Lena Anthony

Alzheimer’s therapy remains out of reach 

					One of the bigger drivers of long term care - Alzheimer’s disease - is the target of

					nearly 100 drug development programs, according to InSight Pharma Reports (Needham, MA). But a successful product is no closer, following the failure of bapineuzumab in clinical trials run jointly by Pfizer and J&J in August. That Phase III discontinuation follows an earlier failed project, for semagacestat, which Lilly shut down in 2010. An Alzheimer’s treatment would be a fantastic blockbuster; there are an estimated 36 million suffering the diseases globally, and five million in the US, and the number of patients is only growing as populations age.

	The long-term care (LTC) market is being whipsawed by many of the more prominent trends in healthcare: the aging of the Baby Boom generation; the efforts to rein in healthcare costs (which drives more patients to LTC alternatives, like home-based care); and, as a result of Obamacare, the simultaneous expansion of national healthcare coverage and threatened contraction of state-level Medicaid programs. For the pharma industry, LTC presents a special set of opportunities and challenges: the elderly are the biggest proportion, demographically, of medicated patients, while the LTC distribution channel has constraints not common to other channels.

	This year, approximately nine million Americans over the age of 65 will need long-term care (LTC), and by 2020 that number will grow to 12 million, according to CMS. In 2030, when the last of the baby boomers turn 65, and the first wave are well into their 80s, the number of older adults requiring LTC will increase even more. According to the HHS, people who reach the age of 65 have a 40% chance of entering a nursing home. About 10% of the people who enter nursing homes will stay there at least five years, with the average stay being about two-and-a-half years.

	This market—in which healthcare services are delivered in a variety of settings, including skilled nursing homes, assisted living facilities and retirement communities, as well as in the patient’s home&mdash;represents a sizable growth opportunity for drug manufacturers and the pharmacies that dispense their products. In 2011, prescription drug spending in the LTC channel (excluding home health) totaled $15.2 billion, a 14% increase since 2007, according to IMS Health’s report, 

The Use of Medicines in the United States: Review of 2011

. Dispensed prescriptions rose 11% in the same time period, from 295 million in 2007 to 329 million in 2011 (see Figure).

	“The statistics clearly demonstrate a need for long-term care pharmacies,” says Brad Cochran, VP of LTC sales for Cardinal Health. “However, those statistics are also inviting growth in other patient care channels… so, despite the tremendous market opportunities, pharmacies that want to specialize in servicing LTC facilities really need to understand the market needs, and they need to structure their business to operate as efficiently as possible.”

	While LTC encompasses all ages, the vast majority of LTC residents of long-term care facilities (six out of seven, according to the Center on Elder Abuse) are 65 years or older. For skilled nursing homes, the average resident is in her 80s (her, because two out of three LTC facility residents are female).

	Some LTC facilities are big enough to have pharmacies on-site (or sophisticated enough to have automated dispensing systems), but for the most part, these LTC-specific pharmacies are closed-door and located off-site.

	An LTC pharmacy receives an order from the prescribing physician, and then repackages the medication into unit doses (usually blister packs) before delivering it to the LTC facility, where a nurse will administer the medication to the patient. Some of the drugs are delivered in two- or three-day supplies, while others arrive as 30-day supplies.

	The LTC pharmacy market includes players of all sizes. Two institutional pharmacies dominate the space—Omnicare, Inc. (Covington, KY), has about half of the market share, while Pharmerica Corp. (Louisville, KY), represents about 10% of the market; the rest of the market is made up of regional and independent pharmacies. Bill Daniel, executive director of the Long-Term Care Pharmacy Alliance (Washington, D.C.), estimates there are between 900 and 1,200 independent LTC pharmacies in operation today. These pharmacies purchase most of their drugs in bulk from wholesalers, including AmerisourceBergen, Cardinal Health and McKesson. In addition to providing distribution services, the Big 3 also offer reimbursement, workflow and other business support to their LTC pharmacy customers.

	A role that is unique to the LTC market is that of the consulting pharmacist, who conducts a drug regimen review on each patient at least once a month, and makes recommendations to the patient’s physician about drug regimen changes. Required by CMS, the monthly review is designed to monitor the use of medications and look for adverse drug events. The consulting pharmacist may or may not be employed by the dispensing pharmacy, but CMS is considering revising its rules to require these consulting pharmacists to be independent of the dispensing pharmacy—a move designed to keep the patient’s health at the forefront of medication decisions.

	Another distinct characteristic of the LTC market, at least when it comes to elderly patients, is the payer: Reimbursement for prescription drugs in LTC is funded mostly by Medicare Part D prescription drug plans or, to a lesser extent, Medicare Advantage plans. In cases where patients cannot afford those, government-funded patient assistance programs and eventually Medicaid kick in to cover the cost of the drugs.

	Daniels and others note the predominance of generics in LTC. “More than 150 patent expirations are expected between 2012 and 2014, representing more than $107 billion in brand sales and significant savings opportunities for alternate site pharmacies,” explains Pam Burch, vice president, McKesson Alternate Site Pharmacy.

	McKesson, which dominates the market for LTC wholesale distribution, offers 30-day, price-protected automatic shipments of high-volume generics once the drugs launch.

	Cardinal Health has a similar program for newly released generics, called First Script, which offers an automatic 15-day supply to LTC pharmacies based on their purchasing volume of the branded equivalent in the 60-day period prior to the generic launch.

	Dr. Gary Erwin, SVP of clinical services for Omnicare, says cost sensitivity makes it difficult for a pharmaceutical company to introduce a new drug in a therapeutic class where there already is a generic option. Payers, he says, will require that more expensive drug to be safer and more effective before they’ll add it to their formulary.

	Providing medical evidence on the efficacy and safety of the drug in an elderly patient population can help a branded drug gain this competitive advantage over generics. Erwin points to Xarelto (rivaroxaban) from Bayer AG and Johnson & Johnson as one drug that has gained a strong foothold in the geriatric market, despite there being a widely used cheaper alternative (warfarin). In the drug’s clinical studies, it was found to be safer and more effective than the standard of treatment for the disease.

	Another strategy some drug companies employ to maintain market share of a branded drug is to change the dosage—from twice a day to once a day, for example. Generally speaking, he says these approaches don’t give branded drug manufacturers the same level of market share once a generic becomes available, but that dosage frequency can be an important factor for elderly patients.

