Nearly every state in the United States now recognizes life sciences as a key targeted industry for economic development purposes. It’s reflected in state and local targeted industry studies, strategic plans, workforce training initiatives, and incentive policy. The playbook often looks familiar: recruit a marquee life science manufacturing company, assemble an attractive incentive offer and market the win as proof of a growing cluster. While this approach may offer short-term visibility, it overlooks a fundamental reality that puts states and regions at risk of building clusters that may lack long-term resilience and sustainability. The companies that will ultimately define the next generation of emerging life science hubs are rarely the ones that qualify for incentives. They are pre-commercial, sometimes capital-intensive and always scientifically ambitious — and they frequently fall outside the design of most state and local incentive programs.

This mismatch represents the “missing middle” of modern life science cluster strategy. Pre-commercial life science companies — including clinical-stage biotech firms, cell and gene therapy platforms and AI-driven drug discovery ventures — are not peripheral actors in regional economies. They are often the origin point of innovation ecosystems. These companies generate intellectual property, attract specialized talent, and catalyze the investment flows that ultimately lead to scaled companies, manufacturing facilities and long-term high-wage job creation. Yet despite their influence, they often slip through the cracks of current economic development incentive frameworks, a challenge that is common among nearly all states.

The disconnect is two-fold: minimum eligibility requirements and how success is measured. Most incentive programs are built around employment thresholds, with many requiring at least 50 new jobs within a two-year period, wage requirements and capital investment minimums. These metrics are well suited for large, revenue-generating companies with more predictable growth trajectories, but less so for pre-commercial life science companies that may employ small, highly specialized teams while advancing high-value technologies. Meanwhile, the reality is a 25-person gene therapy company developing a breakthrough platform may have far greater long-term economic impact than a 250-person manufacturing operation, yet the latter is far more likely to qualify for meaningful state or local support. This is not just a technical oversight; it’s a gap in modern economic development strategy with real consequences for how and where life science clusters may form.

The Reality of Pre-Commercial Life Science Companies

Pre-commercial life science companies operate on fundamentally different timelines and generate different outcomes than the incentive programs designed to attract them. Their growth is tied to milestones, clinical progress, regulatory approvals and funding rounds. They often create a smaller number of new high-paying jobs, in the range of 10 to 35-plus over a one- or two-year period, making most discretionary incentive programs inaccessible. They may also generate little taxable income in their early years, rendering nonrefundable tax credits ineffective, and reimbursement-based incentives require upfront capital that early-stage companies are actively trying to conserve.

Compounding this challenge is the inherent risk aversion within public policy. Economic development organizations are understandably accountable for the stewardship of public funds, which leads to a preference for projects that can demonstrate near-term returns on investment. Pre-commercial life science companies, by contrast, embody uncertainty. Scientific risk, regulatory hurdles and long commercialization timelines make them difficult to underwrite using traditional incentive models.

The result is a system that systematically favors later-stage companies — often at the expense of early-stage firms that will seed future growth. Yet if the goal is to build a durable, innovation-driven cluster, pre-commercial companies are indispensable. Their impact extends far beyond their initial footprint. They act as powerful magnets for highly specialized talent, primary drivers of capital inflows, provide external validation and generate ecosystem spillovers that are difficult to replicate through recruitment alone.

Incentive Policy Adaptation

So, what would adaptation of existing incentive policy look like? At a minimum, it would require reducing minimum eligibility requirements to qualify, particularly those tied to new job creation, and designing benefits that align more closely with company needs.

This could take several forms. States and localities could create carveouts that allow pre-commercial life science companies to access otherwise nonmonetizable benefits, or they could introduce new benefits tailored to early-stage growth. These might include subsidized wet labs and research space, FDA user-fee credits, extension of net operating losses, deductions for qualified orphan drug expenses or sales and use tax exemptions for certain property.

Conversely, more material changes include a shift in how success is measured and risk is evaluated. Innovation metrics, such as intellectual property generation, clinical trial activity, capital raised and strategic partnerships, generally offer a more accurate reflection of early-stage economic impact than job counts and capital investment alone. Incentive structures that recognize these indicators and align public support with the realities of scientific advancement will have the greatest impact and success in supporting early-stage companies. Accommodating these dynamics is, in part, what has allowed leading life science hubs to evolve into self-sustaining, innovation-driven markets.

As new incentive programs and benefits evolve, policymakers should avoid including nuances that fundamentally change their value proposition. Incentives that require companies to exchange equity stakes, intellectual property rights, research outputs or similar strategic assets are not support, nor are they acting in good faith by burying these terms in incentive agreements or lease language.

Implications for Pre-Commercial Life Science Companies Making Location Decisions

For pre-commercial life science companies deciding where to locate or expand, it is clear that most incentive programs were not built with their operating model in mind. But that does not mean the framework has nothing to offer. In some cases, states and local communities are using their discretion to make exceptions for early-stage life science companies that may otherwise struggle to qualify. In others, state-specific tax structures may provide an indirect path to monetization that can be leveraged. Ultimately, opportunities must be closely evaluated before they are disregarded.