increasingly originated in university laboratories and were developed by academic scientists, who began to launch small startups, which, for example, began making human proteins in bacteria for medical treatment.Footnote 31 From the 1980s until the early 2000s, recombinant proteins and monoclonal antibodies were at the frontier of therapeutic innovation. These included recombinant human insulin by Genentech (Humulin, 1982), which treated diabetes, and the first-approved monoclonal antibody by Ortho Pharmaceutical (OKT3, 1986), which was used for transplant rejection despite substantive side effects.Footnote 32 Over time, the larger and longer clinical trials required to demonstrate incremental clinical efficacy also raised drug development costs, which increased from US$802 million (2000 dollars) in the 1990s to US$1.8 billion dollars by 2010, with a success rate of 6.8%.Footnote 33
As products, therapeutics depend upon strong intellectual property protection and market exclusivity for an extended period. Given the association with academic research and human health, proximity to universities—particularly those with clinical infrastructure—has also been important. Furthermore, the sector has featured cycles of hype and disappointment, owing to the extraordinary risk and returns for companies and the promise of a cure for patients.Footnote 34 These features illuminate how the Cambridge–Boston innovation ecosystem became a premier locus for translating emergent technologies into medicines.
Location, Declining Sectors, and the Imprint of Past Clusters
A remarkable combination of structural advantage and serendipity contributed to the area’s rise as the global center of the therapeutics industry. One structural advantage was location. Boston is a port city that has prospered as a center of trade through its harbor for centuries, and through its public transportation networks since the nineteenth century. The area had evolved as a regional center of various industries, from textile and shoes in the nineteenth century to defense and electronics in the mid-twentieth century.Footnote 35 The institutional and organizational legacies following the decline of earlier industries—whether from overseas competition or technological advances—facilitated the rise of subsequent industries.Footnote 36
The legacy of past industries was not inconsequential. The decline of local manufacturing—from textiles in the broader region to soap in Cambridge (e.g., Lever Brothers, Fig. 1)—left behind skilled workers and physical infrastructure.Footnote 37 There was low-cost real estate that provided invaluable access to leading universities nearby. Furthermore, the clearing of 29 acres around the Kendall Square area in 1964 to create the National Aeronautics and Space Administration (NASA)’s Electronic Research Center (Fig. 2) not only displaced many businesses but NASA’s 1970 withdrawal also left a large space available for use.Footnote 38 Such space enabled the concentrated construction of new facilities associated with biotechnology. These included, for example, the Whitehead Institute, a biomedical research organization specializing in genomics, known for its contributions to the Human Genome Project. As co-founder and MIT professor Harvey Lodish stated, “The fact that there was land that was cleared, old industrial land, made a huge difference … There was a place to put all of this, and that is not often noticed.” Moreover, local officials at both state and municipal levels (e.g., state governors, Cambridge Redevelopment Authority) collaborated with academics and private investors to support urban redevelopment. “The fact that everybody is on the same page working together makes a huge difference,” he added.Footnote 39
Advertisement for Lever Bros. Co. site, 1950.
Source: Cambridge Historical Commission, Boston Herald Photo Collection
Kendall Square NASA site, 1965.
Source: Cambridge Historical Commission, Survey Files
Coincidentally, the institutions supportive of past industries were compatible with those of the oncoming sector. The emergent cluster benefited from the structural advantages of world-class universities such as Harvard and MIT as a source of human capital and repository of knowledge, along with networks of collaboration between academia and industry. MIT had particularly close relationships with the industry as an engineering school emphasizing the practical application of knowledge. In the shadow of industrial legacies, entrepreneurial initiative as well as a professional community—including venture capitalists, lawyers, and consultants—supported startups in the nascent biotechnology sector.
From National to Local Institutional Change
The biotechnology revolution prompted regulatory change at both national and local levels. As a heavily regulated industry, major legal changes at the national level, including the Diamond v. Chakrabarty ruling and the Orphan Drug Act, altered the rules of the game. The co-occurrence of local industrial decline with concurrent institutional change was remarkably well timed.