	Because CMS is under constant pressure to rein in spending, declining patient reimbursements is a constant threat for LTC pharmacies. Last year, CMS hit skilled nursing facilities with an 11.1% decrease in reimbursement rates. The cut affects LTC pharmacies indirectly, as skilled nursing facilities will look to their pharmacy spend as one place to reduce expenses.

	“In an environment where reimbursement fees are always in danger of shrinking, it’s increasingly important that LTC pharmacy operators do everything in their power to claim every penny of reimbursement they’re owed,” says Cochran of Cardinal Health. “Tracking reimbursements can take a great deal of time, though—time that pharmacy owners and staff can more effectively spend on patients.”

	Cardinal Health offers a range of reimbursement consulting services, including biweekly consultations with a reimbursement adviser. AmerisourceBergen’s reimbursement management solutions include up-to-date access to the most current drug prices and online tools to help prevent errors during the claims process.

	“Of all the solutions we offer to long-term care pharmacies, our reimbursement management solutions represent one of the fastest changing segments,” says AJ Caffentzis, SVP, AmerisourceBergen Drug Corp. sales and marketing.

	McKesson, through its subsidiary RelayHealth (Atlanta, GA), offers “reimbursement performance” solutions, including editing and automatic resubmission of claims, and current pricing research.

	CMS drug pricing policies hit LTC facilities especially hard, given the dependence of patients on Medicare. The continuing problems associated with defining average manufacturer price (AMP) and Federal Upper Limit (FUL) prices based on AMP have “dire” consequences for LTC managers, according to LTCPA’s Daniel. The problem is, he says, “defining AMP is like defining beauty—everyone has a different idea of what it should be.”

	LTCPA and Omnicare are working with CMS to help ensure that the new pricing system is realistic and fair. “We are concerned with the preliminary numbers, as hundreds of these draft-weighted AMPs, and many of the draft FULs, are below our acquisition cost, not to mention below the cost for many smaller pharmacies,” explains Ed Loyd, vice president, Omnicare corporate communications.

	While work on AMP is ongoing (resolution is not expected before 2014), Omnicare already has started preparing for the pricing change by shifting reimbursements on certain contracts from FUL to average wholesale price minus.

	A more pressing issue facing the LTC market is the short-cycle dispensing of branded drugs. A provision in the Affordable Care Act requires LTC pharmacies to reduce per-fill quantities of branded drugs from the standard 30-day fill to no longer than 14 days. The change takes effect Jan. 1, 2013.

	“The rationale behind this mandate is that shorter fills will result in fewer unconsumed medication units that normally occur due to medication switching, discharges from the facility, death or other causes,” according to the LTCPA policy position statement. And less waste should mean lower cost to the payer.

	But industry leaders like Daniel are dubious that the provision will offer any savings. Instead, he says, the change will amount to extra work for the dispensing pharmacies—particularly smaller, independent ones&mdash;and the LTC facility staff.

	But there might be a bright side: Since short-cycle dispensing requires more work, it helps make the case for moving toward a more automated pharmacy.

	“Facilities already using automatic filling will be able to adjust easier to this change,” Caffentzis of AmerisourceBergen says.

	Another LTC issue that has Washington’s attention—but lacks a solution&mdash;is the overuse of antipsychotics to treat elderly dementia patients with behavioral disturbances. The off-label use of these drugs can be effective in keeping these patients from hurting themselves or others, but the drugs themselves can be particularly dangerous to elderly patients.

	Earlier this year, the American Health Care Assn. announced a goal to reduce the off-label use of antipsychotics in LTC facilities by 15% before the end of the year, but provided no clear direction for doing so. So, what is the solution? Omnicare’s Erwin says facilities should look at trying non-pharmacological approaches first, or to keep antipsychotic treatment as short as they possibly can.

	“What’s challenging about this is that sometimes these drugs are the only thing that will work,” he says. “The prescriber and the family are walking this very fine line between keeping that patient safe and letting that patient potentially hurt themselves or someone else.”

Articles

The geriatric-dominated LTC market is growing, but has unique constraints

Grappling with the long-term care market

	Patients, payors and healthcare providers are discovering that many healthcare services traditionally delivered in a hospital, long-term care facility or even outpatient facility can be delivered just as effectively—if not more so&mdash;in the patient’s home. “Home health” as a type of medical service includes skilled nursing, hospice care, geriatric services and pain management, among others; and while home health providers dispense many types of medications, this distribution channel is critically important to injectable specialty drugs.

	For patients, home health services offer convenience (no travel), safety (no unnecessary exposure to hospital infection) and potential quality-of-life improvement. For payors, home health represents a significant cost savings. According to Russell Bodoff, president and CEO of the National Home Infusion Association (NHIA; Alexandria, VA), delivery of infusion therapy in the home is significantly less expensive than within a hospital setting.

	According to IMS Health’s 2011 National Health Perspectives, home health represented a $2.8-billion retail channel for pharmaceuticals last year, up 7.7% over the prior year. Home health overall is a significant form of healthcare delivery: in Medicare alone, according to the annual report of the Medicare Payment Advisory Commission (MedPAC, an independent Congressional agency), payments for home health totaled $19.4 billion in 2010; Medicaid and commercial insurance add billions more. The service has seen dramatic swings over the past 20 years, as CMS alternately tries to take advantage of the potential cost efficiencies, and then sets tight limits on approved services to combat misuse.

	The 30-year-old home infusion industry has experienced healthy growth the past few years and is somewhere between a $9-11-billion dollar field, Bodoff says. NHIA currently has about 400 members representing 2,000 sites of care nationwide. “Our members range from small to large national and regional infusion organizations, as well as single site independent or hospital-based providers.” The industry also has been subject to consolidations, with the past three years seeing “very significant M & A activity,” according to Bodoff. For example, Walgreens acquired Crescent Healthcare (Anaheim, CA) earlier this year, and late last year CarePoint Partners (Cincinnati, OH) purchased the home infusion and enteral division of Pediatric Health Choice (Tampa, FL).

	Another group of players in the home health space are the specialty pharmacies that dispense not just infused drugs but also high-cost oral and injectable therapies directly to patients in their home. They, too, are experiencing tremendous growth, as the drug pipeline continues to pump out expensive, high-touch specialty therapies for serious medical conditions.

