Biotech: The States of the Industry To harness talent and leverage the niche characteristics to grow business, the biosciences require the specific capabilities certain regions have to offer. By Taren Grom VIEW on Biotechnogy April 2007 In this special Forum, Governors from five biotech-centered states report what their states are doing to capitalize on and support biotechnology initiatives and where they believe the biotech and life-sciences industry is headed. There are a complex array of factors influencing the allocation of resources and the nature of industry development: the presence of universities, talent in the workforce, climate and geography, sufficiency of business capital, and historical economic influences, so say analysts at Battelle. And ultimately, these characteristics combine to impact a local or regional economy and most often determine its success. Findings from Battelle research indicate that the industry cluster is unique in that it requires a strong foundation and significant investments in scientific R&D. The bioscience sector often thrives in metropolitan areas and states with premier university, hospital, and other centers of life-sciences research. A strong local bioscience industry yields economic benefits in the form of high-paying jobs and their subsequent positive ripple effect. A recently released report, The Biosciences in the United States: A Regional Perspective, finds that employment in the biosciences is widely dispersed, with 25 metropolitan statistical areas (MSAs) each having more than 10,000 total bioscience jobs. The metropolitan area with the most bioscience jobs — more than 110,000 — is the New York City MSA, which includes northern New Jersey and Long Island. A 2006 report prepared by Battelle for BIO found that the biosciences are a growing and vibrant sector of the U.S. economy, with more than 40,000 businesses employing 1.2 million people in all 50 states, Puerto Rico, and the District of Columbia. And when taking into account multipliers, overall 7 million people are directly and indirectly employed in this industry. Key Findings From Battelle More than half of the nation’s 361 MSAs have a specialization (employment concentration that is 20% greater than the national average) in at least one of the four major bioscience subsectors. Many metro areas, including Chicago, Boston, Los Angeles, and St. Louis, have a broad employment base in three or even four of the bioscience subsectors. Other metro areas are highly specialized in one or two particular subsectors such as Minneapolis (medical devices), Washington, D.C., (research, testing, and medical labs), and Pittsburgh (research, testing, and medical labs and medical devices). Thirteen metropolitan areas have an employment specialization in three of the four major bioscience subsectors; and two — Lincoln, Neb., and Madison, Wisc. — have a specialization in all four bioscience subsectors. Twenty five metropolitan areas have total bioscience employment that exceeds 10,000. Regional bioscience workers earn a significant wage premium compared with their counterparts in the rest of the private sector. Nationally, the average bioscience worker earns $65,775 versus $39,003 in the overall private sector. Source: Battelle, Columbus, Ohio. For more information, visit battelle.com. Source: Battelle, Columbus, Ohio. For more information, visit battelle.com. The Economies of Biotechnology For this special industry Forum, we asked the Governors to discuss the role that the life-sciences biotech sector plays in their states’ economies. Gov. Rendell. Pennsylvania. The bioscience industry has emerged as one of Pennsylvania’s key economic drivers, aided by the state’s investments. By bringing together industry leaders, world-class academic and financial institutions, top medical providers, and other organizations, Pennsylvania has developed a mechanism that encourages and supports innovation along the entire bioscience continuum — everything from research and development, to commercialization, to early-stage company formation. Pennsylvania has become a prime destination for investment and growth in many emerging areas, including the biosciences. The intellectual and academic capital found in Pennsylvania is beyond measure, and is among the state’s strongest assets when recruiting new investment, top personnel, and advanced research endeavors. Today, we’re leveraging our resources to establish an environment that nurtures and supports our emerging and mature businesses that are creating exciting, new opportunities in today’s competitive global market. Gov. Granholm. Michigan. The life-sciences biotech sector plays a tremendous role in Michigan’s economy. We have 533 life-sciences companies in Michigan, with $4.8 billion in sales and employment totaling 25,953. Between 2000 and 2005, more than 100 new life-sciences companies were created in Michigan, representing 700 new jobs and $40 million in private investment. Pharmaceutical and medical-device segments account for the majority of life-sciences companies; the research/ancillary services segment includes many small R&D, supplier, and service-based companies. Gov. Crist. Florida. The life-sciences and biotech sectors play important roles in Florida’s economy, particularly in the impact of emerging biotechnologies. Attracting true marquee companies such as the Scripps Research Institute, the Burnham Institute, and Torrey Pines has dramatically increased the biotech presence in Florida over the past several years, and in 2006 Florida was identified by the Ernst & Young Biotechnology report as a “Top 10 Biotech State.” In fact, almost 100 pharmaceutical companies call Florida home, and their operations employ more than 4,100 Floridians with an average salary of $55,000. Beyond biotech, Florida currently ranks third nationally for medical-device manufacturing. Increasingly, we are seeing more synergy between biotech companies and medical-device manufacturing, particularly in the commercialization of new technologies or discoveries. Florida also has a global profile when it comes to the quality of our healthcare system, including clinical trials and the delivery of patient care in our hospitals. The state’s medical facilities and hospitals provide a solid foundation for clinical-research excellence and drive our participation in cutting-edge medicine. With Florida’s size and diverse population, the broader issues of healthcare demand our involvement in biotech and life-science issues. As part of Florida’s health and life-science efforts, I’ve proposed that the state invest $20 million to create the Stem Cell Research Grant Program, in which competitive grants would be available for medical-research institutions and universities to explore possible treatments and cures for degenerative diseases, such as Alzheimer’s and Parkinson’s diseases and spinal-cord injuries. Gov. Sebelius. Kansas. The life-sciences/biotech sector is among the fastest-growing industries in Kansas and already a huge part of the state’s overall economy. And the best part is, we’ve really only seen the tip of the iceberg in terms of the state’s potential in the biosciences. In the past few years alone, dozens of bioscience companies from around the country and the world have relocated or expanded their operations to Kansas, including Quintiles, American Ingredients, Ventria, OncImmune, IdentiGEN, Abengoa, and Prescription