The Magic Sauce of Kendall Square

May 22, 2019

By Lita Nelsen, Retired Director of the MIT Technology Licensing Office

At MassBio’s State of Possible Conference in March, we honored Lita Nelsen, Retired Director of the MIT Technology Licensing Office, with the Henri A. Termeer Innovative Leadership Award. This annual award was created to honor individuals who have contributed significantly to the growth and success of the life sciences industry in Massachusetts, and Lita’s leadership at MIT exceeded our criteria in every way. The below is the speech Lita gave at the conference – one that perfectly encapsulates the growth, evolution, and “magic sauce” of Kendall Square.

During my 30-year tenure in the MIT Technology Licensing Office, I was visited by literally hundreds of people from throughout the U.S. and from dozens of countries around the world. They came from governments, universities, and regional development organizations. Mostly they were interested to know not only how to do technology licensing, but how to bring about the extraordinary economic development that became Kendall Square as we know it now. They wanted to know, “what was the magic ingredient in the magic sauce?”

For a few of you old enough to remember Kendall Square in 1960, you know that it was the dying remnant East Cambridge when it was a major industrial center of the U.S. The industrial part was occupied by decaying buildings, old warehouses, and a few small factories that made rubber products, metal fasteners, foodstuffs, and the like. The only place to get a meal was the F&T diner, which was no place to have a business meeting or take a date. 

Change began with a new focus on entrepreneurship based on science. The end of World War II and the Vannever Bush Report led to massive increases in Federal funding of basic research. Research laboratories in universities like MIT and Harvard grew quickly and kept growing — adding new useful knowledge to the world and turning out graduates educated in the leading edge of science and technology. And with a massive increase in funding from the NIH, hospital research laboratories grew apace.

By the late 1950’s, a small number of research faculty members teamed with entrepreneurial business people to form new companies around university science — mostly in electronics. Thus, grew the Route 128 “Massachusetts miracle”, funded largely by government contracts and the beginning of technology-based early stage venture capital funds.

American Research and Development Corporation, formed in 1946 by George Doriot of Harvard and Carl Compton, president of MIT at the time, was perhaps the first of these VC funds. In 1957, they invested $75,000 in an idea from a guy named Ken Olsen who worked in MIT’s Research Laboratory of Electronics; Digital Equipment was born — and the computer revolution in Massachusetts began. But Kendall Square was still sleeping.

Then came Biology: the discovery of the double helix in the early 1950’s followed almost 20 years later by Cohen and Boyer’s gene splicing technology meant that practical use of biology for product development became possible, and the genetic engineering and biotechnology revolutions began.  Cambridge was among the first cities to benefit, with Genzyme, Biogen, Repligen, and a few others, visibly led the way.

A very important, and perhaps surprising, event helped make Cambridge pre-eminent in the state as THE place for new biotechnology companies. In the mid-1970’s, there was a widespread global fear of “genetic engineering” per se. In Cambridge, people worried that “the bug that ate Cambridge” would emerge from MIT’s laboratories. 

To calm those fears, Mayor Vellucci assembled a team of leading scientists and others to draft regulations regarding the use of recombinant techniques in the city. The Cambridge Recombinant DNA Technology Ordinance was passed in 1977 – fairly early in the game.  The rules were straightforward and, if followed, permission for opening laboratories came rapidly. 

As a result, at least in part, of this intelligent regulation, in the 1980s and 90s, the vast majority of biotechnology startups in the state were in Cambridge.

Another important law for biotechnology, this time federal, was passed shortly thereafter:  the Bayh-Dole Act of 1980, a remarkable piece of bipartisan legislation.  The Act simplified the ownership and exploitation of patents arising from federal funding of research in universities, hospitals, and other non-profit research institutions (which I will now refer to in aggregate as “universities” since they comprise the majority). The Bayh-Dole allowed transfer of the title to such patents to the university itself, and allowed the universities to grant licenses to the patents and collect royalties — with a fraction of any royalties to be paid to inventors, thus providing some financial incentive to both the universities and the researchers to participate in the process. The regulations were quite simple and straightforward.

The express purpose of this Bayh-Dole Act was economic development. The federal government was spending over $100 billion a year (more now) in funding research in universities. But, with the federal government owning most of the patents arising from the research it sponsored, very few of the inventions from it were being taken up by industry. Transferring these patents to the universities meant that the patent administrators could work on the ground with the inventors (that is the university tech transfer officers working hand-in-hand with the faculty) to translate their findings into companies.

Thus, the technology licensing profession grew — rapidly after a few slow years in which the profession taught itself and a few universities had successes that others could follow. A 2015 survey by the Association of University technology Managers showed results from 200 U.S. research universities granting over 6,000 licenses in a single year and helping to startup over 1,000 new licensed companies in that year.

MIT is now starting up over 25 new companies a year, a good fraction of which are in biotech. Quite a large number of the companies represented here have origins from research and licenses from MIT, Harvard, and the other universities and research hospitals near us.

Success attracted more, and in turn built the infrastructure around it. When MIT licensed its first biotech startups in the late 1980’s, the founding venture capital (VC) came, by necessity, from New York or California. The few early stage VC firms in the region at the time did not invest in biotech. But early investments success soon led to new local venture firms, and established firms started to open offices in Massachusetts. By now, there are dozens of VC’s looking to invest in promising biotech companies.

Real estate companies responded to the opportunities. The old warehouses became brick office buildings with the landlords willing to lease to small, high risk companies with promise. And then the big pharmaceutical companies, almost totally absent from Massachusetts, began opening offices and laboratories to be close to the source of new products from the biotech community that could help fill their pipelines. This latter trend accelerated as many of the big companies radically pared down their internal R&D in the cause of short-term earnings.

The universities also responded, with incubators, mentoring services and other components of “entrepreneurial eco-systems”.  And independent incubators and accelerators opened to house embryonic companies and help them grow.

And perhaps the most valuable component:  people. Everywhere in the world that I’ve been invited to go where the local governments and universities want to accelerate biotech entrepreneurship in the cause of economic development, the scarcest resource is not money but talented managers:  experienced entrepreneurs who can start new companies, manage science towards product development, and raise capital for it.

The density of biotech in Massachusetts means that we are raising our own scarce resource. Scientists and lower level managers in the many companies of the region gain experience, insight, and personal connections that qualify them to become the next generation of CEO’s. Essentially clusters feed themselves.

And let us not forget the strength of networking. Cambridge and Boston biotech is one of the most dense clusters anywhere; there are hundreds of opportunities to get to know each other — and people understand that it’s important to take the time to network. So everyone knows everyone. More seriously, ideas are exchanged, new ideas are catalyzed, and resources can readily be found if you have a strong proposal.

The “magic sauce” that built Kendall Square is a complex, interactive mixture that has been thoughtfully simmered and stirred by talented people over many decades. And is the envy of the world. I’m very grateful and proud to have been a small part of it.

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