	This year, Diplomat Specialty Pharmacy (Flint, MI) is expected to dispense close to one million oral products or self-injectables to 100,000 patients in their homes, according to Phil Hagerman, Diplomat CEO. The company’s revenue for 2011 totaled $780 million (for all types of dispensing, not just home health), after hitting $500 million in 2010. Diplomat’s biggest source of recent growth has been its specialty infusion division, which grew 200% last year, after the company “made an aggressive play to move into home infusion as new indications and new products opened up new opportunities,” Hagerman says.

	The company relies on an extensive nursing network of 500 agencies to administer home infusions and deliver other patient services nationwide. While many of the company’s patients are still in Michigan, Diplomat is becoming better known as a national specialty pharmacy: “We’re doing business in every state, and in every disease state,” Hagerman says.

	Oncology is Diplomat’s largest sector of business, followed by immune deficiencies and rheumatology. The company maintains seven so-called centers of excellence—like oncology, immunology, HIV and hepatitis&mdash;and patients are assigned to one based on their condition. Each center is staffed with patient care coordinators, reimbursement specialists, pharmacy technicians and other support personnel&mdash;all of whom understand the commonalities and challenges of that particular disease state.

	While Diplomat deals with volume, an example on the other end of the spectrum is Centric Health Resources (Chesterfield, MO), which dispenses a handful of drugs to patients suffering from rare and orphan diseases (typical patient populations are under 6,000).

	Centric serves as the sole-source provider of the orphan and ultra-orphan drugs in its portfolio. “There’s a lot of advantage to doing that, not the least of which is to build a consistent patient experience across the board,” says Craig Kephart, president.

	Instead of purchasing the drugs wholesale from the manufacturer and then selling them to patients, Centric is not involved in the buying or selling of product, in an effort to keep the costs of already expensive therapies down. “When you think about it, drug companies outsource the manufacturing—we’re just extending that all the way to the patient level,” Kephart says. “You can now contract services to get your product to your patient without having to go through a ton of intermediaries.”

	Centric maintains its own network of nurses, who, Gephardt says, provide a higher level of expertise around these types of specialty products, but most large, national payors require the company to contract with specific nursing networks.

	According to Michelle Hefley, COO of Centric, ensuring the quality and skill level of the nurses that actually go and administer care is one of the biggest challenges facing specialty pharmacies that work in the home health space. “It takes someone with a certain level of experience and skill set,” she says. “And that goes beyond needing a strong clinical skill set. They have to be able to work independently, since they’re generally moving from place to place.”

	Like most specialty pharmacies, Centric Health Resources offers reimbursement assistance and patient education and support, in addition to the actual dispensing and administering of the drugs. And after 

last fall, the company has added pharmacovigilance and adverse event reporting to its offerings.

	Other specialty pharmacy companies include: NuFactor, the subsidiary of FFF Enterprises (Temecula, CA) that specializes in infused therapies for hemophilia, immune deficiency and neuromuscular disorders; and Walgreens, the chain pharmacy giant that earlier this year purchased specialty pharmacy assets—including 30 community specialty pharmacies and a central fill facility, mostly for HIV, oncology and transplant patients&mdash;from BioScrip (Elmsford, NY) in a $225 million deal. Armada Healthcare (Florham Park, NJ), meanwhile, plays a unique role in the specialty pharmacy industry. Dubbing itself a “channel management company,” Armada designs and implements patient-focused specialty drug programs. In addition, it serves as the point of contact between the drug companies that make the 20,000 specialty drugs and devices Armada has on contract and the specialty pharmacies that dispense them.

	“Physically, a pharmacy doesn’t have the time or the staff to really work with the pharmaceutical manufacturers,” says Thomas Cohn, chief strategy officer for Armada. “We add efficiencies to the whole system, and we do it in a way that doesn’t add cost but brings more value to the patients and helps improve outcomes.”

How health plans cover home-delivered specialty drugs

Credit: EMD Serono Specialty Digest, 8th ed.

	Pharmacies are required to provide pharmacy counseling services to patients, but today’s specialty pharmacies are going above and beyond to help patients better manage their health and improve health outcomes. For example, Centric’s patients have secure access to a peer health coach—another patient diagnosed with the same condition who is trained to provide education and counseling, among other non-medical interventions. “These interventions are designed to drive behavior change&mdash;more and better decisions by patients related to their health, such as nutrition, protocol adherence, regular health monitoring, recognizing and dealing with stress, and the importance of addressing health issues,” the company explains on its website. “It’s a patient engagement model,” Kephart says. “That’s how manufacturers of these very expensive drugs can create a value proposition.”

	Dean Erhardt, principal of D2 Pharma Consulting LLC (Saint Charles, MO) points out that most of these patient support programs are provided on a fee-for-service basis, with the fee being paid by the drug manufacturer.

	At Diplomat, as the company continues to grow, one issue to grapple with will be maintaining a high level of service for patients as volume increases. “We’re finding ways to be more efficient with the patient,” Hagerman says. “One example is using text messaging instead of picking up the phone and calling them. We want to keep them engaged but do it in a way that’s more efficient than in the past.”

	Indeed, the mobile phone—and in particular, the smartphone&mdash;will play an important role as more healthcare services are shifted out of hospitals, doctors’ offices and long-term care facilities. Meanwhile, the healthcare app business is a $1.3-billion marketplace, and there are 13,000 patient-centered healthcare apps in the app store, according to Carolyn Buck Luce, global pharmaceutical leader at Ernst & Young (New York).

	“The other thing to remember is patients are consumers, and consumers have been using technology and gotten used to technology to manage many things,” she says.

	Industry leaders agree that the home health market is going to continue to grow thanks to a number of factors. The first is the drug pipeline. “I expect there will be significant growth in the next few years,” Erhardt says. “There are some new pipeline drugs coming out that help support home health services. And some specialty pharmacies are focusing on this as a growth potential and enhancing these business lines.”

	Another driver of growth will be cost-containment initiative by payors, particularly as baby boomers get older and start to require even more care for their medical conditions. But while an aging population is responsible for much of the industry’s growth potential, it’s also one of the biggest obstacles. That’s because as baby boomers age into Medicare (it happens every eight seconds in the US, according to Luce), reimbursement becomes an issue. While the drugs themselves are covered by Medicare, home infusion equipment, supplies and services are not. These uncovered expenses make up about 50—60% of the cost of a home infusion, according to NHIA’s Bodoff.