Solutions. These newcomers join a long list of established Kansas residents, including Hill’s Pet Nutrition, Intervet, Bayer, and Cargill. These are major players in the biosciences industry, and they have helped make Kansas one of the most dynamic and productive bioscience clusters in the nation. Gov. Blagojevich. Illinois. Imagine a world without hunger, disease, or pollution. It may sound impossible, but it’s exactly what scientists, researchers, and farmers working in biotechnology are trying to achieve. Much of this work is happening here in Illinois, where scientists are using biotechnology to find solutions to everything from curing diseases such as Alzheimer’s and diabetes to growing crops with fewer chemicals. Their research is leading to alternative fuels that help keep our air clean to new types of DNA fingerprinting that help our police solve crimes. And in addition to the promise biotechnology offers for everything from fighting cancer to fighting crime, it also means new, high-paying jobs. There are almost 60,000 biotech jobs at 1,600 Illinois companies. In addition, 20% of the nation’s biotech firms are within a 300-mile radius of Chicago. The impact and potential of biotechnology was on full display last year in Chicago during BIO 2006, which was the first time the world’s most prestigious conference of researchers, major corporations, and investors was held in the Midwest. BIO 2006 was an opportunity for Illinois to showcase its biotech business to the almost 20,000 people who attended the conference from 61 different countries. With a world-class biotech business community, internationally renowned research institutions and universities, and a highly-skilled and educated workforce, BIO 2006 demonstrated Illinois has everything this industry needs to continue growing — and it will. We are already helping biotech grow in Illinois, with several international pharmaceutical corporations such as Astellas Pharma, Hospira, and Takeda all expanding here and creating new jobs. They join multibillion dollar medical companies, Abbott, Baxter Labs, and Dade-Behring, which are developing drugs and vaccines to cure diseases such as heart disease, diabetes, multiple sclerosis, AIDS, and arthritis. The Special Attributes of Biotechnology We asked our distinguished group to discuss the special attributes that their states bring to the life-sciences biotech sector, for example, academic centers of excellence and tax incentives, among others. Gov. Granholm. Michigan. Michigan has a number of important initiatives that build on its existing strengths, including our outstanding research universities, to attract and grow biotech companies. These initiatives include the 21st Century Jobs Fund. This $2 billion, 10-year initiative encourages the development and commercialization of competitive-edge technologies. The 21st Century Jobs Fund is diversifying and growing Michigan’s high-tech economy by investing in basic research at universities and nonprofit research institutions, applied research, university technology transfer, and the commercialization of products, processes, and services. The life-sciences industry is one of four target technology sectors, with at least $90 million dedicated to the industry in the first two years. In 2006, the 21st Century Jobs Fund awarded more than $54 million to 32 life-sciences projects. Life Sciences Pipeline, which was created by the 21st Century Jobs Fund, is a five-year initiative that promotes the development of businesses in the state of Michigan that are engaged in providing goods and services related to the development and commercialization of life-sciences products. Launched in the fall of 2006, this initiative focuses on developing support programs and assistance for all levels along the industry’s commercialization pathways. Michigan Life Sciences Corridor (MLSC), which was created in 1999, is an initiative that provides funding to basic and applied research life-sciences projects. Thus far, MLSC has funded 91 life-sciences projects; invested $167.5 million in projects ranging in size from $56,000 to $64 million based on merit and reviewed by independent peer reviewers; and leveraged $210 million in additional funding, with another $198 million pending. Core Technology Alliance (CTA), is MLSC’s Core Technology Alliance, which is a consortium of research universities, including: Michigan State University, Wayne State University, the University of Michigan, the Van Andel Research Institute, Western Michigan University, and Kalamazoo Valley Community College. Their mission is to develop a collaborative network of technologically sophisticated core facilities to enhance life-sciences research and product development throughout the state. The CTA serves as a catalyst for biotechnology research and business development in the life sciences for the state of Michigan, providing advanced technology and specialized research services to scientists affiliated with universities, private research institutes, biotechnology companies, and pharmaceutical firms. Michigan’s 11 SmartZones and seven Business Accelerators help high-tech companies incubate and commercialize products by using resources in these technology clusters. Michigan Biosciences Industry Association (MichBio) is a nonprofit organization dedicated to driving the growth of the life-sciences industry in the state. The association serves a diverse membership, including new and established life-sciences companies, academic and research institutions, as well as service providers and related organizations throughout the state. Gov. Crist. Florida. Florida’s research universities form the backbone of Florida’s life-sciences and biotech sectors. By creating an atmosphere for research and development to flourish, Florida has significantly advanced its research-based facilities, intellectual properties, discoveries, and inventions. In our system, university-based research results in technology commercialization. In fact, Florida has 12 top-notch university technology transfer departments, and this year the state took top honors in the Milken Institute’s Mind to Market: A Global Analysis of University Biotechnology Transfer and Commercialization. Florida State University ranked first in the nation for licensing income per million-dollars in research expenditures. The University of Florida was named as one of the top five tech transfer and commercialization universities in the United States and Canada, and also among the top U.S. universities for biotechnology patents. The University of Central Florida ranks 7th worldwide for ratio of patents issued to patent applications filed. The National High Magnetic Field Laboratory, also housed in Florida, is the only facility of its kind in the United States and one of only nine in the world. Florida’s competitive advantages also include its natural resources and friendly business climate. The state’s generous research and development tax credits, as well as HIPI, QTI, and QDC incentives help attract business to Florida. Perhaps one of Florida’s most significant assets, however, is its natural beauty. Companies that consider Florida are consistently impressed with the advantages our climate, location, and natural beauty offer to future business operations. Gov. Sebelius. Kansas. Kansas enjoys a number of advantages that make it a great place for bioscience development. First, our policymakers and legislature