There is a science to site selection. But rarely do the specifics of science itself so directly impact a location choice.
In late April, one day apart, new protease inhibitor drugs developed by both Merck & Co. and by Vertex Pharmaceuticals to treat Hepatitis C in combination with other drugs were to be reviewed by a U.S. Food and Drug Administration panel. Both companies expect a final decision by the time school’s out for the summer. Hanging in the balance, contingent on the FDA decision, is Vertex’s non-binding letter of intent, signed in January with prominent Boston developer The Fallon Co., to relocate its headquarters to twin office towers in a new US$2-billion downtown Boston waterfront complex called Fan Pier. Backed by incentives from the state and the Boston Redevelopment Authority, the project has been in the works for well over two years, delayed in part by Fan Pier’s tenant and financing challenges resulting from the credit crunch. Fallon first broke ground on the overall development in 2007.
Approximately 170,000 Americans are diagnosed with hepatitis C each year. Results from trials of both new drugs, shared during an international conference on viral hepatitis held in Baltimore in April, showed great promise. Analysis by EvaluatePharma, a U.K.-based life sciences analysis firm which itself just located its U.S. headquarters office in Boston, puts the two in perspective: The net present value of Merck’s drug candidate is equal to approximately 3 percent of its market cap of $104.6 billion. The net present value of Vertex’s product is equal to 77 percent of its market cap of $9.65 billion.
“As FDA advisory committee decisions go, they do not come much bigger,” EvaluatePharma wrote in an April 19 analysis of the two-day review process, calling Vertex’s looming product launch the biggest of 2011 and “transformational” for the company. “Expectations for approval are very high for both telaprevir and Merck & Co’s boceprevir, with hep C specialists already looking beyond approval and focusing on how best to use them in daily clinical practice,” the report said. “With a chronic disease course, unmet medical need, dissatisfaction with current therapies and demonstrated efficacy, anything less than unanimous approval of both drugs would be a big surprise.” Based on reported side effects and other factors, EvaluatePharma calls for Vertex’s product to be the big winner in the marketplace.
Should the FDA decision be favorable for telaprevir, Vertex will relocate as many as 1,800 employees to a new office building at Fan Pier from an array of leased space in 10 different buildings in nearby Cambridge.
Vertex spokesman Zachry Barber understandably couldn’t say much more in advance of the FDA review. If the medicine’s use is approved by the FDA, he said, the next step would be to “sign an actual lease agreement.”
In Vertex’s 10-K filed on Feb. 17, 2011, the company revealed the web of leases and expiry dates in which it finds itself. As of the end of 2010, it leased a total of 1 million sq. ft. (92,900 sq. m.) of lab and office space in Cambridge; San Diego, Calif.; Washington, D.C.; Coralville, Iowa; Montreal, Que.; and the U.K. Nearly 82 percent of that space is in Cambridge.
The leases for the headquarters space and for space adjacent to it, totaling a combined 292,000 sq. ft. (27,127 sq. m.), expire on Dec. 31, 2015, “with two options to extend for additional consecutive five-year terms, and an option to terminate the lease in December 2013, subject to certain advance notice provisions.” Another 145,000 sq. ft. (13,571 sq. m.) is subleased from Alkermes, Inc., the drug therapy firm founded in Cambridge in 1988. That sublease expires in June 2012 with an option to extend through 2014. Another Vertex lease in the white-hot Cambridge bioscience submarket of Kendall Square will expire in 2018.
“We have the option to extend this lease for two consecutive ten-year terms,” said the company’s filing. “We have subleased approximately 145,000 square feet of the Kendall Square facility, and are using the remaining square feet of space leased in the facility for our research operations. The subleases are for terms ending in 2012 and 2015 with one sublease having an extension option to 2018.”
Hub of Hubs
As for the relocation, the 10-K states that the move to Fan Pier “contemplates the lease of approximately 1,100,000 square feet [102,190 sq. m.] of office and laboratory space for a period of 15 years commencing in late 2013.” That happens to be the year in which EvaluatePharma’s analysis calls for telaprevir to begin contributing to billion-dollar profits for the company, pending approvals in both the U.S. and U.K.