	Legislation—the Medicare Home Infusion Therapy Coverage Act of 2011&mdash;has been introduced in Congress that would cover these home health services under Medicare, but progress has stalled in the wake of healthcare reform. “Until we know more about where healthcare reform will land, I don’t expect anything to happen with the Medicare reimbursement issue,” Erhardt says.

	Medicare is the only national payor that doesn’t provide coverage for home infusion services, but that doesn’t mean other payors make it easy. According to Centric’s Hefley, reimbursement is a constant challenge: “A drug that we are providing services for could fall anywhere in their coverage,” she says. “Understanding those nuances and being able to attain the best coverage for patients is a challenge that encompasses all payors, not just Medicare.”

	Centric’s Kephart worries that payors will start to pay more attention to the cost of specialty products administered in the home, especially as more patients begin taking orphan or ultra-orphan drugs. “Reimbursement approval hasn’t been a big issue, because you’re talking about a small number of patients,” he says. “While the cost of the prescription is high, no one plan has that many patients on the therapy. But as the marketplace increases, there’s probably going to be a lot more

With partial support from manufacturers themselves, home health services are emerging as a critical channel for specialties

Home infusion enhances specialty pharmaceutical distribution

	The US recession might be over, but the obstacles facing the biopharmaceutical industry are still plentiful. There’s the eurozone debt crisis, US healthcare reform, an inefficient FDA, and the list goes on. Combined, these factors create a landscape of uncertainty for biopharma companies. And unfortunately, “Uncertainty is the enemy of new project investment,” explains Mark Sweeney, senior principal of site selection firm McCallum Sweeney Consulting, Inc. (Greenville, SC).

	The numbers reflect that reality. Biotech venture capital investment in 2009 totaled $3.54 billion, representing an 18.5% decrease from 2008, according to the 2011 California Biomedical Industry Report, published jointly by the California Healthcare Institute, BayBIO and PricewaterhouseCoopers LLP. While final numbers for 2010 haven’t been released, the report explains that VC investments in biotech had reached $3.14 billion in the first three quarters of that year, “leading to expectations that 2010 would be on par with the 2009 levels.” California, home to three established life science clusters, led the pack in venture capital investment in life sciences in 2010, followed by Massachusetts, Washington state, New Jersey and Pennsylvania.

FIG. 1. iNDUSTRIAL INFO RESOURCES COMPILATION OF CAPITAL PROJECTS IN 2011.

	When it comes to actual project starts, the outlook is better. According to Industrial Info Resources (IIR; Sugar Land, TX), the US biopharma industry in 2011 kicked off $12.1 billion in 702 capital and maintenance projects (Fig. 1). “The number of projects increased, but the individual dollar value went down,” says Annette Kreuger, IIR vice president of research. “Rather than the $25-to- $50-million average enjoyed in the ‘golden years,’ the 2011 projects returned a still healthy average value of $17 million.” Early estimates from IIR put construction project starts for 2012 at $16 billion divided among 707 projects, which evens out to a per-project total of $23 million.

	So where are these dollars going? It’s no surprise that established life science clusters are seeing a lot of economic development. Known for their educated workers, sophisticated higher education systems, industry presence and access to venture capital, established clusters have all of the characteristics that are considered necessary for a biopharma company to innovate.

	What these established clusters are not known for is their low cost of doing business. In fact, companies located in established clusters pay a premium to be there—in the form of higher rent and other operating costs. But it’s worth the added cost to these companies, says Sweeney, whose firm worked with Daiichi Sankyo last year to find a site for its first US manufacturing and packaging operation.

	“Companies continue to locate in these established clusters because of the advantages of being with the industry,” he says.

	“Companies are able to offset the high costs of operating in established clusters with the increased odds of innovation due to deep, rich talent pools and infrastructure,” explains the 2011 Life Sciences Cluster Report from Jones Lang LaSalle (JLL; Chicago, IL), a global real estate services firm.

FIG. 2. THE BOSTON REGION IS WELL AHEAD OF MOST OTHER AREAS IN INFRASTRUCTURE AND OTHER ASSETS FOR LIFE SCIENCES, SAYS JONES LANG LASALLE

	Boston, which JLL ranked as the No. 1 established life science cluster in the US (Fig. 2), is one such hot spot of economic development activity. Novartis AG (Basel, Switzerland) is working on a $600-million overhaul of its Institutes for BioMedical Research (NIBR), near the campus of the Massachusetts Institute of Technology in Cambridge.

	Maya Lin, the architect who designed the Vietnam Veterans Memorial in Washington, D.C., designed one of the buildings in the complex. According to a December 2011 article in the Boston Globe, Lin’s building will have a “main entry and an interior courtyard filled with trees and meandering pathways.”

	“I wanted this to feel not like an isolated island, but something penetrable for everyone from MIT to walk around,’’ Mark Fishman, president of NIBR, told the Boston Globe. “We want people to mix there just as they would at a university.” Novartis expects to add 500,000 sq. ft. and 300 jobs by the project’s 2015 completion date.

	Meanwhile, Vertex Pharmaceuticals (Cambridge, MA), maker of telaprevir, a drug for the treatment of hepatitis C, broke ground on its new 1.1-million-sq.-ft. headquarters complex on Boston’s Fan Pier last summer. The $800-million project is scheduled to be complete in late 2013.

	In a battle of the clusters, Ipsen (Paris, France), a specialty pharmaceutical company, announced late last year that it would relocate its US headquarters from the Bay Area to Bridgewater, NJ, this spring, adding 100 jobs in the process.

	“New Jersey is the leading biopharmaceutical center in the US,” Sean McKercher, president and general manager, Ipsen North America, told Site Selection magazine in December. “This move was a natural choice for Ipsen, given New Jersey’s ready access to international travel hubs, deep pool of pharma talent and business incentives for the biopharma sector.”

	In addition to the established clusters, the JLL report identified nine emerging clusters in North America based on various criteria, including percentage of workforce devoted to high-tech research, venture capital funding and square footage of research facilities. Not surprisingly, many of the states where these emerging clusters are located are among the top 10 earners of life science venture capital funding, per the California Health Institute data.

