Innovation, Production, and Sustainable Job Creation: Reviving U.S. Prosperity

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1 Innovation, Production, and Sustainable Job Creation: Reviving U.S. Prosperity Technology, Policy and Product Life Cycle: The Evolving Geography of Biomanufacturing Elisabeth B. Reynolds From the MIT Industrial Performance Center February 2012

2 Technology, Policy and Product Life Cycle: The Evolving Geography of Biomanufacturing Elisabeth B. Reynolds From the MIT Industrial Performance Center Development of the recommendations was funded by CONNECT Innovation Institute 8950 Villa La Jolla Drive, Suite A-124 La Jolla, CA Phone: connect.org by CONNECT. All rights reserved.

3 Technology, Policy and Product Life Cycle: The Evolving Geography of Biomanufacturing Elisabeth B. Reynolds MIT Industrial Performance Center Abstract: Biomanufacturing is one of the most complex types of manufacturing that exists and represents the kind of industry that plays to U.S. competitive advantages a technologically advanced, innovative industry that requires highly skilled workers with commensurately high pay. The complexity of biomanufacturing rooted the industry in the U.S. two decades ago, spurred continued investment over the past twenty years and continues to spur the development of new biomanufacturing-related products and technologies. However, the globalization of talent, technological innovation, and increased standardization of bioprocessing has given companies wider latitude in determining where to commercially manufacture their products. This paper outlines the dynamics of the industry and what drives its location, how technological and market trends will affect its growth in the future, and the policy implications for the U.S. to continue being a global leader in the industry. The biotechnology industry, perhaps more than any other, is representative of the kind of industry that advanced industrial economies, such as the U.S., are best positioned to compete in globally. Characterized by highly innovative, science-based research, with complex processes that are not easily codified, and demanding a highly educated workforce, biotech is in some respects the poster child of the knowledge economy. While the basic research involved in drug discovery is difficult, the challenge is equally rooted in the scaling up and manufacturing of biotech drugs (a familiar mantra is the process is the product. ) Biomanufacturing, specifically of large molecules, is one of the most complex types of manufacturing that exists. The challenge of scaling up living organisms combined with purifying their products to ensure safe administration to human beings creates a high-risk process technically, financially, as well as from a public health perspective. It is this complexity that rooted the industry in the U.S. two decades ago, spurred continued investment over the past twenty years and today plays to the country s competitive advantages a technologically advanced, innovative industry that requires highly skilled workers with commensurately high pay. For all of these reasons, the U.S. has been a global leader in this industry. However, as the industry matures, we see a familiar pattern emerging. While industry location is still dependent on a highly skilled workforce and innovative capabilities, the globalization of talent, technological innovation, and increased standardization of bioprocessing, including increased regulatory harmonization and