The Diamond v. Chakrabarty ruling in 1980 was a landmark decision confirming that genetically modified organisms could be patented—if they were novel, original, and not obvious.Footnote 40 While the biotechnology revolution offered the possibility of creating medicines with genetically modified organisms, it remained unclear whether organisms created out of human genetic manipulation could be patented. While prevailing US regulation indicated that living organisms could not be patented, the ruling clarified and expanded the scope of patentability, catalyzing the commercialization of biotechnology-based drugs.Footnote 41 Another turning point was the passage of the Bayh–Dole Act in the same year, which had a profound impact on the commercialization of federally funded—often through the National Institutes of Health (NIH)—life sciences research. Indeed, university patenting in life sciences increased substantially after Bayh–Dole.Footnote 42
One of the other significant regulatory changes at the national level was the Orphan Drug Act introduced in 1983. A result of patient advocacy, the Act created incentives for firms to conduct R&D in therapeutics for rare diseases, defined as ailments affecting fewer than 200,000 patients in the US.Footnote 43 By granting a period of market exclusivity, tax incentives, and a waiver of certain Food and Drug Administration (FDA) fees, the Act reoriented the model of therapeutic development away from blockbuster drugs and toward smaller patient populations—facilitating the rise of academic startups.Footnote 44 Furthermore, the Economic Recovery Tax Act of 1981 not only introduced R&D tax credits but also reduced capital gains tax, which encouraged greater investments into startups.Footnote 45
While national regulations concerning safety and efficacy for marketing approval were influential, local regulations—including those relating to planning and research permissions—were also impactful in shaping the sector. In fact, local restrictions introduced in the city of Cambridge delayed industry activity in the short term but supported local growth in the long term. In the 1970s, public health concerns over the safety of recombinant DNA research conducted at Harvard prompted the city of Cambridge to impose a moratorium on recombinant research. Between July 1976 and February 1977, the municipal Cambridge Experimental Review Board held public hearings with experts from Harvard, MIT, and the NIH over concerns that new organisms could cause unknown diseases. While some actors expressed frustration that the Cambridge City Council delayed research activities, the eventual vote for regulations more stringent than NIH guidelines enabled local actors to operate under clear and predictable rules.Footnote 46 One reason that a leading biotechnology company, Biogen, decided to locate its operations in Cambridge was for this reason.Footnote 47 Institutional changes at both national and local levels altered drug development models and transformed the competitive environment.
Structural Transformations and Eastward Shifts in Therapeutic Innovation
While the early therapeutic biotechnology firms were often represented by West Coast firms such as Cetus (1971) and Genentech (1976), a sequence of serendipitous timings shifted the center of therapeutic innovation toward the East Coast in the 1990s. The first was the decline of large pharmaceutical firms. The second was the rise of biopharmaceutical services, such as contract research organizations (CROs). The third was the rise of lean biotechnology firms.
As the millennium neared, large pharmaceutical firms began to outsource their R&D. To begin with, there were pressures to generate new therapies. By the 1990s, many drugs were still generating significant revenue, but their patent lives were nearing an end. There was a sense that, unless firms outsourced the development process, they would be operating inefficiently by peak-loading staff. As firm performance was cyclical, dependent on the success of a given discovery, companies opted to outsource to adjust employment and use labor more effectively.Footnote 48 Pharmaceutical firms were also becoming increasingly sensitive to short-term returns amidst growing financialization in America.
These pressures to enhance efficiency accelerated the rise of CROs. Since the 1980s, entrepreneurs had launched firms that offered a range of research and development services on a contract basis, such as preclinical research and clinical trials management. In 1982, Harvard Business School (HBS) graduate Josef von Rickenbach and organic chemist Anne Sayigh established Parexel, which grew into a leading local CRO, rivalling contemporaries such as Quintiles and Pharmaco. CROs catered to the demands of clinical trials, which, with increasingly complex data requirements, were distinct from academic research. Von Rickenbach, who led Paraxel for over two decades explained, “To run a big clinical trial is like a small business. I mean, it is a huge undertaking. You have probably dedicated, several hundred people who work on that trial for multiple years, in highly complex, highly dynamic environments.”Footnote 49 By exposing the respective activities across the value chain to market forces, the growth of biopharmaceutical service companies such as CROs enhanced the dynamism of the local innovation ecosystem and altered the competitive landscape. They did so by enabling established firms to achieve greater efficiencies and enabling less established and foreign firms to build their foothold in the market.
