Biotechnology is a perfect example of a "new economy" industry, a sector that did not exist as we know it a century ago but is a major economic driver for many national and regional economies today. Biotechnology involves the use of living organisms and biological processes to identify, analyze, and produce useful products. Traditional biotechnology includes selective breeding of plants and animals; modern biotechnology includes DNA testing medical devices, and pharmaceutical products, among others.
The biotechnology industry can be divided into four main segments:
- Discovery, which includes initial research to identify a genetic or chemical target, subsequent analysis to turn that target into a corresponding compound, and detailed screening and optimization processes;
- Product Development, which includes both pre-clinical trials and clinical studies (divided into Phase I, II and III)
- Manufacturing, which encompasses both production of drugs and placebos for clinical trials, as well as final manufacturing for market;
- Marketing and sales, which entail the distribution and marketing of products to consumers.
Biotechnology in North Carolina
North Carolina has a strong corporate support infrastructure and a talented workforce, trained by well-equipped academic institutions. Many biotechnology companies have brought enough facilities and niche competitors into the state to the point where it is now possible to have a product pass from inception to manufacturing to distribution, all within North Carolina. Much more than just an isolated industry, biotechnology is particularly useful when applied in conjunction with other tools such as agriculture or forensics. North Carolina is well situated for such inter-disciplinary development, as provided by projects such as the Research Triangle Park (RTP).
In 2005, more than 1,400 biotechnology companies existed in the United States, with North Carolina being home to just under 6% (81) of these biotechnology firms.1 The state is ranked among the five largest biotechnology industry centers in North America, with firms engaging in research and development, product development, clinical trials, pharmaceutical manufacturing and sales, bio-manufacturing, and health care applications. Many of the world's largest biotechnology and pharmaceutical facilities are located in North Carolina, including facilities belonging to industry leaders GlaxoSmithKline and Merck & Co. The state is also home to firms like Bayer, with the world's largest plasma-based factory; Wyeth, with the largest vaccine facility; Baxter, with the largest intravenous solutions facility; and Biogen Idec, with the largest manufacturing biologics facility. North Carolina's reputation as home to a significant and growing biotechnology industry is therefore well deserved.
North Carolina: 6% of US Biotech Sales
The U.S. contained 1,415 biotechnology companies in the United States, with total revenues of $50.7 billion as of 2005. Of these companies, 329 were publicly held, with a total market capitalization of $410 billion.2 North Carolina's industry generates some $3 billion in annual revenue, and is growing at a rate between 10% and 15% annually. Strategic developers aim to build a biotechnology workforce numbering nearly 50,000 in a $7.7 billion market by 2013, and a 125,000-strong workforce in a $24 billion industry by 2023. The nation's sales are similarly expected to double to $66 billion by 2013. For comparison, the global biotechnology sector generates some $40 billion in sales and is expected to grow to a $120 billion market in the next decade.3
North Carolina: 7% of U.S. Biotech Employees
In 2005, more than 1.2 million people were worked in for biotechnology and life sciences firms in the United States.4 Nationwide, 272,865 were employed in biotechnology manufacturing, with the majority of these (82.6%) employed in pharmaceutical manufacturing. An additional 816,087 were employed in biotechnology research activities.5 North Carolina companies alone employed 48,080 biotechnology workers Of these workers, the biotechnology manufacturing industry employed 19,080 of the state's manufacturing workforce. Contract research organizations (CROs) and laboratory testing companies contribute an additional 22,878 jobs. It is estimated that for each job created in the biotechnology sector in North Carolina, 2.9 additional jobs are created in order to support the biotechnologist's position and the company as it expands or builds new plants (drawing support from service sectors such as "architecture, construction, engineering, instrumentation and validation" among other industries).6 Afterwards, the support of workers in fields such as "housing, transportation, retail, utilities and entertainment" is required to sustain the lifestyle of employees.7 Industry groups state that the 1.2 million jobs in the biotechnology and life science sectors support an additional 5.8 million jobs.8
R&D in North Carolina
North Carolina's unique concentration of R&D resources will support future growth. With nine research universities, five outstanding medical schools and one of the largest campuses of the National Institute of Environmental Health Sciences, the state is poised to provide a competent workforce as well as a highly concentrated research community as the biotech industry continues to grow. North Carolina has the world's greatest concentration of CROs and testing companies, and hosts operations from more than 80 CROs employing over 15,000 people. CROs are companies contracted by biotechnology manufacturers to design and run clinical trials. Four of the world's largest CROs and testing companies (LabCorp, Quintiles Transnational, PPD and AAI) are headquartered in the state.