have shown great support for the industry. A perfect example is the Kansas Economic Growth Act of 2004, which created the Kansas Bioscience Authority to facilitate the growth of the biosciences in Kansas and dedicated more than $580 million to support the authority’s mission. The state also has made available a variety of incentives and services that make Kansas one of the nation’s most attractive business climates for bioscience firms. Second, we have some the world’s finest academic institutions and are constantly finding new ways to connect them with private-sector bioscience entities. Examples of our world-class universities include Kansas State University, which houses the National Agricultural Biosecurity Center — considered the nation’s premier research institute focused on the protection of the country’s agricultural infrastructure and economy from endemic and emerging biological threats — and the new Biosecurity Research Institute. Our state is also home to the University of Kansas and its nationally ranked School of Pharmacy, Center for Environmentally Beneficial Catalysis, and cancer research facilities. These university entities and their connections with business make Kansas an ideal location for the biosciences industry. Third, our agricultural legacy means that Kansas was engaged in biosciences long before “bioscience” became the buzzword it is today. From the development of disease-resistant crops to advances in livestock vaccination and medication, Kansas has been a bioscience leader for generations. As a result, we have a long-established bioscience infrastructure, including businesses, universities, and developers that most states simply don’t have. It’s not an accident that the center of the animal-health universe runs through Kansas, nor is it a coincidence that we’re leading the way in the development of ethanol and other biofuels. Kansas will always be the Heartland of America, and that agricultural foundation has positioned us to be a bioscience leader, too. Gov. Rendell. Pennsylvania. First and foremost, Pennsylvania offers an environment where people and businesses can succeed and grow. We’ve revitalized Pennsylvania’s economy and communities through critical investments that are making the state a better place to live, work, and play. Through an aggressive $2.8 billion economic stimulus package I enacted, we’re improving our business climate, providing the capital businesses need to grow, rebuilding our infrastructure, and preparing sites to attract new businesses and spur expansion projects. Many of the initiatives we launched as part of the stimulus package are aimed at our advanced industries. We’re using our resources to leverage private-sector investments in areas such as the life sciences, advanced manufacturing, information technology, pharmaceutical research, and healthcare. One such initiative, the Keystone Innovation Zones (KIZ), capitalizes on the state’s world-class academic research institutions and companies that are leading the way in cutting-edge industries. We’ve invested almost $9 million in 25 of these geographically designated zones to encourage partnerships that harness the existing strengths of each member. Institutions of higher education get together with economic development organizations and create the possibility for exciting commercialization activities that open the door to opportunities for our college graduates right here in Pennsylvania. More than $8.7 million has been awarded to 25 KIZs located throughout Pennsylvania to date. We’ve also developed a successful research and development tax credit program that allows for trading between businesses. Research-heavy start-up companies can sell unused credits to qualified businesses in the state providing an additional source of the capital needed to increase research activity. All sides win with the tax credit program; small companies enjoy the cash flow needed to finance operations, while large companies receive substantial tax credits. A Five-Year Biotech Plan The Governors participating in this special Forum outlined their five-year plans for life-sciences biotech development in their states. Additionally, they provide their predictions as to how the overall sector will look on a national and international level in the next five years. Gov. Granholm. Michigan. In the coming years, we will focus on two key initiatives: the 21st Century Jobs Fund and the Life Sciences Pipeline. Together, these two initiatives will continue Michigan’s strong tradition of support for this growing sector, build on Michigan’s existing strengths, and add new and diverse jobs to Michigan’s economy. The 21st Century Jobs Fund will build on the MLSC and Technology Tri-Corridor initiatives. Together, these three initiatives have already invested more than $275 million in the life-sciences industry since 2000. In the coming years, the 21st Century Jobs Fund will focus resources in three areas. First, we will encourage development and commercialization of competitive-edge technologies by investing in basic research at our universities and nonprofit research institutions, applied research, university technology transfer, and commercialization of products, processes, and services. Second, we will increase capital investment activity to ensure that technology companies have the funding they need to conduct research, commercialize products, and create and retain jobs in Michigan. Third, we will increase commercial lending activity by creating commercial loan enhancement programs where a documented growth opportunity has been identified. In addition, the 21st Century Jobs Fund has re-established the Capital Access Program (CAP) to assist small businesses. The program has already provided more than $21 million in funding to more than 400 small businesses. Administered by MichBio, the The Life Sciences Pipeline focuses on the following activities: establishing a commercialization pathway for each segment of Michigan’s life-sciences market — pharmaceuticals, medical devices, diagnostics, and so on — that denotes key steps and milestones from idea to product launch, resource needs, and service provider availability; developing and providing educational programming and operations training on topics relevant to assisting life-sciences companies in their commercialization efforts; and developing and implementing a marketing plan that will guide all statewide and national efforts to brand the pipeline initiative, its services, and Michigan’s life-sciences industry as a whole. Additionally, we will make available market intelligence resources and other information relevant for assisting commercialization activities. We will assess and document key transferable automotive and advanced manufacturing-based technologies and practices that may have application to the biotechnology and medical-device markets. Another priority is to develop and convene an annual Governor’s Roundtable on Biotechnology Commercialization & Innovation to strategize about priorities and opportunities for fostering industry growth in the biosciences. We will create a comprehensive database for the state that profiles life-sciences-related companies, including their organizational information, key products and/or services, and a brief company and facilities description. Finally, we will broker high-level deal opportunities for Michigan life-sciences companies. Gov. Crist. Florida. Florida