Pressures to enhance efficiency also encouraged pharmaceutical firms to connect with and acquire biotechnology firms with promising therapies that would secure robust returns. The limits of traditional pharmaceutical companies—with chemistry-based expertise—enabled biotechnology firms to gain prominence by adopting novel therapeutic approaches to treat complex diseases. Academic startups, such as Genetics Institute (Harvard), Repligen (MIT), and Alkermes (Harvard Medical School), emerged in the 1980s.Footnote 50 As pharmaceutical firms became less interested in conducting their own research and considered academic science too early stage and risky for commitment, biotechnology companies became the carrier that would bring academic science into the real world.
Biotechnology entrepreneurship was also unfolding amidst a backdrop of changes in American corporate culture. While workers in large American companies expected a job for life in the 1960s, many American workers had experienced a layoff at least once in their career by the 1990s. This shift altered employer–employee relations and made entrepreneurship in America feel less risky.Footnote 51
Coincidentally, many of the world-leading pharmaceutical companies in the 1980s and 1990s were situated in the Northeastern US. In 1985 and 1990, for example, most of the top 10 prescription drug companies in the world by sales were headquartered in the northeast. These included Merck & Co (New Jersey), American Home Products (New York), Pfizer (New York), SmithKline Beckman (Pennsylvania), Bristol-Myers (New York), and Johnson & Johnson (New Jersey).Footnote 52 Geographically, the leading centers of the US biotechnology industry were in three regions (Tables 1a and 1b). For example, in 1991, the areas of New York, San Francisco, and Boston accounted for 17%, 14%, and 13% of public biotechnology companies, or 12%, 14%, and 10% of all biotechnology companies, respectively.Footnote 53 As East Coast pharmaceutical companies realized the possibility of biologicals, they sought strategic alliances with biotechnology companies nearby.
Leading Centers of the US Biotechnology Industry, Industry Scale and R&D Investment by Region, in Millions of US Dollars
Leading Centers of the US Biotechnology Industry, Public Companies by Region
Notes:
1. Figures for 1991 show the percentage of public companies by region while subsequent years show the total number of public companies by region.
2. Geographic scope varies across years in the source publication. 1991 figures refer to New York Tri-State Area, San Francisco Bay Area, and Boston Area. 2001 and 2011 figures refer to New York State, San Francisco Bay Area, and New England; 2021 figures refer to New York, Northern California, and Massachusetts.
Source: Burrill and Lee, Biotech ‘92, 46, 47; Ernst and Young, Beyond Borders: The Global Biotechnology Report (2002), 67; Ernst and Young, Beyond Borders: Global Biotechnology Report 2012 (2012), 31; Ernst and Young (2022), 37.
The co-location and alliances between biotechnology and pharmaceutical firms eventuated in a more durable eastward shift of the life sciences sector. As the East Coast was closer to Europe than the West Coast, European pharmaceutical firms also began to establish their global R&D headquarters in the area. Novartis’s 2002 establishment of its primary research arm—the Novartis Institutes for BioMedical Research—in Cambridge marked the area as a central location for therapeutic R&D.Footnote 54
With the new technological modalities, drug development evolved toward a collaborative model across interdependent actors. Biotechnology firms often developed scientific discoveries from academic laboratories into “proof of concept,” or a potential therapeutic product for pharmaceutical firms, which could be integrated into their pipeline. As innovative activity moved from pharmaceutical companies to university laboratories and biotechnology firms, the locus of innovation gravitated toward world-leading universities in the Cambridge–Boston area.
Universities and the Powering of Scientific and Entrepreneurial Talent
The Cambridge–Boston universities were deeply entwined with the development of the local therapeutics sector and were core to its strength. Not only were these universities the source of a highly skilled pool of human capital, but they were also the source of world-leading scientific research, star scientists, and early academic entrepreneurship.
