It's hard to feel like a winner when you finish fourth.

At least that is how Montgomery County officials and biotechnology leaders are taking the news that Maryland has slipped from third to fourth place in Ernst and Young's annual ranking of biotech centers in the United States.

Montgomery County still has a larger concentration of biotech companies than any other county in the country, according to the report.

But that wasn't enough to keep Maryland in the top three. In its 2004 Global Biotechnology Report, Ernst and Young tallied the number of biotech companies in each state that have had a round of institutional financing, said Rene Salas, the company's mid-Atlantic life sciences leader. California and Massachusetts, the most established biotech centers, remain first and second, respectively, with North Carolina edging out Maryland for third place.

Salas said local political and business leaders should not read too much into the rankings. Revenue figures and research and development dollars are better indicators of health than the total number of biotech companies. By those measures, Maryland is well ahead of North Carolina, with companies reporting 25 percent higher revenue and spending 40 percent more on research and development, Salas said.

The difference between North Carolina and Maryland boils down to a half-dozen companies. "The rankings could easily flip back next year," he said.

Salas said Ernst and Young's criteria for biotech companies may underestimate the number of bioscience-related businesses in Maryland. "Maryland has a lot of service companies that do business with biotech," Salas said.

But some Montgomery County biotech executives say the state's slip to fourth place is a warning sign.

How the state stacks up to other jurisdictions is not just a matter of pride, they argue. Saying your company is in one of the top three biotech centers in the country is a valuable marketing tool when it comes to attracting talent and investors.

"It's bragging rights and more than that. . . . Winners attract winners," said John Holaday, an EntreMed co-founder and a former chairman of the Maryland Bioscience Alliance, an industry trade organization based in Rockville.

Salas said a dearth of locally based venture capital funds hurt Maryland's standing. Start-up firms, which require investments of less than $10 million, rely more heavily on local investors than more established companies, which can tap into venture capital funds nationally. "There are not a lot of funds here locally, whereas North Carolina has funds based in that market," he said.

In addition to having access to funding, North Carolina biotech companies also had support from the state. "North Carolina used more of its tobacco money" to fund biotech research, Salas said.

Maryland, however, dedicated more of its state pension fund to bioscience research than North Carolina, he said.

Montgomery County biotech leaders believe the state can do more to nurture the industry.

"The [Ernst and Young] list underscores the urgency of legislative action to help us remedy the lack of investment capital," said Jonathan Cohen, founder and chief executive of 20/20 Vision Systems, which is based in Rockville.

Local biotech entrepreneurs were especially disappointed that the Maryland legislature, noting fiscal concerns, failed to pass a bill during the last session to create tax incentives for biotech investors.

Montgomery County Executive Douglas M. Duncan (D) recently took that sentiment one step further and accused Gov. Robert L. Ehrlich Jr. (R) and the legislature of focusing on expanding gambling to the detriment of the biotech industry.

"For the past two years, despite lofty rhetoric, the main economic development focus from Annapolis has been on expanding gambling. In the meantime, our neighbors in Virginia, and competitors such as North Carolina and Massachusetts, have been pouring resources and energy into growing their advanced technology sectors. We must act now if we are going to reverse the disturbing trend identified in the Ernst and Young report," Duncan said in a May 20 press release.

Holaday said he hoped state leaders would take the drop in the Ernst and Young rankings as a wake-up call. With so many jurisdictions competing for biotech companies, he said, elected officials need to step up public support for the state's biotech industry.

"We can't afford to lose that edge," Holaday said.