	Indiana, one of JLL’s emerging markets, has had several project announcements recently. In January, NantWorks, LLC (Los Angeles, CA) announced plans to locate a new pharmaceutical manufacturing plant at the site of the former Pfizer facility in Terre Haute. Expected to be operational by 2014, the plant will produce critical-care injectable and oncologic drugs. The $85.5-million project is expected to create 234 new jobs.

	In late 2011, IntraPac Group (Toronto), a specialty packaging manufacturer, announced it would build an 80,000-sq.-ft. facility in Lawrenceburg, near Indianapolis. The company will move to Indiana from its current location in New Jersey. Other new projects include Quintiles’ (Durham, NC) $6.1-million contract research laboratory near the Indianapolis International Airport, and a $1.5-million headquarters expansion of biomarketing firm VMS, Inc., also in Indianapolis.

	“The life science sector has a $44-billion total impact on Indiana’s economy,” says Chris Eckerle, director of life sciences for the Indiana Economic Development Corp. “With more than $9 billion in exports in 2010, Indiana ranked third in the United States. Indiana also has a superior economic specialization in the drug and pharmaceutical industry, standing nearly three times above the national average. Continuing to build on this strength is certainly a focus of our office.” Eckerle says Indiana is gaining international attention for its strengths in the life sciences and regularly competes with locations around the world.

	When it comes to research and development, established clusters have a clear advantage. But the competition for other aspects of the pharma value chain can be aggressive. States, counties and cities boasting a lower cost of doing business and enticing government incentives continue to make a go at pharmaceutical companies for several reasons, one of which is the high-paying jobs a new project can bring. The annual average income of a biopharmaceutical worker was $118,690 in 2009, compared to $64,278 in the overall economy, according to The U.S. Biopharmaceuticals Sector: Economic Contribution to the Nation report published by Battelle Technology Partnership Practice in July 2011.

	It’s a strategy that should pay off, says Norbert Vnek, principal at KLG Advisors (New York, NY), a boutique consulting firm that advises on location strategy. Vnek says pharmaceutical companies could benefit from looking at lower-cost locations to house their back office operations, like accounting and HR, and redeploy those operating costs into core components of the business, like R&D.

	“For whatever reason, the pharma industry seems to be behind the curve on this practice,” says Vnek, whose company advised Pfizer before and during the merger with Wyeth. “That’s a curiosity, given the way the industry is changing. Every industry has its own culture and momentum for doing things, but there are some real driving forces in the industry that have very big revenue implications. Whenever revenue is threatened, you have to look at cost containment.”

	Sweeney of McCallum Sweeney Consulting says one example illustrating the increased interest in cost containment is the economic development occurring in the South. Last August, Osmotica Pharmaceutical Corp. (Wilmington, NC), a drug-delivery technologies company, announced it would open an R&D and manufacturing plant in Marietta, GA. The facility plus 156 new jobs represent a $20-million investment over the next four years. Last fall, generics manufacturer Nephron Pharmaceutical Corp. (Orlando, FL) announced that it would bring a $313-million project—including a new manufacturing plant and 707 jobs&mdash;to Lexington County, South Carolina.

	Leveling the playing field even more, Sweeney says, is a softer stance some states are taking on government incentives. “We have seen a noticeable difference on offers,” he says, pointing to Pennsylvania as one example. “These states still have tools in the toolbox, they just don’t have as much ammunition. Some of the programs aren’t quite as valuable as they used to be.”

Biopharma remains a bright spot in US and international economic activity, even while the overall outlook remains cloudy

2012 site selection report

	The widely accepted statistic is that only about 10% of all adverse events (AEs) are reported to FDA. In 2010, that 10% equaled about 750,000 reports, which was an almost 31% increase over 2009 and the biggest year-over-year increase (as a percentage) in the last decade. The estimates for 2011 aren't due for another couple of months (per FDA), but they're expected to continue the upward trend. Pharmacovigilance experts agree that one of the main drivers of recent growth in AE reporting rates is, quite simply, increased awareness of drug safety and adverse event reporting among pharma companies, as well as healthcare providers and consumers. But new developments in pharmacovigilance will likely drive those rates higher, while others will help pharma companies manage the increasing volume.

	Besides the long-standing FDA requirement for post-marketing monitoring of the adverse events associated with a drug, and acknowledging the greater emphasis that FDA is putting on all aspects of drug safety these days, manufacturers have an additional reason to pay close 

attention to AE reporting: A year ago, the Supreme Court ruled unanimously that even a number of AEs not "statistically significant" might need to be reported to stockholders of the company as a "material" financial event. The case, Matrixx Initiatives, Inc. vs. Siracusano (Case 09-1156) was brought by investors after a Matrixx product, an OTC cold remedy called Zicam, was found to have side effects that ultimately led to the product's recall.

	As the volume of AERs increases, the number of resources needed to process and analyze them rises as well. Instead of handling pharmacovigilance activities in-house, many pharma companies outsource the process, either wholesale, as in the case of small manufacturers, or as partners (see Pharmaceutical Commerce, Jan/Feb 2011, p. 1). Some companies in the outsourced AER business are reporting double- and even triple-digit growth: Elizabeth Garrard, chief safety officer of Drug Safety Alliance (Research Triangle Park, NC) estimates her company has seen 100% growth over the past few years, while Steve Swantek, president and CEO of Prosar (St. Paul, MN), reports an average of 40% growth per year in the past two years. Meanwhile, Carole DeRoche of DDN Medical Affairs, a Dohmen company (Menomonee Falls, WI), calls her company's growth "remarkable."

	The reasons are not surprising. For one, pharmacovigilance is not a core competency for some manufacturers. But mostly, it's a matter of economics. As the total volume of adverse events being reported increases, pharma companies can outsource these functions cost-effectively, without having to build (or add to) their own pharmacovigilance infrastructure. But even when outsourcing, pharmacovigilance requires a large investment. Last year Pharmaceutical Commerce reported on a 2010 study by Cutting Edge Research (Durham, NC) that found pharma companies spend an average of $686,000 per product on pharmacovigilance activities, both clinical and commercial (see Pharmaceutical Commerce, Jan/Feb 2011, p. 24).

