Dr. C. R. (Buzz) Canup, President, Canup & Associates, Inc. (Biotech Location Guide 2006)
Human health is playing a role in the modern economy like never before. Political debates over prescription drug benefits for individuals and the shift toward defined-benefit pension plans for companies reflect the successful development of life-extending technologies and knowledge. With each new year, the average human lifespan grows longer, and this demographic shift will dramatically affect the long-term growth rates of the economy and the industries that serve human health.
Health care is increasingly driven by the continued integration of bio-based and information-based technologies into the health care industry. Together, these vastly different industries will result in a new era of bio-based products and services that are designed, manufactured, and delivered to extend human lifespans. By our account, these technologies now form a new global industry, one we describe as the "bioconvergence industry."
Bioconvergence merges previously distinct technologies into a new form, including new theories, new practices, and new products. Indeed, we see massive convergence of information technologies, telecommunications, biotechnology, robotics, optics, sensors, materials science, physics, chemistry, and nanotechnology - all designed to positively affect the health of humans, plants, animals, and the environment. Even some consumer products such as plastics are evolving into bio-based systems.
Stop to consider the many areas and industries that bioconvergence promises to touch:
• Homeland security: The U.S. government is demanding new biological detection agents and biometrics to detect and protect against chemical and terrorist attacks.
• Energy: Biofuels will help reduce our dependence on oil and improve the quality of our environment, while bringing new jobs to our agricultural states. President Bush has emphasized the need for new clean energies based in agriculture so that our long-term energy security is improved.
• Biodevices: Including drug makers and medical device manufacturers, the biomedical market is the largest submarket under the biotech umbrella. According to the Batelle study State Bioscience Initiatives 2004, there are 14,000 biomedical firms in the United States that employ 730,000 individuals.
• Biosourcing: Biopharmaceutical manufacturing organizations provide outsourced manufacturing services to drug makers to scale up the production of drugs or biopharmaceuticals. Many drug discovery bioscience companies are small and do not have the financial means to support capital-intensive manufacturing equipment. For these companies, the ability to outsource production is critical.
• Agribusiness: Agribusiness now uses biotechnology to modify agricultural feedstocks to be more productive. This could be an enhancement of crop productivity, resistance to disease, or a genetic modification for added human health benefits. Nutraceuticals is the use of food or agricultural inputs to provide health and medical benefits, including the prevention and treatment of disease. Batelle estimates that the agricultural and industrial bioscience markets comprise nearly 20 percent of total biotechnology employment.
• Clinical testing: New clinical testing organizations provide outsourced support to other biopharmaceutical companies, typically drug developers. The clinical testing organization can handle all or just certain stages in the clinical trial process that is mandated by the Food and Drug Administration (FDA) for drug approval. This requires identifying and screening test subjects, performing testing in accordance with FDA procedures, and certification of results.
The life sciences industries have experienced strong growth over the past five years. The general aging of the U.S. population coupled with higher disposable incomes is increasing the demand for life-enhancing products. Based on U.S. Bureau of Labor Statistics figures, employment in the cluster has expanded by nearly 100,000 jobs from 2000-2005. Average wages in the biosciences cluster have increased at an even more explosive rate - the average annual wage grew by 12.6 percent since 2000 to $71,000 in 2005. Growth in this cluster is projected to continue at a strong but slower rate. National employment projections indicate growth of 16.7 percent by 2014, compared to the overall national growth of 14.1 percent. Today, all sectors in the bioconvergence industry are growing, and many offer wage levels at least twice that of the U.S. average (see charts).
Site Selection for BioConvergence Companies
With so many regions vying for the attention of new bio-based companies, executives must engage in a formal site selection process that will deliver the maximum strategic and economic value to the company. AngelouEconomics employs a site selection process comprised of seven main steps:
1. Project setup/needs assessment
2. Determine incentives strategy
3. Issue a request for proposals
4. Evaluation of top locations and sites
5. Cost of operation benchmarking
6. Short-list communities and engage in closing negotiations
7. Final selection
• Step 1 -
Project setup/needs assessment: It is important to determine project
goals, facility needs, and site selection criteria in the initial
phases of any site selection project. Initiate a one- to two-day
brainstorming session regarding the scope of the project, desired
outcomes, and timeframe. These meetings should include top management,
facility directors, financial executives, accounting consultants, and
site selection consultants. Often, executives have early expectations
on where their next facility or office is best suited. A discussion of
incentives begins here, with the site selection consultants giving an
early assessment of what incentives could be available based on similar
type expansions and relocations. Milestones and success metrics should
be set. The most effective site selection efforts allow four to eight
months for the full evaluation, negotiation, and selection of a
• Step 2 -
Determine an incentives strategy: Most technology companies are moving
at a pace too fast to allow the exploration of incentives in their site
selection decisions. For many, incentives are often the icing on the
cake, sweetening the deal after a decision has already been made.
Software companies are generally too small to see the benefit of
financial incentives or just don't qualify. But others, such as
manufacturers, know just how valuable incentives can be. New industries
such as nanotechnology, biotechnology, and fuel cells are now caught up
in a virtual "incentives arms race" among states and communities.
