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Bridging the Gaps A Strategic Plan to Accelerate the Commercialization of Life Science Technologies in North Carolina January 2011 | The North Carolina Biotechnology Center AgBiotech 2 Opportuni t ies for Farmers adn Growers: vernon g. ja m e s research and extension center · plymouth, nc nor th carol i n a b i o t echnology c en t e r January 2011 | The North Carolina Biotechnology Center Bridging the Gaps A Strategic Plan to Accelerate the Commercialization of Life Science Technologies in North Carolina ii B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r © 2011 North Carolina Biotechnology Center Photographs on the cover and title page are courtesy of North Carolina State University (left), Medicago (center) and Novozymes (right). Acknowledgments The development of this strategic plan was facilitated by the North Carolina Biotechnology Center, under the leadership of E. Norris Tolson and Ken Tindall, Ph.D. Peter Ginsberg and Robert Lindberg, Ph.D. were the lead authors and editors of the report, which includes the ideas, writing and input of many of the Biotechnology Center’s partners, including: • Sam Taylor, North Carolina Biosciences Organization • John Hardin, Ph.D. North Carolina Board of Science and Technology • Paul Ulanch, Ph.D., and Tim Janke, North Carolina Small Business and Technology Development Center • Karen LeVert, Meg Elmore and Ashok Mendiratta, Ph.D., Southeast TechInventures, Inc. Additionally, the authors would like to thank the more than 50 life science-focused executives who participated in a survey that was instrumental to the development of this report. Finally, many members of the Biotechnology Center staff played important roles in data-gathering as well as in the review and production of the report, including: Susie Corbett, Sperry Kreuger and Karin Shank in Library and Information Services; Shobha Parthasarathi, Ph.D., and Pamela Fincher in Business and Technology Development; and Robin Deacle, Kelly Doherty, Kim Marcom, Robert Peterson, Jim Shamp and Katie Trapp in Corporate Communications. nor th carol i n a b i o t echnology c en t e r ta b l e o f con t en t s iii Table of Contents Acknowledgments . ii List of Tables . vi List of Figures . vii Executive Summary ix Background . ix Request from the North Carolina General Assembly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .x Key Challenges . xi Strategies to Bridge the Gaps . xi Overall Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii Chapter 1: Life Science Market Opportunity 1 Healing, Fueling, Feeding . 2 Healing 2 Fueling . 3 Feeding 4 Life Science Industry: Rapid Growth Has Led to Major Economic Impact . 6 Economic Impact from Life Science Industry . 7 Biologics: A Key Driver of Life Science Industry Growth 7 The Importance of Start-Up Companies to Industry Growth 9 Tremendous Opportunity For Growth in Life Science Industry . 10 Highly Prevalent Diseases Remain Poorly Addressed by Current Treatments . 10 Aging of Population and Other Trends Resulting in Rapid Growth in Highly Prevalent Diseases 10 New Technologies Allowing Researchers to Focus on More Targets 11 Global Population Growth To Spur Agricultural Biotechnology Applications 12 Demand for Biofuels Expected to Increase 12 Challenges Facing Growth of Life Science Industry . 13 High Costs and High Risk of Failure Associated with Life Science Product Development 13 Unclear Future for Basic Research Funding 13 Decline in Venture Capital Funding and Initial Public Offerings 14 Life Science Opportunity Put in Context of Challenges Ahead . 15 iv B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Chapter 2: Life Science Opportunity in North Carolina . 17 North Carolina’s Life Science Industry’s Large and Growing Statewide Economic Impact . 17 Strong Growth in High-Paying Jobs 17 Unusually Diverse Life Science Community 19 Life Science Efforts Spread Across the State 21 Key Drivers of North Carolina’s Life Science Industry Growth . 22 Growth Spurred By Emerging Companies . 22 Employment Growth Driven By Larger Firms Locating Large Divisions Here . 23 Workforce Development Programs Playing Key Role in Growth 24 North Carolina’s Increasing Prominence as a Leader in Biomanufacturing . 24 “Disconnects” That Could Impact Future Growth and Economic Impact . 26 Few Revenue-Generating Public Companies Are Headquartered Here 26 Acquisition of North Carolina Companies on the Cusp of Success 28 Mixed Returns from Academic Bioscience Research 28 Ensuring that North Carolina Maximizes its Life Science Opportunity . 30 Chapter 3: Challenges Facing Commercialization of Life Science Technologies in North Carolina . 31 The Early-Stage Funding Gap . 32 Venture Capital Firms Focusing Less on Early-Stage Opportunities . 34 Venture Capital Funding in Life Science Sector Down Nationwide . 35 Limited Life Science Venture Fund Activity in North Carolina 36 Banks Not Actively Lending to Early-Stage Life Science Companies 38 The Late-Stage Funding Gap . 39 Life Science Companies Face Unique Challenges . 40 Keeping Life Science Companies and Their Manufacturing Capabilities in North Carolina 41 Attracting Life Science Companies to North Carolina 42 The Management Gap . 43 Background: Entrepreneurial Life Science Management 43 The Management Gap in North Carolina 44 Recruiting Life Science Executives to North Carolina . 45 Benefits from Expanding the Executive Talent Pool . 46 Surmounting the Three Challenges Described in This Chapter . 46 nor th carol i n a b i o t echnology c en t e r ta b l e o f con t en t s v Chapter 4: Early-Stage Life Science Fund . 47 Development of the ESLSF . 48 Investment Focus . 48 Fund Structure . 51 Fund Objectives . 51 Sources of Funding . 52 Investment Funds Developed in Other States . 53 Maryland Venture Fund 53 Kentucky Seed Capital Fund . 53 ESLSF to Aid in Bridging Early-Stage Funding Gap in North Carolina . 54 Chapter 5: Expansion of Existing Programs to Support Start-Up and Early-Stage Companies 55 Expansion of North Carolina Biotechnology Center Loan Program . 56 Review of Loan Programs . 56 Impact of Loan Programs . 57 Types of Loans . 58 Potential Benefits from Expansion of Biotechnology Center Loan Program 59 Increase Appropriation for SBIR/STTR Matching Program . 62 SBIR/STTR Matching Program: History and Purpose . 62 SBIR/STTR Matching Program: Structure and Funding 63 Impact of SBIR/STTR Matching Program . 64 Detailed Description of Recommendation . 64 How an Expansion Would Benefit Commercialization of Life Science Technologies . 65 Expansion of North Carolina Qualified Business Venture (QBV) Tax Credit Program . 67 Review of QBV Program . 68 Business Qualification Process 68 North Carolina’s QBV Program Compared to Tax Credit Programs in Other States . 69 History of QBV Program . 70 Impact of QBV Program . 70 Expanding the QBV Program to Benefit Commercialization of Life Science Technologies 71 Combining New and Existing Programs to Surmount the Early-Stage Funding Challenge . 72 Chapter 6: Life Science Development Corporation 73 Proposed LSDC Loan Program . 74 Expected Benefits of the LSDC . 76 Significant Job Creation Expected Once LSDC Is Established 76 Retention of Expanding Life Science Companies in North Carolina 77 Recruitment of Companies from Out-of-State . 77 Benefits Expected to Extend Beyond Biopharmaceutical Companies . 77 Growing the State’s Base of Executives to Lead Companies Through These Funding Challenges . 78 vi B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Chapter 7: Strategies to Eliminate the Management Gap 79 Recruiting Established Life Science Executives to North Carolina . 80 Market North Carolina to Targeted Successful Out-of-State Executives 80 Adopt a Capital Gains Tax Exclusion for Founders and Investors in Early-Stage Companies 81 Identify and Recruit Executives with North Carolina Ties 82 Coordinate Lobbying Efforts to Re-Institute Direct Flights to the West Coast . 83 Support for North Carolina Entrepreneurs . 83 Offer Stipends to Encourage Access to Entrepreneurial Education and Mentoring Programs . 83 Initiate North Carolina Biotechnology Center Executive-in-Residence Program 84 Closing the Management Gap in Parallel with Implementing New Early-and Late-Stage Funding Initiatives . 85 List of Tables Table ES-1: Strategies Recommended to Accelerate Life Science Technology Commercialization . xii Table 1-1: Bioscience Financial Performance by Subsector and Net Income, FY 2009 . 6 Table 1-2: U.S. Bioscience Employment . 7 Table 1-3: Projected Ranking of Top Selling Products in 2016 . 8 Table 2-1: Total (Direct and Indirect) Economic Impact of Biotechnology in North Carolina . . . . . . . 18 Table 2-2: Start-Up Company Formation by North Carolina Universities in 2008 . 23 Table 2-3: North Carolina Life Science Industry Relative to U.S. Life Science Industry (Dollars in Millions) . 27 Table 2-4: 2008 Technology Transfer Activity for North Carolina Universities (U.S. Rankings) . 29 Table 3-1: IPO Volume Rebounding in 2010 But Still Below That Seen Prior To 2008 Market Decline (Dollars in Millions) . 34 Table 3-2: Venture Capital Investments in Life Science Companies (In Billions) . 35 Table 3-3: NIH Funding vs. Venture Capital Funding (In Millions) . 37 Table 4-1: Anticipated Framework of the Early-Stage Life Science Fund . 48 Table 5-1: Types of Biotechnology Center Loans . 58 Table 5-2. SBIR/STTR Matching Funds Program: Appropriations and Awards . 63 Table 5-3: Allowable Business Categories for Qualified Investment Tax Credit . 69 Table 5-4: QBV Program: Applications and Credits . 70 nor th carol i n a b i o t echnology c en t e r ta b l e o f con t en t s vii List of Figures Figure 1-1: Total Acres of Biotech Crops Grown in 2009 . 5 Figure 2-1: Rapid Employment Growth in North Carolina’s Bioscience Industry . 18 Figure 2-2: Breadth of North Carolina’s Bioscience Industry – Employment Composition . 19 Figure 3-1: Current Environment for Life Science Companies – Early-Stage Funding Gap . 33 Figure 3-2: Current Environment for Life Science Companies – Debt Gap . 39 Figure 4-1: Environment Incorporating Strategic Plan Programs – ESLSP . 49 Figure 5-1: Environment Incorporating Strategic Plan Programs – Biotechnology Center Loan Program Expansion . 60 Figure 5-3: Environment Incorporating Strategic Plan Programs – SBIR/STTR Matching Funds Program Expansion . 65 Figure 5-4: Environment Incorporating Strategic Plan Programs – QBV Tax Credit Program Expansion . 67 Figure 6-1: Environment Incorporating Strategic Plan Programs – Life Science Development Corporation . 74 Figure 6-2: LSDC Program Structure . 75 nor th carol i n a b i o t echnology c en t e r Executive Summary A coordinated strategic plan is presented here for accelerating the commercialization of life science technologies and discoveries in North Carolina. It first describes the industry opportunity available to North Carolina and the key challenges that could jeopardize the state’s ability to seize that opportunity. The plan then details several strategies designed to surmount these challenges, thereby providing a clearer path to companies seeking to commercialize life science products. Background North Carolina’s longstanding commitment to biotechnology has played a key role in establishing a large and growing life science industry in the state. While job creation has been in decline for many of the state’s traditionally strong industries, jobs in North Carolina’s life science industry increased 29% from 2001 to 2008 with an average pay in 2008 of $74,829, which is 90% higher than the state’s average private sector wages. With statewide biotechnology industry-related employment of 226,000 and an economic impact of $64 billion, the life science industry has become central to North Carolina’s overall economy. North Carolina benefits from a life science industry that is diverse and statewide. Throughout this report, the terms “life science industry” and “bioscience industry” are used interchangeably and incorporate: pharmaceuticals and diagnostics (including biotechnology-derived products), medical devices and equipment, industrial and environmental biotechnology, and agricultural biotechnology (including biofuels). North Carolina is unusual as a life science hub in that it has a significant industry base in each of these subsectors, with more than 500 biotechnology companies, a growing medical device cluster and an established agricultural biotechnology presence, including major biotechnology research operations for four of the nation’s top five agricultural companies. Additionally, the life science industry is vibrant in all parts of the state, from natural products-focused businesses concentrated in the western part of the state, to biotechnology centers in the Research Triangle and Triad areas, to marine biotechnology opportunities on the coast. In fact, the North Carolina Biotechnology Center has regional offices in all parts of the state and active loans to biotechnology companies in each region. The expansion of the state’s life science industry has resulted from the combination of rapid growth in the size and number of emerging biotechnology companies and increased employment resulting from large biopharmaceutical companies locating large divisions here. Much of this growth can be traced to North Carolina’s emergence as a center for the production and manufacture of therapeutics and vaccines. Overall, the industry’s growth in the state has been buoyed by an infrastructure of universities, non-profit organizations and service providers adept at launching, attracting and supporting life science businesses. This support is exemplified by workforce development programs that have played a key role in attracting life science companies to locate here. x B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Request from the North Carolina General Assembly Various dynamics suggest that the global life science industry will continue to grow rapidly, including: 1) the many highly prevalent diseases that remain poorly addressed by current treatments; 2) the aging of the population and other trends resulting in rapid growth in highly prevalent diseases; 3) the availability of new technologies enabling researchers to directly address more disease targets; 4) global population growth requiring new approaches to maximize food availability; and 5) an expected sharp increase in demand for biofuels. The projected long-term expansion of the global life science industry suggests that regions that are well-positioned to attract and grow promising companies will benefit greatly. However, the industry is highly dynamic and highly competitive. North Carolina’s life science-focused companies and institutions must work together with state government to develop a clearer path to product commercialization in order to continue to grow a thriving industry. The state’s life science companies face critical challenges along the path toward the commercialization of their products, as evidenced by: • The low number of established (i.e., revenue-generating or public) biotechnology companies headquartered here • The frequency with which North Carolina-based life science companies are acquired when on the cusp of success • The mixed commercial results generated by the state’s strong academic bioscience research institutions North Carolina’s state government is highly cognizant of the economic opportunity associated with the sustained growth of its life science industry and the need to continue to nurture it. As such, the North Carolina General Assembly requested that: “The North Carolina Biotechnology Center shall prepare a strategic plan to accelerate the commercialization of promising life science technologies and discoveries being developed in universities and private companies in North Carolina and the related development and production of new commercial products.” (General Assembly of North Carolina, Session 2009, Session Law 2010-31, Senate Bill 897) This plan presents a series of strategies to accelerate commercialization efforts by identifying and addressing the key challenges faced by North Carolina companies bringing life science products to market. To assess the nature of these challenges, the North Carolina Biotechnology Center gathered input from more than 50 key life science industry stakeholders. These stakeholders included technology transfer officers, life science company executives (from small, mid-sized and large companies), investors, bankers, service providers, and executives representing the state’s life science-focused non-profit organizations. These discussions revealed that the major challenges to commercialization of life science technologies are the limited availability of funding required by companies at critical junctures in their evolution and the shortage of highly experienced life science executives in North Carolina. nor th carol i n a b i o t echnology c en t e r e x ecu t i v e su m m a ry xi Key Challenges According to most of the stakeholders surveyed, North Carolina’s primary challenge in commercializing life science technologies is funding. While a shortage of early-stage funding was frequently noted as an obstacle, the limited availability of later-stage funding to build facilities and production lines was also deemed to be a key challenge for the state’s industry. Most North Carolina life science companies report that the early-stage funding gap is the most daunting obstacle preventing them from converting a promising research discovery into a commercial product. This gap occurs for life science technology-based companies when they have progressed beyond the stage where very early-stage funding vehicles (such as federal grants and North Carolina Biotechnology Center loans) are appropriate. These companies have typically not yet progressed to the point where they are able to attract venture capital funding or strategic partners. This funding gap has widened over the past decade as venture capital funding has declined and has been increasingly directed toward later-stage companies. The issue is exacerbated in North Carolina because relatively few life science-focused venture capital groups are active in the state. Later-stage companies face a debt funding gap that is as challenging as the early-stage funding gap. Companies caught in this gap typically have a product on the market or soon-to-be on the market. At this point, such companies often require a significant cash infusion to finally capture their commercial opportunities. For a life science company, debt funding is often employed to initiate or expand the company’s manufacturing capabilities and sometimes to build sales and marketing efforts or complete late-stage product development. The shortage of debt financing available for these companies stems from the limited number of banks willing to make loans to companies that are not yet profitable. Importantly, receipt of debt funding often represents an inflection point in hiring new employees who might play a role in manufacturing or commercializing a new product. As such, a new approach to bridging the debt funding gap would be expected to greatly increase the number of life science jobs in North Carolina. In addition to early-stage and debt funding challenges, the state’s limited number of experienced life science executives with product development, commercialization and financing experience was viewed by many stakeholders (especially those in the investment community) as a significant impediment to bringing products to market successfully. There are far more promising, innovation-driven companies at all stages of maturity in North Carolina than there are accomplished executives to drive them, creating a management gap. The limited size of this talent pool appears to constitute a rate-limiting step that prevents more promising North Carolina-based life science companies from reaching a commercial plateau that reaps economic benefit to the state in the form of jobs and tax revenue. Strategies to Bridge the Gaps The core of this report focuses on several strategies to bridge these funding and management gaps and thereby accelerate the commercialization of life science technologies in North Carolina. Some of these recommendations describe new programs while others are focused on altering or expanding programs currently in place. It is highly recommended that the strategies to bridge the funding gaps be undertaken in parallel with the strategies to bridge the management gap—a coordinated approach will both drive an increase in the local availability of funding required to attract top-tier executives and build a stronger base of life science executives that will be able to attract additional funding. Table ES-1 lists these programs and the gaps they would help to bridge. xii B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Table ES-1: Strategies Recommended to Accelerate Life Science Technology Commercialization Strategy Gap Bridged Potential Benefits Establish an Early-Stage Life Science Investment Fund (Chapter 4) Early-Stage Funding Gap Progression of the most promising life science companies to later-stage product development when venture capital and partner funding is available Expand the Biotechnology Center Loan Program by $3 Million/Year (Chapter 5) Early-Stage Funding Gap $3 million in additional funding expected to result in $300 million in external follow-on funding over time to these loan portfolio companies Expand the Annual Cap on SBIR/STTR Matching Program Funding to $5 Million/ Year (Chapter 5) Early-Stage Funding Gap Potential creation of more than 50 additional jobs annually; encourages companies to access federal funding to develop and mature their technologies Increase the Cap on the QBV Tax Credit Program and Include Institutional Investors (Chapter 5) Early-Stage Funding Gap Increased funding for emerging life science companies and attraction of investments from new class of investors; resulting larger funding rounds could help companies advance through early-stage funding gap Establish the Life Science Development Corporation (LSDC), a $70 Million Loan Fund (Chapter 6) Debt Funding Gap Retention of high growth life science companies in North Carolina and attraction of out-of-state companies; potential for 100-250 jobs to be created immediately from LSDC funding Implement New Programs To Attract Successful Out-of-State Life Science Executives (Chapter 7) Management Gap Growth in number of experienced life science executives in North Carolina, stimulating increased investment and driving more products to commercialization Implement New Programs To Support Homegrown North Carolina-Based Entrepreneurs (Chapter 7) Management Gap Growth in number of experienced life science executives in North Carolina, stimulating increased investment and driving more products to commercialization Overall Benefits Despite the state’s success in the life science industry to date, maintaining the status quo is not an option if North Carolina expects to continue to compete successfully on a global basis. Other states also see the opportunity available from the aggressive pursuit of growth in the bioscience industry. All 50 state governors highlighted bioscience in their most recent state-of-the-state addresses. As such, it will be important to address the funding and management gaps described in this report to allow for continued growth in the economic benefits currently enjoyed by North Carolina as a leading life science industry center. The implementation of the seven strategies detailed in this report would allow for these gaps to be bridged, thereby accelerating the commercialization of life science technologies in North Carolina. Key benefits would include: • An increased number of high-paying life science jobs • Continued growth of the sector’s direct and indirect economic impact from biotechnology, already $64 billion for the state • Retention of high growth companies in North Carolina • Recruitment of promising life science companies from outside the state • Attraction of additional investment to the state from internal and external sources nor th carol i n a b i o t echnology c en t e r e x ecu t i v e su m m a ry xiii Overall, by surmounting the three major challenges described in this report, North Carolina’s life science companies will have a clearer path to commercialization through expanded funding options and a deeper base of executives with a proven ability to bring products to market. This clearer path will enhance North Carolina’s ability to obtain an outsized share of the expected rapid expansion of the global life science industry. nor th carol i n a b i o t echnology c en t e r CHAPTER 1: Life Science Market Opportunity The social and economic impacts of the life science industry cannot be overstated. While the human health impacts of the life science industry may be well understood, the industry’s current and potential impacts on industrial processes and food and fuel production are not as obvious. This chapter describes how the life science industry has grown in importance, especially since the launch of the biotechnology industry in the early 1980s. It also highlights the tremendous opportunity that lies ahead for companies and localities that are prepared to be at the forefront of the development and commercialization of new products and technologies. North Carolina was early in recognizing this opportunity with the opening of the North Carolina Biotechnology Center in 1984—the Biotechnology Center was the first of its kind. The life science industry’s overall impact on jobs and the state’s economy has exceeded expectations, and North Carolina’s life science infrastructure is one of the strongest in the country, as detailed in Chapter 2. Factors such as the aging of the population and need for additional food and fuel sources result in a promising outlook for the life science industry. However, the high cost of life science product development has led to funding challenges for companies seeking to develop and commercialize such products. These challenges are discussed generally in this chapter and are more fully delineated as it relates to North Carolina in Chapters 2 and 3. Throughout this report, the life science industry definition incorporates pharmaceuticals and diagnostics (including biotechnology-derived products), medical devices and equipment, industrial and environmental biotechnology, and agricultural biotechnology (including biofuels). While definitions of the life science and bioscience industry vary depending on the source, the nomenclature is used interchangeably in this report. Life Science Definition Throughout this report, the life science industry definition incorporates pharmaceuticals and diagnostics (including biotechnology-derived products), medical devices and equipment, industrial and environmental biotechnology, and agricultural biotechnology (including biofuels). 2 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Healing, Fueling, Feeding Many have dubbed this century as the “Bio Century”1 as a result of the vital contributions the life science industry has delivered to tackle many of the world’s greatest challenges. Global competition is intensifying as more countries, regions, states and local governments look to participate in the growth of the life science industry. Continuing to build this bio-based economy here in the United States is a clear economic imperative that is expected to lead to job creation and wide-ranging economic impacts. In fact, according to Peter Pellerito, Senior Policy Consultant for the Biotechnology Industry Organization (BIO), all 50 governors emphasized the importance of the bioscience industry in their last state of the state address.2 BIO, the bioscience/biotechnology industry association and advocacy group, describes bioscience as, “helping us live longer and healthier lives, have a more abundant and sustainable food supply, use safer and more efficient industrial manufacturing, and reduce our greenhouse gas footprint.”3 BIO’s annual report examines how bioscience has and will impact our lives in three broad categories: healing, fueling and feeding the world. The next three sections describe the bioscience industry’s impact in these three areas, including statistics from the BIO report and other sources. Healing The life science industry is best known for its development of drugs, devices and diagnostics to extend and improve quality of life. The industry continues to be successful in these pursuits: • Life expectancy for cancer patients has increased, on average, by three years since 1980; 83% of these gains are due to new treatments, including medicines.4 • According to AdvaMed, a medical technology industry association, from 1980 to 2000, rapid technological progress resulted in: 1) a 25% decline in disability rates, 2) a 56% reduction in hospital days, and 3) a 3.2-year life expectancy increase.5 1 Growing the Nation’s Bioscience Sector: State Bioscience Initiatives 2006, Battelle Technology Partnership Practice and SSTI for Biotechnology Industry Organization, page vii. 2 Personal communication, November 9, 2010. 3 Healing, Fueling, Feeding: How Biotechnology is Enriching Your Life, BIO (Biotechnology Industry Organization), June 2010, page 3. http://www.valueofbiotech.com/sites/default/files/ pdfs/ValueofBiotechFINAL.pdf (accessed December 21, 2010). 4 Sun, E., et al., “The Determinants of Recent Gains in Cancer Survival: An Analysis of the Surveillance, Epidemiology, and End Results (SEER) Database”, Journal of Clinical Oncology 26, suppl. 15 (2008): Abstract 6616. http://meeting.ascopubs.org/cgi/content/abstract/26/15_ suppl/6616 (accessed December 21, 2010). 