The local universities supplied vital human capital for emerging firms, particularly by producing graduates with advanced degrees in biology who eagerly sought opportunities in industry. After the biotechnology revolution, biochemists and molecular biologists suddenly found job opportunities—beyond teaching and academic research—that had not existed before. As former Harvard professor and Biogen CEO Walter Gilbert explained of such graduates, “If you have another turn of mind, you want something immediate in terms of human good … creating drugs that are going to influence somebody in your lifetime … Everybody with that sort of mind suddenly finds … there are jobs available and even well-paying jobs …”Footnote 55 The local biotechnology sector capitalized upon not only a strong pool of human capital but also university (e.g., HBS) and company (e.g., Genetics Institute, Genzyme) alumni networks that facilitated talent mobility and entrepreneurship.Footnote 56
Local universities had also been at the forefront of scientific research, providing an exceptional source of scientific knowledge with a high concentration of star scientists. The latter refers to highly research-productive scientists who have delivered significant social impact—through research collaborations and the commercialization of academic discoveries via entrepreneurship.Footnote 57 MIT scientists’ founding of the defense contractor Raytheon and the computer company Digital Equipment Corporation illustrate the historical significance of universities and MIT’s strengths in the application of research.
Indeed, MIT played a pioneering role in the commercialization of academic science.Footnote 58 Not only did its scientists have statutory privileges to engage in consulting activities one day of the week, but substantial reforms to facilitate technology transfers were also made at the university, particularly after Bayh–Dole.
More specifically, the MIT technology licensing office (TLO) began to reorganize its office from a largely legal, administrative office staffed by patent attorneys to a more technology- and marketing-savvy office oriented toward business. In the 1980s, MIT invited colleagues such as Neils Reimers from Stanford’s TLO to facilitate the translation of academic science into the market, allow faculty to bring their science into the real world as consultants or entrepreneurs, and support government aims to bring federally funded scientific research into public use. By the late 1990s, MIT’s TLO advised start-ups and connected them to local venture capitalists, earning a reputation for speaking the language of both industry and academia.Footnote 59
Area universities also began to launch entrepreneurship education and interdisciplinary research centers that would help translate scientific discoveries into therapeutic applications. For instance, MIT professor Edward Roberts, who founded the university’s Entrepreneurship Center (1990) and related programs, was credited for cultivating the university’s entrepreneurial culture.Footnote 60 As MIT attracted family foundations that established research centers supportive of commercialization, such as the Broad Institute (2004) and the Koch Center for Integrative Cancer Research (2007), similar centers were established at Harvard, such as the Harvard Stem Cell Institute (2004) and the Paglucia Life Lab (2016).
These universities had a high concentration of star scientists whose role expanded over the years—from conducting groundbreaking research to establishing startups, to participating in wider industry engagement. Early star scientists such as Walter Gilbert (Harvard), Phillip Sharp (MIT), Mark Ptashne (Harvard), and Tom Maniatis (Harvard) were world-renowned scientists who established companies such as Biogen and Genetics Institute based on university research, situated these firms near their universities; and spearheaded the academic–industry collaboration model at a time of significant skepticism toward academic entrepreneurship.Footnote 61 The second generation of star scientists, such as Robert Langer (MIT) and George Church (Harvard), were esteemed scholars with considerable publications and research grants who solidified the academia–industry collaboration model. They not only worked with companies but also established multiple companies—often based on a platform technology—with strong patent protection.Footnote 62 Furthermore, star scientists attracted star students and star postdocs and trained the next generation of academic entrepreneurs. Local universities—and affiliated hospitals—helped establish the area as the center of the therapeutics industry, creating a self-reinforcing ecosystem that attracted more firms. As MIT institute professor and entrepreneur Robert Langer explained:
If I thought the number one thing that was critical was … that you have two of the greatest universities in the world, two miles from each other in Cambridge: MIT and Harvard. You have Harvard Medical School, all the great hospitals here … and you have a lot of other colleges that are excellent, too, like BU, BC, Tufts, Brandeis. I think that to me, and then you had some companies that got started like Biogen and Repligen and then more just kept coming and coming…Footnote 63
The Clinical Infrastructure
The prominence of the Cambridge–Boston area as a center for novel therapeutics also owed much to the local clinical infrastructure, such as that of the Longwood area. Harvard Medical School moved closer to its affiliated teaching hospitals in the early twentieth century, and these hospitals were leaders in education, research, and clinical delivery. Over the years, the proximity of these specialist hospitals—including the Boston Children’s Hospital and the Dana–Farber Cancer Institute—facilitated the training of clinicians across specialisms as well as interdisciplinary and translational research.