Increased concern over the occurrence of global pandemics, a greater awareness of the threat of bio-terrorism as well as the rapidly aging baby-boomer generation in the United States and other affluent countries (like those in Europe and Asia) are some of the key drivers of growth in the biotechnology industry. In 2004. the U.S. Department of Health and Human Services awarded $232 million in contracts to fund the development of new vaccines against the three potential bioterrorism agents of smallpox, plague and tularemia, with tangible benefits to North Carolina.9 In July 2007, AlphaVax Inc., a biotechnology firm based in RTP, received a $3.6 million grant from the National Institute of Allergy & Infectious Diseases to develop a new vaccine technology.10
Key Industry Trends and Dynamics
Product Development Strategies
Although the biotechnology pie seems to be growing, profit margins have been falling among biotech firms in the U.S. One factor in this was a series of legeislation, passed in the 1970s , that allowed the manufacture of generics.11 Patents on "blockbuster" drugs such as Eli Lilly's Prozac have been expiring, resulting in an influx of generic drug manufacturers that produce the same drug. More companies are producing drugs that compete in the same treatment areas, choosing to differentiate their products on terms such as having greater efficacy or lesser side effects. For treatment of multiple sclerosis, for example, Biogen's Avonex entered the market later than Berlex's Betaseron, but nevertheless managed to capture close to half the market share in 1995.12 The desire for product differentiation, coupled with enhanced regulatory scrutiny, have increased the time and costs of drug development. Bain & Company estimated in 2004 that blockbuster drugs carry an average development price tag of $1.7 billion each.13
New Market Segments
The diverse sectors within the biotechnology industry are tending to converge. Companies are finding new combinations of the formerly distinct market segments for pharmaceuticals, therapeutic devices and diagnostics. For example, Johnson & Johnson has seen rapid growth in the market for stents, perforated wire or tube structures inserted into vessels in the body (including blood vessels, bile ducts and structures like the esophagus and ureter) to prevent their disease-linked constriction. This meteoric rise came about from the fusion of pharmaceutical drugs and stents in the form of the drug-eluting stent (DES), which contained chemicals that would secrete from the implanted stent to prevent the artery from re-narrowing after surgery. Similarly, Medtronic Inc., a firm that manufactures graft-holding titanium cages, which promote bone fusion after back surgery, captured a sizeable market share after introducing a biological agent named bone morphogenetic protein-2 into the graft device. The biological agent is able to promote bone fusion, thus doing away with the need for the extraction of bone from the patient's hip for that purpose.14 The diversity of firms agglomerated in RTP may well facilitate this collaboration in developing cross-sector products. There is also the potential for drug development to be linked closely to diagnostic procedures and health care. Further synergies could occur between the pharmaceutical and the healthcare sectors in North Carolina.
Novel Forms of Industry Organization
The competitive pressures from convergence, patent expiry and the rising development costs in the industry have pushed firms to outsource some of their drug development activities. Large pharmaceutical manufacturers are increasingly licensing drugs and compounds developed by other smaller companies and research institutes. In 2000, Novartis agreed to pay $800 million to Vertex Pharmaceuticals for compounds generated through its chemo-genomics approach to drug discovery.15 To acquire a licensed compound would cost an average of $5 million to $9 million less than in-house development.16 This signifies a form of vertical disintegration in the process of R&D of new drugs. Vertical disintegration, however, could imply a lowering of barriers for the market involved in nascent drug development. This could potentially generate biotechnology start-ups in areas with intensive biotechnology knowledge bases such as California and North Carolina. A resultant requirement would be the need to develop the venture capital infrastructure necessary to fund these start-ups.