5 “About Our Industry”, AdvaMed. http://www.advamed.org/MemberPortal/About/Industry (accessed on December 21, 2010). North Carolina at the Forefront of Regenerative Medicine Recent breakthroughs in our understanding of the complex mechanisms controlling organ growth and tissue repair allow researchers to begin to create replacement organs and cellular therapies. Important regenerative medicine research ongoing in North Carolina includes: • Individual cells in culture are organized into pulsing tissue that beats like the heart that produced them. • Bladders grow on scaffolds, “seeded” with cells derived from the patient. • Doctors collect cells from umbilical cords donated by parents of newborns and transform them into therapies for children with cerebral palsy and other disorders. High-profile practitioners of this “tissue-building” approach include Anthony Atala, M.D., director of the Wake Forest Institute for Regenerative Medicine, and Duke cord-blood pioneer Joanne Kurtzberg, M.D. The Pentagon has put more than $42 million into a multi-campus consortium involving Atala and others, seeking to develop battle-wound treatments. nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce M a r k e t Op por t u n i t y 3 • Worldwide, 10.5 million cases of infectious diseases and 2.5 million child deaths are prevented each year through immunization.6 • There are more than 1,200 bioscience diagnostic tests in clinical use.7 • More than 600 new biologic medicines are in development – including treatments for cancer, HIV/AIDS, Alzheimer’s, and many other conditions.8 • According to a 2007 article in Health Affairs, “Over the past thirty-five years, U.S. age-adjusted mortality from cardiovascular disease declined 50 percent.” The article emphasized that a combination of drugs, diagnostics and device-based treatments (all tools of the life science industry) contributed to this marked reduction in cardiovascular disease mortality.9 Fueling The world’s growing energy needs are staggering, and global energy consumption continues to rise rapidly. Industrial bioscience is providing solutions for energy conservation, climate stabilization and reducing our dependence on fossil fuels, while fueling economic growth and providing economic security. • Economic development: Biofuels R&D promotes new business development, job creation and economic growth. Although in its infancy, the biofuels industry currently has 187 ethanol biorefineries operating in the U.S.,10 already exceeding the 137 petroleum refineries in operation.11 • Bio Economic Research Associates projects that the economic impacts of building an advanced biofuels economy by 2022 (meeting the U.S. Renewable Fuel Standards requirement for 21 billion annual gallons of production by 2022) would be to create 29,000 direct jobs by 2012 and 190,000 by 2022; total job impacts in the economy (comprising direct and indirect employment via the employment multiplier effect) could reach 123,000 in 2012, and 807,000 by 2022. 12 6 “How to Save Millions of Lives”, BIO (Biotechnology Industry Organization). http://www.bio. org/about_biotech/global (accessed on December 21, 2010). 7 Allingham-Hawkins, Diane. “Successful Genetic Tests Are Predicated on Clinical Utility”, Genetic Engineering and Biotechnology News, 28:14, 2008. 8 “How to Save Millions of Lives”, BIO (Biotechnology Industry Organization). http://www.bio. org/about_biotech/global (accessed on December 21, 2010). 9 Weisfeldt, M. and S. Zieman. “Advances in the Prevention and Treatment of Cardiovascular Disease.” Health Affairs 26(1):25-37, 2007. 10 “Ethanol Industry Overview “, Renewable Fuels Association. January, 2010 http://www. ethanolrfa.org/pages/statistics (accessed on December 21, 2010). 11 “Number and Capacity of Petroleum Refineries”, Petroleum Navigator: Refining and Processing. U.S. Energy Information Administration, 2010. http://tonto.eia.doe.gov/dnav/pet/pet_pnp_ cap1_dcu_nus_a.htm (accessed on December 21, 2010). 12 U.S. Economic Impact of Advanced Biofuels Production: Perspectives to 2030, Bio Economic Research Associates. February 2009, page 1. http://www.bio.org/ind/ EconomicImpactAdvancedBiofuels.pdf (accessed on December 21, 2010). The impact of bioscience on North Carolina – from advances in regenerative medicine to the statewide growth of biomanufacturing and an emerging vaccine cluster – are explored in more detail in Chapter 2. 4 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r • The associated cumulative reduction in petroleum imports over the period 2010-2022 is expected to exceed $350 billion.13 • Total (direct and indirect) economic output generated by the advanced biofuels industry could reach $20 billion by 2012 and $149 billion by 2022.14 • McKinsey & Company found that 60% of the bioscience industry sources surveyed believe that bio-substitutes for gas will be the dominant alternative by 2025, outpacing biodiesel and electric options.15 • From an environmental sustainability standpoint, businesses and governments are working to reduce the human impact on climate change through green manufacturing and new technologies that create process efficiencies, limiting waste production and reducing energy use.16 Feeding The agricultural biotechnology segment of the bioscience industry has progressed rapidly since its first crops were planted less than 15 years ago. Bioscience-enabled crops were first planted in 1996 and exceeded 2.3 billion acres in 2009, representing “approximately 70 million repeat decisions by farmers to grow these crops.”17 • Agricultural biotechnology produces plants with built-in protection against disease and insects, resulting in reduced pesticide usage. • Bioscience-produced crops decrease erosion because harmful weeds are controlled while the crops thrive, promoting tillage systems that save the soil, conserve soil moisture and nutrients, preserve earthworm populations, and reduce sediment runoff into watersheds. • Enhanced crops make it possible to obtain higher crop yields by effectively controlling disease, insects and weeds, enabling farmers to produce more food at lower costs. Higher yields of crops generated by agricultural biotechnology companies have been reported by a number of sources, including the World Bank, Nuffield Council on Bioethics, and a joint consultation of the Food and Agriculture Organization of the United Nations (FAO) and the World Health Organization (WHO). 13 Ibid., page 14. 14 Ibid., page 2. 15 Oberman, Raoul. Sustainable Biofuels Growth: Hurdles and Outcomes, McKinsey & Company, June 2010, page 9. http://biofuelsandclimate.files.wordpress.com/2010/06/2010-bio-mckinsey-presentation- vf.pdf (accessed on December 21, 2010). 16 “Heal, Fuel, Feed: Biotech Can Do All Three - Sustainably”, BIOtechNOW (e-Newsletter), June 2010. http://biotech-now.org/2010/05/12/heal-fuel-feed-biotech-can-do-all-three-sustainably (accessed December 21, 2010). 17 Healing, Fueling, Feeding: How Biotechnology is Enriching Your Life, BIO (Biotechnology Industry Organization), June 2010, page 56. http://www.valueofbiotech.com/sites/default/files/ pdfs/ValueofBiotechFINAL.pdf (accessed December 21, 2010). Fueling North Carolina North Carolina buys 5.6 billion gallons of liquid fuels every year. Almost all comes from outside the state, and none of these imported gallons contributes to the state’s agriculture, forestry, or manufacturing economy. The Biofuels Center of North Carolina is developing a statewide biofuels industry to reduce this dependence. By 2017, 10% of liquid fuels sold in North Carolina – or about 600 million gallons – are projected to come from biofuels locally grown and produced. Filling up with locally grown and manufactured biofuels blends will allow citizens to power not just their vehicles, but also the North Carolina economy. nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce M a r k e t Op por t u n i t y 5 • Agricultural biotechnology allows for the more efficient use of farmland. According to the House Subcommittee on Basic Research, “Crops that can withstand drought conditions, high salinity, or toxic materials, for example could enable populations living in currently non-arable regions to farm their land, reducing the pressure on other regions of the world, such as rainforests, that are currently being converted to farmland.”18 • The use of biotechnologies, such as biosensors, can ensure the safety of our food and water supplies and address the threat of major disease outbreaks. • The use of agricultural biotechnology increases the profitability of farming and offers opportunities for new and expanding industries. Figure 1-1: Total Acres of Biotech Crops Grown in 200919 18 “Benefits of Agricultural Biotechnology.” BIO (Biotechnology Industry Organization) http:// www.bio.org/foodag/background/epabenefits.asp (accessed December 10, 2010). 19 Healing, Fueling, Feeding: How Biotechnology is Enriching Your Life, BIO (Biotechnology Industry Organization), June 2010, page 56. http://www.valueofbiotech.com/sites/default/files/ pdfs/ValueofBiotechFINAL.pdf (accessed December 21, 2010). 350 300 250 200 150 100 50 0 (millions of acres) Cumulative total for 1996-2009 is 2,346,000,000 acres of biotech crops grown worldwide 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 6 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Life Science Industry: Rapid Growth Has Led to Major Economic Impact The life science industry has grown rapidly, in part due to the high growth of the biotechnology industry since its beginnings roughly 30 years ago. As Table 1-1 indicates, overall U.S. bioscience revenue generated by publicly traded companies exceeded $577 billion in 2009, producing overall net income of $75 billion.20 Table 1-1: Bioscience Financial Performance by Subsector and Net Income, FY 200921 Bioscience Subsector Public Firms in Dataset FY 2009 Revenue FY 2009 Net Income $ Millions % of Industry $ Millions % of Industry Agricultural Feedstock & Chemicals 34 $120,242 21% $7,734 10% Drugs & Pharmaceuticals 383 $329,661 57% $58,009 78% Medical Devices & Equipment 182 $106,016 18% $7,121 10% Research, Testing & Medical Laboratories 50 $21,430 4% $1,680 2% Industry Total 649 $577,349 100% $74,544 100% As it relates specifically to biotechnology, revenue of publicly traded biotechnology firms grew 12% to $90 billion in 2008.22 The biotechnology industry is clearly in its growth phase and is approaching profitability; according to Ernst & Young, the global industry’s net loss shrank from $3.0 billion in 2007 to $1.4 billion in 2008, and the U.S. biotech industry reached aggregate profitability for the first time.23 One reason for the attractiveness of the life science industry relative to other industries is that it is less impacted by economic downturns. “The life sciences industries were largely immune to the global recession of 2008-10. Unlike industries such as automotive, none of the large pharmaceutical manufacturers faced bankruptcy or needed large government bail-outs. Most companies even maintained profit margins that would be the envy of competitors in other industry segments,” according to a white paper released by Deloitte Touche Tohmatsu.24 20 Battelle/BIO State Bioscience Initiatives 2010, Battelle Technology Partnership Practice, May 2010, page 4. http://www.bio.org/local/battelle2010/Battelle_Report_2010.pdf (accessed on December 22, 2010). 21 Ibid. 22 Giovannetti, Glen T. and Jaggi, Gautam. Beyond Borders: Global Biotechnology Report 2010, Ernst and Young, page 27. http://www.ey.com/Publication/vwLUAssets/Beyond_ borders_2010/$FILE/Beyond_borders_2010.pdf (accessed December 21, 2010). 23 Ibid., page 27, 34 24 The Future of Life Sciences Industries: Aftermath of the Global Recession, Deloitte, page 4. http://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/LSHC/2010%20 Future%20of%20the%20life%20sciences%20industries%20report_web.pdf (accessed on December 21, 2010). nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce M a r k e t Op por t u n i t y 7 Economic Impact from Life Science Industry The economic and therapeutic impact associated with the bioscience sector is clearly significant and growing. Job creation in the bioscience industry has also been robust, has a large multiplier effect on the creation of additional jobs, and is expected to continue to outperform other industries. Battelle reports that total employment in the U.S. bioscience sector grew to 1.4 million in 2008.25 Table 1-2: U.S. Bioscience Employment Bioscience Subsector 2008 Employment Change in Employment, 2001–2008 Change in Employment, 2007–2008 Agricultural Feedstock & Chemicals 114,793 1.9% 4.6% Drugs & Pharmaceuticals 311,882 2.3% -2.3% Medical Devices & Equipment 435,509 2.0% 2.4% Research, Testing & Medical Laboratories 558,140 46.1% 2.1% Total U.S. Bioscience 1,420,324 15.8% 1.4% Table 1-2 shows that between 2001 and 2008 (the latest year for which data is available), bioscience employment growth was 15.8%, adding nearly 200,000 jobs.26 Compared to the 3.5% growth rate for the national private sector, the bioscience industry job growth was 4.5 times higher.27 Battelle also calculates that the total employment impact of the bioscience sector is eight million jobs, based on the additional jobs created as a result of the sector’s direct jobs.28 On a national basis, for every new bioscience job, another 5.8 jobs are created.29 The sector also continues to be a source of high-wage employment. Bioscience wages increased by 10.1% (inflation adjusted) from 2001 to 2008, compared to 3.2% for the private sector.30 Biologics: A Key Driver of Life Science Industry Growth While the market for conventional drugs continues to grow, the market for biologics is growing much more rapidly. According to EvaluatePharma, total prescription and over-the-counter drug sales were up 10% annually worldwide from 2000 to 2008; biologics were a key driver of this growth and were up 18% annually in the period, compared to conventional drug sales, which increased 8% 25 Battelle/BIO State Bioscience Initiatives 2010, Battelle Technology Partnership Practice, May 2010, page ii. http://www.bio.org/local/battelle2010/Battelle_Report_2010.pdf (accessed on December 22, 2010). 26 Ibid. 27 Ibid. 28 Ibid., pages 19-20. 29 Ibid. 30 Ibid. Average annual bioscience income per employee was $77,595 compared to the average annual wage for the total U.S. private sector of $45,229. Source: Battelle/BIO State Bioscience Initiatives 2010, Battelle Technology Partnership Practice, May 2010, page ii. http://www.bio.org/local/battelle2010/ Battelle_Report_2010.pdf (accessed on December 22, 2010). 8 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r annually in the period.31 Biologics are expected to continue to gain market share as many of the top conventional drugs have near-term patent expirations looming. Clearly, the importance of biologics in disease treatment is growing. In 2000, only one of the top ten selling drugs was a biologic (Epogen/Procrit). By 2008, this number had grown to five of the top ten. Forecasts released by EvaluatePharma in its “World Preview 2016”32 report project that Abbott Laboratories’ Humira (a biological product) will become the top-selling product in 2012 with sales of $8.3 billion and will retain its top spot through 2016 when sales could exceed $10 billion. As Table 1-3 indicates, the importance of biotech products is expected to continue to increase, with biologics comprising eight of the expected top ten therapeutic products by 2016. Table 1-3: Projected Ranking of Top Selling Products in 2016 The growing importance of biologics is also supported by Lehman Brothers research on growth trends by therapeutic categories. The growth projected between 2007 and 2012 in the top four therapeutic categories is driven by biologics:33 • Inflammation (12% growth per year) – driven by the shift from cheaper NSAIDS to higher-priced biologics such as Humira, Remicade, Enbrel, and Orencia. 31 “Biotechs Set to Dominate Drug Growth”, EP Vantage, June 17, 2009. http://www. evaluatepharma.com/Universal/View.aspx?type=Story&id=188700&isEPVantage=yes (accessed on December 21, 2010). 32 “World Preview 2016”, EvaluatePharma, May 3, 2010. http://www.evaluatepharma.com/ EvaluatePharma_World_Preview_2016.aspx (accessed on December 21, 2010). 33 “Which Therapeutic Categories Are Growing the Fastest? Global and US Sales Growth of Branded Drugs by Therapeutic Category, 2005-2012E”, PAREXEL’s Bio/Pharmaceutical R&D Statistical Sourcebook 2009/2010. 2009, page 35. Rank Product Company(s) Therapeutic Subcategory Technology 2009 2016 CAGR (09-16) 1 Humira Abbott Laboratories/Eisai Other anti-rheumatics Monoclonal antibody 5.6 10.1 9% 2 Avastin Roche Anti-neoplastic MAbs Monoclonal antibody 5.7 8.9 6% 3 Enbrel Amgen/Pfizer/Takeda Other anti-rheumatics Recombinant product 6.5 7.3 2% 4 Rituxan Roche/Biogen Idec Anti-neoplastic MAbs Monoclonal antibody 5.6 6.8 3% 5 Crestor AstraZeneca/Shionogi/Chiesi Anti-hyperlipidaemics Small molecule chemistry 4.8 6.3 4% 6 Herceptin Roche Anti-neoplastic MAbs Monoclonal antibody 4.9 6.2 3% 7 Remicade Johnson & Johnson/Merck & Co/ Mitsubishi Tanabe Other anti-rheumatics Monoclonal antibody 5.9 5.7 0% 8 Lantus Sanofi-Aventis Anti-diabetics Recombinant product 4.3 5.3 3% 9 Advair/ Seretide GlaxoSmithKline/Almirall/Others Other bronchodilators Small molecule chemistry 8.0 5.2 -6% 10 Prolia Amgen/Daiichi Sankyo/GlaxoSmithKline Bone calcium regulators Monoclonal antibody 0 5.2 — Source: EvaluatePharma 5/3/2010 Biologics Biologics are larger molecule drugs derived from living organisms or their products and have historically been developed primarily by biotechnology companies. nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce M a r k e t Op por t u n i t y 9 Biomanufacturing Biogen Idec is one of several biotechnology companies with dedicated biological bulk-manufacturing facilities. These facilities include a 250,000-square-foot large-scale manufacturing (LSM) plant in Research Triangle Park. The LSM has 90,000 liters of bioreactor capacity and is one of the largest biologic manufacturing facilities of its kind in the world.A This facility has already received industry recognition for its exceptional design, innovative modular construction methods, and strong safety record – including the prestigious “Facility of the Year Award for Operational Excellence”B announced in January 2010. Biogen Idec employs approximately 850 people in the Research Triangle area.C Source: A “Manufacturing”, Biogen Idec. http://www.biogenidec.com/ research_manufacturing.aspx?ID=5779 (accessed on December 21, 2010). B Facility of the Year Awards are sponsored jointly by the International Society for Pharmaceutical Engineering, the group’s associated trade show, INTERPHEX, and by Pharmaceutical Processing magazine. http://www. facilityoftheyear.org/foyawinners2010 (accessed on December 31, 2010). C “Biogen RTP Wins Global Award”, North Carolina Biotechnology Center, News and Events, January 12, 2010. http://www.ncbiotech. org/article/biogen-rtp-wins-global-award (accessed on December 21, 2010). • Vaccines (12%) – driven by growth in markets such as HPV (human papilloma virus), pediatric, meningitis, influenza, and other vaccine families through the penetration of biologics. • Dermatology (10%) – driven by the psoriasis market; the chief products spearheading the growth in this market are biologics. • Cancer (8%) – driven by biologics such as Avastin, Rituxan, Velcade, Erbitux, and Herceptin. The Importance of Start-Up Companies to Industry Growth Entrepreneurs and bioscience start-up companies played an important role in the growth outlined above and will continue to be a critical component in the industry’s future. Small businesses with fewer than 500 employees accounted for 65 percent of the net new jobs created during the 1993-2009 period.34 In their first year, new firms collectively add an average of three million jobs, while older companies lose one million jobs annually.35 Most successful biotech drugs emerge from start-ups.36 According to AdvaMed, 28% of the medical technology industry’s research and development spending comes from smaller companies.37 While these start-up companies may leave the ultimate commercialization of their products to larger companies, the life science industry is highly dependent on discoveries initially developed by start-ups. 34 “Frequently Asked Questions” Office of Advocacy, U.S. Small Business Administration. http:// www.sba.gov/advo/stats/sbfaq.pdf (accessed on December 21, 2010). 35 Kane, Tim. The Importance of Startups in Job Creation and Job Destruction. Kauffman Foundation, July 2010, page 2. http://www.kauffman.org/uploadedFiles/firm_formation_ importance_of_startups.pdf (accessed on December 21, 2010). 36 Johnson, Ken. “PhRMA Statement Regarding Benefits of U.S. Innovation”, PhRMA, August 25, 2009. http://www.phrma.org/news_room/press_releases/phrma_statement_regarding_benefits_ of_u.s._innovation (accessed on December 21, 2010). 37 “About Our Industry”, AdvaMed. http://www.advamed.org/MemberPortal/About/Industry (accessed on December 21, 2010). 10 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Tremendous Opportunity for Growth in Life Science Industry Despite the industry’s healing, fueling, feeding and economic impacts to date, a great deal of opportunity for growth remains ahead for the life science industry. As such, localities competing successfully to build and attract companies in the industry are expected to reap significant rewards in terms of job growth and overall economic impact. Several trends that provide optimism behind the growth prospects for the industry are described below. Highly Prevalent Diseases Remain Poorly Addressed by Current Treatments Despite the strong growth in the overall life science industry and biotech industry specifically, many highly prevalent diseases remain poorly addressed by current treatments, implying that the industry has a great deal of room to grow. In 2008, analysts at Lehman Brothers studied data from the Centers for Disease Control and Prevention, National Health Statistics surveys, and National Institutes of Health to identify unmet medical needs by therapeutic category. This study identified many common diseases (each with a U.S. prevalence greater than three million patients) that remain poorly addressed by current therapeutics including: obesity, Alzheimer’s disease, arthritis, chronic obstructive pulmonary disease, depression, cancers, pain, urinary incontinence, and congestive heart failure/ arrhythmia.38 Aging of Population and Other Trends Resulting in Rapid Growth in Highly Prevalent Diseases While the mortality rates and prevalence of some diseases is declining due to the availability of new treatments and preventive measures, epidemiologic and environmental factors are driving the increasing prevalence of a number of common diseases. Three representative examples are Alzheimer’s disease, diabetes and asthma. Alzheimer’s disease is the most common form of dementia, and current therapeutics are unable to stop the disease from progressing.39 In 2007, there were roughly five million Americans with Alzheimer’s disease, but the U.S. prevalence is expected to increase to nearly 16 million by 205040 in large part due to the aging of the population. Exacerbating the societal and economic impact of the disease is the fact that patients with Alzheimer’s may live 10-15 years after diagnosis, therefore having a long-term impact on the patients and their families.41 38 “Pharma/Biotech Pipelines and Unmet Medical Need: A 2008 Analysis”, PAREXEL’s Bio/ Pharmaceutical R&D Statistical Sourcebook 2009/2010, page 77. 39 “What is Alzheimer’s?”, Alzheimer’s Association. http://www.alz.org/alzheimers_disease_what_ is_alzheimers.asp (accessed on December 21, 2010). 40 2010 Alzheimer’s Disease Facts and Figures. Alzheimer’s Association, page 14. http://www.alz. org/documents_custom/report_alzfactsfigures2010.pdf (accessed on December 21, 2010). 41 Anderson, Pauline. “Global Prevalence of Alzheimer’s Disease Set to Double Every 20 Years”, Medscape Medical News, September 24, 2009. http://www.medscape.com/viewarticle/709450 (accessed on December 21, 2010). nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce M a r k e t Op por t u n i t y 11 Growth in the diabetes population is being driven by the aging of the population as well as the sedentary lifestyle and poor eating habits of many Americans. In 2007, the Centers for Disease Control reported that more than 23.6 million Americans had diabetes – up from 18.2 million in 2002. 42,43 The number of Americans with diabetes more than tripled between 1980 and 2008.44 In 2007, the direct and indirect costs associated with diabetes were $174 billion.45 The prevalence of asthma grew to 23.3 million in the U.S. in 2008, and asthma accounted for 14.4 million in lost school days and 14.2 million in lost work days in that year.46 While the rate of increase in asthma prevalence has slowed somewhat, the prevalence had still grown 3% annually over the previous five years.47 Some believe that this increase may be due in part to environmental factors.48 New Technologies Allowing Researchers to Focus on More Targets According to researchers at Accenture Technology Labs, pharmaceuticals are currently directed at no more than 500 targets in the human body.49 Genomic research is expected to yield drugs designed to interact with a far greater number of biological targets, resulting in enhanced efficacy and reduced toxicity in well-defined patient populations. This research is also expected to allow scientists to focus on up to tens of thousands of targets.50 42 National Diabetes Fact Sheet, 2007. Centers for Disease Control, page 12. http://www.cdc.gov/ diabetes/pubs/pdf/ndfs_2007.pdf (accessed on December 21, 2010). 43 National Diabetes Fact Sheet, 2003. Centers for Disease Control. http://www.cdc.gov/diabetes/ pubs/estimates.htm (accessed on December 21, 2010). 44 “Diabetes Data and Trends. Number (in Millions) of Civilian, Non-Institutionalized Persons with Diagnosed Diabetes, United States, 1980–2008”, Centers for Disease Control. http://www. cdc.gov/diabetes/statistics/prev/national/figpersons.htm (accessed on December 21, 2010). 45 National Diabetes Fact Sheet, 2007. Centers for Disease Control, page 12. http://www.cdc.gov/ diabetes/pubs/pdf/ndfs_2007.pdf (accessed on December 21, 2010). 46 Trends in Asthma Morbidity and Mortality. American Lung Association, February 2010. http:// www.lungusa.org/finding-cures/our-research/trend-reports/asthma-trend-report.pdf (accessed on December 21, 2010). 47 Ibid. 48 Priftis, K., et al. “Asthma symptoms and airway narrowing in children growing up in an urban versus rural environment”, Journal of Asthma 46(3): 244-251, 2009. 49 Mesnage, Marion and Illsley, Martin. “Biotechnology: Out of the Labs and Into Every Industry”, Accenture. January 2003. http://www.accenture.com/Global/Research_and_Insights/Outlook/ By_Alphabet/BiotechnologyIndustry.htm (accessed on December 21, 2010). 50 Ibid. 12 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Global Population Growth to Spur Agricultural Biotechnology Applications The world population is currently just under seven billion people.51 The United Nations projects that the population will reach 8.6 billion in 2035.52 Since the global food supply may also need to double during this time period, the application of bioscience to the food supply is a global imperative.53 As such, new approaches to enhancing the food supply, such as those described in the “Feeding” section above, will become even more pressing. Demand for Biofuels Expected to Increase As the population rises and traditional resources for fuel become more limited, demand for biofuels produced by the bioscience industry should continue to grow. According to the U.S. Department of Energy, “Cheap oil fuels America’s economy—most of which is imported. Small changes in crude oil prices or supplies can have an enormous impact on our economy—increasing trade deficits, decreasing industrial investment, and lowering employment levels. Developing a strong industry for biomass fuels, power, and products in the United States will have tremendous economic benefits including trade deficit reduction, job creation, and the strengthening of agricultural markets.”54 51 “U.S. and World Population Clocks”, U.S. Census Bureau, http://www.census.gov/main/www/ popclock.html (accessed December 21, 2010). 52 “World Population Prospects: The 2008 Revision Population Database”, United Nations. http:// esa.un.org/unpp (accessed December 21, 2010). 53 Healing, Fueling, Feeding: How Biotechnology is Enriching Your Life, BIO (Biotechnology Industry Organization), June 2010, page 58. http://www.valueofbiotech.com/sites/default/files/ pdfs/ValueofBiotechFINAL.pdf (accessed December 21, 2010). 54 “Resources for Policymakers”, U.S. DOE, Energy Efficiency and Renewable Energy. http:// www1.eere.energy.gov/biomass/for_policymakers.html (accessed on December 21, 2010). nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce M a r k e t Op por t u n i t y 13 Challenges Facing Growth of Life Science Industry While the impact that bioscience-based products and services has on our welfare is enormous and wide-ranging (health, food, fuel, revenue, employment), it is accompanied by significant challenges in advancing a product from discovery to commercialization. Chapter 3 of this strategic plan will focus on specific gaps and challenges facing North Carolina’s life science industry. On an industry-wide level, much of the commercialization challenge is associated with the high cost and high risk of failure associated with the development of bioscience-related products, particularly biopharmaceuticals. High Costs and High Risk of Failure Associated with Life Science Product Development According to a study by the Tufts Center for the Study of Drug Development, there is only a 16% success rate for drugs entering clinical trials (drug trials in people rather than animals).55 In a Boston Globe article, Peter Wirth, Executive Vice President of Genzyme Corporation stated, “It takes a billion dollars to develop a drug. The critical dilemma now is: how are we going to pay for innovation?”56 Tufts estimated the average cost to develop a new biotech drug at $1.2 billion in 2006.57 Even more pessimistic is research released in 2003 by Bain & Company, a consulting firm, which stated that this cost is more on the order of $1.7 billion, including such factors as marketing and advertising expenses.58 Because of the long period before research and development (R&D) pays off in net income, companies with revenues below $100 million do not, on average, record positive net income; the 79 public bioscience companies with over $1 billion in revenue generate nearly all of the net income for the bioscience industry.59 Unclear Future for Basic Research Funding One area that could present future challenges for the bioscience industry relates to academic bioscience R&D funding. Bioscience R&D expenditures were nearly $32 billion in 2008, representing 60% of all U.S. academic R&D.60 Academic bioscience research grew by 22% from 2004 to 2008.61 55 Outlook 2010. Tufts Center for the Study of Drug Development, Tufts University, page 4. 56 Weisman, Robert. “Biotech firms feel funding squeeze”,, The Boston Globe, October 2, 2009. 57 Outlook 2010. Tufts Center for the Study of Drug Development, Tufts University, page 3. 58 “Has the Pharmaceutical Blockbuster Model Gone Bust?” Bain & Company, December 8, 2003. http://www.bain.com/bainweb/About/press_release_detail.asp?id=14243&menu_url=for_the_ media.asp (accessed on December 21, 2010). 59 Battelle/BIO State Bioscience Initiatives 2010, Battelle Technology Partnership Practice, May 2010, page 3. http://www.bio.org/local/battelle2010/Battelle_Report_2010.pdf (accessed on December 22, 2010). 60 Ibid., page 41. 61 Ibid., page 41. 