4 use of international inspections, has given companies wider latitude in determining where to commercially manufacture their products. In the last decade, many large biopharma companies that have been manufacturing in the U.S have opened new commercial biomanufacturing facilities offshore seeking both new markets and higher profits through lower tax environments. This raises interesting questions regarding the future of the industry in the U.S. specifically and the ability of the U.S. more generally to compete in advanced manufacturing globally. This article outlines the dynamics of the industry and what drives its location, how technological and market trends will affect its growth in the future, and the policy implications for the U.S. to continue being a global leader in the industry. I. A Brief Introduction to Biomanufacturing Biotechnology is defined broadly as the application of cellular and biomolecular processes to develop and make useful products. Biopharmaceutical drugs represent approximately 10% of the $800 billion global pharmaceuticals market and are growing at 16% annually, over twice as fast as the pharmaceutical drug market (Levine 2009). While the rewards can be high, the risks can be as well. Bringing a new drug to market costs on average over $1 billion and takes an average of 10 years. More than half way through the process, close to half of all drug candidates fail. While a patent is granted for 20 years, companies may spend half of that time developing a new drug, getting Food and Drug Administration (FDA) approval, and commercializing it. Assessed purely from a business point of view, the biotech industry has on the whole performed poorly (Pisano, 2006). To understand the complexity of biotech drugs, one needs to understand the distinction between biopharmaceuticals and pharmaceuticals, which lies in how the drugs are produced. Unlike pharmaceutical manufacturing, which is based in chemical processes that can be easily replicated, biomanufacturing is rooted in biological systems (cells, tissues) which makes it much more challenging to scale and technically impossible to create a generic since every molecule is unique (thus the term biosimilar ). The first drug therapies approved by the FDA in the 1980s were replacement proteins, human insulin (1982; Eli Lilly licensed it from Genentech and manufactured it in Indiana and Liverpool, England), and human growth hormone in 1985 (made by Genentech in California). Since then recombinant DNA has led to the development of over 200 biologically-based drug therapies, an increasing number of which are blockbuster drugs (sales over $1 billion). The industry is largely divided between mammalian-based and microbial based production, with the former (the focus of this research) representing approximately 50% of the current market and 70% of the pipeline (Levine, 2009). Mammalian-based production is the more difficult of the two approaches and has emerged as the dominant expression system. The biotech industry is one of the more clustered industries that exists, that is benefits are derived in terms of human capital development, knowledge creation and spillovers, and entrepreneurial efforts from concentrating the industry in particular locations (Markusen, 1996; Porter, 2000; Cortright, 2002; Braunerhjelm and Feldman, 2006,). This includes biomanufacturing, which exhibits many of the sticky qualities that have led to the industry s location in advanced industrial economies and made it less mobile than other types of manufacturing. The high degree of skills, the tacit rather than codified nature of the knowledge transfer between research, development and manufacturing, and the integral rather than modular development process, all combine to create a complex, advanced manufacturing process that is not easily separable in its activities, at least in the early stages (Baldwin and Clark, 2000; Levy and Murname, 2009). The following outlines some of the factors that help to explain U.S. global leadership in the industry: 2

5 1) Biomanufacturing is one of the most technically and financially risky types of manufacturing that exist today. As highlighted earlier, it is much more difficult to make a drug from a biological process based on living cells than a chemical process. Even after 20 years of commercially producing a product, there can still be glitches that arise. Beyond the technical difficulties, because of the public safety issues involved, biomanufacturing is strictly regulated by the FDA, and any changes to the manufacturing process can lead to regulatory delays, thus companies are loathe to change facilities or processes once a facility has been approved. Biomanufacturing is also expensive and financially risky; smaller companies who don t have the resources must find contract manufacturers to help them in the early stages of development, while larger companies with the resources often have to decide to build a facility ($450 - $750m) before their drug has been approved (though with excess capacity on the market today, these decisions are fewer and farther between). The cost of operational failure is also high, delaying production for weeks and possibly months, which can lead to shortages of much needed drugs, and the loss of hundreds of thousands of dollars or more. 2) Proximity matters in biomanufacturing. Unlike other industries in which R&D and manufacturing have been vertically disintegrated, the co-location of these two aspects of the biotech value chain speaks to a level of vertical integration that still exists in the industry. There is a period between the hand-off of the molecule from research to the early stage development team (preclinical and clinical trial production) in which there is high uncertainty and little predictability. This has led to locating manufacturing facilities, most clinical facilities and first commercial facilities, near biopharma research teams. This allows for careful monitoring of the scale up process, particularly for a first product launch. 3) Hand-in-hand with the previous point is the importance of a skilled labor force. The majority of workers (estimated at 60 to 80%) at commercial biomanufacturing facilities have a college degree or more. Thus, facilities are usually located near educational institutions that graduate a good number of science-trained students in chemistry, biology, chemical engineering and the like. The use of community colleges has also met with some success when training is closely tied to industry needs. North Carolina has had success in this area. (Lowe, 2009). 4) Biomanufacturing today is highly dynamic and innovative in virtually all aspects of the industry. The FDA set the stage by creating a new approach to regulating the industry in 2002 that is less focused on each stage of the process and more focused on successful outcomes, freeing companies to engage in continuous improvement. New technologies and new business models are emerging that are leading to more flexible, modular, and smaller scale production which are reducing costs and timelines and making biomanufacturing more accessible both to smaller companies and to more locations around the world. For all of these reasons, biomanufacturing is a compelling case for understanding how the U.S. and innovative regions like New England and California, the two leading regions (by volume) in the industry in the world, compete as the industry becomes more global. What is clear is that with dynamic technology, growing markets and increased international competition, past performance in the U.S. is not a harbinger of future performance in this industry. With this background, we now turn to the changing global footprint of the industry and how industry trends and technological advancements are changing the competitive landscape. 3