Among the risk factors mentioned in the Vertex filing is this telling passage:
“Recently we have built out the commercial organization that will be responsible for the commercial launch of telaprevir in the United States, if it receives marketing approval. The number of our employees increased by 18 percent in 2010 and 6 percent in 2009, and we expect to experience additional growth in 2011. Because our drug discovery and development activities are highly technical in nature, we require the services of highly qualified and trained scientists who have the skills necessary to conduct these activities. In addition, we need to attract and retain employees with experience in these fields.We face intense competition for our personnel from our competitors, our collaborators and other companies throughout our industry. Moreover, the growth of local biotechnology companies and the expansion of major pharmaceutical companies into the Boston area have increased competition for the available pool of skilled employees, especially in technical fields, and the high cost of living in the Boston and San Diego areas makes it difficult to attract employees from other parts of the country to these areas. Our ability to commercialize our drug candidates, and achieve our research and development objectives, depends on our ability to respond effectively to these demands and expand our internal organization to accommodate additional anticipated growth.”
Such a statement could well stand in for many a life sciences company balancing the different parts of the talent/innovation/costs equation. But when pressed, there may be no better hub to gravitate toward than “The Hub” itself, which first received that coinage in 1858 when Oliver Wendell Holmes described the Massachusetts State House as the “Hub of the Solar System.”
Debbie Paul, vice president North America for EvaluatePharma, says even though it may be more expensive to live in Boston, it’s easy to attract talent because of the hub factor. Similarly, even though there are therefore more life sciences competitors who could also employ your talent, companies continue to stay and arrive because they do indeed get the qualified people they need.
“It’s more of a positive than a downside,” she says. “Is it a risk? Yes. But that would happen anywhere where a company is looking for quick growth.” On March 16, Vertex showed 124 job positions open that were associated with its Cambridge locations.
Paul’s own small staff is looking to double in size soon. EvaluatePharma, which counts all of the world’s global pharmaceutical companies as clients, came to Boston, she says, in part because of a phone call a couple years ago from the Boston Redevelopment Authority to the firm’s U.K. office.
“They proactively do outreach, which I think is very smart,” she says. Other locations hold promise because of their pharma presence, but it was Boston, she says, that came knocking on their door.
“The other location that holds the greatest number of biotech companies is in California, but that’s much more spread out, with groupings in San Francisco and San Diego. And it’s an eight-hour time difference from London.”
Paul, a critical-care nurse for 17 years, says Greater Boston simply offers a cornucopia of institutional and industry connections and research facilities, uniquely bolstered by the fabric of major universities, medical schools and hospitals in the region. As a service provider to the life sciences, she says, EvaluatePharma’s choice of Boston for its first U.S. office “makes perfect sense.” Since 2000, the metro area has attracted $16.6 billion in National Institute of Health grants.
Vertex asked its own employees why they liked Boston. In addition to its cultural, recreational, historical and family elements, they gave their Top 10 reasons why Boston is the “center of gravity.” In order, the top four were Harvard University, MIT, Tufts University and Boston University.
Big Wheel Keeps On Turnin’
The definition of The Hub keeps expanding outward, even as some companies are looking from the periphery back to the city center. And its scope is punctuated by deals such as the recent $20.1-billion purchase of Cambridge’s Genzyme Corp. by Sanofi-Aventis. Separately, last summer, the French company announced it was consolidating 10 oncology centers from around the world into one in Cambridge, a $65-million investment that will bring 300 new jobs to the area.
That’s the same amount of money that Merck KGaA (not the U.S. Merck & Co.) invested in a new 100-job R&D facility for its EMD Serono unit in Billerica, a city which boasts a strong and growing biopharma presence in a location along Route 3 that’s closer to Lowell than to Boston. Separately, Merck KGaA acquired Billerica-based Millipore in July 2010 for $7.2 billion, and announced that the new 10,000-employee, $2.9-billion EMD Millipore division would be headquartered in Billerica.