continues to strengthen its research universities by expanding the research and development base while also investing in world-class scholars and centers of excellence. The university system is a critical partner for continued life-sciences biotech development. Filling the worker pipeline for key innovation-driven sectors remains a priority for our state. Feedback we receive indicates that Florida has the necessary business and academic climate to compete at the top level, but we need to further expand our talent base of lab technicians, biomedical technicians, and other tech-level professionals. Several recent grants to prepare Florida’s citizens to support the workforce of this high-tech, high-wage industry will continue to advance these efforts. We recognize that to have a strong life-sciences biotech cluster, Florida needs to have a prepared and trained workforce. Enterprise Florida, the state’s economic development agency, has a well-developed strategic plan to showcase the outstanding biotech environment in which the state’s lifesciences companies, academic research institutions, and hospitals and healthcare providers operate. Florida’s Innovation Incentive Fund will allow local communities to take advantage of once-in-a-lifetime opportunities to partner with the state on these projects. Florida also is prepared to support science at the other end of the business spectrum. Through our TEC Commercial Grant programs, we’re able to support preventure business activities and help scientists through the critical stage of transforming ideas into the prototypes that will ultimately lead to commercialization. Accelerating the creation of ideas leading to technology commercialization is critical for sustaining long-term innovation. Gov. Rendell. Pennsylvania. There’s little doubt that the biosciences will continue to play an important role not only in Pennsylvania’s economy for years to come, but for the United States and other countries around the world. All over the globe, substantial new investments are being made each day to build and reinforce existing infrastructures for research. Mature companies with proven track records of success are being aggressively pursued to relocate or grow in competing locations. And both domestic and foreign universities are graduating more and more talented students eager to be part of the next big breakthrough. We recognize the opportunity this expected growth holds for our people, companies, and academic institutions. That’s why we’re acting now to foster a renewed sense of collaboration, establish strategic partnerships, grow our infrastructure, and attract more top-tier talent that will lead the way to tomorrow’s achievements right here in Pennsylvania. This year, I have proposed a groundbreaking $500 million initiative that embodies and supports the spirit and legacy of Jonas Salk, who unlocked the answers to the polio vaccine here in Pennsylvania. The Jonas Salk Legacy Fund (JSLF) will build on the commonwealth’s strengths in biotechnology, pharmaceuticals, medical devices, and research and development, by drawing world-class researchers to Pennsylvania and supporting the expansion of bioscience laboratories, incubators, and research parks. These types of improvements will help academic medical centers and research institutions nurture entrepreneurship in the life sciences. At no cost to taxpayers, every grant awarded through the JSLF will require a dollar-for-dollar match, infusing $1 billion of new investments into our bioscience industry. This funding will be generated by securing a portion of Tobacco Settlement funds, which allows the commonwealth to dramatically accelerate the pace of new investment without adversely affecting the state’s annual budget. In addition, we will redirect a portion of annual tobacco receipts for the purpose of seeding and sustaining the commonwealth’s Health Venture Investment Account and the regional Biotechnology Research Centers, also known as Life Science Greenhouses. This will make new resources available along the entire bioscience continuum, from research and development to product commercialization to sustaining emerging biotechnology companies. Inspired by Dr. Salk’s commitment to science and discovery through his work at the University of Pittsburgh, JSLF investments will complement the commonwealth’s other initiatives that benefit areas such as a bioinformatics, biomedical devices and diagnostics, nanotechnology, regenerative medicine, and therapeutics, among others. Gov. Sebelius. Kansas. I am truly excited about the next five years. The bioscience industry is growing at an incredible rate, not just here in Kansas, but throughout the country and the world. Because we have built such a great foundation in the biosciences, we are perfectly positioned to continue riding this wave. The key is to continue our commitment to the industry and not get complacent with our success. We must continue to make Kansas an attractive and affordable place for bioscience companies, investors, and entrepreneurs. We must continue to support our academic and research institutions and help them develop synergies with private firms. And we must remain committed to educating our workforce and our children, as their skill level ultimately is the key to the success of the industry. Gov. Blagojevich. Illinois. Illinois became only the fourth state to invest public funds in stem-cell research. We are providing $15 million in grants to Illinois researchers and scientists to perform this life-saving research. Illinois is the first and still only state to eliminate the state sales tax on E-85, which is made from 85% ethanol and 15% regular gasoline. We have proposed an ambitious energy independence plan that calls for replacing 50% of the state’s supply of imported oil with renewable, homegrown biofuels such as ethanol and biodiesel and meeting 50% of gasoline needs by 2017. Thanks to our commitment to biotechnology, Illinois farmers are growing more crops on less land. In fact, according to a study by the National Center for Food and Agricultural Policy, in 2004, biotech corn and soybeans increased Illinois’ food production by almost 602 million pounds, added more than $217 million in farm income, and reduced pesticide use by 7.4 million pounds. Identifying Biotech Challenges In spite of significant resource allotments, the Governors of some of the leading biotech states recognize that there are challenges and obstacles to attracting the attention of life-sciences biotech companies and investors. These visionaries provide their solutions for overcoming the barriers. Gov. Crist. Florida. Florida’s remarkable early progress with life-sciences biotech companies has kept our focus on the future. We recognize that venture capital continues to be a primary challenge and early-stage barriers are the most critical to overcome. As the state matures in this strategic sector, we expect to see a higher presence of seed capital. Florida also is looking at how various tax and fiscal policies affect its life-sciences companies and other sectors that are dependent upon R&D for growth. By creating a more favorable business climate, we hope to help stimulate more private-sector investment into research and development. Gov. Rendell. Pennsylvania. The key to attracting new businesses and helping existing employers grow — regardless of the industry — is creating an environment where