6 II. The Changing Geographic Landscape of Biomanufacturing Because of the reasons above the complexity and risk associated with biomanufacturing, the importance of proximity to R&D, and the innovation taking place in the industry the U.S. has been the world leader in the industry. But this position is being challenged, understandably, as the industry becomes more global, with increasing demand as well as increasing skills and talent to develop the industry in other parts of the world. The question the U.S. must address is how it adapts to this changing landscape and how it can best compete within it. Overall, as Figure 1 shows, North America (the U.S.) leads the world in overall mammalian-based capacity 1. This is no surprise given the biotech industry both the underlying science of rdna as well as the development and scale of process technology was largely invented in the U.S. and thus the legacy of the first large facilities built remain in the country. Much has changed since the beginning of the 1990s when there was concern over a worldwide shortage of biomanufacturing capacity and every company with a successful drug was forced to build more capacity. A decade-plus later the concerns have shifted to overcapacity as increased productivity and consolidation in the industry have led to the mothballing of existing facilities or the scuttling of plans for building new ones. Global capacity increased steadily from 2002 to 2009, but in 2009, the issue of potential global overcapacity became better understood and close to half a million liters of capacity was eliminated (or announced that it would be). A number of factors have led to a scaling back of new, commercial investments such that growth in capacity in the U.S. and Europe is projected to be relatively flat in the coming years, compared to Asia where capacity is growing. A few factors explain these shifts. First, technological innovations are making the industry much more productive and providing increased flexibility and modularity in production. The ability to produce more grams per liter of material has led to excess capacity on the market such that companies can do more with less. The consolidation or mothballing of some facilities in the last five years is evidence that companies are able to meet their needs with fewer facilities, either because of increased productivity or by engaging contract manufacturing organizations (CMOs). Capacity by continent (thousand litres) 1,600 1,400 1,200 1, Global Mammalian Manufacturing Volume Year Europe North America Asia Total 3,500 3,000 2,500 2,000 1,500 1, Global capacity (thousand litres) Second, while production capacity in Asia was negligible a decade ago, strong interest in entering the growing biopharma industry and the emergence of a large biosimilars market are creating more biomanufacturing capacity in the region. This growth is largely driven by CMOs, (Celltrion in South Korea, Lonza in Singapore) that are manufacturing large volumes of more mature drugs, which may have been on the market for several years but are still under patent. Several new Asian conglomerates (Fujifilm and Samsung) have recently 4

7 announced their intention to enter the biomanufacturing industry CMO business, which suggests growing demand in the region. Third, tax policy is influencing where companies are choosing to locate their commercial manufacturing. While tax policy has played a role in company location decisions for decades, it has become a more aggressive tool used today in international competition 2. For companies with one approved product and relatively modest sales, manufacturing is usually maintained within proximity of the company s R&D or is outsourced to a CMO, particularly for smaller, emerging companies that cannot afford, both in terms of risk and finance, sending production offshore. However, if a product is highly successful and achieves significant sales - blockbuster status, for example - then profit maximization becomes more of a consideration when determining where to Year Company TAL Country Number Facility 2004 Baxter Switzerland Abbott Puerto Rico Pfizer Ireland Amgen Puerto Rico Centocor (J&J) Ireland Lonza (CMO) Singapore Genentech Singapore Lilly Ireland 1 manufacture. One of the most noticeable trends in the location of biomanufacturing facilities in the past decade is the emergence of tax-advantage locations (TALs) for biologics production. Since 2004, seven out of the 14 companies with mammalian-based blockbuster drugs have built facilities in TALs, as has one CMO (Lonza) (see Figure 2). Countries such as Ireland, Puerto Rico, Singapore, or regions in Switzerland offer significant tax incentives for biomanufacturing, sometimes as low as 0% for 20 years 3. Compared to a corporate tax rate of 35% in the US (though effective tax rates will be lower), moving commercial production of less complex drugs (monoclonal antibodies, for example) to one of these locations is a no-brainer, according to some, assuming that talent is available or importable. FIGURE 2: New Commercial Facilities Built or Licensed in TALS Since 2004 Countries like Singapore and Ireland are aggressively building their biotech capacity, beginning with the downstream manufacturing activities. But the goal is to move upstream into R&D and tax benefits and incentives are structured such that they increase the more intellectual property (IP) is part of a company s investment. 5

