Introducing The Hubs
Remote work forces geographical rethink
We all know the cliched stories of friends who have moved away to pursue their dreams: actors head to Hollywood, bankers to New York City, and winemakers to the vineyards of Sonoma. The life sciences version of this is to head for Cambridge, the Bay area or back where it all began with JNJ in 1866 in New Jersey. In theory, more open global markets, faster transportation and virtual communication should diminish the role of location in competition. Afterall, the industry just had one of its most productive years ever despite large portions of staff operating remotely. But if location matters less, why, then, is it true that the odds of finding a world-class biotech company in Boston are much higher than in most any other place?
America’s biopharma industry is dominated by clusters; critical masses in one or a few places of unusual competitive success in particular fields. This teaches us that, paradoxically, the enduring competitive advantages in a global economy lie increasingly in local things, like knowledge, relationships, motivation, that distant rivals cannot match. By being in close proximity, it promotes both competition and cooperation.
These clusters in New Jersey, Boston and the Bay area, combine a unique blend of biomedical science, venture capital, entrepreneurial talent, risk-taking culture, and geographic density. Other regions have some or all of these elements, but not in the same magnitude or with the same momentum.
“When you look at the United States, you see biomanufacturing in Massachusetts, New Jersey, Raleigh Durham, Philadelphia, greater San Diego…it maps right on to where the R&D nodes are. That is incredibly exciting, but also incredibly challenging, because this real estate infrastructure does not necessarily exist in all of those locations. For years now, the life sciences industry has been investing in lab space and lab R&D. However, there has not been similar, attendant investment in the development of biomanufacturing space. Now, what we hear from companies is, we need that biomanufacturing space, and we need it yesterday.”
Travis McCready, Executive Director-US Life Sciences Markets, JLL
Post-Pandemic, however, it could be the case that the gap is narrowing. An egalitarian trend toward greater dispersion of life science business activity has gained momentum as remote work has taken hold. This prompted some to seek out areas with lower cost of living, ostensibly higher quality of life and lower taxes. James Sapirstein, president and CEO of Florida-based AzurRx BioPharma, expressed his view on this trend, noting: “AzurRx is a small company, and we never felt it had to reside in the most expensive area in the country. In the biopharmaceutical industry, the feeling has always been that companies need to operate in the “biotechnology hubs” in and around Boston or San Francisco, because that is where the talent is, as well as university partnerships and venture capitalists.” He continued: “VCs like to have the management teams running their portfolio companies located in the same cities as their own offices. Private equity does not feel that way, and certainly retail investors do not feel that way. Therefore, I think VCs will back off of the traditional model now that they see companies that are highly functional working remotely.”
As a result, Sapirstein believes that companies will start gravitating towards tax-free geographies, such as Florida and Texas. While anecdotes of people fleeing big cities for sunnier skies are pervasive, biopharma is not an industry that can be easily moved from one place to another. In fact, it can be argued that the pandemic validated the importance of being in these clusters. According to MassBio, Massachusetts led the way in developing tests, therapies and vaccines that have helped combat COVID-19. More than 95 life sciences companies with a presence in Massachusetts have been involved in this effort, many of which are the small and emerging biotech companies that make up the backbone of the cluster. Because of the robust startup community developed around Cambridge, 18 of the top 20 big pharma companies have a presence in Massachusetts. Kendalle O’Connell, MassBio’s president and COO, pointed out: “We are seeing unprecedented levels of collaboration between biotech companies and large biopharma organizations, which MassBio is dedicated to facilitating. One of the first COVID-19 vaccines was borne out of a partnership, and we believe that new ways of connecting early-stage companies with established biopharma organizations will accelerate science and improve patient lives.”
Similarly, in New Jersey, of the over 800 different programs addressing COVID, 70 are being developed by companies based in the Garden State. The first FDA-approved saliva test was developed early on by Rutgers University. Pfizer, which has a large presence in New Jersey, delivered the first vaccine – with additional vaccines coming from legendary New Jersey companies including J&J, Sanofi and GSK. There were also scores of smaller companies, such as OncoSec, working on a vaccine, and Soligenix, Insmed and BioAegis, were all working on their own contributions. Additionally, 40% of all new FDA approvals in 2020 came from companies with a footprint in New Jersey.
BioNJ founding president and CEO, Debbie Hart, commented: “Known for our strong presence of big Pharma, including 8 out of top 10 R&D companies, incredible talent pool – with 27,000 life sciences graduates each year and the world’s highest concentration of scientists and engineers per square mile – and our vigorous ecosystem, fostered by Government support, world-renowned research universities, leadership in the area of cell and gene therapy and advantageous location, life sciences companies continue to be attracted to New Jersey.”
