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As a company that performs site selection for biopharmaceutical companies worldwide, Fluor Global Location Strategies has witnessed one country truly distinguishing itself from the competition as a worldwide leader in the industry: the United Kingdom. The global competition for biotech investments has been at a fever pitch over the past few years, with varied results.
As a company that performs site selection for biopharmaceutical companies worldwide, Fluor Global Location Strategies has witnessed one country truly distinguishing itself from the competition as a worldwide leader in the industry: the United Kingdom. The global competition for biotech investments has been at a fever pitch over the past few years, with varied results. In the US, many states have employees solely dedicated to the attraction of biotech investments. On a global basis, several nations have passed legislation and amended taxing structures for the lone purpose of enticing biotech projects. But among these countries, one that has separated itself from the pack is the one where modern biotechnology originated: the UK.
James L. Kupferer, Jr
Since James Watson and Francis Crick first deduced the double-helix structure of DNA at Cambridge University in 1953, the UK has been an embryonic pool for biotech and pharmaceutical discovery and research. Today, over a dozen of the world's top-selling drugs have been developed in the UK,1 one third of the human genome was sequenced in the country,2 and in 2003 over Â£3.5 billion was invested in pharmaceutical research.3 The country is the world's third largest exporter of medicines.4 Watson's and Crick's legacy is evident in the more than 800 member organizations that represent the London Biotechnology Network alone. Global pharmaceutical industry leaders have established significant presences in the UK, and GlaxoSmithKline, AstraZeneca, and Amersham all call the United Kingdom "home."
The UK has numerous advantages over its competition in attracting biotech and pharmaceutical investment endeavors. The UK's biotech cluster is one of the largest in Europe, with over 450 companies. Multiple, renowned research universities dot the landscape, with schools such as Cambridge, Oxford, University College London, and the Imperial College Medical School among the most noted. Many of the world's largest pharmaceutical and biotech companies have a presence in the UK, with companies such as Pfizer, Roche, Merck, Bayer, and Eli Lilly supporting significant presences.
These companies have chosen to locate and operate in the United Kingdom for a reason — the UK is a low-risk location relative to its cluster development and industry-specific pro-business environment, with tremendous infrastructure support mechanisms for the industry, equaling a high probability of success. There are other, less expensive places to do business, but on the whole, the UK's ability to nurture and support biotech has been key to its success.
To understand how biotech and pharmaceutical companies decide where to locate their facilities, it is first important to understand the types of operations that make up the industry and then to evaluate a potential location's positive or negative impact on that operation's success. Each operation, or stage within the drug life cycle, has unique location factors that contribute to its success. A community's ability to support both business and operational goals determines its global competitiveness in attracting biotech and pharmaceutical facilities, and in turn, affects an operation's success.
Figure 1. Drug Life Cycle
Pharmaceutical and biotech facility types can be easily defined by understanding each stage within the life cycle of a drug. First, a drug is discovered, then tested and developed for a commercial market. It is then manufactured, packaged, and distributed to the consumer. Each of these steps represents a different type of facility and workforce needed to accomplish its objective. In addition, each facility represented by these steps has its own set of business drivers that determines where it should be located for maximum success. An optimal location generally strikes a balance between three key decision assessments: location competitiveness, financial competitiveness, and risk profile. The objective is to identify a location that will positively impact operational success (based on a variety of weighted custom-location factors), balanced with a competitive investment and recurring cost profile (i.e., greatest return on investment), and minimal location and operational risks.
Discovery and research facilities most closely resemble traditional laboratories, with bench-science stations encompassing the majority of their space. These facilities range from a university setting with brick buildings and ivy-covered facades to the modern, architecturally appealing designs favored by industry researchers and scientists.
Fig. 2. Biopharma Project Drivers by Segment
Discovery and research facilities require top-end scientific talent whose education and salaries allow them to live almost anywhere they prefer. The operations also are staffed by a diverse group of researchers and technicians. These facilities are typically found in large metropolitan areas neighboring research universities that both provide employees to the company and offer opportunities for employees to continue their education, to work on independent research, or to teach when their schedules permit them to do so.
Biopharmaceutical discovery and research operations are often found near cultural centers, where theatres, museums, and ballets assist in attracting employees. Additionally, these urban locales boast robust cultural amenities that attract diverse segments of the workforce such as the "laptops and lattes" and "urban chic" crowds. Quality-of-life and community characteristics plus industry support are key location drivers, with business costs commanding much less importance in the siting of these operations relative to their ability to attract and retain scientific intellectual capital.
