How Can Biotechnology Companies Manage Growth and Mitigate Risk in a Global Market?
Biotech Location Guide 2008
Any global growth strategy that biotech companies adopt will need to address developing new products in a timely cost-effective manner. The average clinical trial takes seven years and costs $100M (according to Tufts Center for the Study of Drug Development), representing roughly one third of all costs associated with bringing a drug from idea to prescription. New business models have emerged as a result of these issues, including offshoring development to contract research organizations and conducting clinical trials in lower-cost locations. Also the issue of matching production capacity to product demand will be critical. This includes accurately forecasting product pipelines, rationalizing yield improvements, and effectively utilizing contract-manufacturing organizations. Sustaining operational productivity will also be a challenge in a global market, from the perspectives of maximizing human resources across cultures and languages, validating and improving production processes, and maintaining information systems security and integrity.
Biotech companies also must focus on mitigating financial, regulatory, and operational risks in their global growth strategy. Key challenges include:
• Protecting intellectual property (IP) from both a regulatory and enforcement perspective
• Identifying suitable development partners
• Navigating unpredictable political, regulatory, and economic landscapes
• Handling business disruptions due to natural disasters or political/social upheaval
• Balancing tax advantages with a suitable operating climate
• Regionalizing the product mix, if necessary
• Establishing flexible manufacturing capacity
• Satisfying lead times required to establish manufacturing capacity
• Managing the supply chain and its costs
• Managing required regulatory approvals
Biotech companies can manage the financial, regulatory, and operational risk aspects of global growth by carefully evaluating their expansion drivers and criteria and then developing balanced, objective business strategies. Specific drivers and criteria, including relative importance, are dependent upon which function of the enterprise is being strategically considered. Biotech companies are comprised of a "value chain" of highly interrelated but distinguishable activities including R&D, clinical trials, manufacturing (bulk and fill/finish/formulation), and distribution. For each value chain function, the primary operating success drivers can be segregated into two categories:
• Cost of operations - major expenses that have an impact on the overall cost of the value chain activity
• Operating conditions - qualitative operating factors in the external environment that can be levered for success or that may adversely impact the success of the value chain activity
Cost and Operational Considerations
The primary cost drivers include labor, taxes, and utilities. These costs tend to be higher in places such as the United States, western Europe, Japan, and to a lesser extent Singapore. Having recognized this disadvantage relative to emerging economies, some of these nations have established attractive incentive schemes in order to reduce the otherwise comparably higher operating expenses. Ireland and Switzerland, for example, have attractive corporate tax structures, while Singapore has developed corporate tax exemptions and programs in which it shares the capital burden of R&D with the investor.
Emerging economies, on the other hand, may offer lower operating expenses, but often lag their developed counterparts in qualitative operating conditions. Some of the principle operating challenges specific to the biotech industry include the lack of an established R&D presence, insufficient IP protection, less reliable infrastructure/utilities, and generally fewer amenities to attract expatriate talent.
A significant presence of R&D tends to be a catalyst for establishing a robust cluster of related activities. While the traditional biotech hubs maintain their lead in total R&D expenditure, nations such as India, China, and certain eastern European countries are actively fostering biotech R&D. For example, India, China, Singapore, and the Czech Republic have experienced an increase of 30 percent in their respective R&D investments over the last three years (IMD World Competitiveness Yearbook 2005 and 2007). This growth reflects their proactive effort to stimulate the development of local human capital and technology, in part to attract foreign investment.
Critical to the presence and growth of all biotech value-chain activities is an established regulatory system that protects intellectual property rights. Once again, the United States, Japan, Singapore, and western European nations have well-established regulations with stringent and enforceable rules for IP protection. Many emerging economies recognize that IP protection is a vital factor to attract and maintain biotech investments. Through the last decade, nations such as Malaysia, Hungary, India, and China have taken major strides by enacting and enforcing legislation that assists with the improvement of the IP protection standards; however, there is still room for improvement.
Changes in the Incentives Landscape
Supply Chain Bottlenecks Creating New “Logistical Hotspots”
Front Line: Finding, Creating, and Supporting Talent
The “Great Resignation” Is Impacting Corporate Relocations
Workforce Q4 2021
Communicating Your Project’s Value to Local Stakeholders
The Challenges of Renovating an Existing Facility Into a Food Plant