Bridging the gaps : a strategic plan to accelerate the commercialization of life science technologies in North Carolina

              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
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© 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.
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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
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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
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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
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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
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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
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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.
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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.
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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.
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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
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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.
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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).
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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.
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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
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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.
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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.
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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.
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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