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Medical, Agricultural Linkages

Because the pharmaceutical industry has close ties with the medical community, it is common for R&D and manufacturing companies to locate close to major medical centers. That gives such communities as San Francisco, New York and Boston a competitive advantage, despite their higher costs of doing business.

A recent survey by the California Healthcare Institute showed that a California research university or institution played a central role in the growth of 28 percent of the biotechnology firms surveyed. Forty-six percent had a clinical research or sponsored research agreement, and 31 percent had a patent license agreement with a California academic institution.

On the other hand, pharmaceutical and biotech companies developing products for food crops or livestock generally prefer communities in farming areas. That's why Kansas City and St. Louis, Mo., and Richmond, Va., have developed industry clusters.

For smaller start-ups, which may employ only a handful of people in the R&D phase, location decisions may be made on the basis of quality of life or related factors. From Miami to Albuquerque, medically oriented communities in the Sunbelt states have consistently attracted new biotech ventures.

Large-scale U.S. manufacturing companies are also investing overseas in Asia, Latin America and Europe to take advantage of lower labor costs and to penetrate new markets. Puerto Rico, with its large base of skilled workers and lower business costs, has been a particular favorite with pharmaceutical companies for the past three decades.

At the same time, Canadian, European and Japanese manufacturers are looking at the United States as well as their own domestic markets. Although the industry is going through a period of global consolidation, the demand for new pharmaceutical products -- from pain relievers to cancer-fighting medications -- continues to rise. Advances in genetics are opening up new opportunities in agriculture, animal husbandry and human biology. Aging populations in the United States, Western Europe and Japan are also propelling demand for pharmaceutical products. As a result, the need for new R&D and manufacturing facilities is expected to increase throughout the decade.

"Even in view of the great challenges facing the pharmaceutical industry over the next ten years, we're optimistic about the growth potential of Eli Lilly and Company," noted Sidney Taurel, the company's chairman, president and CEO when announcing a $1 billion expansion of the company's Indianapolis area operations and the expected creation of up to 7,500 new jobs over the next 10 years. Indiana and the city of Indianapolis provided Lilly with incentives that could total $214 million over the next 10 years.

With manufacturing jobs in the $25,000 to $35,000 range and research and engineering jobs paying double or triple that amount, there is fierce competition to attract new pharmaceutical facilities. About 30 states now have formal initiatives designed to entice biotech companies, according to the Biotechnology Industry Association's 1999 report, "Encouraging Development of the Biotechnology Industry." Several European nations, including The Netherlands, also are actively seeking new investment.