	Per FDA rules, there are four basic criteria that constitute a reportable AE: an identifiable patient; an identifiable reporter; a specific drug; and a symptom or effect. AEs are further categorized as "serious" and "nonserious," and "expected" or "unexpected." The AEs that get the most attention are serious and unexpected ones—these are generally not on the product label when the product is  launched, but are often added after the AEs are analyzed. AE documentation specialists use medical training and knowledge of an AE reporting structure to categorize reports; sometimes these require followup with either the reporter (e.g., a physician) or even the patients themselves.

	Garrard of Drug Safety Alliance says she's witnessed many companies that outsource these activities sacrifice quality for the sake of saving money. "They see drug safety as a commodity. There's a continuing march to the lowest-cost provider," she says, adding that usually means outsourcing overseas. Garrard cautions that there is an unrealized cost of about 20% associated with offshoring, having mostly to do with quality and oversight.

	Prosar's Swantek says he has seen pharmacovigilance activities, particularly for pharma companies with large AE case volume, go to countries like India, but that now the trend is reversing. "I'm seeing the business come back the other way," he says. "There's more to it than just cost savings. Those pharma companies that have decided to come back found additional value in working with US-based organizations."

	While some see a threat, others see an opportunity in outsourcing overseas. Swantek says he envisions a hybrid approach, using domestic and offshore resources for different parts of the pharmacovigilance process. "There are components of the pharmacovigilance continuum that lend themselves to being done offshore," he says, pointing to coding and narrative writing—activities that don't require interaction with the reporter or medical reviewer. "We're in discussion with some offshore providers regarding potential alliances to provide an optimal cost savings to our customers."

	Drug manufacturers are required, under the Federal Food, Drug and Cosmetic Act, to report AEs that they know of to FDA. Before there was such thing as social media, that meant documenting AEs that were reported to them—by phone, letter, email or even the "Contact Us" form on the company website. But now that social media tools are so prevalent, an adverse event could potentially be reported via Twitter, Facebook, blog comment or online discussion.

	If Facebook boasts 800 million active users, and Twitter recently passed 100 million active accounts, just how many adverse events could be reported via social media? That had long been the question on pharma executives' minds—using adverse events as an excuse for staying away from social media. But new research suggests it's a manageable number. A white paper released late last year by Visible Technologies (Bellevue, WA) sought to pinpoint the number of adverse events reported through social media channels. Researchers analyzed branded social media posts for classes of OTC and prescription drugs to determine how many of those included reportable events.

	Of the 142,854 posts tracked in a 30-day period beginning in Sept, for prescription statins and antihypertensives, only 4,587 posts contained terms relating to AEs. Of those posts related to AEs, Visible Technologies found that only 3.27% were actually discussing AEs.  "Pharmaceutical marketers that engage in diligent monitoring of social media for mentions of their brands should expect to see some mention of AEs within this discussion," the white paper concludes. "However, the volume of AEs is not likely to exceed what can be handled through existing adverse event reporting channels established for traditional/offline reporting methods." Successive studies by the BuzzMetrics business unit of Nielsen, have found that AEs that meet the reporting criteria are generally 1% or less of the messages monitored by the company at public health websites.

	Thanks to research like this, Garrard of Drug Safety Alliance says manufacturers are finally warming up to the idea of monitoring social media for AEs. In fact, her company is finalizing details of its first social media-centered AER contract, with an unnamed client.

	Another reason companies haven't embraced using social media has nothing to do with volume, but what to do with the information. "The reports that are coming through social media are very difficult to evaluate," explains DDN's DeRoche. "I think that one reason that social media hasn't caught on as a sanctioned source is difficult to interpret. Consumers are writing whatever they think, so what you get are mostly bits and pieces of an adverse event, with no way to follow up. That makes it extremely difficult to evaluate and understand whether it's a reportable event, let alone who to follow up with if it is." DDN Medical Affairs has not received any AEs through social media.

	The Visible Technologies white paper found that of those posts containing an AE, 26% include an identifiable name, while only 14% included an identifiable full name and contact method (via email or through the website itself). "The missing piece to this puzzle is understanding what pharma will be responsible for," Garrard explains. "Is it just the ones that contain the four criteria? Or do you have to follow up on every adverse event?"

	Currently, there's a lack of clear FDA guidance on the topic. At the end of 2011, FDA released social media guidelines on responding to unsolicited requests about off-label uses of drugs, but it made no mention of adverse events. DeRoche says these new guidelines will help, but won't do enough to assure pharma companies that they're handling AEs through social media correctly.

	While drug manufacturers are required to report known AEs to FDA, healthcare providers and consumers can do so voluntarily through the agency's MedWatch form. But are they doing it? A 2011 study by PDR Network (Montvale, NJ) revealed that more than 13 million office visits a year in ambulatory care are attributable to an adverse drug event, but only about one million reports are generated.

	"I'm not sure a lot of healthcare providers or consumers fully understand the importance of reporting adverse events," DDN's DeRoche says. "But it is critical to keep these safety issues top of mind when dispensing and consuming prescription products."

	Dr. Steven Merahn, chief medical officer of PDR Network, agrees: "Prescribers need to understand that their clinical insights are incredibly valuable. Reporting actually helps the prescribers more than they think because once the data are available, there are lots of people who can extract real clinical intelligence from them, and that can reduce risks to patients and prescribers and have a beneficial effect on patient outcomes."

	RxEvent, a new initiative backed by PDR Network, aims to streamline and speed up the reporting process by allowing healthcare providers to bypass FDA's forms and submit adverse event reports through electronic health records, as well as websites of medical professional insurance carriers, medical societies, PDR Network itself and other partners.

	Merahn says the company has secured four contracts with EHR vendors already, and is in active contract negotiations with another eight. He anticipates RxEvent will reach access to 100,000 prescribers via EHRs by the second quarter of this year—an important milestone, given the rapid adoption rates of EHRs. "With EHR adoption around 50% nationally and growing rapidly, within two years the EHR is going to become the physician's primary workspace," he says. "If [adverse event] reporting systems are not on the screen in that window, they will be off the radar."