The hospitals’ research focus was evidenced as major recipients of NIH funding, which placed Boston—over San Francisco (Fig. 3)—as the highest recipient city of NIH funds since 1992.Footnote 64 Four were also among the seven largest recipients of industry-sponsored hospital research in the mid-1990s.Footnote 65 As MIT institute professor and Biogen co-founder Phillip Sharp elaborated, the working relationships between hospitals, firms, and universities were significant:
One of the things—there were many things that made Cambridge and Boston so powerful in biotech—one is there are great universities here … the other thing that’s really striking is there are great hospitals and medical schools in nearby Boston … and we have had relationships with them, working relationships for over 50 years before recombinant DNA, where we collaborate, individual faculty collaborated to take technology, radiology, other technologies into medical care. So, this whole engagement with the expertise of clinical medicine, working with the basic scientists, working with the private sector was important. We understood each other. We understood who to talk to … and this includes a whole generation of MD PhD students and others, who can talk both languages, have experience in medical care, clinical medicine and laboratories …Footnote 66
Total NIH funding in Massachusetts, Boston, California and San Francisco.
Source: National Institutes of Health, NIH RePORTER
The area’s strengths in collaborative R&D drew from the complementary capacities of local universities and clinical infrastructure. For example, many MIT scientists had expertise in platform technologies—for example, drug delivery systems, tissue engineering, and genome editing—that had a wide range of applications, rather than therapeutic compounds per se. Such technologies were often essential to developing therapies involving new technological modalities.Footnote 67 As MIT did not have a medical school, its academics often developed close collaborations with Harvard Medical School and affiliated hospitals.Footnote 68 These networks facilitated knowledge exchange and the translation of fundamental discoveries from bench to bedside.
Venture Capitalists, Foundations, and Alternative Forms of Funding
If universities and the clinical infrastructure were the engine, risk capital was the fuel that propelled growth of the life sciences business. Yet in the 1970s, there was limited venture capital and few biotechnology startups. Most investors would realize the potential gains from biotechnology following Genentech’s initial public offering (IPO) in 1980.Footnote 69 Indeed, from a sector-wide perspective, venture capital funding increased from roughly US$50 million in 1984 to over US$300 million in 1988.Footnote 70
Risk Capital for Biotechnology Firms in the 1970s and 1980s
The area’s early biotechnology firms attracted venture capital financing from within and outside of Massachusetts, such as Kleiner Perkins (California) and Venrock Associates (New York)—the venture arm of established companies—and private investors. For example, Biogen, founded by a collective of scientists, was financed by the local venture capital firm TA Associates, the venture arm of the Canadian nickel mining company Inco, the US pharmaceutical firm Schering Plough, the agricultural biotechnology company Monsanto, and private investors such as Moshe Alafi.Footnote 71 Funding amounts in those years were modest compared with later decades. For instance, Genetics Institute, founded by Harvard scientists Mark Ptashne and Tom Maniatis, to develop therapeutic proteins, was initially offered US$6 million by a venture capital consortium. The group comprised the locally founded Greylock; New York-based Venrock and J.H. Whitney; the private investor William Paley, founder of the television company CBS; and firms such as Baxter and Pfizer. Despite its origins in university laboratories and initial support from the Harvard Management Group, which managed university endowments, faculty opposition led to the withdrawal of that support.Footnote 72 Concerned over potential conflicts of interest, Harvard remained ambivalent toward academic entrepreneurship.Footnote 73
In the 1970s and 1980s, venture capital firms in the Boston area were generalists with limited funding.Footnote 74 When Cambridge-based Highland Capital Partners was established in 1988, it was the first among specialist venture firms that developed deep, industry-specific expertise; focused on early-stage companies; and invested substantial capital with smaller syndicates.Footnote 75 As co-founder Bob Higgins reflected, “We thought focusing by technology sector would be an interesting idea … we chose software, medical and telecom as our … three foci… It doesn’t sound like it’s a focus, but at the time it was considered unusual, if not radical.”Footnote 76
The large investment banks such as Goldman Sachs and JP Morgan were not interested in life sciences for much of the 1990s. Life science investments were covered by four boutique banks, three of which were on the West Coast. These were Robertson Stephens, Hambrecht & Quist, and Montgomery Securities (all San Francisco), and Alex Brown (Baltimore).Footnote 77 Hambrecht & Quist, for example, was an underwriter for the IPOs of Genentech and Cetus in 1980 and 1981, respectively.Footnote 78 Following successful IPOs and therapy launches, along with advisory experience of mergers and acquisitions between pharmaceutical and biotechnology firms, larger investment banks came to form dedicated healthcare and biotechnology divisions.
