Biopharma Site Selection: The Heat of Competition Keeps Rising

by Suzanne Shelley

Business developers representing cities, states and whole nations are intensifying their efforts to win new projects

The champagne corks were popping in Boston last month, as news of the decision by Bristol-Myers Squibb (BMS; New York) to locate a $660-million biologics manufacturing facility at the old Fort Devens military site north of the city. The hotly contested site selection potentially will generate 550 jobs after operations begin in 2009.

"After a very extensive search, we short-listed New York, Rhode Island, North Carolina and Massachusetts, and we felt that all four jurisdictions presented very strong, compelling packages, and all had viable sites," says Jeff Macdonald, a BMS spokesperson. But working with site-selection consultancy Stadtmauer Bailkin and Biggins (SBB; Princeton, NJ), Bristol-Myers Squibb "outlined a very detailed set of criteria, and the Fort Devens site best aligned with those criteria."

High on BMS' wish list was the availability of research and academic resources, including access to research going on at, and graduates from, the 122 colleges and universities in the region. (Massachusetts says it is the No. 1 state in producing science and engineering graduates on a per-capita basis.) The state also sweetened the pot with a list of incentives: a $34-million wastewater treatment plant and various investment tax credits, including a 5% tax credit on capital expenditures, "which is not insignificant, if you consider that the facility is slated to require $660 million in capital investment," says Joseph Donovan, director of communications for the state's Executive Office of Economic Development.

So goes the national - and now, global - competition for locating job-generating manufacturing plants, distribution centers, labs and corporate headquarters, with cities, regions and whole nations assembling diverse business-development teams and charging them with responding to bid requests and putting together incentive packages. Interestingly, though, the pure dollars-and-cents incentives are only one factor. "Despite all the technical issues on the table, the attitude of the local economic-development people counts for a lot," says Peter Brooks, executive director of Ernst & Young's Transaction Real Estate Practice (New York). "I can't tell you how many times I've heard clients say, 'Community X really seems to want to work with us and be helpful.' It really makes a difference."

That difference can translate into speed-to-market which, for products whose patent-expiry clock is already ticking, is of enormous importance for pharma executives. "In some ways, the most valuable inducement a jurisdiction can offer is speed of execution, and certainty in terms of a fast, reliable permitting and local zoning process," says Andy Shapiro, managing director of site-selection consultancy SBB. "You don't want to get held up in a long process because of a lack of understanding or commitment from the business community or state politicians and regulators."

When Massachusetts' Executive Office of Economic Development received a Request for Information (RFI) from an unnamed firm that wanted to build a world-class biologics firm, "we had seven days to address its very specific inquiries related to land availability, natural gas, electricity, wastewater treatment and sewage infrastructure, workforce, the streamlined permitting process and other key criteria in the proposal," says Rod Jané, Executive Director of Massachusetts' Office of Business Development (Boston). "Perhaps most important, the RFI made it clear that the company needed predictability and clarity throughout the construction, permitting and startup process, in order to support their timeline."

An example of how things can go awry can be seen in Florida, where the state and Palm Beach County announced last September that a 100-acre site, called Mecca Farms, had been chosen as the starting point for Scripps Florida, an east coast expansion of the Scripps Institute in La Jolla, CA. By February, friction with the local community over environmental issues caused the project to be moved to multiple sites near Florida Atlantic University in Jupiter, and in Palm Beach Gardens. In June, Scripps Florida asked for a two-year extension of the funds the state had made available to Scripps, citing construction delays that would push the opening of the new facility from 2007 to 2009. (Scripps Florida is already using one facility on the Florida Atlantic campus.)

At the moment, a very rich deal for all involved is still in place. The county and state have ponied up $600 million to entice Scripps to select the Sunshine State. And the county still has plans to make millions of square feet of office and lab space available to create a biotech hub in the region. "Scripps' decision to locate in Florida has also seeded interest in other Southern California-based research institutes, such as Torrey Pines Institute for Molecular Studies and the Burnham Institute for Medical Research, both of which are considering Florida for their East Coast Research operations," says Berdine Yuan, life sciences practice leader for real estate development firm Jones Lang LaSalle (Boston).