				Fig. 2. Adverse Events, Inc., identifies AEs by, among other things, their frequency among commonly prescribed drugs. credit: AE

	Meanwhile, Adverse Events, Inc. (Healdsburg, CA), a company launched last fall to clean up the data in FDA's Adverse Event Reporting System (see, 'Company Trying to Do More with Medwatch" below), has a reporting form geared toward consumers available on its website. "All of our surveys found that consumers wanted an easy way to report this information," says Brian Overstreet, president. He estimates the company has collected about 100 AERs, which are added to the company's searchable database of adverse event reports.

	FDA even recognizes shortcomings with the current reporting process. In addition to multiple smartphone initiatives for adverse event reporting, FDA spokesperson Lisa Kubaska says the "development of a ‘smart form' for adverse event reports that could provide source data would improve the quality of reports."

	From the perspective of FDA, AE reporting is a passive process: FDA accumulates AERs, checks for patterns, and then initiates some type of review. (FDA is not, of course, the only entity looking for patterns; manufacturers do so themselves, and many medical researchers have made their name by uncovering a new pattern.) An "active" system, in this context, will routinely monitor health records to uncover new or unknown signals. That's the goal behind FDA's Sentinel Initiative, mandated by the 2007 FDA Amendments Act, and now an ongoing public-private organization. Harvard Pilgrim Health Care Institute is one of the central private organizations involved; it and the other organizations who have signed on (which include insurers Aetna, Wellpoint and Kaiser Permanente) have now accumulated records on 44 million individual patients. The "data core" is a distributed database at the 17 corresponding organizations; individual records reside at the organizations, and are queried by the Sentinel coordinating center.

	The power of this distributed database was demonstrated in a paper presented last year at the International Conference on Pharmacoepidemiology (Chicago, Aug 17, 2011) by Dr. Richard Platt of Harvard Pilgrim. From initiation with an FDA request on July 5, more than 300 million patient-years of records were checked to identify one million health patients taking either Chantix (varenicline) or bupropion (Zyban, Wellbutrin) for 180 days in the 2006—2011 period. These records were then checked for incidence of cardiac events (the two types of drugs showed similar response—about five incidents per 1,000 patient-years). Preliminary results were reported on July 8, and a complete report on July 12. The study was not a directed AE evaluation, which is to say that the study was undertaken to verify a known health risk, but rather to demonstrate the speed and comprehensiveness of an active surveillance project. (It has since been expanded into a "Mini-Sentinel Model Program," including patients taking those drugs for any reason.)

	"The Sentinel System would enable FDA to actively query diverse automated healthcare data holders—like electronic health record

Company Trying to Do More With MedWatch Data

					If underreporting of adverse events is one problem, the other is finding meaning in the data contained in FDA’s MedWatch. That idea helped launch Adverse Events, Inc. (Healdsburg, CA), which puts FDA’s MedWatch data through its RxFilter, a “17-step proprietary data refinement process that standardizes and normalizes” the MedWatch database, according to the company. MedWatch itself is updated quarterly.

					Once FDA updates the MedWatch database, it takes about two days for the company to cleanse the data, says Brian Overstreet, president. He says the process is about 98-99% automated, but that analysts have to manually review about 2,500 adverse event reports per quarter, largely due to adverse events reported on drugs for the first time.

					Consumers can access the drug safety data, searchable by drug name, medical condition or side effect, for free at adversevents.com, while pharmaceutical companies can pay for additional reporting and analysis capabilities, including competitive company and product tracking. The services launched last fall, and Overstreet says pharma companies are beginning to show interest. “They’re on our site and starting to use it in their workflow,” he says.

	systems, administrative and insurance claims databases, and registries—to evaluate possible medical product safety issues quickly and securely," Kubaska says. At an annual public workshop held Jan 18 in Washington, D.C., project leaders updated the public on the progress being made on Mini-Sentinel, the pilot project for the active surveillance system. Mark McClellan, director of the Engelberg Center for Healthcare Reform, which hosted the event, reported that Mini-Sentinel is expected to meet its goal of tracking and surveillance of 100 million patients by this summer. Mini-Sentinel also has begun using the system to assess medical product safety questions, and the results of these assessments are available at mini-sentinel.org. The latest explores the differential risks of angioedema associated with three types of antihypertensive medications.

	As Sentinel moves closer to application, the question will be who gets to use the Sentinel functionality and who pays for it, according to Rachel Sherman, director of FDA's Office of Medical Policy. "In a perfect world, we would like to see [pharma companies] being able to access the functionality," she explained at the public workshop.

As FDA makes progress on an active surveillance system, drug manufacturers and third-party drug safety vendors navigate their own set of challenges

Adding rigor to the adverse event reporting process

Last April, Diplomat Specialty Pharmacy announced plans to centralize its operations in 340,000 square feet of space at the Great Lakes Technology Centre, the former innovation center for General Motors, in Flint, Mich. One rapid $7 million renovation later, the space has been transformed into a state-of-the-art headquarters and compounding and distribution facility for the growing specialty pharmacy, which experienced a 917% growth in sales from 2006 to 2009. 

Purchased at auction for “pennies on the dollar,” according to Diplomat President and CEO Phil Hagerman, and supplemented by state and local economic incentives, the project has been a game-changer for the company. With the purchase of the 340,000-square-foot technology center, as well as the purchase a few months later of an adjacent 210,000-square-foot warehouse, the company acquired a 10-year growth footprint.

	“At first, we were concerned that we would bite off too much,” Hagerman says. “But slowly we started to adopt that ‘go big or go home’ attitude. Normal business rules don’t allow companies to acquire a 10-year growth footprint, so we’re very lucky. It gives us a tremendous long-term competitive advantage.” 

In many ways, Diplomat’s story is also a model for site selection in a post-recession world. Yes, many companies are still reeling from its effects: Sixty-six percent of life sciences executives who responded to a Deloitte survey said their companies experienced either a moderate negative effect or significant negative effect as a result of the recession. But other companies like Diplomat emerge unscathed and ready to expand. Their pick of properties, combined with attractive deals from state and local economic development agencies vying for their jobs, are helping to make biopharma expansion a reality again. 

	As companies start to expand again, site selection observers will notice a shift, says Matthew McDevitt, executive vice president of real estate for BioMed Realty Trust (San Diego), a life sciences real estate investment trust with properties in seven core markets across the United States. Coming off a stretch of doing no deals in 2008, 2010 saw an increase in activity (the company posted $700 million in acquisitions last year) and some noticeable changes in what biopharma companies were looking for in a site. 