companies can compete, whether it is on the local, national, or global scale. To that end, we’ve worked to cut businesses taxes, provide easy access to investment capital, and train our workers to meet the challenges of the 21st century economy — an approach we plan to expand upon in the next four years. We must leverage our strengths and use our resources to create new opportunities across the commonwealth. Bioscience companies that are currently in these active clusters have found success in Pennsylvania not only because of our strategic investments, but because we have a pool of well-educated workers who offer employers the expertise and an innovative spirit that propels their businesses in exciting directions. Without question, we need to be certain our children are gaining the education and training today that will prepare them for this high-tech marketplace. Additionally, we need to do more to reign in the astronomical cost of healthcare coverage in this country. Too many companies are sending work abroad because the cost associated with healthcare coverage for their employees puts them at a competitive disadvantage. If we can alleviate this burden, we can, to some extent, level the playing field with our international counterparts. Gov. Sebelius. Kansas. The challenges we’ve faced in attracting bioscience companies and investors are no different than those faced by other states. What sets us apart is that we have overcome those challenges, not just in terms of the biosciences, but in a variety of other industries. There was a time when companies and investors might not have even considered Kansas. But today, the state is consistently ranked and recognized among the top handful of states for business. That’s why we are the home to some of the world’s biggest and most successful companies, including Garmin, Applebee’s, Payless ShoeSource, and Cobalt Boats. Of course, no listing of Kansas-based businesses would be complete without the aviation manufacturers that have made Kansas the aviation capital of the world, including Cessna, Boeing, Raytheon Aircraft, Spirit Aerosystems, and Learjet Inc. Gov. Granholm. Michigan. Efforts over the past seven years have generated significant life-sciences activities. The initiatives have built on Michigan’s history in the life-sciences sector, which includes past and present companies such as Pfizer, Pharmacia, Parke-Davis/Parkdale Pharmaceuticals, Neogen, Perrigo, Ash Stevens, Ferndale Laboratories, MPI Research, Esperion Therapeutics, Michigan Biotechnology Institute, and more. Michigan’s life-sciences programs have cultivated this talent by further investing in basic research, applied research, commercialization, and critical support infrastructure. Michigan has many promising young companies and technologies, but a challenge persists in creating enough of a critical mass to attract both talent and investment into the state. Michigan has not yet reached a tipping point where out-of-state researchers and executives view Michigan as a location of numerous opportunities. This changes the risk profile when these individuals and start-up businesses evaluate Michigan as a new location. The life-sciences industry has an extremely long commercial pathway. Product commercialization can take more than a decade given the industry’s regulatory and testing requirements. It is critical Michigan stays the course and continues investing in and supporting the emerging industry. The seeds have been planted, and now patience and nurturing are required to grow and diversify. This tipping point is closer but has not yet been reached. Continued expansion, investment, and growth are critical to attract additional investors and workforces looking for more than one or two employment options. PharmaLinx LLC, publisher of the VIEW, welcomes comments about this article. E-mail us at [email protected]. As regions race to become the next biosciences epicenter, Pennsylvania holds a key competitive advantage with our mix of well-established biosciences companies. Pennsylvania Governor Edward Rendell FEATURED governors n Rod R. Blagojevich, Governor of illinois. Gov. Blagojevich is the 40th governor of Illinois. As Illinois’ CEO, Gov. Blagojevich is working aggressively to create jobs, build stronger communities, provide Illinois families the tools they need to improve their lives, and restore the people’s confidence in state government. Gov. Blagojevich’s top priority is ensuring access to quality healthcare for everyone in Illinois. That is why Gov. Blagojevich proposed a historic and comprehensive plan to give every Illinoisan access to affordable and quality health coverage. For more information, visit illinois.gov. n Charlie Crist, Governor of Florida. Gov. Crist is the 44th governor of Florida. Gov. Crist has four initiatives aimed at improving healthcare in the state of Florida: make healthcare more affordable by leveraging the power of Floridians to negotiate better prices for prescription drugs; improve access to care by increasing healthcare options so that emergency care is not the only choice, strengthening health in our rural communities, and increasing the quality of emergency care; make a commitment to prevention; and improve the quality of care through innovation. For more information, visit flgov.com. n Jennifer M. Granholm, governor of michigan. Gov. Granholm was re-elected the 47th governor of Michigan in November 2006. Gov. Granholm’s focus on families has meant expanded healthcare coverage for 300,000 uninsured Michiganians. She saved the state almost $40 million in 2003 by introducing the nation’s first bulk-buying pool for prescription drugs; in 2004, she extended those savings to citizens by introducing the MiRx Card, which provides discount prescription drugs to thousands of uninsured families. Her Michigan First Health Care Plan will be the first in the state’s history to extend universal access to affordable healthcare to every family in Michigan. For more information, visit michigan.gov. n Edward G. Rendell, Governor of Pennsylvania. Gov. Rendell, Pennsylvania’s 45th Governor, began a second term of office on Jan. 16, 2007. Gov. Rendell championed a dramatic increase in the number of older Pennsylvanians who receive affordable prescription drugs through Pennsylvania’s PACE and PACENET programs. He also brokered an agreement for the federal government to assume much of the cost of providing prescription assistance to seniors, allowing state funds to be reallocated to support other important services for older Pennsylvanians. For more information, visit governor.state.pa.us. n Kathleen Sebelius, Governor of kansas. In 2003, Gov. Sebelius became the 44th governor of the state of Kansas; she was elected to a second term in 2006. The rising cost of healthcare is a threat to families and businesses, which is why the governor is working to lower health costs, starting with the 30% of every healthcare dollar that goes to administrative costs. She has also proposed providing health insurance to every uninsured Kansas child from birth to age 5 to give these children a healthy start on life. For more information, visit governor.ks.gov. I am committed to making Florida an international leader in innovative research to improve people’s quality of life, and stem-cell research has the potential to relieve the pain and suffering of the millions of people living with degenerative diseases. Florida