"Florida was audacious in the scale and complexity of the financial support it put together to go after an institution like Scripps, but this investment will help it to jumpstart a whole new to era of life sciences R&D there," adds SBB president Jay Biggins. "The entire country was competing for this flagship operation, and it?s already proving to be both a powerful magnet for like-minded companies to consider the region, and is helping to send a clear signal that Florida is in it for the long run," adds John Adams, Jr., president of Enterprise Florida, Inc. (Orlando, FL). Companies such as Nabi BioPharmaceuticals and AndrX Corp. are expanding operations there.

Emerald Isle destination
As big as the BMS or Scripps Florida projects are, even bigger ones in recent years have been going to Ireland. For instance, Wyeth is currently constructing what it claims will be the world's largest biopharmaceutical facility in Ireland - the $2-billion Wyeth Biotech Campus, on a 90-acre site at the Grange Castle Business Park in South County Dublin. To date, 1,100 people have been recruited for the facility, which is said to be the only facility in Europe to manufacture products in each of the key platforms of biopharmaceuticals, pharmaceuticals and vaccines within the same facility.

And this past January, Amgen announced plans to set up a $1 billion biopharmaceutical facility (to include process development, bulk manufacturing and fill-and-finish operations) in Carrigtwohill, County Cork, Ireland. The project will get underway this year at a 133-acre greenfield site, and operations are expected to begin in 2009. By 2010, the facility is expected to employ 1,100 people.
"We considered several attractive sites in other countries for these projects and finally chose Ireland due to its thriving biotechnology community, infrastructure to support biologics manufacturing and pro-business environment," said Fabrizio Bonanni, SVP of Manufacturing for Amgen, at the time of the announcement. "In addition, the access and availability to highly skilled and educated people, particularly in the areas we most require, made this decision the right one for Amgen's future."

The competitive arena
Because life sciences investments provide such a demonstrable opportunity to underwrite local prosperity, many regions are pulling out all the stops, in terms of showcasing their indigenous science-and-technology assets, infrastructure (such as access to international markets and shipping channels), and liaison with universities, hospitals and other partners.

In the U.S. alone, more than 40 states currently have strategies in place to attract life sciences companies, and at least 27 countries are actively pursuing one or more sub-sectors of the industry, according to a report entitled "Growing the Nation's Bioscience Sector: State Bioscience Initiatives 2006," which was prepared by Battelle Technology Partnership Practice (Columbus, OH) for the Biotechnology Industry Organization (BIO; Washington, DC), and released this past April. Forty-three states also report that they have developed wet-lab incubators to support startup companies. Meanwhile, 43 states plus Puerto Rico have constructed bioscience-related research buildings since 2004, and 19 states have developed at least one dedicated bioscience research park.

"The production of high-value goods and services, and the higher-than-average wage base of the employees, both have tremendous tax implications for the community, compared to, say, the establishment of a warehouse or retail operation, customer service call center, or a low-tech manufacturing or assembly facility,? adds Perry Wong, senior research economist for the Milken Institute (Santa Monica, CA).

Simply put, pharma and biotech are sexy. "If you?re an economic development person, your bandwidth runs from developing call centers and blue-collar manufacturing jobs to high-tech, highly trained professional jobs related to science and technology," says Ernst & Young's Brooks. "Given the choice, you'd much rather go after the latter." The average annual wage of bioscience workers in the U.S. was $65,775 in 2004 (the latest year for which complete data are available)?$26,000 more than the average private sector annual wage?and the real earnings (adjusted for inflation) of bioscience-industry workers have increased by 6.4% since 2001, compared with a 1.4% increase in real earnings for the average U.S. private sector workers, according to Battelle.

When multiplier factors provided by the U.S. Bureau of Economic Analysis are applied, each bioscience job in the U.S. results in an additional 5.7 jobs, so the current tally of 1.2 million biosciences has generated an additional 5.8 million jobs throughout the economy, according to Battelle.

"Communities love pharma, biotech and life sciences projects because every new job created leads to the creation of additional jobs in auxiliary businesses that provide everything from contract lab services, consulting, office and lab supplies, IT support, packaging, transportation and distribution capabilities," says Yuan of Jones Lang LaSalle.