Drug-development facilities represent a hybrid between the laboratory and the manufacturing plant, with small-scale production systems capable of generating low-quantity batches for additional research including clinical trials. These operations are usually less ostentatious than their laboratory cousins, representing their utilitarian nature.
Product-development facilities are often found in relative proximity to their discovery and research counterparts or are collocated with the manufacturing facilities. Depending on the situation, this proximity or collocation allows for easy knowledge transfer and synergies during early development stages, or it facilitates ongoing product development tied to manufacturing. The staff at these facilities is a hybrid between scientific researchers and production engineers. These operations are much less tightly bound to university centers and are usually located in office-park or business-park settings on the outskirts of major municipalities as stand-alone operations, or are collocated with larger research/manufacturing facilities. Generally, accessibility (proximity to trials, clients, markets, etc.) and recurring business costs are key factors in the siting of these developments due to their functional nature.
Pharmaceutical manufacturing facilities can be divided into two primary processes: formulation or distillation of an active pharmaceutical ingredient (API), and buffering and packaging of final dose forms of the medication.
The first manufacturing process is often referred to as bulk manufacturing, with facility types differing by the drug manufacturing process — i.e., whether it is chemically or biologically based. Bulk chemical API facilities most closely resemble traditional chemical plants, with tanks and silos used to hold liquid and dry chemicals, hoppers, blenders, etc. Biologically based API manufacturing facilities most closely resemble breweries, with large fermentation tanks, piping, distillation columns, etc. Both chemical and biological pharmaceutical manufacturing facilities are often quite large and are typically buffered from other developments. They are often the most expensive in the drug-development chain due to their immense equipment and infrastructure requirements but are utilitarian in design, consistent with their role in the process.
Bulk API manufacturing facilities are usually located separately from other developments, on large sites with substantial buffers from neighboring land. These facilities are the most cost-driven of all facility types, with the primary recurring cost factor being the corporate income tax. Pharmaceutical companies and major biopharmaceutical companies have focused much of their research efforts on developing blockbuster drugs (those offering annual revenue of $1 billion or more). With many of the newer manufacturing developments being built to produce blockbuster drugs, revenue streams are projected to be substantial, and in line with this are the income tax implications. Indeed, the value of annual sales for a single blockbuster drug is reaching the $3 to 5 billion range, and one drug in particular has reached nearly $11 billion in one-year sales.5,6 Consequently, location searches for these facilities typically begin with an examination of corporate income tax rates, with preference given for those locations offering the lowest overall operational risks (the ability to easily hire well-trained research personnel) versus expenditures.
Vaccines, on the other hand, historically have not followed the aforementioned location trend because of two primary reasons. First, the cost-versus-profitability structure for vaccines generally differs substantially from a typical commercial drug model. Second, the physical location of facilities can be tied to government contracts that limit global selectivity — specifically, the location can be tied to the country with the primary contract a company is fulfilling. While not comprehensive, these are two explanations of why vaccine manufacturing facilities do not follow typical location trends within the industry.
The second manufacturing facility type, buffering and packing of final dose forms, is used by both the chemical-based and biological-based manufacturing operations and is interchangeably referred to as secondary manufacturing or fill/finish operations. These operations take an active pharmaceutical ingredient produced at the bulk manufacturing facility and prepare it for distribution to the customer. Buffers and fillers are added to the drug, and the product is put into its dose form (tablets, capsules, syrups, topicals, inhalers, vials, syringes, etc.). These operations are highly automated, with extensive piping and packaging machinery dominating their clean- room environments. They are often large, showcase operations with the company's logo prominently displayed, as this is the point where the product is branded and made ready for use by the consumer.
Like product-development and pilot-plant operations, secondary manufacturing facilities are typically located on the outskirts of major cities. However, unlike upstream manufacturing plants, many are located in highly visible locations in buildings that are both architecturally pleasing and functional. As with API manufacturing facilities, site searches for secondary manufacturing operations focus on potential corporate income tax liabilities in accordance with the nature of the business.
The final step in the drug life cycle is product distribution to the consumer. The distribution centers that serve this purpose resemble traditional warehousing facilities, with extensive racking systems and palletized products. In some instances, they may also contain cold-room storage facilities for temperature-sensitive drug formulations.
Biopharmaceutical distribution facilities usually locate near major logistics points such as regional hub airports and major transportation crossroads. Their purpose is to get the finished product to pharmacies and hospitals as quickly as possible, so their locations are determined by proximity to market and to transportation infrastructure. Corporate income tax rates do not play a significant role in the siting of these operations because, as wholesale distribution centers, they generally do not generate a substantial tax liability.