14 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Federal research funding is a major source of bioscience-related research support, providing some 60% of basic research funding.62 Some institutions are concerned about future levels of such funding. The National Institutes of Health (NIH) funds intramural research (research conducted on-site at the NIH campuses), extramural research (generally university-based) and early-stage company R&D (via its Small Business Innovation Research [SBIR] and related grants programs). In 2009, NIH baseline funding of $21.5 billion declined 7.5% from the previous year.63 An additional $4.4 billion of research was funded by the American Recovery and Reinvestment Act of 2009 (ARRA).64 When commenting on the welcome influx of ARRA money, Alan Eisenberg, Executive Vice President for Emerging Companies and Business Development at BIO, said, “The NIH money granted for basic biomedical research could have a beneficial, long-run effect on biotech firms, which will help bring promising discoveries from the lab to commercial viability.”65 However, overall NIH funding has been flat since 2003, which is a cause of concern within the bioscience industry.66 Decline in Venture Capital Funding and Initial Public Offerings As is described in much more detail in Chapter 3, venture capital funding for bioscience companies and growth companies in general has declined significantly. Additionally, venture capital groups appear to be more focused on later-stage companies than in the past, leaving a wide funding gap for early-stage companies. Finally, initial public offering activity has declined (as further delineated in Chapter 3), leaving companies with fewer funding options as they move into expensive late-stage clinical trials. 62 Sparking Economic Growth, The Science Coalition. April 2010, page 3. http://www. sciencecoalition.org/successstories/resources/pdf/Sparking%20Economic%20Growth%20 Full%20Report%20FINAL%204-5-10.pdf (accessed on December 21, 2010). 63 Battelle/BIO State Bioscience Initiatives 2010, Battelle Technology Partnership Practice, May 2010, pages 42-43. http://www.bio.org/local/battelle2010/Battelle_Report_2010.pdf (accessed on December 22, 2010). 64 Ibid., page 42. 65 Biotech: Lifting Big Pharma’s Prospects with Biologics, PricewaterhouseCoopers. May 2009. http://www.pwc.com/en_GX/gx/pharma-life-sciences/pdf/biotech-final.pdf (accessed on December 21, 2010). 66 Battelle/BIO State Bioscience Initiatives 2010, Battelle Technology Partnership Practice. May 2010, page 42. http://www.bio.org/local/battelle2010/Battelle_Report_2010.pdf (accessed on December 22, 2010). “While helping to meet some critical needs resulting from previous budget shortfalls, the funding provided by the ARRA was unprecedented and short-term. Scientific research is an on-going process that requires strong, predictable funding year-in and year-out. A funding tap that runs hot and cold wreaks havoc on the research process and diminishes our ability to benefit from the innovations that flow from it. It is essential to America’s global competitiveness and long-term economic health that the U.S. invest in basic research significantly and consistently year-over- year.” Source: Sparking Economic Growth, The Science Coalition. April 2010, page 14. http://www.sciencecoalition. org/successstories/resources/pdf/ Sparking%20Economic%20Growth%20 Full%20Report%20FINAL%204-5-10. pdf (accessed on December 21, 2010). nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce M a r k e t Op por t u n i t y 15 Life Science Opportunity Put in Context of Challenges Ahead This chapter presented the major effects that the life science industry is having on human health, our food supply, and fueling the economy. The growth in the industry has resulted in an impressive jobs and tax base, and this rapid growth is expected to continue as a result of a range of factors described earlier. However, combining the high cost of taking a product from the discovery phase to commercialization with questions around sources of funding for such research and development, funding gaps arise that must be bridged and product development challenges occur that need to be surmounted. Only those companies (and the localities in which they are based) that are able to bridge these gaps and surmount these challenges will be successful in benefiting from the continued growth in the life science industry. The next chapter describes how North Carolina has grown into a leading hub for the life science industry through successes across a range of subsectors within the industry. North Carolina has developed several distinctive strengths, which have resulted in its strong industry position, and these strengths are also described. However, as detailed in Chapter 3, the state faces a number of challenges to building upon its leadership position, and failure to confront these challenges will negatively impact the state’s ability to benefit from the tremendous growth likely ahead for the bioscience industry. As such, the balance of this report, Chapters 4-7, presents several strategies to successfully overcome these challenges. nor th carol i n a b i o t echnology c en t e r North Carolina’s early and long-term commitment to biotechnology has played a key role in establishing a large and growing life science industry in the state. This chapter details the strong positive impact that the life science industry has had on North Carolina as well as several of the factors behind the state’s success in the industry to date. While North Carolina appears poised to garner more than its fair share of the tremendous life science market opportunity described in Chapter 1, this chapter also describes a few “disconnects” which must be addressed to ensure that the state’s success in the life science industry to date is continued in the coming decades. North Carolina’s Life Science Industry’s Large and Growing Statewide Economic Impact North Carolina was early in seeing the economic opportunity associated with establishing a strong biotechnology industry, as part of the state’s transition from a traditional economy based on textiles, tobacco and furniture. The creation of the North Carolina Biotechnology Center (the Biotechnology Center) in 1984 and consistent state funding of the Center since reflect the state’s commitment to further growing the sector. This investment has begun to yield tangible benefits for North Carolina in that the state is now home to the third largest number of biotechnology companies among all states,1 and has built a strong bioscience jobs and tax base. “The reason we are ahead of the curve is because for 15 years we’ve invested in the biotech industry and it’s paying dividends.” —Norris Tolson, President/CEO, North Carolina Biotechnology Center2 Strong Growth in High-Paying Jobs North Carolina’s biotechnology sector provides a major economic boost to the state. Total biotechnology-related employment (direct & indirect) grew to more than 226,000 jobs with payroll and benefits totaling $12.7 billion in 2008.3 1 Beyond Borders: The Global Biotechnology Report, Ernst & Young, 2006. 2 Friedman, Bob. “Biotech could pave NC’s path out of the recession”, Business Leader Magazine (NC-Triangle), September-October 2010, page 38-39. 3 2010 Evidence and Opportunity: Biotechnology Impacts in North Carolina, Battelle Technology Partnership Practice, 2010, page i, vi. Chapter 2: Life Science Opportunity in North Carolina 18 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Biotechnology is responsible for $64.6 billion in total economic output and generates $1.9 billion in state and local taxes as shown in Table 2-1.4 Table 2-1: Total (Direct and Indirect) Economic Impact of Biotechnology in North Carolina 2010 Reported Impact 2008 Reported Impact Change 2008–2010 Employment 226,823 180,007 46,816 jobs increase Employment Compensation $12.7 billion $9.4 billion $3.3 billion increase Business Volume (Economic Output) $64.6 billion $45.8 billion $18.7 billion increase State and Local Taxes $1.92 billion $1.44 billion $0.48 billion increase Note: Data in the 2010 economic impact report are from 2008, and data in the 2008 report are from 2006. Bioscience employment in the state grew 29% from 2001 to 2008,5 which was nearly twice the national bioscience sector growth rate and more than five times that of North Carolina’s total private sector. Furthermore, Figure 2-1 reflects that employment growth in the state’s bioscience industry tended to be positive during periods when employment in the state’s private sector was in decline (2001-3, 2007-8), demonstrating that this industry may indeed be able to weather periods of economic decline far better than others. When compared to the other top ten states in overall bioscience employment, North Carolina’s job growth during 2001-2008 outpaced all states except Massachusetts.6 Further, the Biotechnology Center predicts that the state could see an additional 65,000 – 70,000 biotechnology jobs throughout North Carolina by 2020.7 Not only has the state’s life science industry grown rapidly (even in challenging economic times), but salaries are comparatively quite high in the industry. Wages for North Carolina’s bioscience workers rose to an average salary of $74,829 in 2008, which was $35,000 more than the state’s average private-sector salary.8 It is important to note that this growth brings additional collateral economic benefit to support sectors not directly represented in these data: 4 Ibid. 5 Ibid., page 8. 6 Ibid., page 27. 7 Friedman, Bob. “Biotech could pave NC’s path out of the recession”, Business Leader Magazine (NC-Triangle), September-October 2010, page 38-39. 8 2010 Evidence and Opportunity: Biotechnology Impacts in North Carolina, Battelle Technology Partnership Practice, 2010, page 13. 130 125 120 115 110 105 100 95 90 2001 2002 2003 2004 2005 2006 2007 2008 Employment Index (2001 = 100) NC Biosciences US Biosciences NC Total Private Sector 29% Figure 2-1: Rapid Employment Growth in North Carolina’s Bioscience Industry nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce Op por t u n i t y i n Nor t h Ca rol i n a 19 “The life sciences are an engine of job creation with a high “multiplier” rate – they create a lot of jobs indirectly. In addition to elite, Ph.D.- level positions, the life sciences create a range of jobs, including support and manufacturing roles ideal for workers transitioning from declining industries such as furniture or textiles. If North Carolina is to climb out of the recession permanently, it will do so on the shoulders of good-paying, sustainable jobs like these.” —Art Pappas, Founder and Managing Partner, Pappas Ventures9 Unusually Diverse Life Science Community While many states have one or two strong niches within the bioscience sector, North Carolina has a notably diverse employment composition.10 Figure 2-2: Breadth of North Carolina’s Bioscience Industry – Employment Composition National statistics corroborate the unusual breadth of life science research and commercialization found in the state. Based on 2001-2008 employment metrics, North Carolina is one of only five states specialized in three of these four bioscience subsectors (Agricultural Feedstock & Chemicals; Research, Testing & Medical Labs; and Drugs & Pharmaceuticals), and is one of the top seven states in employment growth in the Medical Devices & Equipment subsector.11 In addition to being a major U.S. hub for biopharmaceutical research and development, North Carolina is home to the headquarters of three of the top ten contract research organizations (CROs) in the world, with a combined global market share of 9 Pappas, Arthur M. “Legislators aid N.C. life sciences”, News & Observer, Raleigh, NC. Point of View. July 16, 2010. http://www.ncbioscience.org/news_and_events/documents/ArtPappas- NOOpEd7-16-2010.pdf (accessed on December 21, 2010). 10 2010 Evidence and Opportunity: Biotechnology Impacts in North Carolina, Battelle Technology Partnership Practice, 2010, page 10. 11 Battelle/BIO State Bioscience Initiatives 2010, Battelle Technology Partnership Practice, May 2010, page iv. http://www.bio.org/local/battelle2010/Battelle_Report_2010.pdf (accessed on December 22, 2010). Agricultural Feedstock & chemicals Medical Devices & Equipment Research, Testing & Medical Labs Drugs & Pharmaceuticals 35% 40% 17% 8% The Hamner The Hamner Institutes for Health Sciences is a nonprofit organization located in Research Triangle Park whose mission is to “improve public health through better predictive assessments of chemical and drug safety while helping to develop new breakthrough medicines and diagnostics.” The Hamner routinely collaborates with federal agencies such as the Centers for Disease Control, the Environmental Protection Agency and the Food and Drug Administration. In 2008, the Hamner-UNC Center for Drug Safety Sciences was formed to foster new alliances between academia, industry and government regulatory agencies to advance public health research, education and scientifically informed policies. 20 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r 27%.12 In addition to North Carolina’s strengths in human health fields, four of the top five U.S. agricultural companies have significant biotechnology research operations in the state. The North Carolina Biotechnology Center recently launched several initiatives to further broaden North Carolina’s life science industry base. The Centers of Innovation (COI) grant program catalyzes development and strengthening of new industry sectors within the North Carolina economy by making innovation and commercialization a strategic priority. COIs represent partnerships between the Biotechnology Center, university researchers, technology transfer officers, industrial partners, nonprofit stakeholders and policymakers. COIs have been created to support the state’s medical device, oncology-focused drug discovery, nanobiotechnology and marine biotechnology subsectors. Each of these subsectors has attained some degree of critical research mass across the state but previously lacked a state-wide infrastructure and public-private cohesion to satisfactorily drive these sectors towards commercialization and economic impact. More recently, the 30 in 10 Agbiotech Initiative was launched, with a goal of expanding the commercial contributions from local agricultural biotechnology efforts to the state’s agri-economy, thereby growing the agriculture component of the gross state product ($70.1 billion at the time of that report) by $30 billion in ten years.13 The economic benefits of this initiative will be strongly realized in rural areas most impacted by challenges in the state’s traditional industries such as textiles, tobacco and furniture. 12 The Top 10 Contract Research Organizations, Business Insights, March 2009. 13 30 in 10: Growing North Carolina’s AgBiotech Landscape, North Carolina Biotechnology Center, 2009, page 4. http://www.ncbiotech.org/sites/default/files/agbiotech_30in10_2.pdf (accessed on December 22, 2010). Tobacco: Creating Jobs, Saving Lives In the past, tobacco has had a negative impact on human health. But in Research Triangle Park, one company plans to use tobacco instead to save lives. Medicago, a Montreal-based pharmaceutical company, is using the plant as a tool for producing flu vaccines. Medicago recently chose Research Triangle Park for its 90,000 square foot manufacturing facility, which will create up to 85 jobs. North Carolina’s tobacco history also resulted in the founding of Targacept, which is now one of North Carolina’s leading public bioscience companies. Targacept was started in 1997 based on research originating at R.J. Reynolds Tobacco Company (RJR) and is headquarted in Winston- Salem. Its drug candidates are aimed at treating a wide range of disorders, including Alzheimer’s disease, depression, Parkinson’s disease, ADHD, and schizophrenia. photo © Medicago nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce Op por t u n i t y i n Nor t h Ca rol i n a 21 Life Science Efforts Spread Across the State While much of North Carolina’s life science momentum is concentrated in the Research Triangle region, it should be noted that there are significant research, development and commercialization efforts spread across the state. In addition to Targacept, the Piedmont Triad region boasts other significant life science assets, including TransTech Pharma, Tengion, Banner PharmaCaps, Wake Forest University and its new Institute for Regenerative Medicine. Gaia Herbs and other natural products-focused businesses have concentrated in the western part of the state. The greater Charlotte area is home to UNC-Charlotte and the new North Carolina Research Campus in Kannapolis. Eastern North Carolina is represented by East Carolina University (Greenville) and Avoca, a manufacturer of fragrance from clary sage in Merry Hill, N.C. The southeast is represented by PPD (one of the world’s largest contract research organizations), UNC-Wilmington, the UNCW Center for Marine Science and its biotechnology commercialization incubator (MARBIONC), AAI Pharma (Wilmington) and Pfizer Poultry Health (Laurinburg). Life science-related manufacturing efforts are particularly well-distributed across the state, including Novozymes (Franklinton), Novartis (Holly Springs), Pfizer/Wyeth (Sanford), Metrics (Greenville) and DSM (Greenville). To further cultivate and leverage the life science advantages specific to each of these regions, the Biotechnology Center has opened regional offices in Winston-Salem, Charlotte, Greenville, Wilmington and Asheville. Additionally, the Biotechnology Center currently has active loans to biotechnology companies in all parts of the state. North Carolina Research Campus The North Carolina Research Campus (NCRC) was established in Kannapolis to foster research collaborations in the areas of biotechnology, health and nutrition. NCRC is a public-private partnership between benefactor David H. Murdock and the state of North Carolina. The Campus supports researchers from eight North Carolina universities, industry partners and not-for-profit institutions with core facilities offering state-of-the art discovery tools and an abundance of laboratory and office space. Photo © NC Research Campus 22 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Key Drivers of North Carolina’s Life Science Industry Growth The North Carolina life science industry has clearly established a great deal of momentum which must be continued over the coming decades in order to fully reap the economic benefits. This momentum has been built through the leveraging of a vast, diverse and uncommon array of assets found in the state. The availability of these assets will continue to be critical as the state seeks to further build its strong position in the life science industry. Among the most critical of these building blocks are: • an abundance of world-class research institutions (including university, government and nonprofit laboratories) and their associated technology transfer and commercialization efforts • a base of large corporations with significant operations in the state (which contributes human capital at all levels) • the global headquarters for many top contract research (CRO) businesses • a support infrastructure facilitated in part by entities such as the North Carolina Biotechnology Center, the Council for Entrepreneurial Development (CED), and the Small Business and Technology Development Center (SBTDC) • a biotechnology- and entrepreneur-friendly state government and business climate Several of the key drivers behind the growth of North Carolina’s life science industry are described in the following sections. Growth Spurred By Emerging Companies The growth in the state’s life science sector derives not only from the expansion of companies already established in North Carolina, but also from the creation of new companies and the relocation of other life science businesses to the state. The great majority of the state’s life science companies are start-up companies with fewer than 50 employees. North Carolina’s strong academic research institutions, along with numerous programs to nurture emerging companies, have driven high growth in the number of life science start-ups established here. Many early-stage discoveries, which ultimately lead to commercialized products, come out of the state’s leading academic research institutions. As described later in this chapter, Duke and UNC-Chapel Hill are both among the top 20 universities in research expenditures, but these two schools represent just the tip of the iceberg in terms of important life science research ongoing in the state. Work at these institutions is actively supported by the North Carolina Biotechnology Center and other statewide groups. For instance, the Biotechnology Center’s Oliver Smithies Faculty Recruitment Grants program has provided $11 million to aid the state’s Big Business Starts with Tiny Particles Advanced Liquid Logic, a Research Triangle Park firm spun out of Duke University with the help of several Biotechnology Center loans, is developing high-speed diagnostic tests that use nano-sized droplets of fluids. This “lab-on- a-chip” technology performs complex laboratory operations on miniscule “microfluidic” platforms. Advanced Liquid Logic is one of some 75 North Carolina companies developing nanobiotechnology applications. nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce Op por t u n i t y i n Nor t h Ca rol i n a 23 research institutions in recruiting 56 research faculty members who then founded ten companies and landed $542 million in other funding.14 Significant life science start-up company formation originates from the state’s research universities. Table 2-2 shows the number of start-up companies created in 2008 to commercialize technologies invented at local universities. Business and research loan funding provided through the Biotechnology Center is often the first external financing available to emerging life science companies in the state. More than half of all loans awarded by the Biotechnology Center have been made to companies spun out of the state’s public or private universities, highlighting the continued prominence of university start-ups in the local demographic of early-stage companies. Many companies that benefit from Biotechnology Center loans either subsequently commercialize their products or are acquired. It is important to note that of the 57 companies in the Biotechnology Center’s current loan portfolio, only one has more than 50 employees. This data point reflects the high number of early-stage, emerging life science companies based in North Carolina. (The Biotechnology Center loan program is described in further detail in Chapter 5.) The Biotechnology Center also supports companies built to commercialize university inventions through its BATON program, which maps prequalified service providers and management candidates to promising nascent companies. In its three year history, the program has supported the creation of 17 university start-ups birthed at seven universities in the state. Employment Growth Driven By Larger Firms Locating Large Divisions Here The list of major bioscience and related companies headquartered in North Carolina draws heavily from the biopharmaceuticals, diagnostics and CRO sectors. Of these, among the largest employers are: Laboratory Corporation of America (LabCorp), PPD, Talecris, RTI International, Quintiles, Spectrum- Carilion Labs, Banner PharmaCaps, bioMerieux, INC Research, AAI Pharma, Family Health International, Novella Clinical and Rho. However, multinational corporations headquartered elsewhere but with significant operations in North Carolina are increasingly important contributors to the state’s life science economy. The list of those that employ at least 300 North Carolinians includes companies from the biotechnology, pharmaceutical, medical device and agricultural biotechnology worlds such as: GlaxoSmithKline, Hospira, Baxter Healthcare, DSM, Syngenta Crop Protection, Pfizer, BD Technologies, Proctor & Gamble, Teleflex Medical, Biogen Idec, BASF Crop Protection, Bayer CropScience, Merck & Co., Thermo Fisher Scientific, Cook Medical, Covidien, Merck Biomanufacturing Network (Diosynth Biotechnology), Novo Nordisk, Novozymes, Sandoz, Eisai, Catalent Pharma Solutions and West Pharmaceuticals.15 14 North Carolina Biotechnology Center, “Grant Funding Proves Successful” brochure 15 Company Directory. North Carolina Biotechnology Center. http://directory.ncbiotech.org (accessed on December 21, 2010). Table 2-2: Start-Up Company Formation by North Carolina Universities in 2008 Institution Startups Formed Duke University 7 East Carolina University 1 North Carolina State University 5 UNC-Greensboro 2 UNC-Chapel Hill 5 UNC-Charlotte 3 Wake Forest 2 Total 25 Source: AUTM U.S. Licensing Activity Survey, FY2008 Survey Summary, Association of University Technology Managers, 2010, pages 47-51. 24 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Workforce Development Programs Playing Key Role in Growth North Carolina is particularly innovative with regards to its coordination of industry-driven workforce development efforts. Historically a training ground for Ph.D.-level researchers destined to ascend into the academic ranks, the state has methodically created and funded a first-in-class workforce training effort in coordination with its community colleges, universities, corporations and the North Carolina Biotechnology Center. These efforts have culminated in the creation of a biomanufacturing talent pool that has been instrumental in the successful recruitment of large manufacturing operations to the state in recent years. “North Carolina’s ‘ace’ was its ability to provide an instantaneous workforce.” —Joerg Reinhardt, CEO, Novartis Vaccines and Diagnostics, announcing the company’s new flu vaccine biomanufacturing facility in Holly Springs16 These efforts were programmatically initiated with the introduction of the BioWork course, developed by the Biotechnology Center in partnership with the community college system and industry. In turn, biomanufacturing workforce development efforts have been extended under the NCBioImpact umbrella to include the university-scale programs, BRITE and BTEC (see sidebar). Finally, the Industrial Fellowship Program was recently created by the Biotechnology Center as a unique effort to transition promising academic researchers to scientific careers in industry. Statewide efforts in workforce development contributed to the Milken Institute’s Biotech Index report ranking of the Research Triangle area as No. 1 in human capital and biotechnology workforce.17 North Carolina’s Increasing Prominence as a Leader in Biomanufacturing As indicated earlier, North Carolina has become a prominent location for manufacturing operations for pharmaceutical, biological and industrial products. When companies site their manufacturing operations in North Carolina, a large number of new positions for highly skilled workers typically become available. Some of the world’s largest pharmaceutical companies have established new manufacturing facilities in in the state. Novartis Vaccines and Diagnostics chose Holly Springs over several other locations to locate a $267 million plant to produce a flu vaccine. Merck built a $300 million facility in Durham to produce vaccines for measles, mumps, rubella, chicken pox, and shingles. Both companies have since announced growth plans for these plants and the creation of additional jobs. 16 North Carolina Biotechnology Center. http://www.ncbiotech.org/workforce-education/ workforce-development (accessed on January 4, 2011). 17 DeVol, Ross, Wong, Perry et al. America’s Biotech and Life Science Clusters: San Diego’s Position and Economic Contributions, Milken Institute, June 2004, page 3. http://www. milkeninstitute.org/pdf/biotech_clusters.pdf (accessed on December 22, 2010). Job-Ready Employees, Day One NCBioImpact is North Carolina’s largest training consortium, delivering a full spectrum of industry-driven training for biomanufacturing and pharmaceutical production. This coordinated workforce training is provided through a variety of courses, certificates and degree programs developed as part of a first-in-class partnership between biomanufacturing businesses, universities, and the North Carolina Biotechnology Center. BioNetwork offers a curriculum of short, industry-customized courses offered through the North Carolina Community College System that are designed to upgrade the skills of incumbent workers. North Carolina Central University’s BRITE (Biomanufacturing Research Institute and Technology Enterprise) is preparing students for research careers in the biotechnology and biomanufacturing workplaces, particularly in the areas of drug discovery and manufacturing process development. BTEC (Biomanufacturing Training and Education Center), located on North Carolina State University’s Centennial Campus, deploys a system of advanced, hands-on training and education in a simulated cGMP (current Good Manufacturing Practice) environment using facilities and equipment that match those in place at the world’s leading biomanufacturing companies. Source: NCBIOIMPACT. http://www. ncbioimpact.org (accessed on December 22, 2010). nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce Op por t u n i t y i n Nor t h Ca rol i n a 25 Novo Nordisk Pharmaceutical Industries and United Therapeutics, two companies with a long-term North Carolina presence, are also expanding their efforts in the state. As part of its $68 billion acquisition of Wyeth in 2009, Pfizer now operates a vaccine plant in Sanford. Pfizer Poultry health purchased North Carolina-based Embrex and now operates a poultry vaccine plant near Laurinburg. GlaxoSmithKline, Merck Biomanufacturing Network, Talecris, Biogen Idec and Novozymes all operate significant life science manufacturing facilities in North Carolina. North Carolina’s success in attracting biomanufacturing operations in part has resulted from strategic efforts to provide these companies with a skilled technical workforce, as mentioned earlier. Additionally, the availability of affordable land and substantial water resources is often cited as a competitive advantage for North Carolina. Biomanufacturing Whether it is physical infrastructure, human resources or support companies, North Carolina provides what a biomanufacturing facility needs. More than 50 companies manufacturing biologics, pharmaceuticals and diagnostics already call North Carolina home. These companies, including Biogen Idec, GlaxoSmithKline, Novozymes, Pfizer, and Talecris, operate some of the largest and most unique facilities of their kind. Southport Wilmington Maxton Fayetteville Pisgah Forest Marion Brevard Boone Lenoir Lincolnton Huntersville Landis Charlotte Burlington Greensboro Whitsett High Point Franklinton Holly Springs Pittsboro Morrisville Clayton RTP Zebulon Sanford Durham Raleigh Rocky Mount Farmville Wilson Greenville Pharmaceutical Service Providers Biomanufacturers Manufacturers of Traditional Pharmaceuticals and Diagnostics North Carolina’s Vaccine Development Cluster One of the most significant recent trends in the biopharmaceutical industry has been the rapid growth of the vaccine development sector. Numerous public-private partnerships are being forged to establish new vaccine production technologies to facilitate the rapid development of strain-specific vaccines in response to the occurrence of pandemics. Global vaccine sales reached $19 billion in 2008 and are expected to grow 15% annually over the next five years. North Carolina’s biomanufacturing workforce and infrastructure strengths are proving to be major contributors to a growing vaccine production cluster in the state. Pfizer, Novartis, Merck, GlaxoSmithKline and Medicago each now have major vaccine R&D and/or production facilities in the state. This formidable cluster is further enriched with up-and-coming homegrown R&D companies such as Alaeras, AlphaVax, Argos Therapeutics, ArboVax, Global Vaccines, Greer Labs, ImmunoBiosciences, Liquidia, Peptagen, Pique Therapeutics and SoyMeds, which are developing new vaccines and vaccine-enabling technologies. Source: Biotech 2010 Life Sciences: Adapting for Success, Burrill & Company, 2010, page 37. 