Herd mentality
Despite vigorous effort by many regions, the traditional favorites - New Jersey, California, Pennsylvania (see table) - continue to lead the site-selection race. Puerto Rico also retains the high concentration of pharma facilities that it has had for years. There is something of a herd mentality at work; as life sciences resources congregate, they tend to attract even more players from the same industry, which makes the efforts from other regions to elbow a place at the table even more intensive.

"Once a region is able to establish itself as a center of excellence in the life sciences by harnessing a critical mass of companies, talent, public funding, risk capital and coordinated political support, it achieves momentum that is critical for attracting more of the same," says Yuan of Jones Lang LaSalle. "This further legitimizes the state or region?s commitment to bioscience-related activities and becomes a virtuous cycle for regional planners."

"Thanks to the tremendous multiplier effect associated with these high-tech sectors, and their magnetic attraction for other like-minded companies, we're getting a much bigger bang for the buck by pursing facilities from these industries compared to many others," says Thomas Kucharski, president of Buffalo Niagara Enterprise (Buffalo, NY). The western New York group put a plan in place about five years ago to build up a life sciences cluster in the region. "While we're not known as a college town or a college region, site selectors and pharmaceutical companies are often shocked to learn that we have 30 colleges, universities and medical schools, many of them carrying out world-class research, in our eight-county region," he says.

One thing that region quickly realized it was lacking as it put its plan in motion was sufficient "shovel-ready sites" to accommodate short-turnaround projects, especially in the vicinity of the Buffalo-Niagara University medical campus. "For many companies, especially smaller startups that are intent on folding themselves into an existing hub of R&D activity, close physical proximity to the medical campus is important," says David Tyler, business development manager for Buffalo Niagara Enterprise. ?"o foster collaboration, many folks want to be able to just walk over to where the research is going on, access the wet and dry labs, and use the conference rooms within the facility.?"

Another plus is the region's access to low-cost power. Access to this cheap hydropower was a key consideration when Chicago-based generics company Abraxis Pharmaceutical Products decided to build a new manufacturing facility in Grand Island, NY (between Buffalo and Niagara Falls). The $30-million facility, which will manufacture sterile injectable pharmaceuticals, will create 150 new jobs by the end of 2006.

"With this project and other economic development initiatives that are aiming to build on the region's medical, biomedical and life sciences offerings, we have become much more modern, agile and forward-looking as a region," says Kucharski. "But we've had to overcome an entrenched, parochial approach to economic development."

"We?re working behind the scenes so that when a company says 'We?re ready to go, we're ready to go, too," adds Tyler.

Sowing the seeds
St. Louis, MO, is another region that made a conscious decision about five years ago to focus it economic development efforts on life sciences. "As we looked at the future, it made perfect sense for us to play to our competitive advantages and strengths in, among other things, the plant and medical sciences, information technology and advanced manufacturing," says Richard Fleming, president of the St. Louis Regional Chamber and Growth Assn. "With all of the work that?s been going on at Monsanto, and at Washington University and St. Louis University, the family tree of plant and life sciences experts is deeply rooted in St. Louis."

However, rather than just scattering seeds and hoping that some would germinate, the regional planners in St. Louis engaged Battelle in 2000 for strategic planning. Battelle developed a plan to help the region establish itself as a Center of Excellence for Plant and Life Sciences.

In terms of its real estate challenges, St. Louis already had several new-technology incubators in the region, but, says Fleming: "With little or no specialized, multi-tenant, wet-lab facilities available, we had the problem of developing these great firms in the incubator stage, and then having them move elsewhere to scale up." Now, regional planners in St. Louis have invested $30 million to capture roughly 1,000 acres of light industrial land just west of downtown - a plum location that is bordered by Washington University, St. Louis University, and their respective medical schools. This new corridor, dubbed the Center of Research Technology and Entrepreneurial Exchange (Cortex), includes a recently opened, 170,000-square-foot office and wet-lab facility (Cortex-1), and additional parcels of land for new entrants. Among the first tenants in the Cortex-1 building will be Stereotaxis, a recent startup that makes advanced surgical equipment, and the Siteman Center of Cancer Nanotechnology Excellence, which is affiliated with Washington University School of Medicine and Barnes-Jewish Hospital, and is one of the National Cancer Institute's Comprehensive Cancer Centers.
Sigma-Aldrich recently completed a $172-million campus near downtown St. Louis, including a new Life Science Technology Center. And in late 2005, Pfizer broke ground in St. Louis to build a new $200-million research facility in Chesterfield, a western suburb of St. Louis. Pfizer's new Global Center for Early Stage Biotechnology is scheduled to open in late 2008, and with 250 new employees, will bring Pfizer's total employment in St. Louis to 1,200, says Fleming.