8 While this is a clear trend, it does not tell the whole story. There are a number of companies with blockbusters who, for a variety of reasons, have not yet built biomanufacturing facilities (defined as the primary manufacturing of drug substance as opposed to secondary manufacturing such as fill/finish) in TALs. Acquisitions, the economies of scale derived from building upon an existing facility, new strategies for meeting production capacity needs given excess capacity, the use of CMOs and disposables, all help explain this. In addition, risk management in the face of natural disasters has become another important factor in location decisions. No doubt tax rates are an increasingly important factor in the manufacturing of biologics, particularly as big pharma companies see downward pressures on their margins and biotech companies become more sensitive to cost. TALs are likely to be part of a company s overall manufacturing strategy as it grows, (all but one of the 10 facilities built in TALs was a second or later facility), providing capacity for established, large volume products that are straight-forward to make. However, recent challenges in some production facilities (Genzyme in Massachusetts, for example) are reminders that there is no such thing as risk-free production and proximity is still important for monitoring and evaluating process performance. What do these trends say about the changing landscape of biomanufacturing? In many ways, biomanufacturing has followed the classic product life cycle model (Vernon, 1966) in which the process of innovation to codification of knowledge leads to a manufacturing process that initially stays onshore to ensure successful scale up and reduce uncertainties, but later moves to cheaper locations as the production process is standardized and the product matures. In this case, tax rates as much as or more so than lower production costs are driving location decisions such that the U.S. is losing jobs to Switzerland and Ireland as well as to Asia. This suggests a number of factors that are constants in the industry increasing global competition, increasing expertise in other parts of the world, and greater flexibility/options for companies in terms of how they meet their production needs and where they locate their production. Contract manufacturers are likely to play a significant role in this as companies get more comfortable outsourcing and the economics are favorable. CMOs will play a role at both ends of the spectrum: large-scale standardized production most common today and conducted by global companies, but also the earlier stage work where smaller CMOs can work closely with emerging and established companies on more upstream production. The latter benefit from proximity to their clients because of the greater complexity at this stage and thus, there is potentially a growing market for CMOs in the U.S. Finally, another constant in the industry innovation is perhaps the one factor that provides the U.S. with a competitive advantage. A wide range of emerging technologies and platforms will require sophisticated new processes for scale up, something the U.S. is well positioned to develop. The following outlines the dynamic nature of the industry and how technological advancements create both challenges and opportunities for the industry in the U.S. III. Innovation in Biomanufacturing and Implications for the Industry in the U.S. Biomanufacturing is going through a revolution due to technological innovations that are changing the production models of the past 20 years and redefining how companies meet their biomanufacturing needs. Just as some new technologies can be disruptive and lead to the decline of one industry while replacing it with a new one, new technologies can also alter the geographic map of an industry, making some locations more accessible and amenable to an industry while diminishing the advantages of the industry s existing locations. Improvements in communication technology, for example, have made offshoring of many services easier such that India and the Philippines are now populated by call centers. In the case of biomanufacturing, technological innovation is both expanding the geographic possibilities for the industry outside of the U.S., while also creating more specialized, efficient production models that can play to 6