In June 2010, radiopharmaceutical manufacturer Pharmalucence announced its plan to construct a 70,000-sq.-ft. (6,503-sq.-m.) pharmaceutical production facility and new corporate headquarters in Billerica that would create up to 30 jobs. The project was supported by the first Recovery Zone Facility Bond issued in Massachusetts, a $20-million bond issued on the company’s behalf by MassDevelopment and purchased by TD Bank. The company’s president and CEO, Glenn Alto, did not mince words about the focus of the expansion.
“Currently, there is a trend to abandon domestic contract drug production for off-shore providers, but Pharmalucence is furthering its commitment in Massachusetts with full confidence. Companies that manufacture with us will gain access to the most advanced fill-and-finish technology available today. If an East Coast biopharma company wants world-class drug production services and can get them at a competitive cost in the Boston suburbs, why would they go to China or India? We think customers will find it’s more appealing to drive from Cambridge to Billerica than to fly to Asia to get drug development and production work done.”
In December, the Massachusetts Life Sciences Center said it was awarding $23.9 million in tax incentives to 30 life sciences companies that have committed to creating nearly 1,000 new jobs in the Commonwealth over the coming year. The Life Sciences Tax Incentive Program, established in 2008 as part of the state’s 10-year, $1-billion Life Sciences Initiative, authorizes up to $25 million in tax incentives each year for companies engaged in life sciences R&D, commercialization and manufacturing.
Data from StatsAmerica.org, a regional innovation tracking project funded by the U.S. Economic Development Administration and operated in part by departments at Purdue University and the University of Indiana using U.S. Census and Bureau of Labor Statistics data, show that Massachusetts in 2009 could claim 14,711 life sciences establishments, paying more than $18.7 billion in wages to 264,729 employees, averaging out to $70,740 per employee. While Boston-Cambridge claimed more than 9,000 of those businesses, Middlesex County, home to Billerica, was second, with 4,137, demonstrating the state’s highest life sciences industry employment concentration.
TRI To Bring Australia’s Biotech Future to Life
Half a world away, DSM Biologics, a unit of Netherlands-based DSM’s Pharmaceutical Products business, has entered into a unique agreement with the Queensland State Government and the Commonwealth of Australia that could be the spark for a new cluster in Brisbane, and a magnet for attracting business back to the continent.
DSM and the two governments are designing, building and operating the first major Australia-based mammalian biopharmaceutical manufacturing facility, located at the Translational Research Institute (TRI), a one-stop-shop for discovery, production, clinical testing and manufacturing of new biopharmaceuticals. The governments are providing full funding for the facility, which is part of the Queensland 10-year Biotechnology Strategic Plan.
Construction of the 70,000-sq.-ft. (6,503-sq.-m.) complex has stayed on schedule despite the torrential rains and flooding that hit Queensland earlier this year, and which contributed to 40 lost days of construction activity since April 2010.
“The project is going great,” says Frank Medallo, vice president of operations, facility development, for DSM Biologics. Speaking from his office in Parsippany, N.J., just after returning from Queensland, he says the site’s location on a hill helped during the monsoon: “The areas around it were harder to get to, but there was no damage to the site, so we were very lucky in that sense. We built in weather delays, and they were appropriate.”
DSM Biologics also is pursuing expansions in Groningen, Netherlands; Capua, Italy; and Greenville, S.C.
Medallo says stakeholder cooperation has been strong in Brisbane. “Everybody wants to see the facility work. It’s a refreshing change — sometimes you have a lot of headwind. In this case, they want to see it succeed. It’s the flagship — if it works as a CMO for Australia, it’s only the beginning.”
The biotechnology industry in Australia is growing rapidly, with over 400 companies currently engaged in development activities and an estimated A$60 million (US$53.5 million) in annual CMO activity fees being exported out of the country due to the lack of a local CMO.
