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Innovation Index: Bay State Leads on Some R&D Scores, But Fed Grants Decline

Xconomy Boston — 

Massachusetts bested many of its rival states in research and development funding and maintaining a healthy supply of college graduates, but the Bay State is falling behind in several key areas of its innovation economy, according to a new index released today by the quasi-public nonprofit Massachusetts Technology Collaborative (MTC).

The annual report, dubbed the 2008 Index of the Massachusetts Innovation Economy, compared the commonwealth with nine other U.S. states with leading high technology and life sciences sectors such as California and Minnesota. The John Adams Innovation Institute, the research arm of the MTC, based its scores on 20 innovation indicators with data from 2003 through 2007—so we’ll have to wait until next year to see how the economic meltdown impacted the state in 2008.

The index has the attention of some of the top executives and investors in Massachusetts, setting it apart from many of the national indexes compiled outside the state without local input. In fact, this year’s index includes insights from seven figures well known to many Xconomy readers, including Bob Higgins, founder and general partner of Lexington, MA-based Highland Capital Partners and Henri Termeer, the CEO of biotech heavyweight Genzyme (NASDAQ:GENZ), headquartered in Cambridge, MA.

I reached venture capitalist Higgins after he finished teaching a class on entrepreneurship in life sciences at Harvard Business School this week. Without talking about specific findings in the innovation index, he shared some of his thoughts about the state’s economy, focusing on the fortunes of individual firms.

“I think the best measure of the health of the innovation economy is the success of companies,” Higgins says. “That is a tough measurement tool in the current environment, but I think it’s the right one. In other words, how many companies have been successfully sold, how many companies have become successful public companies—and how does that compare to other regions.”

Indeed, the index has some data on M&A and initial public offerings. We at Xconomy have already covered some of the most recent reports on those topics—including our story about the IPO drought in Massachusetts and nationally last year—but there were some new findings in the MTC’s index about sector growth and the health of the state’s workforce.

Here are some of the highlights and low marks culled from the MTC’s 62-page report:

—Sales skyrocketed for Massachusetts’ biotech and medical devices firms from $18 billion in 2003 to $34.2 billion in 2007, reflecting continued growth in the state’s life sciences sector. Meantime, however, sales suffered during that five-year period for software and communications service outfits, dropping from $13.5 billion to $11.7 billion.

—The Bay State ranked first among its peers with 28.8 percent of its total workforce employed in in science-related, technical, and healthcare positions. Despite the growth of the life sciences sector, a scant 1.5 percent of workers in the state were employed in life, physical, or social sciences fields in the commonwealth in 2007. But the state had a 2.7 percent annual growth rate in those fields compared with the U.S. average of .5 percent.

—The startups and other small businesses in the commonwealth reeled in more SBIR [Small Business Innovative Research] funding than any other state in the study in 2006, with $241 million in awards, but that figure actually dropped 16 percent from the year before. Still, the state is attracting funds to commercialize inventions, which bodes well for the innovation ecosystem.

—Massachusetts held on to its lead garnering NIH dollars with $656 in awards per capita. But the amount of NIH funding to the state declined by 2.6 percent annually between 2003 and 2007.

—There was a cautionary statistic on the R&D front: the average high-tech or life sciences company headquartered in the state lowered its total spending on developing new products by 10 percent, from $42.5 million in 2003 to $38.2 million in 2007.

—On drug R&D front, Bay State biotech companies were developing 12 percent of the biotech drugs (such as recombinant protein treatments and cellular therapies) in the U.S. as of July 2008, with a total of 78. But the state lagged behind New Jersey (165), California (157), and Pennsylvania (111).

—Massachusetts just about tied California for first place on the patent-award benchmark, with 5.4 patents per capita in 2007. But the Bay State’s per capita total was down from 6.2 in 2006. (I wrote a story recently about the top 25 patent recipients in the commonwealth.) Twenty-four percent of the patents awarded in the state last year were for healthcare inventions such as new drugs and devices and 21 percent were for computer hardware and software innovations.

—Massachusetts has the highest concentration of adults with bachelor’s degrees or more advanced degrees, 46 percent, of any state in the study. New Jersey was ranked second with 40 percent and Connecticut was ranked third with 39 percent.