9 U.S. strengths. The following is a brief review of four innovations in the industry and how they might affect its development. These innovations exemplify many of the ways in which advanced manufacturing is evolving across industries through increased productivity, use of more cost-effective materials, more efficient and multifaceted facilities, better monitoring and evaluation processes, and an upgrading of the skills base required to operate these systems. The summaries provide a window into how innovation both unsticks the industry from particular locations, while also creating opportunities for more specialized manufacturing in the U.S.: Increased Productivity: Higher titers have had a profound effect on the industry. The suggestion that there might be a two-fold increase in industry-wide productivity, reducing overall biomanufacturing capacity requirements by 25% by , will impact investments and production strategies significantly going forward. Increased productivity, along with possibly smaller volume, niche products (driven by personalized medicine) means less large-scale bioreactors and fewer plants built. The desire for a smaller footprint will also diminish the difference in size between pilot and commercial facilities, possibly leading to continuous production in one place, rather than separating pilot and commercial production. Single-Use Technology: Introduced in the early 2000s, single use technologies or disposables are providing companies with enormous flexibility for their early stage manufacturing (up to 2,000 liters). Because of the use of plastic rather than stainless steel, disposables result in more rapid deployment, greater flexibility and lower costs. Such advantages provide more modularity, creating a plug and play turn-key operation that companies can easily move. Such technology may play in particular to the advantage of smaller companies, who can afford single-use technologies and thus control their early-stage production. It also allows companies to delay decisions about larger investments in new facilities as they see how a drug fares in the marketplace. Multi-product Facilities: New facilities are now designed to handle up to six or seven separate products at the same time. Of course no one facility can fit all products or processes, but they are designed to handle any scale of production from milligrams per liter to grams per liter and from preclinical to commercial. A multi-product facility provides greater flexibility for companies and less of a need for multiple plants. Process Analytical Technologies (PAT): PAT has been a major initiative of the FDA and embraced by the industry. PAT helps take some of the uncertainty and thus the risk out of the biomanufacturing process by introducing ways to measure what is going on at each stage of development and creating expectations that then help explain what s gone wrong when those expectations are not met. This allows a company s biomanufacturing experts located in different parts of the world to confer about in-process data and collectively problem-solve. Lower costs, shorter timelines, smaller scale multi-product facilities and importantly, greater ease and flexibility in the separation of activities, i.e., research and development, and manufacturing - all suggest that technology is greatly facilitating the geographic expansion of the industry. At the same time, these innovations make the process more accessible to smaller, emerging companies, and create greater opportunities for niche production, both of which play to the biotech entrepreneurial engine in the U.S. as well as the highly sophisticated and segmented drug market. These technological innovations, in addition to innovations in new drug products (biosimilars, biosuperiors (newer, distinctive versions of existing drugs), novel biologics, small molecules) and new, emerging technology platforms such as hybrid products (combinations of therapeutics and medical 7

10 devices) and cell therapies, all create opportunities for the U.S. in more innovative, complex types of production at early stages, including first commercial launches, and for smaller, niche volumes, potentially with continuous production from clinical through commercial. While the economics of more standardized, large volume production is such that it most likely will continue to be located offshore, the opportunity to supply global markets with novel products and processes developed in the U.S. is substantial and growing. IV. Policy Options No doubt, the loss of commercial production facilities abroad represents a loss of well paying jobs in the U.S. (over $90K on average). However, the greater risk in the long term to the country is the loss of the expertise and skills base represented by those jobs. Biomanufacturing could be considered a niche industry, employing directly approximately 300,000 in the U.S. While not a large number, these jobs provide entrée into new and emerging fields within the biopharmaceutical industry, other bio-related fields such as biofuels and biodefense, and of course create addtional jobs through a multiplier effect. These capabilities, combined with the entrepreneurial environment and sophisticated market demand, create a vibrant and growing industry in the country. Given the increasing global competition in biomanufacturing, what is the policy response to supporting and growing the industry in the U.S.? The recommendations below speak largely to creating an environment that encourages education, investment and innovation. They also speak to both public and private actions at the federal and regional level. There is an opportunity for the U.S. to continue to be a leading force for innovation while also maintaining and possibly growing the higher-skilled, high wage jobs that are generated by the industry. The following outlines six priority areas for action: 1. Tax Policy: While competing on tax rates is a slippery slope and a competition the U.S. will not win, there is room for the country to become more competitive in this arena. Reducing corporate tax rates will make the U.S. less of an outlier compared to other developed countries and more competitive for mobile investments. At the same time, to encourage more investment in the country s biomanufacturing sweet spot, tax incentives should focus on increasing innovation-related investments in such areas as capital equipment, education and training and R&D. 2. Federal R&D and Regional Collaboration: While billions of dollars of federal funds are invested in biotech research, far fewer funds have been dedicated to research in bioprocessing. The NIH Institute on Biomedical Imaging and Bioengineering, established in 2000, supports work in this area with a modest budget under $400m, as do some recent initiatives at DARPA and the Department of Energy. Increased federal investment combined with public/private partnerships and collaboration at both the national and regional level that engages government, industry and academia could help accelerate breakthroughs in the next generation of products and technologies. 3. Regulation: An equally important area deserving of greater attention and innovation is the interface between biomanufacturers and regulatory authorities. Given the culture of risk aversion and caution that is deeply rooted in the industry, the establishment of accepted, standardized common steps within the biomanufacturing process that are recognized as valid if performed according to protocol, will significantly cut costs and speed up the production and licensing of products, and particularly help smaller, entrepreneurial companies in their race against time. Industry should work collaboratively with the FDA (and EMEA) to improve efficiencies where possible along the regulatory pathway. A more streamlined regulatory process is a critical part of overcoming many of the hurdles that exist in getting products to market. 8