Medallo was brought on two and a half years ago to do this type of project, though not necessarily in this location.
“We originally were thinking of doing one in the U.S., but the Australia opportunity came up first,” he says. The U.S. project has not been taken off the table, “but we want to see how the Groningen and Australia plants will go. We haven’t done any of the [U.S.] footwork, if you will.”
He says the flow of information and cooperation have been top-notch in Australia. “We couldn’t have picked a better place or better people to set up a facility with.”
Rowing Together
In this case, DSM was picked by the TRI, which is headed by the inventor of Gardasil, Professor Ian Frazer. When fully built out, the A$354-million (US$377-million) TRI will house 650 researchers and scientists. Dr. David Watson, independent chair of the TRI, says the site choice for the TRI was determined by the combination of a number of imperatives. If his description of the process brings to mind a mini-Boston, it’s no accident.
“First, the goals of the TRI required it to be adjacent to a major teaching and research hospital,” he says. “The Princess Alexandra Hospital (PAH) meets this criterion and also had available land adjacent to it. Second, the site, together with additional land near the hospital, has been designated by the Queensland Government as a future research precinct. Finally, the Diamantina Institute (the research institute previously headed by Professor Frazer) is situated at the PAH, as is the PAH Centres for Health Research. The Mater Medical Research Institute (MMRI) and the Mater Hospital are only a short distance away. Each of these organizations will be integrated into the TRI.”
Currently about 7 percent of the sales value is returned to Queensland as proceeds from the commercialization of Dr. Frazer’s cervical cancer vaccine Gardasil. “It has been suggested that if the discovery had been made under the proposal for TRI that this return could increase to as much as 30 to 35 percent,” writes Watson.
Watson says the Queensland government formed a specialist company, BioPharmaceuticals Australia or BPA, to choose a partnering biopharmaceutical firm. Expressions of interest were sought from 24 firms around the world, four of which responded. “Finally, detailed discussions and negotiations were conducted with DSM,” says Watson. “The final partnership arrangements needed to not only satisfy the Queensland Government but also the Commonwealth Government’s requirements since it was providing a specific-purpose $10-million grant for processing equipment and related fit-out.”
Asked to describe the real estate arrangement, Watson writes, “TRI is the effective owner of the real estate and the facility. There were certain heritage issues associated with some existing facilities on the site which needed to be demolished. In order to address these issues, the arrangement is that TRI will provide the funds for the construction of the facility to the Queensland Government (technically Queensland Health [QH] — a department of state) in return for a non-revocable lease of the land and facilities for 30 years with an option for 20 further years. The construction funds made available to QH are structured as ‘lease payments made in advance’ as satisfaction for the granting of the 30-year lease and the option period.
“TRI will occupy the research building (which is mainly wet lab and teaching facilities) and the clinical trial facilities in PAH,” Watson continues. “TRI will also occupy clinical trial and dry lab facilities on or near the Mater Hospital (the Mater Node). TRI will sub-lease the biopharmaceutical manufacturing facility to DSM Biologics. The sub-lease period is 10 years with options of 10 plus five plus five.”
Cold Chain Not an Issue
Since TRI is organized as a company with a board of directors, Watson says, the relationship between DSM and TRI is at its core a contractual relationship between two private companies, though leaders believe it will develop into “much more than a simple commercial arrangement,” he says.
Asked about cold-chain logistics issues, DSM’s Medallo says there isn’t a lot of difficulty getting cell material out of the country, and this particular CMO will have some internal clients. Because Australia is relatively new to this type of biologics, the restrictions on bringing material in are strict. But he says the nation’s internal review board is very willing to help in setting up systems.
