Growing numbers of communities, particularly in the US, are spending billions of dollars in subsidiaries, tax breaks, loans and grants to cash in on what they see as a worldwide biotech boom.
Maryland – home to the National Institutes of Health, US Food and Drug Administration (FDA) and the Johns Hopkins University (JHU) – is one of these locations. The US state is considering legislation that would require the state pension fund to invest in local bioscience companies.
Montgomery County, site of much of Maryland’s biotech activity, is lobbying for a law that would allow it to buy biotech stocks with taxpayer money. Moreover, plans are being weighed for a future science-based city along the edges of North Potomac, Gaithersburg and Rockville. The project is touted by planning officials and developers as an innovative research community that would bring some 76,000 biotech-related jobs to the area.
The driving force behind the plan is JHU, which would have one 16-hectare campus and another 44-hectare area of high-rise research and academic facilities in the proposed project.
In neighbouring Virginia, state governor Bob McDonnell has signed legislation that offers tax breaks to biotech investors. He also approved $22m in grants for the Ignite Center, a genetic research facility being built in Fairfax County. Headed by geneticist Dr Dietrich Stephan, Ignite plans to study the genetic makeup of patients to better understand chronic diseases and develop new treatments.
Reading the signs
While investments in biotech and life sciences have the potential to wield great results, some wonder if such large investments make sense during these economic hard times.
Yet FDI in this arena continues to escalate. In fact, greenfield investment monitor fDi Markets suggests the most significant period for FDI in the sector was 2009, during which it logged 137 biotech projects and 867 life sciences projects. That same year, capital investment was at its highest, as was job creation in the sector. In 2008, the highest percentage growth rate in life sciences was recorded (23%).
Research undertaken in July 2009 by the Biotechnology Industry Organization and Thomson Reuters reveals that Wall Street is anticipating a surge in mergers and acquisition activity in the market, led by larger companies taking over smaller ones with promising pipelines.
While the study reveals that overall R&D productivity is not expected to improve in the immediate future, clinical advancements and FDA approvals will act as catalysts for a more positive performance. Overall, there are signs that there will be a general rebound and stabilisation in the broader market that, in turn, should propel biotech share prices higher and make investment in this sector more attractive.
A good example of the possible impact is Switzerland-based Roche Holding, which paid $46.8bn last year to acquire remaining shares of biotech pioneer Genentech. The acquisition followed its $3.4bn purchase of Arizona-based Ventana Medical Systems in 2008.
Together, both acquisitions expand a vision for personalised medicine by combining diagnostic tools developed by Ventana with drugs for treating breast cancer created by Genentech. Consequently, Roche is investing some $100m in Ventana to expand its work in tissue diagnostics. This effort includes a 10-year plan that would substantially expand Ventana’s campus and R&D laboratories, while growing its workforce by some 250 employees.
Intrastate US projects in the healthcare sector also increased dramatically last year, despite the deep recession. fDi Markets recorded 93 such investments in 2009, an increase of some 287% since 2008. The capital invested into these projects has also risen considerably, from $931m in 2008 to $2.9bn in 2009.
According to fDi Markets, the trend could be stimulated by a number of factors, namely the Obama administrations’s focus on expanding access to healthcare.
Recent examples of the impact abound. In Westerville, Ohio, Mount Carmel Health System announced plans to add 200 jobs with a $100m expansion of its St Ann’s campus over the next three to five years. The expansion will bring open-heart surgery, along with a full line of cardiovascular services, to the hospital.
Also in Ohio, Optivus Proton Therapy, which offers proton-beam therapy designed to attack tumours without damaging surrounding tissue, has announced that it will open a $170m medical building on nine hectares south of Dayton.
In the pipeline of products coming to market are a number of spin-off companies coming out of universities and institutions worldwide. In Tipperary, Ireland, for example, HKPB Scientific, a spinout from the University of Limerick, announced in March 2010 plans to locate its new plant in Nenagh, on the site of the former Aventis facility.
HKPB has strategic links with the University of Limerick, the Institute of Technology in Tralee and the Royal College of Surgeons in Dublin, and produces products such as a pioneering form of bone cement, used in hip replacements. It has also developed a coating technology to prevent the spread of the MRSA bug.
Local officials see the company as boosting the entire region’s economy and offering sustainable growth. “We hope to link up with other business in the area and build a network of mutually beneficial partnerships,” says HKPB’s CFO David O’Flynn.