11 4. Education: Training for bio-related production jobs are part of the overall STEM education network. The creation of a pool of skilled workers is clearly critical for retaining and growing biomanufacturing in the country, particularly as the pioneers in the industry begin to retire. There needs to be a strong link between school curricula and industry needs at every stage of the education ladder from community colleges, to B.A.s to graduate levels programs. Exposing students to the industry through internships and summer jobs creates an important feeder system (though employers emphasize that to make these worth the investment, students often need to be engaged for longer than three months). For example, training centers like Massachusetts Worcester Polytechnic Institute s Biomanufacturing Education and Training Center (opening in the fall of 2012) enlists corporate partners Abbott, Bristol-Myers Squibb, and Shire to ensure the curriculum and pilot plant creates a realistic training ground for college and graduate students. 5. Shared Facilities: As in any industry, over time, facilities become obsolete as new technologies emerge and facilities are redesigned. As some of the earliest biomanufacturing facilities approach and pass 20 years of age, they become less attractive without investments in upgrading. In addition, consolidation within the industry is resulting in excess capacity and the selling or mothballing of both commercial and clinical facilities (in the last two years, Genentech/Roche in CA and Lily/Imclone in NJ have closed commercial facilities). Once facilities are out of operation, they can quickly become out of date, becoming a white elephant for a region. Economic development entities at the regional level should keep an inventory of existing facilities and capacity and to the extent possible, play an active role in any transition of a facility by offering incentives that can help make facilities attractive for reuse or upgrading. In areas with significant biotech start ups, they should also explore the demand for shared early stage production space. Shared pilot facilities cuts costs and allows the company to control and monitor the scale up process more closely. Such a facility is currently being built by the University of Massachusetts in Dartmouth which will provide both large and small biotech companies the opportunity without significant investments to develop preclinical material as well as test out new equipment and processes. 6. While the building of new commercial facilities will be few and far between, at least in the U.S. and Europe, if and when a company is considering building a new facility, federal incentives should be made available to attract the investment to the U.S. Manufacturing investments of scale are made for the long term, and bring many positive multiplier effects. The U.S. can hardly compete with the incentives offered by other countries for these investments, but at least should encourage such investments in the country where possible. V. Conclusion Despite the view that someday biomanufacturing will act more like a commodity, there is still substantial risk and uncertainty in the industry. While the industry has matured to the point that large-scale production is heading offshore for more advantageous tax environments, the story, as with many industries, is more nuanced than just the loss of another manufacturing industry in the U.S. A number of factors - company size, stage of growth, type of product, portfolio of drugs influence a company s biomanufacturing strategy, which is highly dependent upon success in the marketplace. Because of its skilled workforce, entrepreneurial base, innovative capacity and large and sophisticated market, the U.S. is a compelling location for biomanufacturing, particularly in the early stages of development and the launching of products. With increased flexibility and decreasing costs in the production process, the U.S. may in fact become a more attractive location for biomanufacturing of a certain scale. The industry underscores the dynamic nature of advanced manufacturing today and how increased productivity and technological innovation can play to U.S. strengths. While it is not a large job generator, the days of large manufacturing plants employing thousands of workers is largely in the country s past. Understanding how to compete in niche industries like biomanufacturing is more likely its future. 9