Outsourcing and Global Competition
Outsourcing has become an increasingly important issue in high-tech industries like biotechnology, as other countries seek to build global technology hubs and attract top-notch talent. By 2006, 28% of biotech research and development was outsourced. this figure is projected to increase to 40% by 2010.17
At present, outsourcing affects scientists far more than engineers.2003 estimates note that 44.7% of jobs that go overseas and 41.9% of those that get outsourced to U.S.-based companies are those of scientists.18 Historically, engineers have been relatively immune. Engineering jobs make up 9.6% and 9.8% of the jobs that get outsourced to domestic (national) and foreign companies, respectively.19 Research and development-oriented computer specialists make up 12.4% and 28.8% of jobs outsourced to domestic and foreign companies respectively, whereas scientific laboratory technicians tip the other way, making up outsourcing percentages of 36.1% and 16.7% respectively over the same categories.20 Over time, however, as emerging talent clusters grow and evolve, even those biotechnology job functions that are today more secure could become vulnerable to outsourcing.
Rising Global Competitors
Countries such as India and Singapore are working fervently to capture a slice of the biotechnology market by setting up new research centers such as Biopolis and Genome Valley. The cost of doing early drug development work, such as toxicology studies, in places like Taiwan, Singapore and China can be as low as 10% to 40% of the U.S. cost.21 There is some concern that like other white-collar jobs in IT and finance, biotechnology jobs could be the next to go offshore. This trend is relatively recent, however, with only a few companies in San Francisco's Bay Area taking the lead. As illustrated above, several biotechnology firms still prefer their production and research facilities in close proximity so as to efficiently monitor production and troubleshoot. As manufacturing tends towards the more complex biological-based large molecules, firms would require a higher level of supervision over production (16).22
There is no denying, however, that given the rising level of skill found in offshore centers such as India, some drug development processes may eventually migrate offshore. North Carolina and the United States as a whole will have to continue to increase the skill level and experience of their workers, and to broaden the knowledge base to stay relevant in this industry.
- BIO (Biotechnology Industry Organization), "Biotechnology Industry Statistics". Accessed on August 4, 2007.
- North Carolina Biotechnology Center (NCBC), "New Jobs Across North Carolina," January 2004; BIO (fn. 1).
- U.S. Census Bureau, "Quarterly Census of Employment and Wages." Last accessed August 4, 2007.
- BIO, "Biotechnology" (fn. 1).
- "HHS Awards $232 Million in Biodefense Contracts for Vaccine Development", October 2004, U.S. Department of Health & Human Services.
- "AlphaVax Announces $3.6 Million Award to Develop New Adjuvant Technologies for Vaccines", July 10, 2007, BioSpace Link. [http://www.alphavax.com/docs/news/news_15.pdf]
- Bernando Batiz-Lazo and Sarah Holland, "Strategy and Structure of the Pharmaceutical Industry," June 2001.
- Lawrence M. Fisher, "The Rocky Road from Startup to Big Time Player: Biogen's Triumph Against the Odds," Strategy & Business, Third Quarter 1997.
- Ashish Singh, Chris Zook and Nobert Hueltenschmidt,"Healthy Convergence", In Vivo-The Business & Medicine Report, Vol. 22, No. 7, July/August 2004
- BIO (Biotechnology Industry Organization), "Industry At A Glance." Accessed August 22, 2004
- Sumit Agarwal, Sanjay Desai, Michele M. Holcomb and Arjun Oberoi, "Unlocking the Value in Big Pharma," The McKinsey Quarterly, Number 2, 2001
- Bruce L. Booth Jr., David J. Lennon and Eric J. McCafferty, "Improving the Pharma Research Pipeline," The McKinsey Quarterly, Number 4, 2004
- Shawn Lawrence, "Outsourcing - A Means of Survival," Bioscience World, 2006
- U.S. Department of Commerce, Technology Administration, Bureau of Industry and Security, "A Survey of the Use of Biotechnology in U.S. Industry," October 2003
- North Carolina Employment Security Commission (NCESC), "Labor Market Information," Accessed on August 3, 2007
- Bernadette Tansey, "Are Biotech Jobs Next to Go? Stronghold of Bay Area Economy Not Immune to Trend", San Francisco Chronicle April 2004
- Yann Bonduelle and Jo Pisani, "The Future of Pharma: Back to Basics," PricewaterhouseCoopers, October 2003
INDUSTRY SECTION LAST UPDATED: August 7, 2007