The UK has been very successful in the attraction of both pharmaceutical and biopharmaceutical investments into the country, and also has succeeded in nurturing the organic growth of start-up operations that have sprung forth from the its research universities and incubators. Governmental funding for research and development in the nation is second only to the US. London dominates as the nation's center for biopharmaceutical research, with much of that activity attributable to the vast number of institutions of higher education and research centers found in the city. Of particular note is the recent initiative by these universities to increase their focus on commercialization of their own research. Technology transfer has become an increasing important objective at these schools, and the UK's regulatory framework supports this initiative.
One of the primary reasons the UK successfully attracts discovery and research operations is the primary importance placed on protecting intellectual property (IP) in this country. IP protection laws are strict, comprehensive, and aggressively enforced, reassuring companies that discoveries made within the UK will remain their property, and that the risk of loss of confidential information is low. The government's international position on intellectual property regulations has been almost identical to that of the US, which features some of the world's most aggressive IP protections.
Product-development activities are also strong within the nation. Much of this is due to the proven success of long-time corporate residents such as GlaxoSmithKline and AstraZeneca. Recently, a number of US companies have partnered with companies and research organizations in the UK to conduct additional product-development initiatives. For example, OXiGENE of Watertown, Massachusetts recently partnered with Cancer Research UK of London to conduct preclinical trials on a treatment for cancer. The UK is regularly viewed as a stepping stone to the EU market by US companies, largely due to the excellent research infrastructure found in the country. Large pharmaceutical companies such as Pfizer and Merck also maintain product-development operations in the UK.
In addition to its numerous chemically based pharmaceutical production operations (represented by companies such as Pfizer, Eli Lilly, Abbott, and Aventis), the UK is home to several significant biologically based drug formulation facilities. Several of these biopharmaceutical manufacturing operations are clustered in the Liverpool, Merseyside area, with companies such as Chiron, Eli Lilly, and MedImmune supporting significant presences there. In fact, Eli Lilly recently announced a $75 million expansion of its facility producing human growth hormone and capreomycin in Speke, Liverpool. BioReliance houses a significant manufacturing operation in Stirling, Scotland, and GlaxoSmithKline's global center of excellence for biologics manufacturing is located in Ulverston, Cumbria. Avecia boasts a 40,000-liter bioreactor capacity at its facility in Billingham, which completed a $100-million expansion that came online in 2003. In addition, Abbot recently announced a $65- million expansion of its biopharmaceutical facility in Dartford.
As an indication of the British government's commitment to biomanufacturing, the nation has undertaken the creation of the National Bio-manufacturing Center in Speke. This $50-million operation will open in 2006 in response to an ongoing lack of small-scale production capacity and lack of adequate support services for the transition between discovery/research and manufacturing. This 3,2502-meter facility includes bio-containment areas and fully compliant current good manufacturing practice (cGMP) space.
Numerous pharmaceutical distribution centers are located across the UK, with over 50 specialty distribution centers found in southeast England alone. Significant recent capital investment announcements attest to the sector's strength in the country. As part of their Sandwich campus, Pfizer features a major inbound and outbound distribution center, including a 7,500-pallet racking system stretching 26 meters high. Eli Lilly maintains a major distribution center in service to two major manufacturing operations. Sanofi-Synthelabo recently completed a Â£2 million refurbishing of its distribution facility in Sheffield.
From a global location perspective, the future of biotechnology looks very bright in the UK. Biotech is still a relatively young industry, and as such, requires assurances that ventures undertaken with precious capital are as secure as possible. The UK provides a framework for success across the industry's subsectors (discovery, development, manufacturing, fill/finish, and distribution), with a proven track record of success in each segment.
Due to intense global rivalry within the life sciences industry, the UK's dominance as a top-tier location will continually be challenged at every stage in the drug-development life cycle. Yet, in spite of local competition with the established biomanufacturing cluster in Ireland and the emergent cluster in continental Europe, or global competition from North America and Asia, the UK — the birthplace of modern biotechnology — is thriving and well-positioned for continued competition and success.
James L. Kupferer, Jr. is managing director at Fluor Global Location Strategies, 100 Fluor Daniel Drive C202D, Greenville, SC, 29607, 864.281.8326,Fax: 864.281.6913, firstname.lastname@example.org
J. Wood Hydrick is senior consultant at Fluor Global Location Strategies, 100 Fluor Daniel Drive C202D, Greenville, SC, 29607, 864.281.8326.
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