On the manufacturing front, President Biden’s preference for prioritizing manufacturing in America also stands to benefit New Jersey, as it is home to approximately 139 biomanufacturing facilities. Already, and late in 2020, Governor Phil Murphy signed the Economic Recovery Act of 2020, which includes an incentives package of new and revised programs to support innovation industries, such as biopharma.
John Huang, CEO of TheWell Bioscience, a biomedical technology company that helps scientists build a robust 3D microenvironment that can closely mimic the natural extracellular matrix for multiple 3D cell models such as organoids, tumor spheroids and cell co-culture, believes New Jersey to be an ideal location for a company such as his: “New Jersey provides a unique opportunity to establish an excellent industrial network. Geographically, New Jersey is ideal, as it connects to many biotech hubs and resources. We have made great connections in the area, and the driving distance to clients is reasonable. New Jersey has a great talent pool to take advantage of with many great universities in the area. The state also funds attractive incubator and accelerator programs. Starting off in an incubator space has helped the company significantly with resources, consulting, connections and funding opportunities.”
Talent is the greatest natural resource
In addition to the spike in remote work due to COVID, one of the big reasons people are speaking of Massachusetts and California losing their hegemony in the life sciences is because of high costs. The places that are best positioned to pull business away from these areas are in the second tier, that includes New York, Raleigh Durham, and the Maryland Mid Atlantic area. However, JLL’s Travis McCready sees a compelling third tier. Places like Chicago, Los Angeles, Seattle, Austin, Houston and Dallas are all communities that have great research capabilities, access to capital, workforce training, PhDs, respect for science in the workforce, and lower cost. He asserts: “coupled with broader migration trends happening in the US, these new upstart locations have become attractive and in high demand for some developers, tenants and landlords.”
There are many different ways of thinking about costs, however. McCready elaborated: “When you take a look at Greater Boston, without batting an eye, you will likely end up paying somewhere in the neighborhood of on average US$90 triple net, rent per foot for lab space. In Raleigh Durham or suburban Maryland, you end up paying two thirds of that, somewhere in the neighborhood of US$55 to $60 per foot. In Austin or Dallas, you pay somewhere in the neighborhood of US$40 per foot. The equation becomes interesting, however, when you start to account for things like value.”
The questions here are do you gain access to the same venture capital pool in Austin that you gain access to in Boston, and will you have access to the same amount of intellectual capital being generated? Many would argue the answer is no. “We had US$7.1 billion of venture capital invested in the life sciences in Massachusetts, and only US$1.5 billion in Texas, a state 20 times as large with 5 times the population. Furthermore, while there are a handful of great universities in close proximity to Dallas, there are over 100 colleges and universities within a 20-mile radius in Greater Boston,” said McCready
With that information, the decision to move away from the traditional clusters becomes more nebulous. As a result, decisions on where to locate are a multivariate equation which will have to weigh cost, rental price, access to venture capital, access to skilled labor, intellectual capital, support services, and political predictability in making location and growth decisions.
The success of the US clusters is so noteworthy that other parts of the world have launched initiatives to develop their own. The pandemic has also acted to accelerate the need for countries to have a more self-sufficient biomedical system. In Saudi Arabia, SaudiVax was established with a US$50 million grant from the Crown Prince to build a facility that will have high capacity and be able to supply a good fraction of the country's vaccine needs along with the needs of the other Organization for Islamic Cooperation countries, which consists of about a billion people. Dr. Donald Gerson, the company’s COO and co-founder, described the opportunity, observing: “It was very apparent to me from global vaccine distribution that the Middle East was grossly deficient in manufacturing, was highly dependent on outside sources, and had no ability to respond to a pandemic. We thought that Saudi had enough capital to do it, and certainly enough smart, well-educated young people, therefore making it a great place to start a vaccine business.”
The company located itself on the campus of King Abdullah University of Science and Technology (KAUST) and has put a Bio-Park on the university campus. “This will lead to increased availability of existing vaccines and biopharmaceuticals, and also to the development of new biological products that specifically meet regional needs. We and others in the Bio-Park intend to produce vaccines, protein biopharmaceuticals, cell therapy, gene therapy, and mRNA-based vaccines and therapies,” said Gerson.
Image courtesy of Lonza Capsules and Health Ingredients