12 1 This data was generously provided by BioProcess Technology Consultants. It covers only mammalian-based GMP clinical and commercial facilities. I also only include batch-fed and perfusion processes when referencing volume of capacity since it is difficult to accurately know the volume for other processes such as disposables or roller bottles. The data set uses 2002 as a base year, thus that year s totals represent all biomanufacturing investments up to that date. Data represents biomanufacturing capacity based on when it is projected to go online. Thus, for example, investment projects announced in 2005 do not appear in the data until 2009, when the facility is expected to go online. Projects that are in the planning, construction or validation phase are also included. For announcements that a facility is going to be closed, the data accounts for that closing in the year of the announcement. The data account for all announcements made up to December, The issue of international corporate tax rates as a new form of competition has become a hot topic. See Martin Feldstein, Want to Boost the Economy? Lower Corporate Tax Rates, Wall Street Journal, February, 15, 2011; Andrew Liveris, Make it in America: The Case for Re-Inventing the Economy, Wiley and Sons, 2011; Rob Atkinson, Effective Corporate Tax Reform in the Global Innovation Economy, the Information and Technology Foundation, July 2009; and Chris Edwards and Daniel Mitchell, Global Tax Revolution: The Rise of Tax Competition and the Battle to Defend It, Cato Institute, 2008; 3 While other locations may have significant tax incentives for biomanufacturing, I have only included these four locations because they were the ones most cited in my research. I have not included new facilities in TALs for companies headquartered in a TAL or for companies that have expanded upon an existing facility built before While taxes may be a consideration in the latter case, economies of scale are another critical factor. 4 Howard Levine, BioProcess Technology Consultants, presentation, May 19, Bibliography Braunerhjelm, P and M Feldman Cluster Genesis: Technology-Based Industrial Development. Oxford: Oxford University Press. Levine, Howard Challenges and Solutions for Biopharmaceutical Manufacturing, presentation at the Cambridge HealthTech Pep Talk Conference, January 15. Levy, F. and R. Murnane The New Division of Labor: How Computers are Creating the Next Job Market. Princeton: Princeton University Press. Lowe, N Responding to Diversity: Workforce Intermediation in a Transitioning Regional Economy. Environment and Planning C. 48 (4): Markusen, Anne Sticky Places in Slippery Spaces: A Typology of Industrial Districts, Economic Geography, Volume 72 (3), Pisano, Gary P Science Business: The Promise, the Reality, and the Future of Biotech. Boston: Harvard Business School Press. Porter, Michael Location, Clusters, and Company Strategy in Oxford Handbook of Economic Geography, G. Clark, M. Gertler, and M. Feldman, eds. Oxford: Oxford University Press. Tufts Center for the Study of Drug Development. November/December Impact Report: Analysis and Insight into Critical Drug Development Issues. N.p Volume 8, Number6. 10

13 Vernon, R International Investment and International Trade in the Product Cycle. Quarterly Journal of Economics 80, pp

14 12 NOTES:

15 The CONNECT Innovation Institute was founded in July 2010 as a think tank to focus exclusively on innovation policy and competitiveness in the global economy. The CONNECT Innovation Institute publishes timely thought papers from San Diego leaders for use in addressing federal policy issues, and it raises funds for larger scale policy projects involving leading scholars of innovation. CONNECT is a non-profit that has assisted in the formation and development of more than 3,000 companies in the San Diego region and is widely regarded as one of the world s most successful organizations linking inventors and entrepreneurs with the resources they need for commercialization of innovative products in high tech and life sciences. The program has been modeled in more than 50 regions around the world. CONNECT has been recognized by Time, Inc. and Entrepreneur magazines and in 2011 won the national State Science and Technology Institute s 2011 Excellence in Tech Based Economic Development Award for Building Entrepreneurial Capacity. In 2010, CONNECT was the recipient of the Innovation in Economic Development Award from the U.S. Department of Commerce for creation of Regional Innovation Clusters. CONNECT manages the San Diego, Imperial Valley, Inland SoCal Innovation Hub (ihub) designated by the state of California Governor s Office of Business & Economic Development in Key to our success has been the unique culture of collaboration between research organizations, capital sources, professional service providers and the established industries.

16 c/o CONNECT 8950 Villa La Jolla Drive, Suite A-124 La Jolla, CA Phone: connect.org