Cash and carry
With a life sciences cluster that already includes Eli Lilly, Dow Agro Sciences, Roche Diagnostics, Bristol-Myers Squibb, and medical device manufacturer The Cook Group, Indiana has a base that it hopes will assist in an economic revitalization. Several years ago, spearheaded by Indiana governor Mitch Daniels (who happens to be a very pharma-friendly governor, having formerly served as President of U.S. Operations for Eli Lilly), economic development planners throughout the state put in place a variety of initiatives to entice additional life sciences companies to set up shop there. Among them were efforts to establish several hundred million dollars in venture capital funds that were specifically geared toward life sciences-related R&D activities and startups, a variety of tax-relief programs aimed at enticing these companies, and efforts to develop curriculum programs throughout the state universities and community colleges that were geared toward increasing the number of graduates holding life sciences-related degrees.

"While the tax incentives offered by many states come as reimbursements or tax credits after the fact (on real estate or payroll taxes already paid, for instance), we realized that we needed to do more to provide companies with flexibility and cash up front to get through the tough times in the first few years, when they have to front the startup costs and get past the regulatory hurdles before they can ever bring their product to market and begin to make a profit," says Todd Pedersen, director of life sciences for the Indiana Economic Development Corp. (Indianapolis).

Pfizer recently built a new manufacturing plant in Terre Haute, IN, bringing 450 new jobs to the region, to produce its new diabetes inhalant Exubera. "For Pfizer to position itself an hour away from Eli Lilly was a smart move that made strategic sense for the company," says Pedersen.

Meanwhile, in his February 2006 budget address, Pennsylvania Governor Edward Rendell proposed a groundbreaking bioscience research initiative, called the Jonas Salk Legacy Fund, which will use tobacco settlement funds to put one billion dollars to work funding medical and scientific research throughout Pennsylvania over the next two years. ?This unprecedented commitment will solidify Pennsylvania's leadership position in the field of biosciences - right up there with our major U.S. competitors New Jersey and California," said Rendell at the time of the announcement.

In addition to Pennsylvania's wealth of universities and research centers, Rebecca Bagley, an executive at Pennsylvania?s Dept. of Community and Economic Development (Harrisburg) is happy to point out that eight of the world?s largest pharmaceutical companies are located within the well-traveled, 50-mile corridor between Princeton, N.J. and Philadelphia, and that these world leaders are attracting many smaller and mid-sized companies who want to be where the action is.

For instance, Shire Pharmaceuticals Group (Basingstoke, U.K.), recently established a beach head (which will serve as the central hub for the company?s R&D and U.S. commercial activities) in Wayne, Pa., outside of Philadelphia, investing $8 million in the facility and creating 400 new jobs there. To support the project, the state agreed to provide a $5.2 million financial package that includes $1.2 million in Job Creation Tax Credits, a $2 million Opportunity Grant, $250,000 in customized job training, $500,000 machinery and equipment loan, and a $1.25 million loan through the Pennsylvania Industrial Development Authority.

The State of Washington has also earmarked tobacco-settlement dollars to support bioscience-related research with economic development potential by creating a $350 million Life Sciences Discovery Fund, which is dispensing roughly $35 million/year. According to a recent study by the National Conference of State Legislators, state governments used nearly $1.5 billion in tobacco settlement money to support health-related research, technology commercialization, venture capital, bioscience facility development and workforce training between 2001 and 2004.

Never take anything for granted
The economic development power of a cluster is well demonstrated by the 13-county Research Triangle Park (RTP) region of North Carolina. Widely recognized as a hub for life sciences, RTP is currently home to a diverse mix of 538 life sciences companies that are involved in research, testing and manufacturing in four major sectors (drugs and pharmaceuticals, agriculture biotechnology, medical devices and contract research) already in operation there, according to a study released in April by the Research Triangle Regional Partnership (RTP, NC). These life sciences companies employ some 29,000 people.