26 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r “Disconnects” That Could Impact Future Growth and Economic Impact North Carolina has developed into a leading life science hub, resulting in a highly positive impact on the state’s economy. However, it is vitally important to understand that the economic momentum to date, while encouraging, is in no way a guarantee for future economic growth. The presence of the commercialization components currently available in the state may not be sufficient to take these economic gains to the next level. Upon deeper inspection, there are “disconnects” that suggest breakdowns in the flow of life science commercialization efforts within the state; indeed, exploration of these disparities may help to define factors that disrupt the state’s ability to fully realize the economic potential of this industry. Few Revenue-Generating Public Companies Headquartered Here Although North Carolina ranks third in the nation in number of biotechnology companies, few established biotechnology companies are headquartered here. According to Ernst & Young, in 2009 there were 313 public biotechnology companies headquartered in the U.S. and only 10 (3%) of those companies were based in North Carolina.18 Likewise, from MedAdNews’ list of the top 100 public biotechnology companies worldwide based on revenues, only four are headquartered in North Carolina – Talecris, Inspire, Targacept, and Trimeris.19 By comparison, 25 of the top 100 are based in California, 15 in Massachusetts, eight in New York, seven in Maryland, and five in New Jersey.20 Table 2-3 shows how North Carolina’s life science industry compares to the U.S. industry overall on several relevant metrics. 18 Giovannetti, Glen T. and Jaggi, Gautam. Beyond Borders: Global Biotechnology Report 2010, Ernst and Young. http://www.ey.com/Publication/vwLUAssets/Beyond_borders_2010/$FILE/ Beyond_borders_2010.pdf (accessed December 21, 2010). 19 “Top 100 Biotechnology Companies: A mixed bag for biotech”, MedAdNews, 29(6), June 2010. 20 Ibid. nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce Op por t u n i t y i n Nor t h Ca rol i n a 27 Table 2-3: North Carolina Life Science Industry Relative to U.S. Life Science Industry (Dollars in Millions) N.C. U.S. N.C. (% of U.S.) Sector Jobs (2008)A 53,615 1,420,324 4% Bioscience Biotechnology Patents (2009)B 126 6,125 2% Biotechnology National Institutes of Health Funding (2009)C $1,141 $25,838 4% Bioscience VC Funding Rounds (1H10)D 4 111 4% Bioscience VC Funding Rounds (2009)E 12 273 4% Bioscience Public Companies (2009)F 10 313 3% Biotechnology Revenue of Headquartered Public Companies (2009)G $1,916 $56,637 3% Biotechnology R&D of Headquartered Public Companies (2009)H $332 $17,179 2% Biotechnology Revenue of Headquartered Public Companies ex Talecris (2009)I $383 $55,104 0.7% Biotechnology Source: A 2010 Evidence and Opportunity: Biotechnology Impacts in North Carolina, Battelle Technology Partnership Practice, 2010, page iii. B Based on a search of the U.S. Patent and Trademark Office patent database. C “Dollars Awarded by State for 2009”, Research Portfolio Online Reporting Tools (RePORT), National Institutes of Health. http://report.nih.gov/award/ trends/State_Congressional/StateOverview.cfm (accessed December 22, 2010). D Trend Analysis: 1Q10 Bioscience VC, M&A and IPO Overview; Trend Analysis: 2Q10 Bioscience VC, M&A and IPO Overview, OnBioVC. E Trend Analysis: 2009 Bioscience VC, M&A and IPO Overview, OnBioVC. http://onbiovc.com/wp-content/uploads/2010/02/onbiovc-trend-analysis- 2009-year-in-review.pdf (accessed on December 22, 2010). F Giovannetti, Glen T. and Jaggi, Gautam. Beyond Borders: Global Biotechnology Report 2010, Ernst and Young. http://www.ey.com/Publication/vwLUAssets/Beyond_ borders_2010/$FILE/Beyond_borders_2010.pdf (accessed December 21, 2010). G Ibid. H Ibid. I Ibid.; Talecris 2009 10-K; North Carolina Biotechnology Center data. North Carolina’s biotechnology industry employment growth has been impressive, especially given that employment has already surpassed the goal of creating 48,000 biotechnology-related jobs by 2013 set in a January 2004 strategic plan that was spearheaded by former Governors James B. Hunt, Jr. and James G. Martin.21 Yet when considered in context, this number represents only 4% of all U.S. biotechnology employment because the great majority of the biotechnology companies based here are small start-ups. To continue and potentially accelerate the growth of North Carolina’s life science industry, it will be important to convert more of the state’s promising start-ups into established, revenue-generating companies. 21 New Jobs Across North Carolina: A Strategic Plan for Growing the Economy Statewide through Biotechnology, North Carolina Biotechnology Center, January 2004, pages 4-5. 28 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Acquisition of North Carolina Companies on the Cusp of Success As described in more detail in Chapters 3 and 6, some of North Carolina’s most promising life science companies have been acquired just as they were on the cusp of success and therefore would have soon begun providing major economic benefits to the state. Other North Carolina life science companies have been acquired after already achieving commercial success. For example, North Carolina’s Talecris Biotherapeutics, already highly successful with $1.5 billion in 2009 revenue, has agreed to be acquired by the Spanish firm, Grifols.22 While sale of a life science company is a common approach that founders and investors use to monetize their time and investments, it is important that North Carolina provide a support system and funding infrastructure to enable these companies to remain independent if they choose to do so. Although acquisition is often a positive result for the stockholders of these young entities, it often puts decisions relating to employment and long-term commitment to the state in the hands of entities based outside North Carolina. Mixed Returns from Academic Bioscience Research North Carolina is well known for the basic science research strengths of its leading academic research institutions; indeed, North Carolina ranks 5th in the U.S. with over $1.5 billion spent on academic bioscience research and development.23 Additionally, both Duke and UNC-Chapel Hill are among the country’s top 20 academic research institutions as ranked by research expenditures as shown in Table 2-4. However, in reviewing commercialization metrics such as patents, licenses and licensing income, the data are mixed as to whether these research expenditures are being maximized toward the commercialization of new products. For instance, the state ranked only 14th among all states in terms of bioscience patents issued during the 2004-2009 period.24 This ranking is also reflected in the fact that North Carolina’s biotechnology patents only accounted for 2% of the country’s biotechnology patents in 2009.25 Table 2-4 indicates that the state’s leading academic research institutions are having mixed levels of success in translating their research expenditures into patents filed and issued. The data in Table 2-4 reflect mixed results on other commercialization metrics as well. For instance, North Carolina’s top research institutions appear to be having success in executing licenses and options around their discoveries with commercial organizations. However, start-up formation and license income received by our universities tend to lag those of other leading universities (Wake 22 Bennett, Simeon and Sargent, Carey. “Grifols Agrees to Buy Talecris for $3 Billion”, Bloomberg Businessweek, June 7, 2010. http://www.businessweek.com/news/2010-06-07/grifols-agrees-to-buy- talecris-for-3-billion-update6-.html (accessed on December 22, 2010). 23 Battelle/BIO State Bioscience Initiatives 2010, Battelle Technology Partnership Practice, May 2010, page 42. http://www.bio.org/local/battelle2010/Battelle_Report_2010.pdf (accessed on December 22, 2010). 24 Ibid. 25 North Carolina Biotechnology Center data. The Largest IPO of 2009 North Carolina-based Talecris Biotherapeutics raised $1.1 billion with its 2009 initial public offering. According to Michael Constantino, Ernst & Young’s Managing Partner in Raleigh, “Following the transaction, the company’s market capitalization was $2.3 billion; the PE (private equity) investors had received aggregate proceeds from dividends, sales of stock and other fees in excess of $1.3 billion; and the investors still controlled approximately 50% of Talecris’ common stock – an incredibly successful outcome both for the business and its investors.” Source: Giovannetti, Glen T. and Jaggi, Gautam. Beyond Borders: Global Biotechnology Report 2010, Ernst and Young. http://www.ey.com/ Publication/vwLUAssets/Beyond_ borders_2010/$FILE/Beyond_ borders_2010.pdf (accessed on January 4, 2011). nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce Op por t u n i t y i n Nor t h Ca rol i n a 29 Table 2-4: 2008 Technology Transfer Activity for North Carolina Universities (U.S. Rankings) Institution Research Expenditures Invention Disclosures New Patent Applications U.S. Patents Issued Licenses & Options Excecuted Start-Ups Formed License Income Duke University 13 27 30 30 5 24 34 East Carolina University 175 166 159 140 155 109 112 North Carolina State University 45 38 29 22 13 32 N/A UNC-Greensboro 159 154 166 156 132 81 152 UNC-Chapel Hill 20 52 72 55 18 36 78 UNC-Charlotte 165 118 85 112 161 67 160 Wake Forest University 101 111 N/A 85 96 88 8 Source: AUTM U.S. Licensing Activity Survey, FY2008 Survey Summary, Association of University Technology Managers, 2010. Note: Data represent rankings among 184 reporting U.S. universities, hospitals and research institutes, and are not limited to life science research and commercialization. Forest’s licensing income for 2008 was largely influenced by a single blockbuster licensing program). These data suggest challenges that may be keeping North Carolina’s discoveries from translating into start-up companies and, ultimately, product commercialization. In other words, the considerable research momentum of the state’s research universities appears to not be uniformly maintained upon transition towards commercialization. These data suggest a significant disconnect between North Carolina’s strong academic research enterprise and the efficiency of translating that research into products that will be developed further in the state. As such, there appear to be untapped assets within North Carolina universities that could drive additional economic growth for the state. 30 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Ensuring that North Carolina Maximizes its Life Science Opportunity The life science industry is large and its economic impact is growing rapidly, as characterized in Chapter 1. Rapid growth preferentially brings economic benefits to regions with established life science industries and the building blocks necessary for expansion. For life science employment in particular, there exists an unusually high multiplier effect for additional jobs and services. Not surprisingly, the competition for the economic benefits associated with a thriving bioscience industry is fierce and increasingly global. North Carolina has earned its status as one of a handful of global biotechnology industry hubs, and the state has enjoyed major economic benefits associated with its life science industry. Also, because key building blocks have been put in place, there are encouraging signs that the momentum established to date will continue, enabling the state to maintain its share of the industry opportunity described in Chapter 1. Moreover, with refinement of the building blocks already in place plus strategic investments in new programs, the state has the opportunity to not simply maintain status quo, but to accelerate the rate of its commercialization efforts (and the associated economic gains for the state). Several concerning observations are identified in Chapter 2 that suggest that the flow along North Carolina’s life science commercialization continuum is far from optimal and that, as a result, there are additional unrealized economic gains for the state being left on the table. Chapter 3 identifies several gaps that threaten the future growth of the state’s bioscience industry. In subsequent chapters, we present a series of strategies to overcome these gaps and accelerate the commercialization of life sciences technologies in North Carolina. nor th carol i n a b i o t echnology c en t e r Chapter 3: Challenges Facing Commercialization of Life Science Technologies in North Carolina The development of this report was prompted by a legislative bill requesting that the North Carolina Biotechnology Center prepare “a strategic plan to accelerate the commercialization of life science technologies and discoveries being developed in universities and private companies in North Carolina and the related development and production of new commercial products.”1 As such, the first step in the development of this strategic plan was to understand the challenges (gaps) that represent significant obstacles to such commercialization. Once these obstacles were clearly elucidated, the focus shifted to developing strategies that would surmount the challenges (bridge the gaps) to ultimately accelerate the commercialization of life science technologies in North Carolina. Chapter 3 describes these challenges and why they exist. Chapters 4, 5, 6 and 7 detail several strategies for bridging these gaps. To ascertain the major challenges facing companies and universities seeking to commercialize their technologies, the authors received input from more than 50 key stakeholders involved in North Carolina’s life science community. Leaders from numerous small and large companies, university technology transfer offices, investment groups, banks, service providers and non-profit organizations all provided input. Their views on both the challenges to commercialization and potential solutions are central to this report. According to most of the stakeholders surveyed, North Carolina’s primary challenge in commercializing life science technologies is funding. While a dearth of early-stage funding was frequently noted as an obstacle, the limited availability of late-stage funding to build facilities and production lines was also deemed to be a key challenge for the state’s industry. In addition to early-stage and late-stage funding challenges, the state’s limited number of experienced life science executives with product development, commercialization and financing experience was viewed as a significant impediment to bringing products to market successfully. These three key challenges are described in the balance of this chapter. 1 General Assembly of North Carolina, Session 2009, Session Law 2010-31, Senate Bill 897. The key challenges facing the commercialization of life science technologies in North Carolina are the early-stage funding gap, the late-stage (debt) funding gap, and the management gap. 32 b r i dgi n g t h e ga p s nor th carol i n a b i o t echnology c en t e r The Early-Stage Funding Gap “What we need is more direct risk capital, rather than more support resources. This means more venture capitalists and angel investors actually funding more local technology.” —Greg Mossinghoff, CEO, Novolipids, Inc. “The critical challenge we face is that the vast majority of innovations arising in university labs are at a very early stage of development. We typically have limited data and while there often is a significant potential market, the technology is far too unproven to attract venture investment or a commercial partner.” —Cathy Innes, Director, Office of Technology Development, The University of North Carolina at Chapel Hill The majority of respondents providing input on the major challenges facing commercialization echoed the need for more early-stage life science funding in North Carolina. North Carolina is the home to leading academic research institutions and 537 biotechnology companies2 (Ernst & Young ranked North Carolina #3 among states based on number of biotechnology companies3). However, as mentioned in Chapter 2, the state has struggled to produce companies that generate significant revenue and/or become publicly traded companies. In 2009, there were only 10 publicly traded biotechnology companies (as defined by Ernst & Young) headquartered in North Carolina with total revenue of $1.9 billion (of which $1.5 billion was generated by one company, Talecris, which has agreed to be acquired by Grifols S.A. of Spain). Nationwide, in 2009, there were 313 public biotechnology companies generating $56.6 billion in total revenue.4 As such, only 3% of the nation’s public biotechnology companies are based in North Carolina, accounting for 3% of the total U.S. revenue generated by public biotech companies. While North Carolina has the third highest number of biotechnology companies, the state is outside of the top five in terms of number of publicly traded biotechnology companies.5 Most of the stakeholders interviewed believe that a critical shortage of early-stage funding in North Carolina is a key obstacle deterring companies from successfully navigating product development— successful product development often results in the establishment of a revenue-generating public company. Company executives and technology transfer officers viewed this early-stage funding shortage to be especially challenging. 2 North Carolina Biotechnology Center Company Directory Benchmark, 3rd Quarter 2010. 3 Beyond Borders: Global Biotechnology Report 2006, Ernst and Young, page 24. http://www.ey.com/Publication/vwLUAssets/Global_Biotechnology_ Report_2006/$FILE/0511-0689191%20BB%203-16%20v3%20TO%20PRINT.pdf (accessed on December 22, 2010). 4 Giovannetti, Glen T. and Jaggi, Gautam. Beyond Borders: Global Biotechnology Report 2010, Ernst and Young, page 58. http://www.ey.com/Publication/vwLUAssets/Beyond_ borders_2010/$FILE/Beyond_borders_2010.pdf (accessed December 21, 2010). 5 Morningstar Document Research, Public companies by Morningstar Industry Classification. nor th carol i n a b i o t echnology c en t e r Cha l l enge s Faci ng Comme rci a l i z at i o n o f L i f e Sci ence T echnologi e s i n Nor th Carol i n a 33 The early-stage funding gap (sometimes referred to as the “valley of death”) has been defined as the gap in between the funding that the National Institutes of Health may provide for basic research, and the downstream financing that investors supply once promising technologies are sufficiently developed.6 As shown in Figure 3-1, this gap occurs for North Carolina companies when they have progressed beyond the stage where early-stage funding vehicles (such as federal grants or North Carolina Biotechnology Center loans) are typically useful, but these companies have not yet progressed to the point where they are able to attract venture capital funding or strategic partners. Figure 3-1: Current Environment for Life Science Companies – Early-Stage Funding Gap Figure 3-1 reflects the funding environment for North Carolina’s life science companies, with several sources of funding (grants, North Carolina Biotechnology Center loans, angel funding) available for start-ups seeking initial proof of concept. However, once these companies move beyond that phase, they must navigate the early-stage funding gap during which limited or no funding options are available. Variations of Figure 3-1 will be used throughout the balance of this report to highlight the challenges facing North Carolina’s life science companies and the recommended strategies to surmount these challenges. For a traditional biotechnology company, this critical shortage of equity funding often occurs between initial preclinical proof of concept for a lead drug and early human trials of the drug. For a medical device company, this funding gap typically occurs closer in time to product commercialization. For a crop-based agricultural biotechnology company, this early-stage funding gap often occurs after proof of concept in a model plant when a new product still typically faces more than five 6 Biotech 2009 Life Sciences: Navigating the Sea Change, Burrill & Company, 2009, page 37. Federal and State Grants Angel Investments NC Biotech Center Grants NC Biotech Center Loans Venture Capital Investments Corporate Partnerships Support/Retention/Recruitment Centers of Innovation Start-up TECHNOLOGY TRANSFER Universities Discovery Development Activities Biotech Center Current Funding Mechanisims Early-Stage Funding Gap Debt Gap Proof of Concept Product Development Initial Manufacturing Large Scale Operations & Sales Clinical Trials Companies Loans The early-stage funding gap has been defined as the gap in between the funding that the National Institutes of Health may provide for basic research, and the downstream financing that investors supply once promising technologies are sufficiently developed. 34 b r i dgi n g t h e ga p s nor th carol i n a b i o t echnology c en t e r years of development prior to commercialization. Clearly, the early-stage funding gap is prevalent across all subsectors of the life science industry. This early-stage funding gap has been exacerbated by: 1) venture capital firms progressively shifting their investments towards later-stage companies, 2) an overall reduction in life science venture capital funding nationwide, 3) a comparative shortage of venture capital groups based in North Carolina, and 4) limited bank funding for companies at this stage. Venture Capital Firms Focusing Less on Early-Stage Opportunities The typical venture fund term is ten years. As such, venture capital groups seek to “exit” their investments by year 10 of a fund’s life, implying that the average exit is expected to occur 3-7 years following an initial investment. An exit typically occurs through one of two avenues: 1) sale of stock in the public market following an initial public offering (IPO), or 2) sale of stock as a result of the acquisition of a portfolio company. With the number of IPOs down relative to levels seen before the 2008 market decline (see Table 3-1) and with those IPOs typically occurring for later-stage companies than previously seen, exits have become more difficult to come by for life science venture groups. Table 3-1: IPO Volume Rebounding in 2010 But Still Below That Seen Prior To 2008 Market Decline7 (Dollars in Millions) Number of IPOs* Total Offering Volume Average Offering Size 2006 57 $5,117 $90 2007 86 $10,326 $120 2008 6 $470 $78 2009 12 $1,642 $137 First nine months of 2010 40 $3,460 $87 *Includes all companies that trade on U.S. exchanges and have had at least one U.S. venture investor Because those exits which are occurring are typically occurring later in a company’s life cycle, venture groups are making their investments later in the company’s life cycle to allow for exits in the same time frame (3-7 years following investment) as with previous funds. “Venture capital firms want to see more mature companies before they will invest…So, there’s a gap.”8 —Gary Glausser, Partner, Birchmere Ventures, Pittsburgh, PA 7 Shaking the MoneyTree Q3 Update, PricewaterhouseCoopers/National Venture Capital Association MoneyTree, Report, October, 2010, page 31. 8 Olson, Thomas. “Sparse funds stunt growth, biotech firms say”, Pittsburgh Tribune-Review, August 25, 2010. nor th carol i n a b i o t echnology c en t e r Cha l l enge s Faci ng Comme rci a l i z at i o n o f L i f e Sci ence T echnologi e s i n Nor th Carol i n a 35 A key result of this shift in the life science venture funding environment is that the early-stage funding gap has widened. The level of study data required by venture groups has increased, and the higher level of funding required to generate such data means that North Carolina-based life science companies have often exhausted typical early-stage funding sources such as federal grants, North Carolina Biotechnology Center loans and angel funding prior to reaching a stage where they can attract venture capital funding. In other words, the early-stage funding gap has become progressively wider, leaving life science companies without the resources necessary to generate the data required to attract a venture capital investment and realize their commercial and economic promise. Venture Capital Funding in Life Science Sector Down Nationwide The early-stage funding challenge has also been exacerbated by a decrease in overall life science venture capital funding, as shown in Table 3-2. In 2009, venture capital (VC) funding for biotechnology companies fell 19% to its lowest level since 2003. VC funding for medical technology companies fell 26% in 2009 to its lowest level since 2005. While VC funding in these two sectors rebounded somewhat in the first nine months of 2010, levels are still significantly below those in 2006-2008. These declines are consistent with a general decline in venture capital funding. Table 3-2: Venture Capital Investments in Life Science Companies9 (In Billions) 2006 2007 2008 2009 First Nine Months of 2010 Biotechnology $4.4 $5.2 $4.5 $3.6 $3.1 Medical Devices and Equipment $2.8 $3.7 $3.5 $2.6 $1.9 Consistent with the decline in VC funding, the current number of active VC firms is down nearly one-third relative to ten years ago.10 With total venture capital fundraising down 42% in 2009 compared to 2008 and fundraising tracking even lower in 2010,11 the trend of lower VC investments in life science companies is likely to continue. According to Mark Heesen, president of the National Venture Capital Association, “With (venture) fund size getting smaller and fewer firms raising money, we are experiencing a period of time in which venture capital investment is consistently outpacing fundraising, creating an industry that will be considerably smaller in the next decade.”12 This outlook for the venture 9 Shaking the MoneyTree Q3 Update, PricewaterhouseCoopers/National Venture Capital Association MoneyTree , Report, October, 2010. 10 Crabtree, Penni. “Venture Capital firms facing tougher times”, The San Diego Union Tribune, June 20, 2010. http://www.signonsandiego.com/news/2010/jun/20/venture-capital-firms-facing-tougher- times (accessed on December 22, 2010). 11 Shaking the MoneyTree Q3 Update, PricewaterhouseCoopers/National Venture Capital Association MoneyTree , Report, October, 2010, page 32. 12 Pharmaceuticals and Life Sciences: Second Quarter Gains Fade, PricewaterhouseCoopers, November 2010. The early-stage funding gap has become progressively wider, leaving life science companies without the resources necessary to generate the data required to attract a venture capital investment and realize their commercial and economic promise. “Gone are the days when venture capitalists seemed to be falling all over one another to get a place on the ground floor of life science startups.” Source: Vinluan, Frank. “Fallback mode: Loans to grow”, Triangle Business Journal, 26(5): 3, 31, October 8, 2010. 36 b r i dgi n g t h e ga p s nor th carol i n a b i o t echnology c en t e r capital industry overall indicates that the early-stage funding gap is unlikely to be eliminated in the foreseeable future. Limited Life Science Venture Fund Activity in North Carolina It is generally challenging for life science companies to attract venture capital funding, given the reduced amount of funding available and the increased focus of VCs on later-stage investments. However, the challenge is especially difficult for North Carolina companies given the comparative shortage of North Carolina-based VCs and the few VCs based outside the state that are active in the state. This issue manifests itself in limited life science venture capital activity in North Carolina relative to states where leading life science-focused VCs are based. For instance, in 2009, there were 273 life science VC funding transactions in the U.S., of which 97 were for California-based companies, 51 were for Massachusetts-based companies and 12 were for North Carolina-based companies.13 The data are similar for the first three quarters of 2010 during which there were 62 deals for California-based companies, 43 for Massachusetts-based companies and seven for North Carolina-based companies.14 During the first three quarters of 2010, California and Massachusetts companies alone accounted for 61% of all life science VC funding transactions in the U.S. Comments from two life science company executives in North Carolina summed up this issue: “If NC wants to compete effectively with Boston and the West Coast in biotech and other startups it needs to look at the advantage those areas have in accessibility of funding for early stage companies.” —Malcolm Thomas, CEO, Arbovax, Inc. “There are more VCs and other funding vehicles in CA/MA, so companies there have a greater number of opportunities to raise local funding.” —Mike Stocum, Managing Director, Personalized Medicine Partners Only four active life science-focused venture capital groups with more than $100 million in capital under management are based in North Carolina, and none of these are among FierceBiotech’s list of the top 17 life science focused venture capital groups.15 (In fact, none of the top 100 venture capital groups are based in 13 Trend Analysis: 2009 Bioscience VC, M&A and IPO Overview, OnBioVC , 2010, page 10. http://onbiovc.com/wp-content/uploads/2010/02/onbiovc-trend-analysis-2009-year-in-review. pdf (accessed on December 22, 2010). 14 Trend Analysis: 1Q10 Bioscience VC, M&A and IPO Overview; Trend Analysis: 2Q10 Bioscience VC, M&A and IPO Overview; Trend Analysis: 3Q10 B
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Title | Bridging the gaps : a strategic plan to accelerate the commercialization of life science technologies in North Carolina |
Other Title | Strategic plan to accelerate the commercialization of life science technologies in North Carolina |
Contributor | North Carolina Biotechnology Center. |
Date | 2011-01 |
Subjects | Life sciences--Economic aspects--North Carolina--Planning |
Place | North Carolina, United States |
Description | "January 2011."; Includes bibliographical references. |
Publisher | North Carolina Biotechnology Center |
Agency-Current | North Carolina Biotechnology Center, Office of the Governor |
Rights | State Document see http://digital.ncdcr.gov/u?/p249901coll22,63754 |