Governor Charlie Crist Nation’s Governors Leading Health Reform Efforts Best Practices and Recommendations Intended to Spur Federal Action On the heels of their recent winter meeting, governors are demonstrating their commitment to improving the nation’s healthcare system with the creation of a new Health Care Working Group and a series of Webcasts on state health reform initiatives. One of the outcomes of their business sessions is a newly created National Governors Association (NGA) Health Care Working Group. This working group is a collaborative effort cochaired by NGA Chair Arizona Gov. Janet Napolitano and NGA Vice Chair Minnesota Gov. Tim Pawlenty. It was created to develop recommendations for federal action. The group will present a final report summarizing their findings and an action plan that supports state reform initiatives over the next several months. “States are in a unique position to influence the national policy debate and improve the state of healthcare in America,” Gov. Napolitano says. “This working group reflects governors’ commitment to the long-term health and wellness of their residents and the healthcare system that serves them.” “Comprehensive healthcare reform must involve holding down costs, improving quality, and increasing access to affordable healthcare,” Gov. Pawlenty says. “Through NGA, we are working to find new ways to improve our healthcare system, while ensuring governors have the tools and flexibility to manage healthcare in their states.” NGA Health and Human Service Committee Chair New Jersey Gov. Jon S. Corzine and Vice Chair Vermont Gov. Jim Douglass also serve on the working group along with: Georgia Gov. Sonny Perdue, Indiana Gov. Mitch Daniels, Kansas Gov. Kathleen Sebelius, Missouri Gov. Matt Blunt, North Dakota Gov. John Hoeven, Ohio Gov. Ted Strickland, Tennessee Gov. Phil Bredesen, and Virginia Gov. Tim Kaine. Governors also are planning a series of Webcasts entitled Elements of State Health Reform presented by the NGA Center for Best Practices and the Kaiser Family Foundation that will focus on the design and implementation of state health reform initiatives and coverage expansions. Source: The National Governors Association (NGA), Washington, D.C. For more information, visit nga.org. Michigan must advance through diversifying its economy. Key to my economic plan is fostering the growth in industries such as biotechnology, life sciences, and alternative energy. Michigan Governor Jennifer Granholm Sound Bites From the Field PharmaVOICE asked executives representing various biotech companies to identify the hottest trends, describe the Effects of Biogenerics, discuss how Companies can keep commercialization rights to theiR products, and outline their biggest challenges. Craig Dees is CEO of Provectus Pharmaceuticals Inc., Knoxville, Tenn., a biopharmaceutical company that specializes in developing oncology and dermatology therapies that are safer, more effective, less invasive, and more economical than conventional therapies. For more information, visit pvct.com. “The biggest trend remains dry pipelines in larger companies, which is fueling mergers and acquisitions of smaller pharmaceutical or biotech firms. This trend is a very favorable one for smaller entities such as ours. Acquisitions and licensures are happening earlier in the licensing and development process, which lessens the amount of equity sales required to fuel drug development in smaller companies. The second big trend, especially for oncology products, will be the ever-increasing cost of the new drugs. The market is now reacting to the very high costs especially for products that aren’t standalone; ones that have to be used after or in conjunction with existing therapies. Therefore, the costs are added onto an already burdened level. High costs impact decision making all the way from research and development up through markets. We incorporate these factors into the very earliest designs of our cancer therapies. We designed our cancer drugs so that they can function as a standalone product or act as an adjunct therapy. We also consider the costs of the final product during the earliest stage of drug design. Any generic bio or compound will tend to put a dampener on the development of new products. Costs have to be recovered for the development of new therapeutics. Allowing a less expensive generic to capture market share reduces the returns that are required to support very expensive new drug development. While the initial ‘gut’ feeling is that generics are good for the patients and third-party payers, in the long run it will reduce the availability of new products. Aside from the costs, time, and effort to develop a medicine for human use, the biggest challenge remains regulatory compliance issues. For all smaller public companies, the regulatory burdens and expenses associated with compliance issues, such as Sarbanes-Oxley, are challenges.” Doug Simpson is President and CEO of Corgenix Medical Corp., Broomfield, Colo., which is committed to providing innovative and quality medical products to meet the needs of the ever-changing healthcare field with a focus directed and guided by the principle area of medical diagnosis via clinical laboratory products. For more information, visit corgenix.com. “One of the biggest trends is the increased pressure on all biotech companies to get products into commercialization sooner to prove to the public that huge capital investments were justified. Obviously, this will put more pressure on the players to expand technology investments into new areas, and look for alternatives such as diagnostic biomarkers. To be successful in the marketplace, biotech companies will have to find other alternatives for partnering through such areas as cobranding, application of unique markers into detection systems, and other strategies. Our biggest challenges are finding new sources of capital, identifying new technology and commercialization partners, and the changing regulatory environment.” Belinda Tsao-Nivaggioli, Ph.D., is CEO of Avicena Group Inc., Palo Alto, Calif., a late-stage biotechnology company focused on developing products based on its proprietary understanding of the regulation of cellular energy processes. For more information, visit avicenagroup.com. “Technology-wise there are a few platforms that will continue to have an impact on biotech in the coming years, including energy regulation, metabolomics, RNAI, structural biology, and systems biology. These platforms are all capable of looking at disease as a whole. Because of the many factors that impact how a disease manifests itself, these platforms present the best opportunities in disease management. From a business standpoint, the most influential trend among biotech companies is that they’re licensing and partnering with big pharma at a later stage. Biotech companies are becoming more innovative and remaining more active at earlier stages in the development process. Rather than signing their rights over to big pharma earlier, we’re seeing more cases where biotech firms are looking for partnerships with one another. As with any type of generic product, there is the natural hurdle of reproducibility. In many cases, the productions are difficult. Any company that would hope to produce a biogeneric would have to be certain of quality, purity, stringent manufacturing, and production standards, as well as bioequivalency and