“The challenges facing Australian biopharma businesses, although significant, are not unique,” explains Watson. “Pharmaceutical companies do have trouble getting biological materials into Australia (although perhaps not as much as into Asia and Africa) because of the tough AQIS regulations (quarantine) designed to ensure that serious diseases present elsewhere are not inadvertently imported into Australia. However, once all the permits are in place the importing can be extremely streamlined. For example, the AIBN has been able to have cell cultures leave U.S. collaborators and be in their liquid nitrogen in less than 24 hours. Within Australia the issues are largely ones of transporting small volumes over large distances to low populations.
“TRI is unlikely to be able to resolve any of these issues directly. One way to address the big picture is to manufacture pharmaceuticals here (e.g. GSK plants) which reduces costs associated with importation but does not totally solve the quarantine problem as many of the materials are imported.”
The TRI team hopes that the presence of DSM will open up opportunities for other companies who have expressed interest in the TRI concept but need to see buy-in from a major global player. Medallo says when it comes to new life sciences clusters, everyone know about the opportunities now emerging in China and India, “but I think Australia will be one of the next big hits,” given the government’s devotion of both effort and finances to biotech. He points out a further differentiator as well:
“There are a lot of places where the universities supply brainpower and technicians, but they’re not usually the first to say, ‘Here is the facility and the land.’ That’s a rarity. Germany will back you up. But it’s not as unique as Australia, where the science people were pushing it forward first.”
The City-State for Bio-Med
Singapore has seen recent corporate facility and research investments from Pfizer, GlaxoSmithKline and Life Technologies, among others, while on a parallel path the Singapore government plans to invest the equivalent of US$2.9 billion in biomedical sciences research.
Roche, even as it cuts jobs at its newly acquired Genentech division and looks to sell sites in Colorado and South Carolina as part of an operational excellence program launched in November 2010, is investing approximately $112 million to set up a “Hub for Translational Medicine” in Singapore that initially will employ 30 scientists. “Singapore’s research institutions offer outstanding scientific excellence combined with state-of-the-art translational medicine facilities,” said Jean-Jacques Garaud, global head of Roche Pharma Research and Early Development. “The powerful combination of intellectual and technological capabilities together with outstanding government commitment at the heart of this collaboration will provide a unique opportunity to drive personalized healthcare.”
Central to its success and the success of other projects is A*Star (Agency for Science, Technology and Research), the lead agency for fostering world-class scientific research and talent in Singapore. A*STAR oversees 14 biomedical sciences and physical sciences and engineering research institutes, and nine consortia and centers, located in Biopolis and Fusionopolis as well as their immediate vicinity.
In March, Menicon Singapore, a subsidiary of Menicon Co., Ltd., Japan’s first and largest contact lens manufacturer, opened its new R&D and manufacturing facility at International Business Park. The $97-million, 64,586-sq.-ft. (6,000-sq.-m.) facility is the company’s first manufacturing facility in the world producing daily disposable contact lenses. Employing 79 initially, it will also house Menicon’s first R&D center in Asia outside Japan. The ties between the Japanese company and Singapore are strong, illustrated last September by the appointment of former Singapore Economic Development Board officer and former consul to Japan Chew Hwee Yong as chief of special projects at the company’s head office in Nagoya, Japan, overseeing internal and external processes related to the company’s globalization.
Today, some 2,700 Japanese companies have operations in Singapore. S. Iswaran, Singapore’s senior minister of state for trade & industry and education, noted in a speech at the Menicon opening that many Japanese companies increasingly view Singapore as an ideal launch pad for the emerging markets in Asia.
“The opening of Menicon Singapore’s manufacturing and R&D facility will propel Menicon into a global contact lens manufacturer and strengthen our position as a global vision care company,” said Dr. Hidenari Tanaka, Menicon CEO, at the facility’s opening. “Singapore’s economic and social stability, pro-business policies, competitive production costs, leading-edge medical technology, outstanding human resource capabilities and advanced industrial development were key factors behind our decision to set up this facility as the company forges ahead with global business expansion.”
Singapore’s biomedical sciences sector now employs over 13,000 people in the manufacture of drugs and devices, and over 4,000 researchers, contributing more than $3 billion in manufacturing output.