Requirements for Use | System requirements: Adobe Acrobat Reader; current access available via PURL. |
Physical Characteristics | 104 p. of electronic text : digital, PDF file. |
Collection | North Carolina State Documents Collection. State Library of North Carolina |
Type | Text |
Language | English |
Format | Plans (reports) |
Digital Characteristics-A | 1.59 MB; 104 p. |
Digital Collection |
N.C. Public Health Collection North Carolina Digital State Documents Collection |
Digital Format | application/pdf |
Related Items | http://worldcat.org/oclc/828427685/viewonline |
Audience | All |
Pres File Name-M | pubs_bridginggaps201101.pdf |
Pres Local File Path-M | \Preservation_content\StatePubs\pubs_borndigital\images_master\ |
Full Text | Bridging the Gaps A Strategic Plan to Accelerate the Commercialization of Life Science Technologies in North Carolina January 2011 | The North Carolina Biotechnology Center AgBiotech 2 Opportuni t ies for Farmers adn Growers: vernon g. ja m e s research and extension center · plymouth, nc nor th carol i n a b i o t echnology c en t e r January 2011 | The North Carolina Biotechnology Center Bridging the Gaps A Strategic Plan to Accelerate the Commercialization of Life Science Technologies in North Carolina ii B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r © 2011 North Carolina Biotechnology Center Photographs on the cover and title page are courtesy of North Carolina State University (left), Medicago (center) and Novozymes (right). Acknowledgments The development of this strategic plan was facilitated by the North Carolina Biotechnology Center, under the leadership of E. Norris Tolson and Ken Tindall, Ph.D. Peter Ginsberg and Robert Lindberg, Ph.D. were the lead authors and editors of the report, which includes the ideas, writing and input of many of the Biotechnology Center’s partners, including: • Sam Taylor, North Carolina Biosciences Organization • John Hardin, Ph.D. North Carolina Board of Science and Technology • Paul Ulanch, Ph.D., and Tim Janke, North Carolina Small Business and Technology Development Center • Karen LeVert, Meg Elmore and Ashok Mendiratta, Ph.D., Southeast TechInventures, Inc. Additionally, the authors would like to thank the more than 50 life science-focused executives who participated in a survey that was instrumental to the development of this report. Finally, many members of the Biotechnology Center staff played important roles in data-gathering as well as in the review and production of the report, including: Susie Corbett, Sperry Kreuger and Karin Shank in Library and Information Services; Shobha Parthasarathi, Ph.D., and Pamela Fincher in Business and Technology Development; and Robin Deacle, Kelly Doherty, Kim Marcom, Robert Peterson, Jim Shamp and Katie Trapp in Corporate Communications. nor th carol i n a b i o t echnology c en t e r ta b l e o f con t en t s iii Table of Contents Acknowledgments . ii List of Tables . vi List of Figures . vii Executive Summary ix Background . ix Request from the North Carolina General Assembly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .x Key Challenges . xi Strategies to Bridge the Gaps . xi Overall Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xii Chapter 1: Life Science Market Opportunity 1 Healing, Fueling, Feeding . 2 Healing 2 Fueling . 3 Feeding 4 Life Science Industry: Rapid Growth Has Led to Major Economic Impact . 6 Economic Impact from Life Science Industry . 7 Biologics: A Key Driver of Life Science Industry Growth 7 The Importance of Start-Up Companies to Industry Growth 9 Tremendous Opportunity For Growth in Life Science Industry . 10 Highly Prevalent Diseases Remain Poorly Addressed by Current Treatments . 10 Aging of Population and Other Trends Resulting in Rapid Growth in Highly Prevalent Diseases 10 New Technologies Allowing Researchers to Focus on More Targets 11 Global Population Growth To Spur Agricultural Biotechnology Applications 12 Demand for Biofuels Expected to Increase 12 Challenges Facing Growth of Life Science Industry . 13 High Costs and High Risk of Failure Associated with Life Science Product Development 13 Unclear Future for Basic Research Funding 13 Decline in Venture Capital Funding and Initial Public Offerings 14 Life Science Opportunity Put in Context of Challenges Ahead . 15 iv B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Chapter 2: Life Science Opportunity in North Carolina . 17 North Carolina’s Life Science Industry’s Large and Growing Statewide Economic Impact . 17 Strong Growth in High-Paying Jobs 17 Unusually Diverse Life Science Community 19 Life Science Efforts Spread Across the State 21 Key Drivers of North Carolina’s Life Science Industry Growth . 22 Growth Spurred By Emerging Companies . 22 Employment Growth Driven By Larger Firms Locating Large Divisions Here . 23 Workforce Development Programs Playing Key Role in Growth 24 North Carolina’s Increasing Prominence as a Leader in Biomanufacturing . 24 “Disconnects” That Could Impact Future Growth and Economic Impact . 26 Few Revenue-Generating Public Companies Are Headquartered Here 26 Acquisition of North Carolina Companies on the Cusp of Success 28 Mixed Returns from Academic Bioscience Research 28 Ensuring that North Carolina Maximizes its Life Science Opportunity . 30 Chapter 3: Challenges Facing Commercialization of Life Science Technologies in North Carolina . 31 The Early-Stage Funding Gap . 32 Venture Capital Firms Focusing Less on Early-Stage Opportunities . 34 Venture Capital Funding in Life Science Sector Down Nationwide . 35 Limited Life Science Venture Fund Activity in North Carolina 36 Banks Not Actively Lending to Early-Stage Life Science Companies 38 The Late-Stage Funding Gap . 39 Life Science Companies Face Unique Challenges . 40 Keeping Life Science Companies and Their Manufacturing Capabilities in North Carolina 41 Attracting Life Science Companies to North Carolina 42 The Management Gap . 43 Background: Entrepreneurial Life Science Management 43 The Management Gap in North Carolina 44 Recruiting Life Science Executives to North Carolina . 45 Benefits from Expanding the Executive Talent Pool . 46 Surmounting the Three Challenges Described in This Chapter . 46 nor th carol i n a b i o t echnology c en t e r ta b l e o f con t en t s v Chapter 4: Early-Stage Life Science Fund . 47 Development of the ESLSF . 48 Investment Focus . 48 Fund Structure . 51 Fund Objectives . 51 Sources of Funding . 52 Investment Funds Developed in Other States . 53 Maryland Venture Fund 53 Kentucky Seed Capital Fund . 53 ESLSF to Aid in Bridging Early-Stage Funding Gap in North Carolina . 54 Chapter 5: Expansion of Existing Programs to Support Start-Up and Early-Stage Companies 55 Expansion of North Carolina Biotechnology Center Loan Program . 56 Review of Loan Programs . 56 Impact of Loan Programs . 57 Types of Loans . 58 Potential Benefits from Expansion of Biotechnology Center Loan Program 59 Increase Appropriation for SBIR/STTR Matching Program . 62 SBIR/STTR Matching Program: History and Purpose . 62 SBIR/STTR Matching Program: Structure and Funding 63 Impact of SBIR/STTR Matching Program . 64 Detailed Description of Recommendation . 64 How an Expansion Would Benefit Commercialization of Life Science Technologies . 65 Expansion of North Carolina Qualified Business Venture (QBV) Tax Credit Program . 67 Review of QBV Program . 68 Business Qualification Process 68 North Carolina’s QBV Program Compared to Tax Credit Programs in Other States . 69 History of QBV Program . 70 Impact of QBV Program . 70 Expanding the QBV Program to Benefit Commercialization of Life Science Technologies 71 Combining New and Existing Programs to Surmount the Early-Stage Funding Challenge . 72 Chapter 6: Life Science Development Corporation 73 Proposed LSDC Loan Program . 74 Expected Benefits of the LSDC . 76 Significant Job Creation Expected Once LSDC Is Established 76 Retention of Expanding Life Science Companies in North Carolina 77 Recruitment of Companies from Out-of-State . 77 Benefits Expected to Extend Beyond Biopharmaceutical Companies . 77 Growing the State’s Base of Executives to Lead Companies Through These Funding Challenges . 78 vi B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Chapter 7: Strategies to Eliminate the Management Gap 79 Recruiting Established Life Science Executives to North Carolina . 80 Market North Carolina to Targeted Successful Out-of-State Executives 80 Adopt a Capital Gains Tax Exclusion for Founders and Investors in Early-Stage Companies 81 Identify and Recruit Executives with North Carolina Ties 82 Coordinate Lobbying Efforts to Re-Institute Direct Flights to the West Coast . 83 Support for North Carolina Entrepreneurs . 83 Offer Stipends to Encourage Access to Entrepreneurial Education and Mentoring Programs . 83 Initiate North Carolina Biotechnology Center Executive-in-Residence Program 84 Closing the Management Gap in Parallel with Implementing New Early-and Late-Stage Funding Initiatives . 85 List of Tables Table ES-1: Strategies Recommended to Accelerate Life Science Technology Commercialization . xii Table 1-1: Bioscience Financial Performance by Subsector and Net Income, FY 2009 . 6 Table 1-2: U.S. Bioscience Employment . 7 Table 1-3: Projected Ranking of Top Selling Products in 2016 . 8 Table 2-1: Total (Direct and Indirect) Economic Impact of Biotechnology in North Carolina . . . . . . . 18 Table 2-2: Start-Up Company Formation by North Carolina Universities in 2008 . 23 Table 2-3: North Carolina Life Science Industry Relative to U.S. Life Science Industry (Dollars in Millions) . 27 Table 2-4: 2008 Technology Transfer Activity for North Carolina Universities (U.S. Rankings) . 29 Table 3-1: IPO Volume Rebounding in 2010 But Still Below That Seen Prior To 2008 Market Decline (Dollars in Millions) . 34 Table 3-2: Venture Capital Investments in Life Science Companies (In Billions) . 35 Table 3-3: NIH Funding vs. Venture Capital Funding (In Millions) . 37 Table 4-1: Anticipated Framework of the Early-Stage Life Science Fund . 48 Table 5-1: Types of Biotechnology Center Loans . 58 Table 5-2. SBIR/STTR Matching Funds Program: Appropriations and Awards . 63 Table 5-3: Allowable Business Categories for Qualified Investment Tax Credit . 69 Table 5-4: QBV Program: Applications and Credits . 70 nor th carol i n a b i o t echnology c en t e r ta b l e o f con t en t s vii List of Figures Figure 1-1: Total Acres of Biotech Crops Grown in 2009 . 5 Figure 2-1: Rapid Employment Growth in North Carolina’s Bioscience Industry . 18 Figure 2-2: Breadth of North Carolina’s Bioscience Industry – Employment Composition . 19 Figure 3-1: Current Environment for Life Science Companies – Early-Stage Funding Gap . 33 Figure 3-2: Current Environment for Life Science Companies – Debt Gap . 39 Figure 4-1: Environment Incorporating Strategic Plan Programs – ESLSP . 49 Figure 5-1: Environment Incorporating Strategic Plan Programs – Biotechnology Center Loan Program Expansion . 60 Figure 5-3: Environment Incorporating Strategic Plan Programs – SBIR/STTR Matching Funds Program Expansion . 65 Figure 5-4: Environment Incorporating Strategic Plan Programs – QBV Tax Credit Program Expansion . 67 Figure 6-1: Environment Incorporating Strategic Plan Programs – Life Science Development Corporation . 74 Figure 6-2: LSDC Program Structure . 75 nor th carol i n a b i o t echnology c en t e r Executive Summary A coordinated strategic plan is presented here for accelerating the commercialization of life science technologies and discoveries in North Carolina. It first describes the industry opportunity available to North Carolina and the key challenges that could jeopardize the state’s ability to seize that opportunity. The plan then details several strategies designed to surmount these challenges, thereby providing a clearer path to companies seeking to commercialize life science products. Background North Carolina’s longstanding commitment to biotechnology has played a key role in establishing a large and growing life science industry in the state. While job creation has been in decline for many of the state’s traditionally strong industries, jobs in North Carolina’s life science industry increased 29% from 2001 to 2008 with an average pay in 2008 of $74,829, which is 90% higher than the state’s average private sector wages. With statewide biotechnology industry-related employment of 226,000 and an economic impact of $64 billion, the life science industry has become central to North Carolina’s overall economy. North Carolina benefits from a life science industry that is diverse and statewide. Throughout this report, the terms “life science industry” and “bioscience industry” are used interchangeably and incorporate: pharmaceuticals and diagnostics (including biotechnology-derived products), medical devices and equipment, industrial and environmental biotechnology, and agricultural biotechnology (including biofuels). North Carolina is unusual as a life science hub in that it has a significant industry base in each of these subsectors, with more than 500 biotechnology companies, a growing medical device cluster and an established agricultural biotechnology presence, including major biotechnology research operations for four of the nation’s top five agricultural companies. Additionally, the life science industry is vibrant in all parts of the state, from natural products-focused businesses concentrated in the western part of the state, to biotechnology centers in the Research Triangle and Triad areas, to marine biotechnology opportunities on the coast. In fact, the North Carolina Biotechnology Center has regional offices in all parts of the state and active loans to biotechnology companies in each region. The expansion of the state’s life science industry has resulted from the combination of rapid growth in the size and number of emerging biotechnology companies and increased employment resulting from large biopharmaceutical companies locating large divisions here. Much of this growth can be traced to North Carolina’s emergence as a center for the production and manufacture of therapeutics and vaccines. Overall, the industry’s growth in the state has been buoyed by an infrastructure of universities, non-profit organizations and service providers adept at launching, attracting and supporting life science businesses. This support is exemplified by workforce development programs that have played a key role in attracting life science companies to locate here. x B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Request from the North Carolina General Assembly Various dynamics suggest that the global life science industry will continue to grow rapidly, including: 1) the many highly prevalent diseases that remain poorly addressed by current treatments; 2) the aging of the population and other trends resulting in rapid growth in highly prevalent diseases; 3) the availability of new technologies enabling researchers to directly address more disease targets; 4) global population growth requiring new approaches to maximize food availability; and 5) an expected sharp increase in demand for biofuels. The projected long-term expansion of the global life science industry suggests that regions that are well-positioned to attract and grow promising companies will benefit greatly. However, the industry is highly dynamic and highly competitive. North Carolina’s life science-focused companies and institutions must work together with state government to develop a clearer path to product commercialization in order to continue to grow a thriving industry. The state’s life science companies face critical challenges along the path toward the commercialization of their products, as evidenced by: • The low number of established (i.e., revenue-generating or public) biotechnology companies headquartered here • The frequency with which North Carolina-based life science companies are acquired when on the cusp of success • The mixed commercial results generated by the state’s strong academic bioscience research institutions North Carolina’s state government is highly cognizant of the economic opportunity associated with the sustained growth of its life science industry and the need to continue to nurture it. As such, the North Carolina General Assembly requested that: “The North Carolina Biotechnology Center shall prepare a strategic plan to accelerate the commercialization of promising life science technologies and discoveries being developed in universities and private companies in North Carolina and the related development and production of new commercial products.” (General Assembly of North Carolina, Session 2009, Session Law 2010-31, Senate Bill 897) This plan presents a series of strategies to accelerate commercialization efforts by identifying and addressing the key challenges faced by North Carolina companies bringing life science products to market. To assess the nature of these challenges, the North Carolina Biotechnology Center gathered input from more than 50 key life science industry stakeholders. These stakeholders included technology transfer officers, life science company executives (from small, mid-sized and large companies), investors, bankers, service providers, and executives representing the state’s life science-focused non-profit organizations. These discussions revealed that the major challenges to commercialization of life science technologies are the limited availability of funding required by companies at critical junctures in their evolution and the shortage of highly experienced life science executives in North Carolina. nor th carol i n a b i o t echnology c en t e r e x ecu t i v e su m m a ry xi Key Challenges According to most of the stakeholders surveyed, North Carolina’s primary challenge in commercializing life science technologies is funding. While a shortage of early-stage funding was frequently noted as an obstacle, the limited availability of later-stage funding to build facilities and production lines was also deemed to be a key challenge for the state’s industry. Most North Carolina life science companies report that the early-stage funding gap is the most daunting obstacle preventing them from converting a promising research discovery into a commercial product. This gap occurs for life science technology-based companies when they have progressed beyond the stage where very early-stage funding vehicles (such as federal grants and North Carolina Biotechnology Center loans) are appropriate. These companies have typically not yet progressed to the point where they are able to attract venture capital funding or strategic partners. This funding gap has widened over the past decade as venture capital funding has declined and has been increasingly directed toward later-stage companies. The issue is exacerbated in North Carolina because relatively few life science-focused venture capital groups are active in the state. Later-stage companies face a debt funding gap that is as challenging as the early-stage funding gap. Companies caught in this gap typically have a product on the market or soon-to-be on the market. At this point, such companies often require a significant cash infusion to finally capture their commercial opportunities. For a life science company, debt funding is often employed to initiate or expand the company’s manufacturing capabilities and sometimes to build sales and marketing efforts or complete late-stage product development. The shortage of debt financing available for these companies stems from the limited number of banks willing to make loans to companies that are not yet profitable. Importantly, receipt of debt funding often represents an inflection point in hiring new employees who might play a role in manufacturing or commercializing a new product. As such, a new approach to bridging the debt funding gap would be expected to greatly increase the number of life science jobs in North Carolina. In addition to early-stage and debt funding challenges, the state’s limited number of experienced life science executives with product development, commercialization and financing experience was viewed by many stakeholders (especially those in the investment community) as a significant impediment to bringing products to market successfully. There are far more promising, innovation-driven companies at all stages of maturity in North Carolina than there are accomplished executives to drive them, creating a management gap. The limited size of this talent pool appears to constitute a rate-limiting step that prevents more promising North Carolina-based life science companies from reaching a commercial plateau that reaps economic benefit to the state in the form of jobs and tax revenue. Strategies to Bridge the Gaps The core of this report focuses on several strategies to bridge these funding and management gaps and thereby accelerate the commercialization of life science technologies in North Carolina. Some of these recommendations describe new programs while others are focused on altering or expanding programs currently in place. It is highly recommended that the strategies to bridge the funding gaps be undertaken in parallel with the strategies to bridge the management gap—a coordinated approach will both drive an increase in the local availability of funding required to attract top-tier executives and build a stronger base of life science executives that will be able to attract additional funding. Table ES-1 lists these programs and the gaps they would help to bridge. xii B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Table ES-1: Strategies Recommended to Accelerate Life Science Technology Commercialization Strategy Gap Bridged Potential Benefits Establish an Early-Stage Life Science Investment Fund (Chapter 4) Early-Stage Funding Gap Progression of the most promising life science companies to later-stage product development when venture capital and partner funding is available Expand the Biotechnology Center Loan Program by $3 Million/Year (Chapter 5) Early-Stage Funding Gap $3 million in additional funding expected to result in $300 million in external follow-on funding over time to these loan portfolio companies Expand the Annual Cap on SBIR/STTR Matching Program Funding to $5 Million/ Year (Chapter 5) Early-Stage Funding Gap Potential creation of more than 50 additional jobs annually; encourages companies to access federal funding to develop and mature their technologies Increase the Cap on the QBV Tax Credit Program and Include Institutional Investors (Chapter 5) Early-Stage Funding Gap Increased funding for emerging life science companies and attraction of investments from new class of investors; resulting larger funding rounds could help companies advance through early-stage funding gap Establish the Life Science Development Corporation (LSDC), a $70 Million Loan Fund (Chapter 6) Debt Funding Gap Retention of high growth life science companies in North Carolina and attraction of out-of-state companies; potential for 100-250 jobs to be created immediately from LSDC funding Implement New Programs To Attract Successful Out-of-State Life Science Executives (Chapter 7) Management Gap Growth in number of experienced life science executives in North Carolina, stimulating increased investment and driving more products to commercialization Implement New Programs To Support Homegrown North Carolina-Based Entrepreneurs (Chapter 7) Management Gap Growth in number of experienced life science executives in North Carolina, stimulating increased investment and driving more products to commercialization Overall Benefits Despite the state’s success in the life science industry to date, maintaining the status quo is not an option if North Carolina expects to continue to compete successfully on a global basis. Other states also see the opportunity available from the aggressive pursuit of growth in the bioscience industry. All 50 state governors highlighted bioscience in their most recent state-of-the-state addresses. As such, it will be important to address the funding and management gaps described in this report to allow for continued growth in the economic benefits currently enjoyed by North Carolina as a leading life science industry center. The implementation of the seven strategies detailed in this report would allow for these gaps to be bridged, thereby accelerating the commercialization of life science technologies in North Carolina. Key benefits would include: • An increased number of high-paying life science jobs • Continued growth of the sector’s direct and indirect economic impact from biotechnology, already $64 billion for the state • Retention of high growth companies in North Carolina • Recruitment of promising life science companies from outside the state • Attraction of additional investment to the state from internal and external sources nor th carol i n a b i o t echnology c en t e r e x ecu t i v e su m m a ry xiii Overall, by surmounting the three major challenges described in this report, North Carolina’s life science companies will have a clearer path to commercialization through expanded funding options and a deeper base of executives with a proven ability to bring products to market. This clearer path will enhance North Carolina’s ability to obtain an outsized share of the expected rapid expansion of the global life science industry. nor th carol i n a b i o t echnology c en t e r CHAPTER 1: Life Science Market Opportunity The social and economic impacts of the life science industry cannot be overstated. While the human health impacts of the life science industry may be well understood, the industry’s current and potential impacts on industrial processes and food and fuel production are not as obvious. This chapter describes how the life science industry has grown in importance, especially since the launch of the biotechnology industry in the early 1980s. It also highlights the tremendous opportunity that lies ahead for companies and localities that are prepared to be at the forefront of the development and commercialization of new products and technologies. North Carolina was early in recognizing this opportunity with the opening of the North Carolina Biotechnology Center in 1984—the Biotechnology Center was the first of its kind. The life science industry’s overall impact on jobs and the state’s economy has exceeded expectations, and North Carolina’s life science infrastructure is one of the strongest in the country, as detailed in Chapter 2. Factors such as the aging of the population and need for additional food and fuel sources result in a promising outlook for the life science industry. However, the high cost of life science product development has led to funding challenges for companies seeking to develop and commercialize such products. These challenges are discussed generally in this chapter and are more fully delineated as it relates to North Carolina in Chapters 2 and 3. Throughout this report, the life science industry definition incorporates pharmaceuticals and diagnostics (including biotechnology-derived products), medical devices and equipment, industrial and environmental biotechnology, and agricultural biotechnology (including biofuels). While definitions of the life science and bioscience industry vary depending on the source, the nomenclature is used interchangeably in this report. Life Science Definition Throughout this report, the life science industry definition incorporates pharmaceuticals and diagnostics (including biotechnology-derived products), medical devices and equipment, industrial and environmental biotechnology, and agricultural biotechnology (including biofuels). 2 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Healing, Fueling, Feeding Many have dubbed this century as the “Bio Century”1 as a result of the vital contributions the life science industry has delivered to tackle many of the world’s greatest challenges. Global competition is intensifying as more countries, regions, states and local governments look to participate in the growth of the life science industry. Continuing to build this bio-based economy here in the United States is a clear economic imperative that is expected to lead to job creation and wide-ranging economic impacts. In fact, according to Peter Pellerito, Senior Policy Consultant for the Biotechnology Industry Organization (BIO), all 50 governors emphasized the importance of the bioscience industry in their last state of the state address.2 BIO, the bioscience/biotechnology industry association and advocacy group, describes bioscience as, “helping us live longer and healthier lives, have a more abundant and sustainable food supply, use safer and more efficient industrial manufacturing, and reduce our greenhouse gas footprint.”3 BIO’s annual report examines how bioscience has and will impact our lives in three broad categories: healing, fueling and feeding the world. The next three sections describe the bioscience industry’s impact in these three areas, including statistics from the BIO report and other sources. Healing The life science industry is best known for its development of drugs, devices and diagnostics to extend and improve quality of life. The industry continues to be successful in these pursuits: • Life expectancy for cancer patients has increased, on average, by three years since 1980; 83% of these gains are due to new treatments, including medicines.4 • According to AdvaMed, a medical technology industry association, from 1980 to 2000, rapid technological progress resulted in: 1) a 25% decline in disability rates, 2) a 56% reduction in hospital days, and 3) a 3.2-year life expectancy increase.5 1 Growing the Nation’s Bioscience Sector: State Bioscience Initiatives 2006, Battelle Technology Partnership Practice and SSTI for Biotechnology Industry Organization, page vii. 2 Personal communication, November 9, 2010. 3 Healing, Fueling, Feeding: How Biotechnology is Enriching Your Life, BIO (Biotechnology Industry Organization), June 2010, page 3. http://www.valueofbiotech.com/sites/default/files/ pdfs/ValueofBiotechFINAL.pdf (accessed December 21, 2010). 4 Sun, E., et al., “The Determinants of Recent Gains in Cancer Survival: An Analysis of the Surveillance, Epidemiology, and End Results (SEER) Database”, Journal of Clinical Oncology 26, suppl. 15 (2008): Abstract 6616. http://meeting.ascopubs.org/cgi/content/abstract/26/15_ suppl/6616 (accessed December 21, 2010). 