bioavailability results that match those of the approved nongenerics. Without big pharma as a partner, it becomes key that companies strategize and build the necessary infrastructure for manufacturing and marketing so that they can effectively support commercialization once their products are approved. In addition, it is vital that companies think strategically about reimbursement, particularly since their products will carry a heftier price tag. Companies, such as Genzyme, owe much of their success to broad coverage by the major healthcare plans.Funding is always the greatest challenge for companies that have chosen, as we did, to develop their own drugs into very late stages. We currently have two Phase III drugs in our pipeline. An additional challenge is finding the right personnel who are capable of contributing to the growth of the business.” Michigan must advance through diversifying its economy. Key to my economic plan is fostering the growth in industries such as biotechnology, life sciences, and alternative energy. Michigan Governor Jennifer Granholm As a Kansan, I am proud whenever my state is in the forefront of something as progressive and exciting as the biosciences. I see our potential in the industry, and that potential is limitless. Kansas Governor Kathleen Sebelius If we stay focused and committed to the promise of biotechnology, we can do things we never dreamed of: feeding the hungry, curing the sick, and cleaning the environment. Illinois Governor Rod Blagojevich The average cost to develop a new biotechnology product is $1.2 billion, according to the Tufts Center for the Study of Drug Development (CSDD). Experts at Tufts CSDD say the $1.2 billion estimate reflects the costs of drugs that fail in testing and the time costs associated with bringing a new biopharmaceutical to market. Of this amount, capitalized out-of-pocket preclinical costs totaled $615 million, while similar clinical period costs totaled $626 million. A new biotech product took 97.7 months on average to wend its way through clinical development and regulatory review, about 8% longer than for pharmaceuticals, according to the Tufts CSDD analysis. “While biotech offers significant promise in treating entire categories of diseases for which no medicines previously existed, it comes at a significant cost,” says Joseph A. DiMasi, director of economic analysis at Tufts CSDD. To develop the estimates, Tufts CSDD relied on compound-specific costs for a sample of 17 investigational biopharmaceuticals from four firms that first entered clinical testing from 1990 to 2003. Average development times and phase transition probabilities were estimated based on data from more than 500 therapeutic recombinant proteins and mAbs. The full R&D cost estimate was based on a clinical approval success rate (defined as obtaining U.S. regulatory approval for marketing) of 30.2% for biopharmaceuticals. n Average out-of-pocket cost (cash outlays) per approved biopharmaceutical for the preclinical period totaled $198 million. When capitalized, this estimate is $615 million per biopharmaceutical. n Average out-of-pocket clinical period cost per approved biopharmaceutical was $361 million. When capitalized, this estimate is $626 million. n Capitalization increases biopharmaceutical costs relative to traditional pharmaceutical costs because of a longer development timeline and a higher cost of capital. n Biopharmaceuticals had an overall clinical approval success rate of 30.2% versus 21.5% for traditional pharma firm pipelines. Source: The Tufts Center for the Study of Drug Development, Boston. For more information, visit csdd.tufts.edu. Economics Drive Partnership Deals for Biotech Companies ccess to nondilutive financing and the strengths and capabilities of the partner are the key drivers of biotech companies’ partnerships with pharmaceutical and large biopharmaceutical companies. These are the findings from a survey of 124 biotech and pharmaceutical companies, as well as industry advisors, released in October 2006 by Cooley Godward Kronish LLP and Technology Vision Group LLC. Almost half of biotech companies surveyed (46%) said their company’s main objective in a corporate partnering deal is to obtain nondilutive financing. Only 7% said their main objective is to access technology or products and 6% partner to access necessary infrastructure. When asked to list the two most important factors in a corporate partnering deal, 53% of the 61 biotech companies surveyed listed strength and capabilities of the partner as the most important criteria, followed by total economics of the deal (47%). Upfront economics, meaning licensing fee and committed near-term payments, ranked third with 33%. While half of the pharmaceutical companies surveyed are seeking to complete deals with companies with assets in Phase I or Phase II of development, 61% of biotechnology companies surveyed are seeking to strike deals for assets at the discovery stage, or preclinical compounds. Only 14% of pharmaceutical companies are seeking partnerships with companies with drugs in these stages. “These data demonstrate that corporate partnering deals are a fundamental, and growing, driver of success in the life-sciences business, both for biotechnology companies and pharmaceutical companies,” says Barclay Kamb, partner in Cooley’s life sciences practice group. “Given that the capital markets remain challenging to biotech companies, corporate partnerships are a critical source of the financing as well as infrastructure necessary for biotech companies to achieve their strategic goals.” Responses confirm that biopartnering remains strong: 90% of companies surveyed intend to do one or more corporate partnering deals and/or other similar strategic alliances in the next two years. Half of these respondents plan to complete three to six deals in this timeframe, while 17% anticipate completing 10 or more deals in the next 24 months. Slightly more than 60% of companies surveyed viewed an increasing number or value of deals as the current trend in the industry with respect to corporate partnering deals, while 20% are viewing fewer deals or deal value, or the trend staying the same. The 2007 State New Economy Index: Benchmarking Economic Transformation in the States Most growth in the new economy, especially growth in per-capita income, stems from increases in knowledge and innovation. Studies show that it is not the amount of capital but the effectiveness with which it is used that accounts for as much as 90% of the variation in growth of income per worker. Technological innovation is a fundamental driver of growth because it transforms the way capital is put to use. Consequently, it is not surprising that state scores on innovation indicators are closely correlated with per-capita income growth between 1999 and 2005. As a result, by embracing technological innovation, states can boost incomes. The indicators of technological innovation capacity measure several aspects of innovation capacity: share of jobs in high-tech industries; scientists and engineers as a share of the workforce; the number of patents relative to the size of the workforce; industry R&D as a share of worker earnings; and venture capital invested as a share of worker earnings. High-Tech Jobs Jobs in electronics manufacturing, software and computer-related services, telecommunications, and biomedical industries as a share of total employment. Why