Growing Interest among Local Venture Firms
As biotechnology companies from Biogen to Genzyme achieved considerable success—completing public offerings and developing effective therapies—further venture capital firms such as Morgenthaler opened offices in Boston. Existing firms such as Schroder Ventures and Atlas Ventures also became more interested in biotechnology, just as specialist firms such as Polaris Partners (1996) and Flagship Pioneering (1999) were founded. Local venture companies began to take a heightened interest in biotechnology just as West Coast contemporaries began to doubt its potential.
Doubts among West Coast investors intensified in the 1990s with several high-profile failures of antibody drugs. The first monoclonal antibody drug, OKT3, encountered clinical complications, while the therapies of Xoma and Centocor—monoclonal antibody drug companies—struggled to gain FDA approval. These failures led to a decline in investment, despite strong intellectual property.Footnote 79 Contemporary West Coast venture firms opted to invest in thriving tech companies with shorter lead times, clearer paths to market, and significant returns from IPOs—such as those of Yahoo (1995), Amazon (1997), and eBay (1998).
Diversification of Funding Sources
Venture capital in the biotechnology industry grew significantly after the millennium (Table 2), supporting early-stage biotechnology companies. Startups benefited from local venture capitalists who considered companies in their earliest stages to be a local business, where the ability to walk the halls of universities and understand ongoing activities was crucial.Footnote 80 Moreover, pulling a company together required conversations that were difficult to conduct at a distance.
Venture Capital in the Biotechnology Industry
Source: PitchBook Data, Inc., venture capital data, 2000–2020.
Meanwhile, funding sources diversified, particularly for companies in later stages of development. Corporate investment became important as pharmaceutical companies turned to biotechnology firms for the seeds of discovery and created venture arms, such as Novartis Venture Fund (1996) and Pfizer Ventures (2004). Investment banks also became more interested in the life sciences business, as reflected by JP Morgan’s sponsorship of the industry’s premier conference: the JP Morgan Healthcare Conference. Additionally, patient organizations became funders for firms focused on rare diseases. For example, in 2000, the Cystic Fibrosis Foundation offered Vertex a US$150 million investment in exchange for future therapy revenues.Footnote 81 As Vertex launched cystic fibrosis drugs, the Foundation’s venture philanthropy model spread to other organizations such as CureDuchenne, which funded area firms including Sarepta Therapeutics.Footnote 82
Boston’s long association with multigenerational wealth was also an important source of capital. While New York was regarded as a city where transactions were short term and deal-focused, Boston was regarded as an investment city with more patient, relationship-based capital conducive to building biotechnology companies.Footnote 83 As biotechnology attracted attention from the wider investment community, family offices such as the local Kraft Group further supported biotechnology firms.Footnote 84
Over time, the Cambridge–Boston area attracted a community of investors who could identify and fund emerging opportunities with significant potential. As limited partners of venture capital firms were often universities, venture firms were also familiar with promising technologies from academic laboratories. Financing sources also came to involve sophisticated combinations, including venture capital, corporate investment, patient organizations, family offices, and public markets.Footnote 85
The Global Origins of Local Talent
Finally, the greater Boston area benefited from a foreign-born population above the national average, which increased in the last decades of the twentieth century—from 13.1% in 1970 to 25.8% in 2000.Footnote 86 The relocation of Novartis’ R&D headquarters to Cambridge in 2002 also signaled the increasing presence of international pharmaceutical firms in the region—with foreign personnel. This influx of human capital featuring diverse ideas, perspectives, and connections supported the growth of the sector.