5 “About Our Industry”, AdvaMed. http://www.advamed.org/MemberPortal/About/Industry (accessed on December 21, 2010). North Carolina at the Forefront of Regenerative Medicine Recent breakthroughs in our understanding of the complex mechanisms controlling organ growth and tissue repair allow researchers to begin to create replacement organs and cellular therapies. Important regenerative medicine research ongoing in North Carolina includes: • Individual cells in culture are organized into pulsing tissue that beats like the heart that produced them. • Bladders grow on scaffolds, “seeded” with cells derived from the patient. • Doctors collect cells from umbilical cords donated by parents of newborns and transform them into therapies for children with cerebral palsy and other disorders. High-profile practitioners of this “tissue-building” approach include Anthony Atala, M.D., director of the Wake Forest Institute for Regenerative Medicine, and Duke cord-blood pioneer Joanne Kurtzberg, M.D. The Pentagon has put more than $42 million into a multi-campus consortium involving Atala and others, seeking to develop battle-wound treatments. nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce M a r k e t Op por t u n i t y 3 • Worldwide, 10.5 million cases of infectious diseases and 2.5 million child deaths are prevented each year through immunization.6 • There are more than 1,200 bioscience diagnostic tests in clinical use.7 • More than 600 new biologic medicines are in development – including treatments for cancer, HIV/AIDS, Alzheimer’s, and many other conditions.8 • According to a 2007 article in Health Affairs, “Over the past thirty-five years, U.S. age-adjusted mortality from cardiovascular disease declined 50 percent.” The article emphasized that a combination of drugs, diagnostics and device-based treatments (all tools of the life science industry) contributed to this marked reduction in cardiovascular disease mortality.9 Fueling The world’s growing energy needs are staggering, and global energy consumption continues to rise rapidly. Industrial bioscience is providing solutions for energy conservation, climate stabilization and reducing our dependence on fossil fuels, while fueling economic growth and providing economic security. • Economic development: Biofuels R&D promotes new business development, job creation and economic growth. Although in its infancy, the biofuels industry currently has 187 ethanol biorefineries operating in the U.S.,10 already exceeding the 137 petroleum refineries in operation.11 • Bio Economic Research Associates projects that the economic impacts of building an advanced biofuels economy by 2022 (meeting the U.S. Renewable Fuel Standards requirement for 21 billion annual gallons of production by 2022) would be to create 29,000 direct jobs by 2012 and 190,000 by 2022; total job impacts in the economy (comprising direct and indirect employment via the employment multiplier effect) could reach 123,000 in 2012, and 807,000 by 2022. 12 6 “How to Save Millions of Lives”, BIO (Biotechnology Industry Organization). http://www.bio. org/about_biotech/global (accessed on December 21, 2010). 7 Allingham-Hawkins, Diane. “Successful Genetic Tests Are Predicated on Clinical Utility”, Genetic Engineering and Biotechnology News, 28:14, 2008. 8 “How to Save Millions of Lives”, BIO (Biotechnology Industry Organization). http://www.bio. org/about_biotech/global (accessed on December 21, 2010). 9 Weisfeldt, M. and S. Zieman. “Advances in the Prevention and Treatment of Cardiovascular Disease.” Health Affairs 26(1):25-37, 2007. 10 “Ethanol Industry Overview “, Renewable Fuels Association. January, 2010 http://www. ethanolrfa.org/pages/statistics (accessed on December 21, 2010). 11 “Number and Capacity of Petroleum Refineries”, Petroleum Navigator: Refining and Processing. U.S. Energy Information Administration, 2010. http://tonto.eia.doe.gov/dnav/pet/pet_pnp_ cap1_dcu_nus_a.htm (accessed on December 21, 2010). 12 U.S. Economic Impact of Advanced Biofuels Production: Perspectives to 2030, Bio Economic Research Associates. February 2009, page 1. http://www.bio.org/ind/ EconomicImpactAdvancedBiofuels.pdf (accessed on December 21, 2010). The impact of bioscience on North Carolina – from advances in regenerative medicine to the statewide growth of biomanufacturing and an emerging vaccine cluster – are explored in more detail in Chapter 2. 4 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r • The associated cumulative reduction in petroleum imports over the period 2010-2022 is expected to exceed $350 billion.13 • Total (direct and indirect) economic output generated by the advanced biofuels industry could reach $20 billion by 2012 and $149 billion by 2022.14 • McKinsey & Company found that 60% of the bioscience industry sources surveyed believe that bio-substitutes for gas will be the dominant alternative by 2025, outpacing biodiesel and electric options.15 • From an environmental sustainability standpoint, businesses and governments are working to reduce the human impact on climate change through green manufacturing and new technologies that create process efficiencies, limiting waste production and reducing energy use.16 Feeding The agricultural biotechnology segment of the bioscience industry has progressed rapidly since its first crops were planted less than 15 years ago. Bioscience-enabled crops were first planted in 1996 and exceeded 2.3 billion acres in 2009, representing “approximately 70 million repeat decisions by farmers to grow these crops.”17 • Agricultural biotechnology produces plants with built-in protection against disease and insects, resulting in reduced pesticide usage. • Bioscience-produced crops decrease erosion because harmful weeds are controlled while the crops thrive, promoting tillage systems that save the soil, conserve soil moisture and nutrients, preserve earthworm populations, and reduce sediment runoff into watersheds. • Enhanced crops make it possible to obtain higher crop yields by effectively controlling disease, insects and weeds, enabling farmers to produce more food at lower costs. Higher yields of crops generated by agricultural biotechnology companies have been reported by a number of sources, including the World Bank, Nuffield Council on Bioethics, and a joint consultation of the Food and Agriculture Organization of the United Nations (FAO) and the World Health Organization (WHO). 13 Ibid., page 14. 14 Ibid., page 2. 15 Oberman, Raoul. Sustainable Biofuels Growth: Hurdles and Outcomes, McKinsey & Company, June 2010, page 9. http://biofuelsandclimate.files.wordpress.com/2010/06/2010-bio-mckinsey-presentation- vf.pdf (accessed on December 21, 2010). 16 “Heal, Fuel, Feed: Biotech Can Do All Three - Sustainably”, BIOtechNOW (e-Newsletter), June 2010. http://biotech-now.org/2010/05/12/heal-fuel-feed-biotech-can-do-all-three-sustainably (accessed December 21, 2010). 17 Healing, Fueling, Feeding: How Biotechnology is Enriching Your Life, BIO (Biotechnology Industry Organization), June 2010, page 56. http://www.valueofbiotech.com/sites/default/files/ pdfs/ValueofBiotechFINAL.pdf (accessed December 21, 2010). Fueling North Carolina North Carolina buys 5.6 billion gallons of liquid fuels every year. Almost all comes from outside the state, and none of these imported gallons contributes to the state’s agriculture, forestry, or manufacturing economy. The Biofuels Center of North Carolina is developing a statewide biofuels industry to reduce this dependence. By 2017, 10% of liquid fuels sold in North Carolina – or about 600 million gallons – are projected to come from biofuels locally grown and produced. Filling up with locally grown and manufactured biofuels blends will allow citizens to power not just their vehicles, but also the North Carolina economy. nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce M a r k e t Op por t u n i t y 5 • Agricultural biotechnology allows for the more efficient use of farmland. According to the House Subcommittee on Basic Research, “Crops that can withstand drought conditions, high salinity, or toxic materials, for example could enable populations living in currently non-arable regions to farm their land, reducing the pressure on other regions of the world, such as rainforests, that are currently being converted to farmland.”18 • The use of biotechnologies, such as biosensors, can ensure the safety of our food and water supplies and address the threat of major disease outbreaks. • The use of agricultural biotechnology increases the profitability of farming and offers opportunities for new and expanding industries. Figure 1-1: Total Acres of Biotech Crops Grown in 200919 18 “Benefits of Agricultural Biotechnology.” BIO (Biotechnology Industry Organization) http:// www.bio.org/foodag/background/epabenefits.asp (accessed December 10, 2010). 19 Healing, Fueling, Feeding: How Biotechnology is Enriching Your Life, BIO (Biotechnology Industry Organization), June 2010, page 56. http://www.valueofbiotech.com/sites/default/files/ pdfs/ValueofBiotechFINAL.pdf (accessed December 21, 2010). 350 300 250 200 150 100 50 0 (millions of acres) Cumulative total for 1996-2009 is 2,346,000,000 acres of biotech crops grown worldwide 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 6 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Life Science Industry: Rapid Growth Has Led to Major Economic Impact The life science industry has grown rapidly, in part due to the high growth of the biotechnology industry since its beginnings roughly 30 years ago. As Table 1-1 indicates, overall U.S. bioscience revenue generated by publicly traded companies exceeded $577 billion in 2009, producing overall net income of $75 billion.20 Table 1-1: Bioscience Financial Performance by Subsector and Net Income, FY 200921 Bioscience Subsector Public Firms in Dataset FY 2009 Revenue FY 2009 Net Income $ Millions % of Industry $ Millions % of Industry Agricultural Feedstock & Chemicals 34 $120,242 21% $7,734 10% Drugs & Pharmaceuticals 383 $329,661 57% $58,009 78% Medical Devices & Equipment 182 $106,016 18% $7,121 10% Research, Testing & Medical Laboratories 50 $21,430 4% $1,680 2% Industry Total 649 $577,349 100% $74,544 100% As it relates specifically to biotechnology, revenue of publicly traded biotechnology firms grew 12% to $90 billion in 2008.22 The biotechnology industry is clearly in its growth phase and is approaching profitability; according to Ernst & Young, the global industry’s net loss shrank from $3.0 billion in 2007 to $1.4 billion in 2008, and the U.S. biotech industry reached aggregate profitability for the first time.23 One reason for the attractiveness of the life science industry relative to other industries is that it is less impacted by economic downturns. “The life sciences industries were largely immune to the global recession of 2008-10. Unlike industries such as automotive, none of the large pharmaceutical manufacturers faced bankruptcy or needed large government bail-outs. Most companies even maintained profit margins that would be the envy of competitors in other industry segments,” according to a white paper released by Deloitte Touche Tohmatsu.24 20 Battelle/BIO State Bioscience Initiatives 2010, Battelle Technology Partnership Practice, May 2010, page 4. http://www.bio.org/local/battelle2010/Battelle_Report_2010.pdf (accessed on December 22, 2010). 21 Ibid. 22 Giovannetti, Glen T. and Jaggi, Gautam. Beyond Borders: Global Biotechnology Report 2010, Ernst and Young, page 27. http://www.ey.com/Publication/vwLUAssets/Beyond_ borders_2010/$FILE/Beyond_borders_2010.pdf (accessed December 21, 2010). 23 Ibid., page 27, 34 24 The Future of Life Sciences Industries: Aftermath of the Global Recession, Deloitte, page 4. http://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/LSHC/2010%20 Future%20of%20the%20life%20sciences%20industries%20report_web.pdf (accessed on December 21, 2010). nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce M a r k e t Op por t u n i t y 7 Economic Impact from Life Science Industry The economic and therapeutic impact associated with the bioscience sector is clearly significant and growing. Job creation in the bioscience industry has also been robust, has a large multiplier effect on the creation of additional jobs, and is expected to continue to outperform other industries. Battelle reports that total employment in the U.S. bioscience sector grew to 1.4 million in 2008.25 Table 1-2: U.S. Bioscience Employment Bioscience Subsector 2008 Employment Change in Employment, 2001–2008 Change in Employment, 2007–2008 Agricultural Feedstock & Chemicals 114,793 1.9% 4.6% Drugs & Pharmaceuticals 311,882 2.3% -2.3% Medical Devices & Equipment 435,509 2.0% 2.4% Research, Testing & Medical Laboratories 558,140 46.1% 2.1% Total U.S. Bioscience 1,420,324 15.8% 1.4% Table 1-2 shows that between 2001 and 2008 (the latest year for which data is available), bioscience employment growth was 15.8%, adding nearly 200,000 jobs.26 Compared to the 3.5% growth rate for the national private sector, the bioscience industry job growth was 4.5 times higher.27 Battelle also calculates that the total employment impact of the bioscience sector is eight million jobs, based on the additional jobs created as a result of the sector’s direct jobs.28 On a national basis, for every new bioscience job, another 5.8 jobs are created.29 The sector also continues to be a source of high-wage employment. Bioscience wages increased by 10.1% (inflation adjusted) from 2001 to 2008, compared to 3.2% for the private sector.30 Biologics: A Key Driver of Life Science Industry Growth While the market for conventional drugs continues to grow, the market for biologics is growing much more rapidly. According to EvaluatePharma, total prescription and over-the-counter drug sales were up 10% annually worldwide from 2000 to 2008; biologics were a key driver of this growth and were up 18% annually in the period, compared to conventional drug sales, which increased 8% 25 Battelle/BIO State Bioscience Initiatives 2010, Battelle Technology Partnership Practice, May 2010, page ii. http://www.bio.org/local/battelle2010/Battelle_Report_2010.pdf (accessed on December 22, 2010). 26 Ibid. 27 Ibid. 28 Ibid., pages 19-20. 29 Ibid. 30 Ibid. Average annual bioscience income per employee was $77,595 compared to the average annual wage for the total U.S. private sector of $45,229. Source: Battelle/BIO State Bioscience Initiatives 2010, Battelle Technology Partnership Practice, May 2010, page ii. http://www.bio.org/local/battelle2010/ Battelle_Report_2010.pdf (accessed on December 22, 2010). 8 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r annually in the period.31 Biologics are expected to continue to gain market share as many of the top conventional drugs have near-term patent expirations looming. Clearly, the importance of biologics in disease treatment is growing. In 2000, only one of the top ten selling drugs was a biologic (Epogen/Procrit). By 2008, this number had grown to five of the top ten. Forecasts released by EvaluatePharma in its “World Preview 2016”32 report project that Abbott Laboratories’ Humira (a biological product) will become the top-selling product in 2012 with sales of $8.3 billion and will retain its top spot through 2016 when sales could exceed $10 billion. As Table 1-3 indicates, the importance of biotech products is expected to continue to increase, with biologics comprising eight of the expected top ten therapeutic products by 2016. Table 1-3: Projected Ranking of Top Selling Products in 2016 The growing importance of biologics is also supported by Lehman Brothers research on growth trends by therapeutic categories. The growth projected between 2007 and 2012 in the top four therapeutic categories is driven by biologics:33 • Inflammation (12% growth per year) – driven by the shift from cheaper NSAIDS to higher-priced biologics such as Humira, Remicade, Enbrel, and Orencia. 31 “Biotechs Set to Dominate Drug Growth”, EP Vantage, June 17, 2009. http://www. evaluatepharma.com/Universal/View.aspx?type=Story&id=188700&isEPVantage=yes (accessed on December 21, 2010). 32 “World Preview 2016”, EvaluatePharma, May 3, 2010. http://www.evaluatepharma.com/ EvaluatePharma_World_Preview_2016.aspx (accessed on December 21, 2010). 33 “Which Therapeutic Categories Are Growing the Fastest? Global and US Sales Growth of Branded Drugs by Therapeutic Category, 2005-2012E”, PAREXEL’s Bio/Pharmaceutical R&D Statistical Sourcebook 2009/2010. 2009, page 35. Rank Product Company(s) Therapeutic Subcategory Technology 2009 2016 CAGR (09-16) 1 Humira Abbott Laboratories/Eisai Other anti-rheumatics Monoclonal antibody 5.6 10.1 9% 2 Avastin Roche Anti-neoplastic MAbs Monoclonal antibody 5.7 8.9 6% 3 Enbrel Amgen/Pfizer/Takeda Other anti-rheumatics Recombinant product 6.5 7.3 2% 4 Rituxan Roche/Biogen Idec Anti-neoplastic MAbs Monoclonal antibody 5.6 6.8 3% 5 Crestor AstraZeneca/Shionogi/Chiesi Anti-hyperlipidaemics Small molecule chemistry 4.8 6.3 4% 6 Herceptin Roche Anti-neoplastic MAbs Monoclonal antibody 4.9 6.2 3% 7 Remicade Johnson & Johnson/Merck & Co/ Mitsubishi Tanabe Other anti-rheumatics Monoclonal antibody 5.9 5.7 0% 8 Lantus Sanofi-Aventis Anti-diabetics Recombinant product 4.3 5.3 3% 9 Advair/ Seretide GlaxoSmithKline/Almirall/Others Other bronchodilators Small molecule chemistry 8.0 5.2 -6% 10 Prolia Amgen/Daiichi Sankyo/GlaxoSmithKline Bone calcium regulators Monoclonal antibody 0 5.2 — Source: EvaluatePharma 5/3/2010 Biologics Biologics are larger molecule drugs derived from living organisms or their products and have historically been developed primarily by biotechnology companies. nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce M a r k e t Op por t u n i t y 9 Biomanufacturing Biogen Idec is one of several biotechnology companies with dedicated biological bulk-manufacturing facilities. These facilities include a 250,000-square-foot large-scale manufacturing (LSM) plant in Research Triangle Park. The LSM has 90,000 liters of bioreactor capacity and is one of the largest biologic manufacturing facilities of its kind in the world.A This facility has already received industry recognition for its exceptional design, innovative modular construction methods, and strong safety record – including the prestigious “Facility of the Year Award for Operational Excellence”B announced in January 2010. Biogen Idec employs approximately 850 people in the Research Triangle area.C Source: A “Manufacturing”, Biogen Idec. http://www.biogenidec.com/ research_manufacturing.aspx?ID=5779 (accessed on December 21, 2010). B Facility of the Year Awards are sponsored jointly by the International Society for Pharmaceutical Engineering, the group’s associated trade show, INTERPHEX, and by Pharmaceutical Processing magazine. http://www. facilityoftheyear.org/foyawinners2010 (accessed on December 31, 2010). C “Biogen RTP Wins Global Award”, North Carolina Biotechnology Center, News and Events, January 12, 2010. http://www.ncbiotech. org/article/biogen-rtp-wins-global-award (accessed on December 21, 2010). • Vaccines (12%) – driven by growth in markets such as HPV (human papilloma virus), pediatric, meningitis, influenza, and other vaccine families through the penetration of biologics. • Dermatology (10%) – driven by the psoriasis market; the chief products spearheading the growth in this market are biologics. • Cancer (8%) – driven by biologics such as Avastin, Rituxan, Velcade, Erbitux, and Herceptin. The Importance of Start-Up Companies to Industry Growth Entrepreneurs and bioscience start-up companies played an important role in the growth outlined above and will continue to be a critical component in the industry’s future. Small businesses with fewer than 500 employees accounted for 65 percent of the net new jobs created during the 1993-2009 period.34 In their first year, new firms collectively add an average of three million jobs, while older companies lose one million jobs annually.35 Most successful biotech drugs emerge from start-ups.36 According to AdvaMed, 28% of the medical technology industry’s research and development spending comes from smaller companies.37 While these start-up companies may leave the ultimate commercialization of their products to larger companies, the life science industry is highly dependent on discoveries initially developed by start-ups. 34 “Frequently Asked Questions” Office of Advocacy, U.S. Small Business Administration. http:// www.sba.gov/advo/stats/sbfaq.pdf (accessed on December 21, 2010). 35 Kane, Tim. The Importance of Startups in Job Creation and Job Destruction. Kauffman Foundation, July 2010, page 2. http://www.kauffman.org/uploadedFiles/firm_formation_ importance_of_startups.pdf (accessed on December 21, 2010). 36 Johnson, Ken. “PhRMA Statement Regarding Benefits of U.S. Innovation”, PhRMA, August 25, 2009. http://www.phrma.org/news_room/press_releases/phrma_statement_regarding_benefits_ of_u.s._innovation (accessed on December 21, 2010). 37 “About Our Industry”, AdvaMed. http://www.advamed.org/MemberPortal/About/Industry (accessed on December 21, 2010). 10 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Tremendous Opportunity for Growth in Life Science Industry Despite the industry’s healing, fueling, feeding and economic impacts to date, a great deal of opportunity for growth remains ahead for the life science industry. As such, localities competing successfully to build and attract companies in the industry are expected to reap significant rewards in terms of job growth and overall economic impact. Several trends that provide optimism behind the growth prospects for the industry are described below. Highly Prevalent Diseases Remain Poorly Addressed by Current Treatments Despite the strong growth in the overall life science industry and biotech industry specifically, many highly prevalent diseases remain poorly addressed by current treatments, implying that the industry has a great deal of room to grow. In 2008, analysts at Lehman Brothers studied data from the Centers for Disease Control and Prevention, National Health Statistics surveys, and National Institutes of Health to identify unmet medical needs by therapeutic category. This study identified many common diseases (each with a U.S. prevalence greater than three million patients) that remain poorly addressed by current therapeutics including: obesity, Alzheimer’s disease, arthritis, chronic obstructive pulmonary disease, depression, cancers, pain, urinary incontinence, and congestive heart failure/ arrhythmia.38 Aging of Population and Other Trends Resulting in Rapid Growth in Highly Prevalent Diseases While the mortality rates and prevalence of some diseases is declining due to the availability of new treatments and preventive measures, epidemiologic and environmental factors are driving the increasing prevalence of a number of common diseases. Three representative examples are Alzheimer’s disease, diabetes and asthma. Alzheimer’s disease is the most common form of dementia, and current therapeutics are unable to stop the disease from progressing.39 In 2007, there were roughly five million Americans with Alzheimer’s disease, but the U.S. prevalence is expected to increase to nearly 16 million by 205040 in large part due to the aging of the population. Exacerbating the societal and economic impact of the disease is the fact that patients with Alzheimer’s may live 10-15 years after diagnosis, therefore having a long-term impact on the patients and their families.41 38 “Pharma/Biotech Pipelines and Unmet Medical Need: A 2008 Analysis”, PAREXEL’s Bio/ Pharmaceutical R&D Statistical Sourcebook 2009/2010, page 77. 39 “What is Alzheimer’s?”, Alzheimer’s Association. http://www.alz.org/alzheimers_disease_what_ is_alzheimers.asp (accessed on December 21, 2010). 40 2010 Alzheimer’s Disease Facts and Figures. Alzheimer’s Association, page 14. http://www.alz. org/documents_custom/report_alzfactsfigures2010.pdf (accessed on December 21, 2010). 41 Anderson, Pauline. “Global Prevalence of Alzheimer’s Disease Set to Double Every 20 Years”, Medscape Medical News, September 24, 2009. http://www.medscape.com/viewarticle/709450 (accessed on December 21, 2010). nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce M a r k e t Op por t u n i t y 11 Growth in the diabetes population is being driven by the aging of the population as well as the sedentary lifestyle and poor eating habits of many Americans. In 2007, the Centers for Disease Control reported that more than 23.6 million Americans had diabetes – up from 18.2 million in 2002. 42,43 The number of Americans with diabetes more than tripled between 1980 and 2008.44 In 2007, the direct and indirect costs associated with diabetes were $174 billion.45 The prevalence of asthma grew to 23.3 million in the U.S. in 2008, and asthma accounted for 14.4 million in lost school days and 14.2 million in lost work days in that year.46 While the rate of increase in asthma prevalence has slowed somewhat, the prevalence had still grown 3% annually over the previous five years.47 Some believe that this increase may be due in part to environmental factors.48 New Technologies Allowing Researchers to Focus on More Targets According to researchers at Accenture Technology Labs, pharmaceuticals are currently directed at no more than 500 targets in the human body.49 Genomic research is expected to yield drugs designed to interact with a far greater number of biological targets, resulting in enhanced efficacy and reduced toxicity in well-defined patient populations. This research is also expected to allow scientists to focus on up to tens of thousands of targets.50 42 National Diabetes Fact Sheet, 2007. Centers for Disease Control, page 12. http://www.cdc.gov/ diabetes/pubs/pdf/ndfs_2007.pdf (accessed on December 21, 2010). 43 National Diabetes Fact Sheet, 2003. Centers for Disease Control. http://www.cdc.gov/diabetes/ pubs/estimates.htm (accessed on December 21, 2010). 44 “Diabetes Data and Trends. Number (in Millions) of Civilian, Non-Institutionalized Persons with Diagnosed Diabetes, United States, 1980–2008”, Centers for Disease Control. http://www. cdc.gov/diabetes/statistics/prev/national/figpersons.htm (accessed on December 21, 2010). 45 National Diabetes Fact Sheet, 2007. Centers for Disease Control, page 12. http://www.cdc.gov/ diabetes/pubs/pdf/ndfs_2007.pdf (accessed on December 21, 2010). 46 Trends in Asthma Morbidity and Mortality. American Lung Association, February 2010. http:// www.lungusa.org/finding-cures/our-research/trend-reports/asthma-trend-report.pdf (accessed on December 21, 2010). 47 Ibid. 48 Priftis, K., et al. “Asthma symptoms and airway narrowing in children growing up in an urban versus rural environment”, Journal of Asthma 46(3): 244-251, 2009. 49 Mesnage, Marion and Illsley, Martin. “Biotechnology: Out of the Labs and Into Every Industry”, Accenture. January 2003. http://www.accenture.com/Global/Research_and_Insights/Outlook/ By_Alphabet/BiotechnologyIndustry.htm (accessed on December 21, 2010). 50 Ibid. 12 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Global Population Growth to Spur Agricultural Biotechnology Applications The world population is currently just under seven billion people.51 The United Nations projects that the population will reach 8.6 billion in 2035.52 Since the global food supply may also need to double during this time period, the application of bioscience to the food supply is a global imperative.53 As such, new approaches to enhancing the food supply, such as those described in the “Feeding” section above, will become even more pressing. Demand for Biofuels Expected to Increase As the population rises and traditional resources for fuel become more limited, demand for biofuels produced by the bioscience industry should continue to grow. According to the U.S. Department of Energy, “Cheap oil fuels America’s economy—most of which is imported. Small changes in crude oil prices or supplies can have an enormous impact on our economy—increasing trade deficits, decreasing industrial investment, and lowering employment levels. Developing a strong industry for biomass fuels, power, and products in the United States will have tremendous economic benefits including trade deficit reduction, job creation, and the strengthening of agricultural markets.”54 51 “U.S. and World Population Clocks”, U.S. Census Bureau, http://www.census.gov/main/www/ popclock.html (accessed December 21, 2010). 52 “World Population Prospects: The 2008 Revision Population Database”, United Nations. http:// esa.un.org/unpp (accessed December 21, 2010). 53 Healing, Fueling, Feeding: How Biotechnology is Enriching Your Life, BIO (Biotechnology Industry Organization), June 2010, page 58. http://www.valueofbiotech.com/sites/default/files/ pdfs/ValueofBiotechFINAL.pdf (accessed December 21, 2010). 54 “Resources for Policymakers”, U.S. DOE, Energy Efficiency and Renewable Energy. http:// www1.eere.energy.gov/biomass/for_policymakers.html (accessed on December 21, 2010). nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce M a r k e t Op por t u n i t y 13 Challenges Facing Growth of Life Science Industry While the impact that bioscience-based products and services has on our welfare is enormous and wide-ranging (health, food, fuel, revenue, employment), it is accompanied by significant challenges in advancing a product from discovery to commercialization. Chapter 3 of this strategic plan will focus on specific gaps and challenges facing North Carolina’s life science industry. On an industry-wide level, much of the commercialization challenge is associated with the high cost and high risk of failure associated with the development of bioscience-related products, particularly biopharmaceuticals. High Costs and High Risk of Failure Associated with Life Science Product Development According to a study by the Tufts Center for the Study of Drug Development, there is only a 16% success rate for drugs entering clinical trials (drug trials in people rather than animals).55 In a Boston Globe article, Peter Wirth, Executive Vice President of Genzyme Corporation stated, “It takes a billion dollars to develop a drug. The critical dilemma now is: how are we going to pay for innovation?”56 Tufts estimated the average cost to develop a new biotech drug at $1.2 billion in 2006.57 Even more pessimistic is research released in 2003 by Bain & Company, a consulting firm, which stated that this cost is more on the order of $1.7 billion, including such factors as marketing and advertising expenses.58 Because of the long period before research and development (R&D) pays off in net income, companies with revenues below $100 million do not, on average, record positive net income; the 79 public bioscience companies with over $1 billion in revenue generate nearly all of the net income for the bioscience industry.59 Unclear Future for Basic Research Funding One area that could present future challenges for the bioscience industry relates to academic bioscience R&D funding. Bioscience R&D expenditures were nearly $32 billion in 2008, representing 60% of all U.S. academic R&D.60 Academic bioscience research grew by 22% from 2004 to 2008.61 55 Outlook 2010. Tufts Center for the Study of Drug Development, Tufts University, page 4. 56 Weisman, Robert. “Biotech firms feel funding squeeze”,, The Boston Globe, October 2, 2009. 57 Outlook 2010. Tufts Center for the Study of Drug Development, Tufts University, page 3. 58 “Has the Pharmaceutical Blockbuster Model Gone Bust?” Bain & Company, December 8, 2003. http://www.bain.com/bainweb/About/press_release_detail.asp?id=14243&menu_url=for_the_ media.asp (accessed on December 21, 2010). 59 Battelle/BIO State Bioscience Initiatives 2010, Battelle Technology Partnership Practice, May 2010, page 3. http://www.bio.org/local/battelle2010/Battelle_Report_2010.pdf (accessed on December 22, 2010). 