According to the study, the trickle-down economic-development activities of the life sciences sector in and around RTP have created an additional 116,000 service-sector jobs, for a total employment impact of 145,000 jobs. And employees of the region?s life sciences firms directly contributed an estimated $1.7 billion in personal local, state and federal taxes in 2005.

Since it was created in 1984, the North Carolina Biotechnology Center (Research Triangle Park) has also focused on the educational pipeline as one of the fundamental ways to capitalize on the long-term economic and societal benefits associated with biotechnology. In addition to the financial assistance it routinely offers to early-stage biotech companies, and its efforts to recruit, retain and expand existing biotech companies, the group has invested more than $50 million to date in North Carolina universities to recruit 46 biotech-related faculty members, purchase multi-user research equipment, and sponsor more than 450 research projects.

The region is also home to the largest concentration of contract research organizations (CROs) - the 68 CROs include RTI International, PPD, Quintiles Transnational, Duke Clinical Research Inst., and LabCorp Occupational Testing. in the nation, employing more than 7,000.

However, not content to rest on its laurels, the regional RTP Partnership recently outlined a plan to retain and expand its life sciences industry in the region?with the hope of creating 100,000 new jobs in the region and boosting employment statewide.

Scoping international options
The decision by U.S. companies to establish an R&D or manufacturing presence outside the U.S. is driven by a variety of factors. In some cases, it's the need to establish a local manufacturing and distribution presence that's close to both local regulators and end markets. In other cases, it's the desire to pursue cheaper capital, labor and operating costs.

Biggins of SBB notes that for many international projects in the life sciences, the decision to locate the facility outside the U.S. is substantially logistics driven, to build production capacity proximate to markets into which the product will be distributed, to increase market acceptance, reduce production and distribution costs, and facilitate local regulatory acceptance.

Among the European countries, Ireland has had a proven, 40-year history of strength in the pharma, biotech and life sciences sectors. Today, Ireland has more than 170 companies, employing 35,000 people in the pharmaceutical, biopharmaceutical, medical device and diagnostic sectors, and is host to 13 of the world's largest 15 pharmaceutical companies (in terms of a major manufacturing or R&D center), and 15 of the top 25 medical device companies, says Seamus Carroll, VP of Industrial Development Agency (IDA) Ireland (New York). "Forty percent of Ireland?s total exports = valued at roughly $50 billion/year - is related to its life sciences industry," he adds.

In addition to its willingness to work with prospective clients to scope out and fast-track industrial sites, and develop a range of tailored financial incentives, Ireland's corporate tax rate, at 12.5% "is one of the lowest in Europe, and averages about half the prevailing rate across the rest of Europe," says Carroll. The country has also introduced a 20% R&D tax credit. Paradoxically, while most regions where life sciences organizations congregate have a plethora of labs and research companies, but are challenged to follow on the research with the generation of manufacturing jobs, Ireland has the opposite situation: a large base in manufacturing, but a small base in R&D and startups. To rectify this, the government has recently earmarked $800 million "to pull world-class researchers into Ireland" and to spearhead the establishment of Centers of R&D Excellence related to, among other things, regenerative medicine, biomedical diagnostics and pharmabiotics, says Carroll.

"It's a big move and a big risk for companies to go abroad and establish an operation in Europe, so it's important to choose a locale where you have a high degree of comfort that things are going to work out," says Carroll. "In terms of life-sciences-related operating environments, Ireland has proven itself to be a low-risk, international option for an industry that tends to be very risk-averse."

Industry observers expect that the current trend in sponsoring clinical trials in India, China and other Asian countries could translate, in time, to both research and manufacturing opportunities.

Because every small-scale pharma, biotech and life sciences startup has the potential to leverage its promising scientific breakthroughs into lucrative commercial-scale manufacturing facilities down the road, "we handle every prospect the same, whether it's from five individuals with a bunch of patents, or a full-tilt pharmaceutical company looking to break ground for a new manufacturing facility," says Adams of Enterprise Florida. "You can?t assume anything, because you never know what's going to be the next big thing."