Big pharma will also continue to take advantage of the recession by engaging in more mergers and acquisitions, and observers expect more partnerships between companies in emerging and developed countries.
Last year, for example, Dr Reddy’s Laboratories of Hyderabad, India, entered a partnership with GlaxoSmithKline to develop and market selected products across emerging markets outside India.
As part of the agreement, GSK gained access to Dr Reddy’s portfolio and future pipeline of 100-plus branded pharmaceuticals in therapeutic segments such as cardiovascular, diabetes, oncology, gastroenterology and pain management.
“This new alliance will combine Dr Reddy’s portfolio of high-quality branded pharmaceuticals together with GSK’s extensive sales and marketing capabilities,” says Abbas Hussain, president of emerging markets at GSK.
The products will be manufactured by Dr Reddy’s and will be licensed and supplied to GSK in various emerging markets, such as Africa, the Middle East, Latin America and Asia-Pacific, excluding India. Revenues will be reported by GSK and will be shared with Dr Reddy’s, as per agreed terms. In certain markets, products will be co-marketed by Dr Reddy’s and GSK.
Meanwhile, a report by business information provider Datamonitor states that big pharma is targeting Indonesia and the Philippines as potential locations for future investment, due to the fact both are reforming and expanding their respective healthcare systems.
FierceBiotech, a daily web-based newsletter that monitors the industry, suggests Indonesia is an attractive market for drug companies in the long term, after its government introduced universal health insurance with the aim of making medications more affordable.
For now, Maura Musciacco, healthcare analyst at Datamonitor, maintains that Indonesia, the world’s fourth most populous country, remains dominated by branded generics, despite the availability of even cheaper unbranded generics.
“This indicates a huge market potential for big pharma as Indonesians seem willing to pay more for a reputed brand,” she says.
The Philippines, in contrast, has made greater headway in reforming universal health insurance. The fact that the prices of medicines there are among some of the highest in the region, however, makes patient access a major challenge. However, the government has imposed 50% price cuts on 21 essential drugs, which should positively impact future sales for big pharma.
Cluster-Creating Elements in Louisiana
The oil and chemical industries may be the largest private economic force in Baton Rouge, Louisiana, but it was oil tycoon and philanthropist CB ‘Doc’ Pennington who single-handedly put the state on the map for biotech. This stems from him making the largest ever gift in US history to an institution of higher education.
Opened in 1988, that institution is the Pennington Biomedical Research Center (PBRC). Located in Baton Rouge, and part of the Louisiana State University (LSU) system, PBRC encompasses a 37,439-square-metre core research complex and assemblage of scientists and physicians in 53 laboratories.
These researchers and scientists represent such specialties as molecular biology, genomics and proteomics, neuroanatomy, exercise physiology, biochemistry, psychology, endocrinology, biostatistics and electrophysiology.
Today, PBRC, along with LSU and Baton Rouge’s Louisiana Emerging Technologies Center, a 5574-square-metre business incubator on LSU’s Baton Rouge campus, create Louisiana’s biotech/health science cluster.
Housed over 96 hectares, there is enough land to double PBRC’s facilities. In fact, there are plans for a 7432-square-metre addition to its clinic research building.
“Our only restriction is to lab space,” says PBRC spokesman Glen Duncan.
In addition, every scientist there is required to fund their own research as well as their own salaries.
PBRC operates with a $62m annual budget. Much of that funding comes from the National Institute of Health, the US Department of Defense, US Department of Agriculture, State of Louisiana and Pennington Biomedical Research Foundation. “We compete for funds with Harvard University, Johns Hopkins and Duke University,” says Mr Duncan.
One of PBRC’s success stories is Esperance Pharmaceuticals, a company founded on technology discovered and patented by scientists at PBRC, the LSU Agricultural Center and LSU.
Today, Esperance is developing a unique, targeted anti-cancer fusion protein that is selectively toxic to cancer cells. This work was made possible by monies from the Louisiana Fund I LP in Baton Rouge.
In October 2006, Research Corporation Technologies (RCT) co-led a $9m Series A investment in Esperance that helped move its lead anti-cancer compound toward early clinical testing. RCT joined the Louisiana Fund I and Themelios Ventures Partners LP of Shreveport, Louisiana, as a co-investor.
“The Louisana Fund I led to attracting other funds,” says Hector Alila, president and founder of Esperance Pharmaceuticals.