60 Ibid., page 41. 61 Ibid., page 41. 14 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Federal research funding is a major source of bioscience-related research support, providing some 60% of basic research funding.62 Some institutions are concerned about future levels of such funding. The National Institutes of Health (NIH) funds intramural research (research conducted on-site at the NIH campuses), extramural research (generally university-based) and early-stage company R&D (via its Small Business Innovation Research [SBIR] and related grants programs). In 2009, NIH baseline funding of $21.5 billion declined 7.5% from the previous year.63 An additional $4.4 billion of research was funded by the American Recovery and Reinvestment Act of 2009 (ARRA).64 When commenting on the welcome influx of ARRA money, Alan Eisenberg, Executive Vice President for Emerging Companies and Business Development at BIO, said, “The NIH money granted for basic biomedical research could have a beneficial, long-run effect on biotech firms, which will help bring promising discoveries from the lab to commercial viability.”65 However, overall NIH funding has been flat since 2003, which is a cause of concern within the bioscience industry.66 Decline in Venture Capital Funding and Initial Public Offerings As is described in much more detail in Chapter 3, venture capital funding for bioscience companies and growth companies in general has declined significantly. Additionally, venture capital groups appear to be more focused on later-stage companies than in the past, leaving a wide funding gap for early-stage companies. Finally, initial public offering activity has declined (as further delineated in Chapter 3), leaving companies with fewer funding options as they move into expensive late-stage clinical trials. 62 Sparking Economic Growth, The Science Coalition. April 2010, page 3. http://www. sciencecoalition.org/successstories/resources/pdf/Sparking%20Economic%20Growth%20 Full%20Report%20FINAL%204-5-10.pdf (accessed on December 21, 2010). 63 Battelle/BIO State Bioscience Initiatives 2010, Battelle Technology Partnership Practice, May 2010, pages 42-43. http://www.bio.org/local/battelle2010/Battelle_Report_2010.pdf (accessed on December 22, 2010). 64 Ibid., page 42. 65 Biotech: Lifting Big Pharma’s Prospects with Biologics, PricewaterhouseCoopers. May 2009. http://www.pwc.com/en_GX/gx/pharma-life-sciences/pdf/biotech-final.pdf (accessed on December 21, 2010). 66 Battelle/BIO State Bioscience Initiatives 2010, Battelle Technology Partnership Practice. May 2010, page 42. http://www.bio.org/local/battelle2010/Battelle_Report_2010.pdf (accessed on December 22, 2010). “While helping to meet some critical needs resulting from previous budget shortfalls, the funding provided by the ARRA was unprecedented and short-term. Scientific research is an on-going process that requires strong, predictable funding year-in and year-out. A funding tap that runs hot and cold wreaks havoc on the research process and diminishes our ability to benefit from the innovations that flow from it. It is essential to America’s global competitiveness and long-term economic health that the U.S. invest in basic research significantly and consistently year-over- year.” Source: Sparking Economic Growth, The Science Coalition. April 2010, page 14. http://www.sciencecoalition. org/successstories/resources/pdf/ Sparking%20Economic%20Growth%20 Full%20Report%20FINAL%204-5-10. pdf (accessed on December 21, 2010). nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce M a r k e t Op por t u n i t y 15 Life Science Opportunity Put in Context of Challenges Ahead This chapter presented the major effects that the life science industry is having on human health, our food supply, and fueling the economy. The growth in the industry has resulted in an impressive jobs and tax base, and this rapid growth is expected to continue as a result of a range of factors described earlier. However, combining the high cost of taking a product from the discovery phase to commercialization with questions around sources of funding for such research and development, funding gaps arise that must be bridged and product development challenges occur that need to be surmounted. Only those companies (and the localities in which they are based) that are able to bridge these gaps and surmount these challenges will be successful in benefiting from the continued growth in the life science industry. The next chapter describes how North Carolina has grown into a leading hub for the life science industry through successes across a range of subsectors within the industry. North Carolina has developed several distinctive strengths, which have resulted in its strong industry position, and these strengths are also described. However, as detailed in Chapter 3, the state faces a number of challenges to building upon its leadership position, and failure to confront these challenges will negatively impact the state’s ability to benefit from the tremendous growth likely ahead for the bioscience industry. As such, the balance of this report, Chapters 4-7, presents several strategies to successfully overcome these challenges. nor th carol i n a b i o t echnology c en t e r North Carolina’s early and long-term commitment to biotechnology has played a key role in establishing a large and growing life science industry in the state. This chapter details the strong positive impact that the life science industry has had on North Carolina as well as several of the factors behind the state’s success in the industry to date. While North Carolina appears poised to garner more than its fair share of the tremendous life science market opportunity described in Chapter 1, this chapter also describes a few “disconnects” which must be addressed to ensure that the state’s success in the life science industry to date is continued in the coming decades. North Carolina’s Life Science Industry’s Large and Growing Statewide Economic Impact North Carolina was early in seeing the economic opportunity associated with establishing a strong biotechnology industry, as part of the state’s transition from a traditional economy based on textiles, tobacco and furniture. The creation of the North Carolina Biotechnology Center (the Biotechnology Center) in 1984 and consistent state funding of the Center since reflect the state’s commitment to further growing the sector. This investment has begun to yield tangible benefits for North Carolina in that the state is now home to the third largest number of biotechnology companies among all states,1 and has built a strong bioscience jobs and tax base. “The reason we are ahead of the curve is because for 15 years we’ve invested in the biotech industry and it’s paying dividends.” —Norris Tolson, President/CEO, North Carolina Biotechnology Center2 Strong Growth in High-Paying Jobs North Carolina’s biotechnology sector provides a major economic boost to the state. Total biotechnology-related employment (direct & indirect) grew to more than 226,000 jobs with payroll and benefits totaling $12.7 billion in 2008.3 1 Beyond Borders: The Global Biotechnology Report, Ernst & Young, 2006. 2 Friedman, Bob. “Biotech could pave NC’s path out of the recession”, Business Leader Magazine (NC-Triangle), September-October 2010, page 38-39. 3 2010 Evidence and Opportunity: Biotechnology Impacts in North Carolina, Battelle Technology Partnership Practice, 2010, page i, vi. Chapter 2: Life Science Opportunity in North Carolina 18 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Biotechnology is responsible for $64.6 billion in total economic output and generates $1.9 billion in state and local taxes as shown in Table 2-1.4 Table 2-1: Total (Direct and Indirect) Economic Impact of Biotechnology in North Carolina 2010 Reported Impact 2008 Reported Impact Change 2008–2010 Employment 226,823 180,007 46,816 jobs increase Employment Compensation $12.7 billion $9.4 billion $3.3 billion increase Business Volume (Economic Output) $64.6 billion $45.8 billion $18.7 billion increase State and Local Taxes $1.92 billion $1.44 billion $0.48 billion increase Note: Data in the 2010 economic impact report are from 2008, and data in the 2008 report are from 2006. Bioscience employment in the state grew 29% from 2001 to 2008,5 which was nearly twice the national bioscience sector growth rate and more than five times that of North Carolina’s total private sector. Furthermore, Figure 2-1 reflects that employment growth in the state’s bioscience industry tended to be positive during periods when employment in the state’s private sector was in decline (2001-3, 2007-8), demonstrating that this industry may indeed be able to weather periods of economic decline far better than others. When compared to the other top ten states in overall bioscience employment, North Carolina’s job growth during 2001-2008 outpaced all states except Massachusetts.6 Further, the Biotechnology Center predicts that the state could see an additional 65,000 – 70,000 biotechnology jobs throughout North Carolina by 2020.7 Not only has the state’s life science industry grown rapidly (even in challenging economic times), but salaries are comparatively quite high in the industry. Wages for North Carolina’s bioscience workers rose to an average salary of $74,829 in 2008, which was $35,000 more than the state’s average private-sector salary.8 It is important to note that this growth brings additional collateral economic benefit to support sectors not directly represented in these data: 4 Ibid. 5 Ibid., page 8. 6 Ibid., page 27. 7 Friedman, Bob. “Biotech could pave NC’s path out of the recession”, Business Leader Magazine (NC-Triangle), September-October 2010, page 38-39. 8 2010 Evidence and Opportunity: Biotechnology Impacts in North Carolina, Battelle Technology Partnership Practice, 2010, page 13. 130 125 120 115 110 105 100 95 90 2001 2002 2003 2004 2005 2006 2007 2008 Employment Index (2001 = 100) NC Biosciences US Biosciences NC Total Private Sector 29% Figure 2-1: Rapid Employment Growth in North Carolina’s Bioscience Industry nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce Op por t u n i t y i n Nor t h Ca rol i n a 19 “The life sciences are an engine of job creation with a high “multiplier” rate – they create a lot of jobs indirectly. In addition to elite, Ph.D.- level positions, the life sciences create a range of jobs, including support and manufacturing roles ideal for workers transitioning from declining industries such as furniture or textiles. If North Carolina is to climb out of the recession permanently, it will do so on the shoulders of good-paying, sustainable jobs like these.” —Art Pappas, Founder and Managing Partner, Pappas Ventures9 Unusually Diverse Life Science Community While many states have one or two strong niches within the bioscience sector, North Carolina has a notably diverse employment composition.10 Figure 2-2: Breadth of North Carolina’s Bioscience Industry – Employment Composition National statistics corroborate the unusual breadth of life science research and commercialization found in the state. Based on 2001-2008 employment metrics, North Carolina is one of only five states specialized in three of these four bioscience subsectors (Agricultural Feedstock & Chemicals; Research, Testing & Medical Labs; and Drugs & Pharmaceuticals), and is one of the top seven states in employment growth in the Medical Devices & Equipment subsector.11 In addition to being a major U.S. hub for biopharmaceutical research and development, North Carolina is home to the headquarters of three of the top ten contract research organizations (CROs) in the world, with a combined global market share of 9 Pappas, Arthur M. “Legislators aid N.C. life sciences”, News & Observer, Raleigh, NC. Point of View. July 16, 2010. http://www.ncbioscience.org/news_and_events/documents/ArtPappas- NOOpEd7-16-2010.pdf (accessed on December 21, 2010). 10 2010 Evidence and Opportunity: Biotechnology Impacts in North Carolina, Battelle Technology Partnership Practice, 2010, page 10. 11 Battelle/BIO State Bioscience Initiatives 2010, Battelle Technology Partnership Practice, May 2010, page iv. http://www.bio.org/local/battelle2010/Battelle_Report_2010.pdf (accessed on December 22, 2010). Agricultural Feedstock & chemicals Medical Devices & Equipment Research, Testing & Medical Labs Drugs & Pharmaceuticals 35% 40% 17% 8% The Hamner The Hamner Institutes for Health Sciences is a nonprofit organization located in Research Triangle Park whose mission is to “improve public health through better predictive assessments of chemical and drug safety while helping to develop new breakthrough medicines and diagnostics.” The Hamner routinely collaborates with federal agencies such as the Centers for Disease Control, the Environmental Protection Agency and the Food and Drug Administration. In 2008, the Hamner-UNC Center for Drug Safety Sciences was formed to foster new alliances between academia, industry and government regulatory agencies to advance public health research, education and scientifically informed policies. 20 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r 27%.12 In addition to North Carolina’s strengths in human health fields, four of the top five U.S. agricultural companies have significant biotechnology research operations in the state. The North Carolina Biotechnology Center recently launched several initiatives to further broaden North Carolina’s life science industry base. The Centers of Innovation (COI) grant program catalyzes development and strengthening of new industry sectors within the North Carolina economy by making innovation and commercialization a strategic priority. COIs represent partnerships between the Biotechnology Center, university researchers, technology transfer officers, industrial partners, nonprofit stakeholders and policymakers. COIs have been created to support the state’s medical device, oncology-focused drug discovery, nanobiotechnology and marine biotechnology subsectors. Each of these subsectors has attained some degree of critical research mass across the state but previously lacked a state-wide infrastructure and public-private cohesion to satisfactorily drive these sectors towards commercialization and economic impact. More recently, the 30 in 10 Agbiotech Initiative was launched, with a goal of expanding the commercial contributions from local agricultural biotechnology efforts to the state’s agri-economy, thereby growing the agriculture component of the gross state product ($70.1 billion at the time of that report) by $30 billion in ten years.13 The economic benefits of this initiative will be strongly realized in rural areas most impacted by challenges in the state’s traditional industries such as textiles, tobacco and furniture. 12 The Top 10 Contract Research Organizations, Business Insights, March 2009. 13 30 in 10: Growing North Carolina’s AgBiotech Landscape, North Carolina Biotechnology Center, 2009, page 4. http://www.ncbiotech.org/sites/default/files/agbiotech_30in10_2.pdf (accessed on December 22, 2010). Tobacco: Creating Jobs, Saving Lives In the past, tobacco has had a negative impact on human health. But in Research Triangle Park, one company plans to use tobacco instead to save lives. Medicago, a Montreal-based pharmaceutical company, is using the plant as a tool for producing flu vaccines. Medicago recently chose Research Triangle Park for its 90,000 square foot manufacturing facility, which will create up to 85 jobs. North Carolina’s tobacco history also resulted in the founding of Targacept, which is now one of North Carolina’s leading public bioscience companies. Targacept was started in 1997 based on research originating at R.J. Reynolds Tobacco Company (RJR) and is headquarted in Winston- Salem. Its drug candidates are aimed at treating a wide range of disorders, including Alzheimer’s disease, depression, Parkinson’s disease, ADHD, and schizophrenia. photo © Medicago nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce Op por t u n i t y i n Nor t h Ca rol i n a 21 Life Science Efforts Spread Across the State While much of North Carolina’s life science momentum is concentrated in the Research Triangle region, it should be noted that there are significant research, development and commercialization efforts spread across the state. In addition to Targacept, the Piedmont Triad region boasts other significant life science assets, including TransTech Pharma, Tengion, Banner PharmaCaps, Wake Forest University and its new Institute for Regenerative Medicine. Gaia Herbs and other natural products-focused businesses have concentrated in the western part of the state. The greater Charlotte area is home to UNC-Charlotte and the new North Carolina Research Campus in Kannapolis. Eastern North Carolina is represented by East Carolina University (Greenville) and Avoca, a manufacturer of fragrance from clary sage in Merry Hill, N.C. The southeast is represented by PPD (one of the world’s largest contract research organizations), UNC-Wilmington, the UNCW Center for Marine Science and its biotechnology commercialization incubator (MARBIONC), AAI Pharma (Wilmington) and Pfizer Poultry Health (Laurinburg). Life science-related manufacturing efforts are particularly well-distributed across the state, including Novozymes (Franklinton), Novartis (Holly Springs), Pfizer/Wyeth (Sanford), Metrics (Greenville) and DSM (Greenville). To further cultivate and leverage the life science advantages specific to each of these regions, the Biotechnology Center has opened regional offices in Winston-Salem, Charlotte, Greenville, Wilmington and Asheville. Additionally, the Biotechnology Center currently has active loans to biotechnology companies in all parts of the state. North Carolina Research Campus The North Carolina Research Campus (NCRC) was established in Kannapolis to foster research collaborations in the areas of biotechnology, health and nutrition. NCRC is a public-private partnership between benefactor David H. Murdock and the state of North Carolina. The Campus supports researchers from eight North Carolina universities, industry partners and not-for-profit institutions with core facilities offering state-of-the art discovery tools and an abundance of laboratory and office space. Photo © NC Research Campus 22 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Key Drivers of North Carolina’s Life Science Industry Growth The North Carolina life science industry has clearly established a great deal of momentum which must be continued over the coming decades in order to fully reap the economic benefits. This momentum has been built through the leveraging of a vast, diverse and uncommon array of assets found in the state. The availability of these assets will continue to be critical as the state seeks to further build its strong position in the life science industry. Among the most critical of these building blocks are: • an abundance of world-class research institutions (including university, government and nonprofit laboratories) and their associated technology transfer and commercialization efforts • a base of large corporations with significant operations in the state (which contributes human capital at all levels) • the global headquarters for many top contract research (CRO) businesses • a support infrastructure facilitated in part by entities such as the North Carolina Biotechnology Center, the Council for Entrepreneurial Development (CED), and the Small Business and Technology Development Center (SBTDC) • a biotechnology- and entrepreneur-friendly state government and business climate Several of the key drivers behind the growth of North Carolina’s life science industry are described in the following sections. Growth Spurred By Emerging Companies The growth in the state’s life science sector derives not only from the expansion of companies already established in North Carolina, but also from the creation of new companies and the relocation of other life science businesses to the state. The great majority of the state’s life science companies are start-up companies with fewer than 50 employees. North Carolina’s strong academic research institutions, along with numerous programs to nurture emerging companies, have driven high growth in the number of life science start-ups established here. Many early-stage discoveries, which ultimately lead to commercialized products, come out of the state’s leading academic research institutions. As described later in this chapter, Duke and UNC-Chapel Hill are both among the top 20 universities in research expenditures, but these two schools represent just the tip of the iceberg in terms of important life science research ongoing in the state. Work at these institutions is actively supported by the North Carolina Biotechnology Center and other statewide groups. For instance, the Biotechnology Center’s Oliver Smithies Faculty Recruitment Grants program has provided $11 million to aid the state’s Big Business Starts with Tiny Particles Advanced Liquid Logic, a Research Triangle Park firm spun out of Duke University with the help of several Biotechnology Center loans, is developing high-speed diagnostic tests that use nano-sized droplets of fluids. This “lab-on- a-chip” technology performs complex laboratory operations on miniscule “microfluidic” platforms. Advanced Liquid Logic is one of some 75 North Carolina companies developing nanobiotechnology applications. nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce Op por t u n i t y i n Nor t h Ca rol i n a 23 research institutions in recruiting 56 research faculty members who then founded ten companies and landed $542 million in other funding.14 Significant life science start-up company formation originates from the state’s research universities. Table 2-2 shows the number of start-up companies created in 2008 to commercialize technologies invented at local universities. Business and research loan funding provided through the Biotechnology Center is often the first external financing available to emerging life science companies in the state. More than half of all loans awarded by the Biotechnology Center have been made to companies spun out of the state’s public or private universities, highlighting the continued prominence of university start-ups in the local demographic of early-stage companies. Many companies that benefit from Biotechnology Center loans either subsequently commercialize their products or are acquired. It is important to note that of the 57 companies in the Biotechnology Center’s current loan portfolio, only one has more than 50 employees. This data point reflects the high number of early-stage, emerging life science companies based in North Carolina. (The Biotechnology Center loan program is described in further detail in Chapter 5.) The Biotechnology Center also supports companies built to commercialize university inventions through its BATON program, which maps prequalified service providers and management candidates to promising nascent companies. In its three year history, the program has supported the creation of 17 university start-ups birthed at seven universities in the state. Employment Growth Driven By Larger Firms Locating Large Divisions Here The list of major bioscience and related companies headquartered in North Carolina draws heavily from the biopharmaceuticals, diagnostics and CRO sectors. Of these, among the largest employers are: Laboratory Corporation of America (LabCorp), PPD, Talecris, RTI International, Quintiles, Spectrum- Carilion Labs, Banner PharmaCaps, bioMerieux, INC Research, AAI Pharma, Family Health International, Novella Clinical and Rho. However, multinational corporations headquartered elsewhere but with significant operations in North Carolina are increasingly important contributors to the state’s life science economy. The list of those that employ at least 300 North Carolinians includes companies from the biotechnology, pharmaceutical, medical device and agricultural biotechnology worlds such as: GlaxoSmithKline, Hospira, Baxter Healthcare, DSM, Syngenta Crop Protection, Pfizer, BD Technologies, Proctor & Gamble, Teleflex Medical, Biogen Idec, BASF Crop Protection, Bayer CropScience, Merck & Co., Thermo Fisher Scientific, Cook Medical, Covidien, Merck Biomanufacturing Network (Diosynth Biotechnology), Novo Nordisk, Novozymes, Sandoz, Eisai, Catalent Pharma Solutions and West Pharmaceuticals.15 14 North Carolina Biotechnology Center, “Grant Funding Proves Successful” brochure 15 Company Directory. North Carolina Biotechnology Center. http://directory.ncbiotech.org (accessed on December 21, 2010). Table 2-2: Start-Up Company Formation by North Carolina Universities in 2008 Institution Startups Formed Duke University 7 East Carolina University 1 North Carolina State University 5 UNC-Greensboro 2 UNC-Chapel Hill 5 UNC-Charlotte 3 Wake Forest 2 Total 25 Source: AUTM U.S. Licensing Activity Survey, FY2008 Survey Summary, Association of University Technology Managers, 2010, pages 47-51. 24 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Workforce Development Programs Playing Key Role in Growth North Carolina is particularly innovative with regards to its coordination of industry-driven workforce development efforts. Historically a training ground for Ph.D.-level researchers destined to ascend into the academic ranks, the state has methodically created and funded a first-in-class workforce training effort in coordination with its community colleges, universities, corporations and the North Carolina Biotechnology Center. These efforts have culminated in the creation of a biomanufacturing talent pool that has been instrumental in the successful recruitment of large manufacturing operations to the state in recent years. “North Carolina’s ‘ace’ was its ability to provide an instantaneous workforce.” —Joerg Reinhardt, CEO, Novartis Vaccines and Diagnostics, announcing the company’s new flu vaccine biomanufacturing facility in Holly Springs16 These efforts were programmatically initiated with the introduction of the BioWork course, developed by the Biotechnology Center in partnership with the community college system and industry. In turn, biomanufacturing workforce development efforts have been extended under the NCBioImpact umbrella to include the university-scale programs, BRITE and BTEC (see sidebar). Finally, the Industrial Fellowship Program was recently created by the Biotechnology Center as a unique effort to transition promising academic researchers to scientific careers in industry. Statewide efforts in workforce development contributed to the Milken Institute’s Biotech Index report ranking of the Research Triangle area as No. 1 in human capital and biotechnology workforce.17 North Carolina’s Increasing Prominence as a Leader in Biomanufacturing As indicated earlier, North Carolina has become a prominent location for manufacturing operations for pharmaceutical, biological and industrial products. When companies site their manufacturing operations in North Carolina, a large number of new positions for highly skilled workers typically become available. Some of the world’s largest pharmaceutical companies have established new manufacturing facilities in in the state. Novartis Vaccines and Diagnostics chose Holly Springs over several other locations to locate a $267 million plant to produce a flu vaccine. Merck built a $300 million facility in Durham to produce vaccines for measles, mumps, rubella, chicken pox, and shingles. Both companies have since announced growth plans for these plants and the creation of additional jobs. 16 North Carolina Biotechnology Center. http://www.ncbiotech.org/workforce-education/ workforce-development (accessed on January 4, 2011). 17 DeVol, Ross, Wong, Perry et al. America’s Biotech and Life Science Clusters: San Diego’s Position and Economic Contributions, Milken Institute, June 2004, page 3. http://www. milkeninstitute.org/pdf/biotech_clusters.pdf (accessed on December 22, 2010). Job-Ready Employees, Day One NCBioImpact is North Carolina’s largest training consortium, delivering a full spectrum of industry-driven training for biomanufacturing and pharmaceutical production. This coordinated workforce training is provided through a variety of courses, certificates and degree programs developed as part of a first-in-class partnership between biomanufacturing businesses, universities, and the North Carolina Biotechnology Center. BioNetwork offers a curriculum of short, industry-customized courses offered through the North Carolina Community College System that are designed to upgrade the skills of incumbent workers. North Carolina Central University’s BRITE (Biomanufacturing Research Institute and Technology Enterprise) is preparing students for research careers in the biotechnology and biomanufacturing workplaces, particularly in the areas of drug discovery and manufacturing process development. BTEC (Biomanufacturing Training and Education Center), located on North Carolina State University’s Centennial Campus, deploys a system of advanced, hands-on training and education in a simulated cGMP (current Good Manufacturing Practice) environment using facilities and equipment that match those in place at the world’s leading biomanufacturing companies. Source: NCBIOIMPACT. http://www. ncbioimpact.org (accessed on December 22, 2010). nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce Op por t u n i t y i n Nor t h Ca rol i n a 25 Novo Nordisk Pharmaceutical Industries and United Therapeutics, two companies with a long-term North Carolina presence, are also expanding their efforts in the state. As part of its $68 billion acquisition of Wyeth in 2009, Pfizer now operates a vaccine plant in Sanford. Pfizer Poultry health purchased North Carolina-based Embrex and now operates a poultry vaccine plant near Laurinburg. GlaxoSmithKline, Merck Biomanufacturing Network, Talecris, Biogen Idec and Novozymes all operate significant life science manufacturing facilities in North Carolina. North Carolina’s success in attracting biomanufacturing operations in part has resulted from strategic efforts to provide these companies with a skilled technical workforce, as mentioned earlier. Additionally, the availability of affordable land and substantial water resources is often cited as a competitive advantage for North Carolina. Biomanufacturing Whether it is physical infrastructure, human resources or support companies, North Carolina provides what a biomanufacturing facility needs. More than 50 companies manufacturing biologics, pharmaceuticals and diagnostics already call North Carolina home. These companies, including Biogen Idec, GlaxoSmithKline, Novozymes, Pfizer, and Talecris, operate some of the largest and most unique facilities of their kind. Southport Wilmington Maxton Fayetteville Pisgah Forest Marion Brevard Boone Lenoir Lincolnton Huntersville Landis Charlotte Burlington Greensboro Whitsett High Point Franklinton Holly Springs Pittsboro Morrisville Clayton RTP Zebulon Sanford Durham Raleigh Rocky Mount Farmville Wilson Greenville Pharmaceutical Service Providers Biomanufacturers Manufacturers of Traditional Pharmaceuticals and Diagnostics North Carolina’s Vaccine Development Cluster One of the most significant recent trends in the biopharmaceutical industry has been the rapid growth of the vaccine development sector. Numerous public-private partnerships are being forged to establish new vaccine production technologies to facilitate the rapid development of strain-specific vaccines in response to the occurrence of pandemics. Global vaccine sales reached $19 billion in 2008 and are expected to grow 15% annually over the next five years. North Carolina’s biomanufacturing workforce and infrastructure strengths are proving to be major contributors to a growing vaccine production cluster in the state. Pfizer, Novartis, Merck, GlaxoSmithKline and Medicago each now have major vaccine R&D and/or production facilities in the state. This formidable cluster is further enriched with up-and-coming homegrown R&D companies such as Alaeras, AlphaVax, Argos Therapeutics, ArboVax, Global Vaccines, Greer Labs, ImmunoBiosciences, Liquidia, Peptagen, Pique Therapeutics and SoyMeds, which are developing new vaccines and vaccine-enabling technologies. Source: Biotech 2010 Life Sciences: Adapting for Success, Burrill & Company, 2010, page 37. 