The Cambridge–Boston universities had long attracted global talent. By the 1980s, this trend led Gabriel Schmergel, then CEO of Genetics Institute, to remark that access to international talent, along with foreign capital and markets, were key to the strengths of the field.Footnote 87 The inflow of international students and researchers at flagship universities (Table 3) enhanced research caliber, cultivated an international workforce, and seeded immigrant entrepreneurs.
Number of International Students at Harvard and MIT 2004–2024
Source: MIT International Students Office, “Statistics,” accessed 8 May 2024, https://iso.mit.edu/about-iso/statistics/; Office of the Vice Provost for International Affairs, “One Harvard”, accessed 8 May 2024, https://oneworld.worldwide.harvard.edu/; Harvard University Office of Budgets, Financial Planning and Institutional Research. Harvard University Fact Book 2004-2005 (Cambridge, MA, 2005), 6, 14.
International talent had been integral to building the leading local biotechnology firms, such as Biogen (1978) and Genzyme (1981).Footnote 88 Admittedly, there was still limited entrepreneurship in the 1980s and much less so by immigrants. While the 1990 introduction of the H1-B visa program facilitated the hiring of foreign skilled workers who might become company founders, most entrepreneurs were mid-career, middle-aged white men who had experience in senior-level management in large, established companies. As biotechnology firms came to play an integral role in therapeutic development, foreign-born managers and entrepreneurs assumed an increasingly prominent role in the sector, fueled by ideas, ambitions, and tolerance for risk.Footnote 89 Noubar Afeyan, co-founder and CEO of Flagship Pioneering (established 1999), suggested that immigrants were more inclined toward innovation and entrepreneurship, as it constitutes “intellectual immigration.”Footnote 90 Just as immigrant entrepreneurs made an outsized contribution to Silicon Valley high technology firms in the 1980s and 1990s, by 2006, 25.7% of founders in Massachusetts biotechnology firms were foreign-born, with companies producing over US$7.6 billion dollars and employing over 4,000 people.Footnote 91
Immigrant entrepreneurs not only founded firms but also founded enduring institutions that reshaped the local innovation ecosystem. Genzyme’s Henri Termeer, for example, pioneered the business model for orphan drug development during his decades at the firm’s helm.Footnote 92 Flagship’s Noubar Afeyan introduced a business model of “institutional professional entrepreneuring,” engaging in parallel—as compared with serial—entrepreneurship, based on platform technologies. Flagship also cultivated a “network insurgency,” a network architecture of interconnected companies that share novel biotechnology platforms, provide access to capital and talent, and have pushed the technological frontier.Footnote 93 While the industry workforce remained less diverse than that of higher education into the late 2010s, diversity was regarded as a driver of strength in the local therapeutics business.Footnote 94
Conclusion
This research traces how the Cambridge–Boston area evolved as the global center of the therapeutics industry. Adopting insights from the innovation ecosystem perspective, it examines how dynamic, multilateral interactions between complementary and co-evolving actors enhanced innovative capacity. This approach also illuminates how an extraordinary confluence of structural advantages, serendipitous timing, and strategic actions fostered an exceptional capacity to translate emergent technologies into novel therapies.
In fact, the rise of the Cambridge–Boston ecosystem occurred at the intersection of such structural, temporal, and strategic dynamics. For instance, the local therapeutics sector was built upon the institutional legacies of past innovation ecosystems, partly owing to ongoing industrial decline over the twentieth century. These legacies included the resources of world-leading universities as well as networks of collaboration (e.g., alumni, industry–academia). Local biotechnology firms were also proximate to pharmaceutical headquarters on the East Coast and Europe. Cambridge–Boston firms also benefited from the cross-fertilization of knowledge arising from social and professional interactions or changing jobs within a contained geographical location.
Fortuitously, scientific breakthroughs, institutional change, and the development of risk capital unfolded in parallel. For instance, the biotechnology revolution unfolded as regulatory reforms, including the Diamond v. Chakrabarty ruling, the Bayh–Dole Act, the 1981 tax cuts, to the Orphan Drug Act, were introduced in the 1980s. Such changes took effect alongside the emergence of research services firms as well as specialized and alternative forms of risk capital.