is this important? The high-tech sector remains a key engine of innovation and a source of high-paying jobs. The 2000 meltdown, growth of IT offshoring, and faster productivity growth in the IT sector all caused a decline in high-tech employment, which finally began to rebound in 2004 and 2005. In the future, however, these factors may ensure that the high-tech sector does not add a disproportionate number of jobs. Undiminished is the industry’s importance as a source of technological innovation that boosts productivity growth in all sectors. Moreover, it remains a stronghold of high-wage, skilled jobs: average high-tech industry wages reached $72,000 in 2005, compared with the U.S. average of $38,000. Massachusetts leads the country with 6.5% of the workforce in high-tech specializations. Although all states have high-tech jobs, the leaders tend to be in the Northeast, the Mountain states, and the Pacific region. Patents The capacity of firms to develop new products will determine their competitive advantage and ability to pay higher wages. One indicator of the rate of new product innovation is the number of patents issued. And patents appear to have been a key driver of state income growth over the last half century. As technological innovation has become more important, patents issued per year have grown from 40,000 in 1985 to 75,000 in 2005. States with an above average share of either high-tech corporate headquarters or R&D labs tend to score the highest. Idaho’s extremely high patent ratio — more than four times the national average — is likely owed to the presence of Micron, a major semiconductor firm located in a relatively small state. Colorado has a strong telecommunications and technology industry base. Many Northeastern states, as well as West Coast high-tech states, such as California and Washington, also score high. Industry Investment in R&D Research and development, which yields product innovations and adds to the knowledge base of industry, is a key driver of economic growth. Business provides just under two-thirds of all R&D funding. After steadily rising in the 1980s and falling in the early 1990s, business-funded R&D as a share of GDP climbed to its highest point ever in 2000. A slight decline followed, but it has remained at a level higher than any year before 1999, with R&D as a share of GDP growing again in 2004. The two smallest states, Delaware and Rhode Island, score first and second, respectively, in R&D intensity. DuPont and other R&D-intensive chemical and pharmaceutical firms are responsible for Delaware’s top score; Rhode Island’s high score may be due to the number of defense electronics and biotechnology firms in the state and the fact that the state instituted the nation’s most generous R&D tax credit several years ago. New Jersey is home to a number of pharmaceutical and high-tech companies, and much of Michigan’s R&D is automobile-related. In general, states with significant corporate R&D laboratory facilities, or a large number of high-tech firms score well. Mississippi’s vastly improved score may or may not be significant. Because industry R&D expenditures can vary greatly from year to year, this is difficult to assess without more recent data to show if the trend is sustained. Venture Capital Venture capital is an important source of funding for new, fast-growing entrepreneurial companies. In effect, venture capitalists identify promising innovations and help bring them to the marketplace. Venture-backed firms are also an important source of job growth, adding 600,000 jobs between 2000 and 2003 (an increase of 6.5%), while overall employment at private firms actually decreased by 2.3%. At $20 billion, venture capital investments in 2005 represent a slight increase over the two previous years (in constant 2000 dollars). While significantly less than at the height of the Internet bubble ($104 billion disbursed in 2000), venture capital remains large by historical standards. In fact, as a share of GDP, venture capital in 2005 (0.18% percent) was larger than any year before 1998. While venture capital is less concentrated than it was a decade ago, the majority of investments continue to take place in a handful of traditionally strong states. In fact, since the height of the boom in 2000, venture capital has become even more geographically concentrated. In 2005, 79% of investments went to the top 10 states, up from 69% in 2000. The states at the top generally have strong university engineering and science programs and an existing base of high-tech companies, both of which can be the source of entrepreneurial startups or spinoffs. There is also considerable continuity over the last few years: only one state in the top five (Utah) did not score in the top five in the 1999 and 2002 versions of the index. R&D as a share of GDP, while down a bit after an all-time high in 2000, has remained at a higher level than any year before 1999. The average high-tech industry wage is $72,000, compared with the U.S. average of $38,000. In 2005, venture capital as a share of GDP (0.18%) was larger than any year before 1998. Patents issued have increased from 40,000 in 1985 to 75,000 in 2005. Notes: High-tech jobs as a % of all jobs; Sources: AeA, and Bureau of Labor Statistics (for biomedical sectors), 2004 data. Adjusted patents per 1,000 workers; Sources: U.S. Patent and Trademark Office, 2003, 2004 and 2005 data. Adjusted R&D as apercentage of worker earnings; Source: National Science Foundation, 2003 data. Venture capital as a percentage of worker earnings; Sources: PricewaterhouseCoopers/Venture Economics/NVCA, 2005–2006 data. Alabama 3.10% 0.24 1.36% 0.02% Alaska 2.20% 0.29 0.36% 0.00% Arizona 3.90% 0.84 2.14% 0.16% Arkansas 2.10% 0.12 0.77% 0.02% California 5.10% 1.29 4.38% 1.27% Colorado 5.80% 1.33 2.81% 0.50% Connecticut 4.10% 0.81 4.09% 0.23% Delaware 3.90% 1.22 7.13% 0.06% Florida 3.20% 0.53 1.27% 0.10% Georgia 3.50% 0.5 1.32% 0.13% Hawaii 1.90% 0.26 0.75% 0.05% Idaho 4.40% 2.99 3.20% 0.02% Illinois 3.40% 0.51 3.01% 0.12% Indiana 3.00% 0.21 2.24% 0.06% Iowa 2.30% 0.35 1.74% 0.01% Kansas 3.40% 0.40 2.14% 0.00% Kentucky 2.00% 0.26 0.85% 0.03% Louisiana 1.70% 0.28 0.48% 0.00% Maine 2.30% 0.40 1.09% 0.01% Maryland 5.30% 0.88 3.49% 0.46% Massachusetts 6.50% 1.00 4.11% 1.36% Michigan 3.70% 0.74 4.76% 0.05% Minnesota 4.20% 0.82 3.91% 0.18% Mississippi 1.50% 0.15 3.03% 0.01% Missouri 2.90% 0.36 1.67% 0.09% Montana 1.80% 0.57 0.67% 0.12% Nebraska 3.10% 0.29 1.29% 0.02% Nevada 2.20% 0.63 1.11% 0.14% New Hampshire 5.20% 0.31 3.33% 0.38% New Jersey 5.30% 0.95 5.16% 0.37% New Mexico 4.50% 0.72 1.29% 0.19% New York 3.50% 0.96 2.05% 0.20% North Carolina 3.40% 0.46 2.79% 0.28% North Dakota 2.20% 0.28 2.28% 0.00% Ohio 2.60% 0.44 2.58% 0.04% Oklahoma 2.10% 0.42 1.28% 0.06% Oregon 4.10% 0.94 3.39% 0.19% Pennsylvania 3.70% 0.54 3.10% 0.20% Rhode Island 3.80% 0.72 5.48% 0.20% South Carolina 2.10% 0.27 1.44% 0.01% South Dakota 2.00% 0.28 0.71% 0.00% Tennessee 2.10% 0.23 1.43% 0.05% Texas 3.70% 0.72 2.45% 0.25% Utah 4.40% 0.71 1.97% 0.47% Vermont 3.80% 0.89 2.27% 0.20% Virginia 5.80% 0.49 2.65% 0.19% Washington 4.50% 1.32 1.62% 0.61% West Virginia 1.90% 0.24 0.96% 0.03% Wisconsin 2.60% 0.34 2.58% 0.05% Wyoming 1.40% 0.45 0.53% 0.07% U.S. Average 1.40% 0.75 3.17% 0.35%
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Biotech: The States of the Industry
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Biotech