26 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r “Disconnects” That Could Impact Future Growth and Economic Impact North Carolina has developed into a leading life science hub, resulting in a highly positive impact on the state’s economy. However, it is vitally important to understand that the economic momentum to date, while encouraging, is in no way a guarantee for future economic growth. The presence of the commercialization components currently available in the state may not be sufficient to take these economic gains to the next level. Upon deeper inspection, there are “disconnects” that suggest breakdowns in the flow of life science commercialization efforts within the state; indeed, exploration of these disparities may help to define factors that disrupt the state’s ability to fully realize the economic potential of this industry. Few Revenue-Generating Public Companies Headquartered Here Although North Carolina ranks third in the nation in number of biotechnology companies, few established biotechnology companies are headquartered here. According to Ernst & Young, in 2009 there were 313 public biotechnology companies headquartered in the U.S. and only 10 (3%) of those companies were based in North Carolina.18 Likewise, from MedAdNews’ list of the top 100 public biotechnology companies worldwide based on revenues, only four are headquartered in North Carolina – Talecris, Inspire, Targacept, and Trimeris.19 By comparison, 25 of the top 100 are based in California, 15 in Massachusetts, eight in New York, seven in Maryland, and five in New Jersey.20 Table 2-3 shows how North Carolina’s life science industry compares to the U.S. industry overall on several relevant metrics. 18 Giovannetti, Glen T. and Jaggi, Gautam. Beyond Borders: Global Biotechnology Report 2010, Ernst and Young. http://www.ey.com/Publication/vwLUAssets/Beyond_borders_2010/$FILE/ Beyond_borders_2010.pdf (accessed December 21, 2010). 19 “Top 100 Biotechnology Companies: A mixed bag for biotech”, MedAdNews, 29(6), June 2010. 20 Ibid. nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce Op por t u n i t y i n Nor t h Ca rol i n a 27 Table 2-3: North Carolina Life Science Industry Relative to U.S. Life Science Industry (Dollars in Millions) N.C. U.S. N.C. (% of U.S.) Sector Jobs (2008)A 53,615 1,420,324 4% Bioscience Biotechnology Patents (2009)B 126 6,125 2% Biotechnology National Institutes of Health Funding (2009)C $1,141 $25,838 4% Bioscience VC Funding Rounds (1H10)D 4 111 4% Bioscience VC Funding Rounds (2009)E 12 273 4% Bioscience Public Companies (2009)F 10 313 3% Biotechnology Revenue of Headquartered Public Companies (2009)G $1,916 $56,637 3% Biotechnology R&D of Headquartered Public Companies (2009)H $332 $17,179 2% Biotechnology Revenue of Headquartered Public Companies ex Talecris (2009)I $383 $55,104 0.7% Biotechnology Source: A 2010 Evidence and Opportunity: Biotechnology Impacts in North Carolina, Battelle Technology Partnership Practice, 2010, page iii. B Based on a search of the U.S. Patent and Trademark Office patent database. C “Dollars Awarded by State for 2009”, Research Portfolio Online Reporting Tools (RePORT), National Institutes of Health. http://report.nih.gov/award/ trends/State_Congressional/StateOverview.cfm (accessed December 22, 2010). D Trend Analysis: 1Q10 Bioscience VC, M&A and IPO Overview; Trend Analysis: 2Q10 Bioscience VC, M&A and IPO Overview, OnBioVC. E Trend Analysis: 2009 Bioscience VC, M&A and IPO Overview, OnBioVC. http://onbiovc.com/wp-content/uploads/2010/02/onbiovc-trend-analysis- 2009-year-in-review.pdf (accessed on December 22, 2010). F Giovannetti, Glen T. and Jaggi, Gautam. Beyond Borders: Global Biotechnology Report 2010, Ernst and Young. http://www.ey.com/Publication/vwLUAssets/Beyond_ borders_2010/$FILE/Beyond_borders_2010.pdf (accessed December 21, 2010). G Ibid. H Ibid. I Ibid.; Talecris 2009 10-K; North Carolina Biotechnology Center data. North Carolina’s biotechnology industry employment growth has been impressive, especially given that employment has already surpassed the goal of creating 48,000 biotechnology-related jobs by 2013 set in a January 2004 strategic plan that was spearheaded by former Governors James B. Hunt, Jr. and James G. Martin.21 Yet when considered in context, this number represents only 4% of all U.S. biotechnology employment because the great majority of the biotechnology companies based here are small start-ups. To continue and potentially accelerate the growth of North Carolina’s life science industry, it will be important to convert more of the state’s promising start-ups into established, revenue-generating companies. 21 New Jobs Across North Carolina: A Strategic Plan for Growing the Economy Statewide through Biotechnology, North Carolina Biotechnology Center, January 2004, pages 4-5. 28 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Acquisition of North Carolina Companies on the Cusp of Success As described in more detail in Chapters 3 and 6, some of North Carolina’s most promising life science companies have been acquired just as they were on the cusp of success and therefore would have soon begun providing major economic benefits to the state. Other North Carolina life science companies have been acquired after already achieving commercial success. For example, North Carolina’s Talecris Biotherapeutics, already highly successful with $1.5 billion in 2009 revenue, has agreed to be acquired by the Spanish firm, Grifols.22 While sale of a life science company is a common approach that founders and investors use to monetize their time and investments, it is important that North Carolina provide a support system and funding infrastructure to enable these companies to remain independent if they choose to do so. Although acquisition is often a positive result for the stockholders of these young entities, it often puts decisions relating to employment and long-term commitment to the state in the hands of entities based outside North Carolina. Mixed Returns from Academic Bioscience Research North Carolina is well known for the basic science research strengths of its leading academic research institutions; indeed, North Carolina ranks 5th in the U.S. with over $1.5 billion spent on academic bioscience research and development.23 Additionally, both Duke and UNC-Chapel Hill are among the country’s top 20 academic research institutions as ranked by research expenditures as shown in Table 2-4. However, in reviewing commercialization metrics such as patents, licenses and licensing income, the data are mixed as to whether these research expenditures are being maximized toward the commercialization of new products. For instance, the state ranked only 14th among all states in terms of bioscience patents issued during the 2004-2009 period.24 This ranking is also reflected in the fact that North Carolina’s biotechnology patents only accounted for 2% of the country’s biotechnology patents in 2009.25 Table 2-4 indicates that the state’s leading academic research institutions are having mixed levels of success in translating their research expenditures into patents filed and issued. The data in Table 2-4 reflect mixed results on other commercialization metrics as well. For instance, North Carolina’s top research institutions appear to be having success in executing licenses and options around their discoveries with commercial organizations. However, start-up formation and license income received by our universities tend to lag those of other leading universities (Wake 22 Bennett, Simeon and Sargent, Carey. “Grifols Agrees to Buy Talecris for $3 Billion”, Bloomberg Businessweek, June 7, 2010. http://www.businessweek.com/news/2010-06-07/grifols-agrees-to-buy- talecris-for-3-billion-update6-.html (accessed on December 22, 2010). 23 Battelle/BIO State Bioscience Initiatives 2010, Battelle Technology Partnership Practice, May 2010, page 42. http://www.bio.org/local/battelle2010/Battelle_Report_2010.pdf (accessed on December 22, 2010). 24 Ibid. 25 North Carolina Biotechnology Center data. The Largest IPO of 2009 North Carolina-based Talecris Biotherapeutics raised $1.1 billion with its 2009 initial public offering. According to Michael Constantino, Ernst & Young’s Managing Partner in Raleigh, “Following the transaction, the company’s market capitalization was $2.3 billion; the PE (private equity) investors had received aggregate proceeds from dividends, sales of stock and other fees in excess of $1.3 billion; and the investors still controlled approximately 50% of Talecris’ common stock – an incredibly successful outcome both for the business and its investors.” Source: Giovannetti, Glen T. and Jaggi, Gautam. Beyond Borders: Global Biotechnology Report 2010, Ernst and Young. http://www.ey.com/ Publication/vwLUAssets/Beyond_ borders_2010/$FILE/Beyond_ borders_2010.pdf (accessed on January 4, 2011). nor th carol i n a b i o t echnology c en t e r L i f e Sci en ce Op por t u n i t y i n Nor t h Ca rol i n a 29 Table 2-4: 2008 Technology Transfer Activity for North Carolina Universities (U.S. Rankings) Institution Research Expenditures Invention Disclosures New Patent Applications U.S. Patents Issued Licenses & Options Excecuted Start-Ups Formed License Income Duke University 13 27 30 30 5 24 34 East Carolina University 175 166 159 140 155 109 112 North Carolina State University 45 38 29 22 13 32 N/A UNC-Greensboro 159 154 166 156 132 81 152 UNC-Chapel Hill 20 52 72 55 18 36 78 UNC-Charlotte 165 118 85 112 161 67 160 Wake Forest University 101 111 N/A 85 96 88 8 Source: AUTM U.S. Licensing Activity Survey, FY2008 Survey Summary, Association of University Technology Managers, 2010. Note: Data represent rankings among 184 reporting U.S. universities, hospitals and research institutes, and are not limited to life science research and commercialization. Forest’s licensing income for 2008 was largely influenced by a single blockbuster licensing program). These data suggest challenges that may be keeping North Carolina’s discoveries from translating into start-up companies and, ultimately, product commercialization. In other words, the considerable research momentum of the state’s research universities appears to not be uniformly maintained upon transition towards commercialization. These data suggest a significant disconnect between North Carolina’s strong academic research enterprise and the efficiency of translating that research into products that will be developed further in the state. As such, there appear to be untapped assets within North Carolina universities that could drive additional economic growth for the state. 30 B r i dgi n g t h e Ga p s nor th carol i n a b i o t echnology c en t e r Ensuring that North Carolina Maximizes its Life Science Opportunity The life science industry is large and its economic impact is growing rapidly, as characterized in Chapter 1. Rapid growth preferentially brings economic benefits to regions with established life science industries and the building blocks necessary for expansion. For life science employment in particular, there exists an unusually high multiplier effect for additional jobs and services. Not surprisingly, the competition for the economic benefits associated with a thriving bioscience industry is fierce and increasingly global. North Carolina has earned its status as one of a handful of global biotechnology industry hubs, and the state has enjoyed major economic benefits associated with its life science industry. Also, because key building blocks have been put in place, there are encouraging signs that the momentum established to date will continue, enabling the state to maintain its share of the industry opportunity described in Chapter 1. Moreover, with refinement of the building blocks already in place plus strategic investments in new programs, the state has the opportunity to not simply maintain status quo, but to accelerate the rate of its commercialization efforts (and the associated economic gains for the state). Several concerning observations are identified in Chapter 2 that suggest that the flow along North Carolina’s life science commercialization continuum is far from optimal and that, as a result, there are additional unrealized economic gains for the state being left on the table. Chapter 3 identifies several gaps that threaten the future growth of the state’s bioscience industry. In subsequent chapters, we present a series of strategies to overcome these gaps and accelerate the commercialization of life sciences technologies in North Carolina. nor th carol i n a b i o t echnology c en t e r Chapter 3: Challenges Facing Commercialization of Life Science Technologies in North Carolina The development of this report was prompted by a legislative bill requesting that the North Carolina Biotechnology Center prepare “a strategic plan to accelerate the commercialization of life science technologies and discoveries being developed in universities and private companies in North Carolina and the related development and production of new commercial products.”1 As such, the first step in the development of this strategic plan was to understand the challenges (gaps) that represent significant obstacles to such commercialization. Once these obstacles were clearly elucidated, the focus shifted to developing strategies that would surmount the challenges (bridge the gaps) to ultimately accelerate the commercialization of life science technologies in North Carolina. Chapter 3 describes these challenges and why they exist. Chapters 4, 5, 6 and 7 detail several strategies for bridging these gaps. To ascertain the major challenges facing companies and universities seeking to commercialize their technologies, the authors received input from more than 50 key stakeholders involved in North Carolina’s life science community. Leaders from numerous small and large companies, university technology transfer offices, investment groups, banks, service providers and non-profit organizations all provided input. Their views on both the challenges to commercialization and potential solutions are central to this report. According to most of the stakeholders surveyed, North Carolina’s primary challenge in commercializing life science technologies is funding. While a dearth of early-stage funding was frequently noted as an obstacle, the limited availability of late-stage funding to build facilities and production lines was also deemed to be a key challenge for the state’s industry. In addition to early-stage and late-stage funding challenges, the state’s limited number of experienced life science executives with product development, commercialization and financing experience was viewed as a significant impediment to bringing products to market successfully. These three key challenges are described in the balance of this chapter. 1 General Assembly of North Carolina, Session 2009, Session Law 2010-31, Senate Bill 897. The key challenges facing the commercialization of life science technologies in North Carolina are the early-stage funding gap, the late-stage (debt) funding gap, and the management gap. 32 b r i dgi n g t h e ga p s nor th carol i n a b i o t echnology c en t e r The Early-Stage Funding Gap “What we need is more direct risk capital, rather than more support resources. This means more venture capitalists and angel investors actually funding more local technology.” —Greg Mossinghoff, CEO, Novolipids, Inc. “The critical challenge we face is that the vast majority of innovations arising in university labs are at a very early stage of development. We typically have limited data and while there often is a significant potential market, the technology is far too unproven to attract venture investment or a commercial partner.” —Cathy Innes, Director, Office of Technology Development, The University of North Carolina at Chapel Hill The majority of respondents providing input on the major challenges facing commercialization echoed the need for more early-stage life science funding in North Carolina. North Carolina is the home to leading academic research institutions and 537 biotechnology companies2 (Ernst & Young ranked North Carolina #3 among states based on number of biotechnology companies3). However, as mentioned in Chapter 2, the state has struggled to produce companies that generate significant revenue and/or become publicly traded companies. In 2009, there were only 10 publicly traded biotechnology companies (as defined by Ernst & Young) headquartered in North Carolina with total revenue of $1.9 billion (of which $1.5 billion was generated by one company, Talecris, which has agreed to be acquired by Grifols S.A. of Spain). Nationwide, in 2009, there were 313 public biotechnology companies generating $56.6 billion in total revenue.4 As such, only 3% of the nation’s public biotechnology companies are based in North Carolina, accounting for 3% of the total U.S. revenue generated by public biotech companies. While North Carolina has the third highest number of biotechnology companies, the state is outside of the top five in terms of number of publicly traded biotechnology companies.5 Most of the stakeholders interviewed believe that a critical shortage of early-stage funding in North Carolina is a key obstacle deterring companies from successfully navigating product development— successful product development often results in the establishment of a revenue-generating public company. Company executives and technology transfer officers viewed this early-stage funding shortage to be especially challenging. 2 North Carolina Biotechnology Center Company Directory Benchmark, 3rd Quarter 2010. 3 Beyond Borders: Global Biotechnology Report 2006, Ernst and Young, page 24. http://www.ey.com/Publication/vwLUAssets/Global_Biotechnology_ Report_2006/$FILE/0511-0689191%20BB%203-16%20v3%20TO%20PRINT.pdf (accessed on December 22, 2010). 4 Giovannetti, Glen T. and Jaggi, Gautam. Beyond Borders: Global Biotechnology Report 2010, Ernst and Young, page 58. http://www.ey.com/Publication/vwLUAssets/Beyond_ borders_2010/$FILE/Beyond_borders_2010.pdf (accessed December 21, 2010). 5 Morningstar Document Research, Public companies by Morningstar Industry Classification. nor th carol i n a b i o t echnology c en t e r Cha l l enge s Faci ng Comme rci a l i z at i o n o f L i f e Sci ence T echnologi e s i n Nor th Carol i n a 33 The early-stage funding gap (sometimes referred to as the “valley of death”) has been defined as the gap in between the funding that the National Institutes of Health may provide for basic research, and the downstream financing that investors supply once promising technologies are sufficiently developed.6 As shown in Figure 3-1, this gap occurs for North Carolina companies when they have progressed beyond the stage where early-stage funding vehicles (such as federal grants or North Carolina Biotechnology Center loans) are typically useful, but these companies have not yet progressed to the point where they are able to attract venture capital funding or strategic partners. Figure 3-1: Current Environment for Life Science Companies – Early-Stage Funding Gap Figure 3-1 reflects the funding environment for North Carolina’s life science companies, with several sources of funding (grants, North Carolina Biotechnology Center loans, angel funding) available for start-ups seeking initial proof of concept. However, once these companies move beyond that phase, they must navigate the early-stage funding gap during which limited or no funding options are available. Variations of Figure 3-1 will be used throughout the balance of this report to highlight the challenges facing North Carolina’s life science companies and the recommended strategies to surmount these challenges. For a traditional biotechnology company, this critical shortage of equity funding often occurs between initial preclinical proof of concept for a lead drug and early human trials of the drug. For a medical device company, this funding gap typically occurs closer in time to product commercialization. For a crop-based agricultural biotechnology company, this early-stage funding gap often occurs after proof of concept in a model plant when a new product still typically faces more than five 6 Biotech 2009 Life Sciences: Navigating the Sea Change, Burrill & Company, 2009, page 37. Federal and State Grants Angel Investments NC Biotech Center Grants NC Biotech Center Loans Venture Capital Investments Corporate Partnerships Support/Retention/Recruitment Centers of Innovation Start-up TECHNOLOGY TRANSFER Universities Discovery Development Activities Biotech Center Current Funding Mechanisims Early-Stage Funding Gap Debt Gap Proof of Concept Product Development Initial Manufacturing Large Scale Operations & Sales Clinical Trials Companies Loans The early-stage funding gap has been defined as the gap in between the funding that the National Institutes of Health may provide for basic research, and the downstream financing that investors supply once promising technologies are sufficiently developed. 34 b r i dgi n g t h e ga p s nor th carol i n a b i o t echnology c en t e r years of development prior to commercialization. Clearly, the early-stage funding gap is prevalent across all subsectors of the life science industry. This early-stage funding gap has been exacerbated by: 1) venture capital firms progressively shifting their investments towards later-stage companies, 2) an overall reduction in life science venture capital funding nationwide, 3) a comparative shortage of venture capital groups based in North Carolina, and 4) limited bank funding for companies at this stage. Venture Capital Firms Focusing Less on Early-Stage Opportunities The typical venture fund term is ten years. As such, venture capital groups seek to “exit” their investments by year 10 of a fund’s life, implying that the average exit is expected to occur 3-7 years following an initial investment. An exit typically occurs through one of two avenues: 1) sale of stock in the public market following an initial public offering (IPO), or 2) sale of stock as a result of the acquisition of a portfolio company. With the number of IPOs down relative to levels seen before the 2008 market decline (see Table 3-1) and with those IPOs typically occurring for later-stage companies than previously seen, exits have become more difficult to come by for life science venture groups. Table 3-1: IPO Volume Rebounding in 2010 But Still Below That Seen Prior To 2008 Market Decline7 (Dollars in Millions) Number of IPOs* Total Offering Volume Average Offering Size 2006 57 $5,117 $90 2007 86 $10,326 $120 2008 6 $470 $78 2009 12 $1,642 $137 First nine months of 2010 40 $3,460 $87 *Includes all companies that trade on U.S. exchanges and have had at least one U.S. venture investor Because those exits which are occurring are typically occurring later in a company’s life cycle, venture groups are making their investments later in the company’s life cycle to allow for exits in the same time frame (3-7 years following investment) as with previous funds. “Venture capital firms want to see more mature companies before they will invest…So, there’s a gap.”8 —Gary Glausser, Partner, Birchmere Ventures, Pittsburgh, PA 7 Shaking the MoneyTree Q3 Update, PricewaterhouseCoopers/National Venture Capital Association MoneyTree, Report, October, 2010, page 31. 8 Olson, Thomas. “Sparse funds stunt growth, biotech firms say”, Pittsburgh Tribune-Review, August 25, 2010. nor th carol i n a b i o t echnology c en t e r Cha l l enge s Faci ng Comme rci a l i z at i o n o f L i f e Sci ence T echnologi e s i n Nor th Carol i n a 35 A key result of this shift in the life science venture funding environment is that the early-stage funding gap has widened. The level of study data required by venture groups has increased, and the higher level of funding required to generate such data means that North Carolina-based life science companies have often exhausted typical early-stage funding sources such as federal grants, North Carolina Biotechnology Center loans and angel funding prior to reaching a stage where they can attract venture capital funding. In other words, the early-stage funding gap has become progressively wider, leaving life science companies without the resources necessary to generate the data required to attract a venture capital investment and realize their commercial and economic promise. Venture Capital Funding in Life Science Sector Down Nationwide The early-stage funding challenge has also been exacerbated by a decrease in overall life science venture capital funding, as shown in Table 3-2. In 2009, venture capital (VC) funding for biotechnology companies fell 19% to its lowest level since 2003. VC funding for medical technology companies fell 26% in 2009 to its lowest level since 2005. While VC funding in these two sectors rebounded somewhat in the first nine months of 2010, levels are still significantly below those in 2006-2008. These declines are consistent with a general decline in venture capital funding. Table 3-2: Venture Capital Investments in Life Science Companies9 (In Billions) 2006 2007 2008 2009 First Nine Months of 2010 Biotechnology $4.4 $5.2 $4.5 $3.6 $3.1 Medical Devices and Equipment $2.8 $3.7 $3.5 $2.6 $1.9 Consistent with the decline in VC funding, the current number of active VC firms is down nearly one-third relative to ten years ago.10 With total venture capital fundraising down 42% in 2009 compared to 2008 and fundraising tracking even lower in 2010,11 the trend of lower VC investments in life science companies is likely to continue. According to Mark Heesen, president of the National Venture Capital Association, “With (venture) fund size getting smaller and fewer firms raising money, we are experiencing a period of time in which venture capital investment is consistently outpacing fundraising, creating an industry that will be considerably smaller in the next decade.”12 This outlook for the venture 9 Shaking the MoneyTree Q3 Update, PricewaterhouseCoopers/National Venture Capital Association MoneyTree , Report, October, 2010. 10 Crabtree, Penni. “Venture Capital firms facing tougher times”, The San Diego Union Tribune, June 20, 2010. http://www.signonsandiego.com/news/2010/jun/20/venture-capital-firms-facing-tougher- times (accessed on December 22, 2010). 11 Shaking the MoneyTree Q3 Update, PricewaterhouseCoopers/National Venture Capital Association MoneyTree , Report, October, 2010, page 32. 12 Pharmaceuticals and Life Sciences: Second Quarter Gains Fade, PricewaterhouseCoopers, November 2010. The early-stage funding gap has become progressively wider, leaving life science companies without the resources necessary to generate the data required to attract a venture capital investment and realize their commercial and economic promise. “Gone are the days when venture capitalists seemed to be falling all over one another to get a place on the ground floor of life science startups.” Source: Vinluan, Frank. “Fallback mode: Loans to grow”, Triangle Business Journal, 26(5): 3, 31, October 8, 2010. 36 b r i dgi n g t h e ga p s nor th carol i n a b i o t echnology c en t e r capital industry overall indicates that the early-stage funding gap is unlikely to be eliminated in the foreseeable future. Limited Life Science Venture Fund Activity in North Carolina It is generally challenging for life science companies to attract venture capital funding, given the reduced amount of funding available and the increased focus of VCs on later-stage investments. However, the challenge is especially difficult for North Carolina companies given the comparative shortage of North Carolina-based VCs and the few VCs based outside the state that are active in the state. This issue manifests itself in limited life science venture capital activity in North Carolina relative to states where leading life science-focused VCs are based. For instance, in 2009, there were 273 life science VC funding transactions in the U.S., of which 97 were for California-based companies, 51 were for Massachusetts-based companies and 12 were for North Carolina-based companies.13 The data are similar for the first three quarters of 2010 during which there were 62 deals for California-based companies, 43 for Massachusetts-based companies and seven for North Carolina-based companies.14 During the first three quarters of 2010, California and Massachusetts companies alone accounted for 61% of all life science VC funding transactions in the U.S. Comments from two life science company executives in North Carolina summed up this issue: “If NC wants to compete effectively with Boston and the West Coast in biotech and other startups it needs to look at the advantage those areas have in accessibility of funding for early stage companies.” —Malcolm Thomas, CEO, Arbovax, Inc. “There are more VCs and other funding vehicles in CA/MA, so companies there have a greater number of opportunities to raise local funding.” —Mike Stocum, Managing Director, Personalized Medicine Partners Only four active life science-focused venture capital groups with more than $100 million in capital under management are based in North Carolina, and none of these are among FierceBiotech’s list of the top 17 life science focused venture capital groups.15 (In fact, none of the top 100 venture capital groups are based in 13 Trend Analysis: 2009 Bioscience VC, M&A and IPO Overview, OnBioVC , 2010, page 10. http://onbiovc.com/wp-content/uploads/2010/02/onbiovc-trend-analysis-2009-year-in-review. pdf (accessed on December 22, 2010). 14 Trend Analysis: 1Q10 Bioscience VC, M&A and IPO Overview; Trend Analysis: 2Q10 Bioscience VC, M&A and IPO Overview; Trend Analysis: 3Q10 B |
OCLC number | 828427685 |
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