The convergence of structural advantages, historical serendipity, and strategic actions generated a talent pool of globally sourced, highly skilled human capital as well as star scientists. The area had a high concentration of these star scientists, who not only secured large grants, authored many publications, and pushed the technological frontier in interdisciplinary areas but also founded multiple companies and mentored the next generation of star scientists.
The ecosystem perspective helps illustrate how therapeutic innovation resulted from complementary and co-evolving actors. Biotechnology firms not only altered the structure of the therapeutics industry but also created new networks of academic–industry collaboration. Universities enhanced technology transfer activities by restructuring TLOs. MIT’s commercial orientation led academics to capitalize upon long-standing ties to industry or engage in entrepreneurship as well as form complementary collaborations with local universities and hospitals in pursuing the application of new technologies. Providers of risk capital also diversified over the years, encompassing a community of specialist venture capital firms, pharmaceutical firms, patient organizations, and family offices.
While the Cambridge–Boston area became an epicenter for novel therapeutics, business historians have shown that location-specific industrial prowess is impermanent and subject to change—whether from newer technologies, market shifts, or policy changes. Future research may consider how social challenges—from socioeconomic inequalities to the displacement of long-standing residents and businesses—generated by ecosystem development may recursively reshape their evolution. Such studies could be enriched by cross-sectoral and comparative approaches.
The adoption of the innovation ecosystem framework helped deepen a system-level appreciation of industry development. Additional micro-level studies may provide further insights. Building upon our understanding of how actors’ capabilities co-evolve, expanded archival work could also deepen insights into the mutual shaping of technologies, actors, and institutions.
Moreover, future research may engage in debates on the state’s role in fostering innovation and knowledge-intensive industries.Footnote 95 Ecosystem actors regarded federal government as significant for basic research and approving therapeutics and local government as important for enhancing livability—improving public infrastructure, including transportation and education. They did not regard government as central to commercialization, despite state funding initiatives or municipal research restrictions—as with recombinant DNA—that had affected business. Massachusetts, after all, was more an enabler of organic collaboration between geographically proximate actors: therapeutics firms, universities, hospitals, and risk capital providers. While California was similar, collaborative innovation centered less around hospitals, which were fewer and more geographically dispersed. Actors often indicated that other states—such as North Carolina or Texas—intervened more actively to foster industry development by creating research parks or generous incentives to attract companies via tax breaks, grants, and business-friendly regulation. Yet, governments cannot forecast or orchestrate the development of emergent technologies, such as safe and effective cell or gene therapies. Future research may also consider how the relative significance of different levels of government, from sub-national to national to supranational (e.g., European Union), have evolved in shaping the history of the therapeutic sector.
Acknowledgments
This research was generously supported by the Alfred D. Chandler Jr. International Visiting Scholarship at Harvard Business School (HBS) and the Cold Spring Harbor Laboratory (CSHL) Research Travel Grant. The author is grateful for the assistance provided at the HBS Baker Library Special Collections and Archives, Harvard University Archives, MIT Libraries’ Distinctive Collections, Cambridge Historical Commission, and CSHL Archives. Special thanks to Ted Paradise and George Davitt for facilitating initial introductions. This study would not have been possible without the generosity of 24 individuals who shared their time and insights. The author extends appreciation to those who agreed to be identified (in alphabetical order): Noubar Afeyan, Robert Carpenter, Cristina Csimma, Zoltan Csimma, Walter Gilbert, Bob Higgins, Wilbur Kim, Robert Langer, Harvey Lodish, Lita Nelson, Andrew Plump, Stephen Reeders, Scott Requadt, Jack Reynolds, William Schnoor, Matt Segneri, Phillip Sharp, Josef von Rickenbach, and George Whitesides. Their willingness to share their experiences and perspectives has enriched this work immeasurably. Gratitude is extended to those who preferred to remain anonymous but whose contributions were equally valuable.
Author biography
Maki Umemura is Reader (Associate Professor) in International Management and Business History at Cardiff Business School. Her research explores the evolution of industries at the technological frontier, with a focus on biomedicine and green energy. She was the Alfred D. Chandler Jr. International Visiting Scholar in Business History at Harvard Business School in 2023.
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