The Personal Solution
Even as Eli Lilly closes a drug discovery operation in Singapore, its main research site there will be central to its formation of the Asian Cancer Research Group, Inc., (ACRG), an independent, not-for-profit company established with Pfizer and Merck.
“The ACRG’s formation represents a prime example of a growing trend in pre-competitive collaboration in which large pharmaceutical companies combine their resources and expertise to rapidly increase knowledge of disease and disease processes,” said the companies when announcing the project in February 2010.
Lilly is also investing several million dollars in a new diabetes research center in China, adding to the nearly $300 million it has invested across its value chain in China since the late 1990s. The center will employ 100 scientists and staff, as it addresses a disease that reportedly afflicts 10 percent of China’s population, or 92 million people.
Asked about lingering intellectual property concerns in Asia, Martin Grueber, research leader for Battelle’s Technology Partners Practice, says, “No one has completely solved the concerns about IP protection in global arrangements. In many cases, it’s part of the nature of the pharma industry right now, and how they’re dealing with the patent cliff. They’re looking for opportunities wherever they can find them, and are willing to take some risks in the IP context in order to gain access to markets, to research and researchers, and in some respects be early arrivers, especially in the Chinese market.”
Both Lilly-affiliated centers are focused on developing diagnostics and therapies that are more tailored and targeted to the unique genomic attributes of disease at the individual level, part of a larger trend toward personalized medicine.
“Personalized medicine is definitely a direction in which everyone is looking,” says Grueber, who led work on a late 2010 report on global R&D trends.
EvaluatePharma’s Debbie Paul says the future will involve “what can we do for you that’s going to work for you, and not necessarily the next person. I think we’re going to be able to fine-tune the diagnoses we make today a lot more at the microcellular level that we don’t understand yet. How do we treat that individual so that it’s right for them at the genetic level?” She sees significant business establishment growth in the marketplace among drug delivery device, personalized medicine and diagnostics companies.
Anchors That Heal Can Also Bond
The full circle from healthcare and back again may offer a catalyst opportunity for top-notch hospitals. But Paul says not just any hospital in isolation.
“Usually they are university teaching hospitals,” she says, supported by ancillary schools such as pharmacy and nursing. “You have residents, and research going on. It performs a service, but it also is an education and research center at the same time. In order to have that, you have to have the academics along with it, side by side.”
A report issued by the Urban Land Institute and Seavest Inc. in April offered evidence for increased secondary growth around such anchor institutions. “Both demand and supply factors point to rapid growth in spending on medical services and medical office buildings for many years,” said the report’s author Gary Shilling, president of A. Gary Shilling & Co., Inc., Economic Consultants.
Life sciences business attraction and development efforts around hospitals are taking place in many locations. Examples in Florida include Orlando Medical City, Miami’s Health District Hub and Jackson Lab’s new campus project in concert with the University of South Florida in the Sarasota area. Vanguard Health System, backed by special incentives from the State of Michigan and Wayne County, is pursuing an $850-million expansion and renovation of the Detroit Medical Center’s 10 campuses with just such synergy in mind.
Longstanding clusters of this type of innovation are present in Philadelphia (University City Science Center), at the Mayo Clinic, at Texas Medical Center in Houston, and in Cleveland, where the Cleveland Clinic and Case Western University form a potent duo.
“Companies want to locate nearby, especially if they’re in the research space that these institutions are doing high-level work in, such as cancer and heart disease,” observes Battelle’s Martin Grueber, who is based in Cleveland. A former Battelle colleague runs Cleveland Clinic Innovations, “dealing with intellectual property developed at the Clinic, but also transitioning that to start-ups in facilities that the Clinic has a major stake in or owns,” he says. That organization in turn is connected to resources from Ohio’s Third Frontier program.
“It’s by no means a sure thing to be connected to one of these research institutions,” says Grueber, “but the context of the company having a clear line of sight to the target market makes these a unique development opportunity.”