Hiring a site selection consultant is a requirement to effectively
explore the full range of incentives opportunities. In addition, a
consultant provides "arm's length" protection from any problems or
aggressive negotiations that might sour the public relations impact of
an announced move. While the primary effect of incentives is to remedy
a prejudiced or burdensome tax system, incentives often become a stamp
of approval by communities that companies seek in their local public
relations. More than ever, incentives are cash-based, where state and
local governments commit funds to invest in infrastructure, work force
training, free land, and buildings. Many states are now choosing to
deliver hard cash to a company in order to win these strategic projects
and make a marketing statement to the world.
• Step 3 -
Issue a request for proposals: If a bioconvergence company wishes to
pursue incentives, it is important that its site selection
representative issue a request for proposals to a large list of
communities. This ensures that a full range of options are presented to
the decision makers, and incentives negotiations can begin. Companies
should present themselves to communities in a confidential fashion,
using project code names and relying on non-staff to interact with
local business and government representatives.
• Step 4 -
Evaluation of top locations and sites: The technology company or its
site selection consultant must do thorough research on its list of
potential locations. Today, communities maintain much of their
information on an economic development website. In fact, site selectors
use the Internet to gain most of the information they need in their
evaluation before any phone calls or visits occur. Communities should
be evaluated for each of the criteria set out in Step 1. Good site
selectors will devise a weighted ranking system for all factors and
rate communities on each.
For companies that require very
specific sites for new construction, such as medical device
manufacturers, visits to a community must be conducted by an
experienced engineering or site selection team. These individuals make
physical evaluations of sites and typically get information from local
authorities on their acreage, topography, soil type, zoning,
geo-technical conditions, utilities, and access points. The lack of
sites and infrastructure may remove a community from a site selector's
evaluation list. Technology manufacturers are increasingly focused on
the supply of developed, "shovel-ready" sites in communities throughout
the United States, thus raising the bar for corporate recruitment. Many
communities precertify their manufacturing sites for specific uses such
as semiconductor manufacturing or automotive manufacturing.
evaluations are still very important to bioconvergence firms,
particularly those with sensitive manufacturing processes or a large
datacenter requirement. The demands of the digital world result in the
large consumption of power. Affordable, reliable electricity is of
utmost importance, particularly for manufacturers or datacenters.
Dual-feed and gasoline-powered backup generators are extreme examples
of requirements. Reliable telecommunications are equally important.
Site selectors will evaluate brownouts, outages due to storms, power
spikes, and excess capacity for peak periods. In light of the massive
blackouts in the Northeast in recent years, reliability of the electric
grid deserves greater scrutiny.
• Step 5 -
Cost of operation benchmarking: Bioconvergence firms vary in their
attention to costs. Manufacturers and large consumers of electricity do
thorough evaluations of the costs for various locations. This
benchmarking analysis should cover the cost of labor, supplier
purchases, air travel among locations, real estate costs, and tax
costs. This analysis is generally done by the site selection consultant
or an in-house financial analyst. Benchmarking the final communities
for a variety of weighted scores can help determine where an operation
would experience the lowest operating costs. Numerous factors are
ranked and weighted for all areas in contention to determine which
areas are best suited for the operation.
• Step 6 -
Short-list communities and visit: Once the initial analysis is
completed, it is necessary to visit the candidate communities on the
short list. These visits are meant to confirm the data sent by the
community, visit prospective sites or buildings, and meet with local
government, academic, and business leaders. The community visit is the
most important part of the site selection process, and should be the
determining factor in selecting a finalist city. Typically, a company
will select a primary location but will have one or two other
acceptable alternatives. This will allow more effective negotiations at
the end of the process and provide a working alternative in the event a
"fatal flaw" is discovered during detailed analysis and negotiations.
Visits should generally be planned for one to two days per city in
order to thoroughly review all the requirements in the selection
• Step 7 - Final selection:
If incentives are part of the selection process, intense negotiations
are required in the final weeks of the decision. Corporate executives
must be involved in these negotiations, and an internal understanding
of incentives targets is key. Confidentiality is best kept throughout
negotiations with communities.
The final selection of a
community often rests on one or two key requirements, including the
availability of a site, the desire of the CEO, a marketing goal, or an
incentive. The winning city is almost certain to be the one that
brought the most comfort and enthusiasm to the CEO and the executive
team. Thorough evaluations by staff and consultants can provide strong
guidance to decision makers, but not a final decision. Once a decision
is made, a company should make every effort to maximize the publicity
and exposure in the community in order to build goodwill and begin to
attract the critical technical talent that they will need.
The Future of BioConvergence
integration of biotechnology and information technologies into the
health care industry will continue at a steady pace for many years. The
locational shift that will be associated with this industry will likely
continue until new bioconvergence regions clearly emerge as winners.
The role of global players in this industry should be monitored for its
effect, particularly in areas that have fewer restrictions - stem-cell
research in Asia, for example - or a growing specialized work force,
such as technicians and doctors in India. More and more bioconvergence
companies will go "virtual," keeping all manufacturing abroad as well
as a large share of their research capabilities. The future of the
bioconvergence industry is still unclear, but its wide-ranging effect
and future economic impact deserves our personal and business
attention. Hopefully, we will be watching its progress for many years