“The biggest was speed to market,” McDevitt says. “No one is really willing to take a space from shell or scratch and spend the time to actually design and build it. They really want to take as much risk out of the equation and find existing space.” 

Diplomat Pharmacy’s Flint, Mich., retrofit is one example of this trend. Another is Daiichi Sankyo, which announced in February that it is investing $15 million to open its first U.S. manufacturing and packaging facility in Bethlehem Township, Pa. The company was originally looking at Southeastern Pennsylvania, near the Greater Philadelphia life sciences cluster, when a former Amcor Pharmaceutical packaging facility was identified as a potential site in Bethlehem Township. 

“After turning up nothing in Southeastern Pennsylvania, they indicated that the project had gone on the back burner,” says Michael Rossman, director of Pennsylvania Gov. Tom Corbett’s economic development action team. “Then, they identified this existing packaging facility that provided an opportunity for them. They expect to be operational there at the end of the year.” 

BioMed Realty Trust’s McDevitt says he also has noticed a shift in the types of amenities companies look for during the site selection process, which he says speaks to their commitment to attracting top talent. “They want to provide a really nice environment for their employees,” he says. “Proximity to transportation, running paths, health clubs—all of those things are becoming very important. Now I hear a lot of ‘Where do my employees park their bikes?’ Or if we’re in a more suburban area, they want to see the cafeteria and the gym right away.”

Figure 1: Metropolitan Statistical Areas with the largest employment

	levels in drugs and pharmaceuticals, 2008 

	1. New York-Northern New Jersey-Long Island, NY-NJ-PA 49,752

	2. Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 17,584

	3. Chicago-Napierville-Joliet, IL-IN-WI 17,029

	5. San Francisco-Oakland-Fremont, CA 12,009

	6. Los Angeles-Long Beach-Santa Ana, CA 11,318

	9. Oxnard-Thousand Oaks-Ventura, CA 6,537

	10. San Diego-Carlsbad-San Marcos, CA 4,673

	11. Dallas-Fort Worth-Arlington, TX 4,208

	12. Bridgeport-Stamford-Norwalk, CT 3,774

	14. Washington-Arlington-Alexandria, DC-VA-MD-WV 3,478

	Source: Battelle/BIO State Bioscience Initiatives 2010

	Another trend concerns where companies will expand. McDevitt says he’s noticed a return to clustering, which is good news for the major biopharma hubs like Boston, Philadelphia, the Research Triangle Park, San Diego and San Francisco (see Figs. 1 and 2). 

Pete Mooney, principal of the Deloitte Global Life Sciences and Healthcare Consulting Practice, says a new set of clusters, driven by demand for product, is forming in emerging markets like Brazil, China, India, Mexico, Russia and Turkey. 

According to 35% of respondents to the Deloitte survey, emerging markets will become the most profitable geographic areas for life sciences. Twenty-six percent of respondents said geographic expansion into BRIC (Brazil, Russia, India or China) markets will be critical to their company in the next five years, while only 18% said it was critical prior to the onset of the recession at the end of 2008. 

Two things are driving this interest in emerging markets: They’re huge markets and they’re currently underserved. “These companies understand that’s where the future is going to be, given the scale,” Mooney says. Eli Lilly, for example, announced last winter its plans to open a research center focused on diabetes in China. The center is expected to open later this year in Shanghai and will focus on discovering treatments that are best-suited for the estimated 92 million people in China with diabetes. This is not Lilly’s first foray into China; the company has had a large presence, including R&D and manufacturing facilities, in the country since the early 1990s. 

	Other biopharma companies less familiar with emerging markets are still experimenting with what works. “We treat emerging markets like peanut butter, lumping them all together in one category, but they’re all really different,” he says. “The only thing they do have in common is they’re underserved.” 

Some companies are leveraging their presence in neighboring countries. A good example, Mooney says, is Roche, whose presence in Japan is aiding its expansion into China. Japanese pharmaceutical companies are also using this tactic to enter emerging markets. “These guys are very aggressive,” Mooney says. “The Japanese pharma market is so saturated, and there are so many big players who have nowhere to go. So you’re going to see the Japanese as a real force in those markets, particularly China and India.” 

Meanwhile, in Brazil and Mexico, biopharma companies are finding success relying on local expertise. Pfizer, Roche and Watson, for example, outsource many of their Brazil and Mexico operations to a company called moksha8, a Sao Paulo, Brazil-based company that bills itself as the “partner of choice for biotechnology and pharma companies looking to leverage the value of their product portfolios in Latin America.” The company was founded in 2007 and today boasts a portfolio of 220 commercialized products selling approximately $200 million in annual revenue. 

	The main barrier to expansion remains funding, which, at least from private backers, has all but dried up. According to the Battelle/BIO State Bioscience Initiatives 2010 report, bioscience venture capital investments in 2009 (the most recent year for which data were available) fell a dramatic 36.7% between 2008 and 2009 to $7.77 billion—lower than levels recorded in 2004. Deloitte’s Mooney says that’s not likely to change soon: “We haven’t seen large amounts of capital come back yet.” 

That leaves state and other government agencies to sweeten the pot for biopharma companies. As was the case last year, though, many governments are cash-strapped themselves and are forced to make a hard decision—cut funding and other incentives for biopharma expansion or balance the budget. In Pennsylvania, while the government faces a budget deficit of more than $4 billion, it does not appear that incentives for biopharma expansion will be sacrificed, according to Chris Molineaux, president of Pennsylvania BIO.

“Through his proposed budget, the governor has demonstrated that this industry is important enough that we’re going to fund these programs,” Molineaux says, referring mainly to the Ben Franklin Technology Partners program and the Pennsylvania Life Sciences Greenhouse Initiative, two state-run programs that provide funding to life sciences companies that either locate or expand in Pennsylvania. Both programs continue to be funded under Gov. Tom Corbett’s proposed budget, which also includes an expanded R&D tax credit from $40 million to $55 million and the removal of the $20 million cap on net operating loss carryforward. A final budget is expected to be passed by July 1. 

Pennsylvania has had success in the wake of the recession, welcoming new companies to the state, including the aforementioned Daiichi Sankyo, and breaking ground on several major expansion projects. Generics giant Teva Pharmaceutical Industries, whose U.S. headquarters is located in North Wales, Pa., just north of Philadelphia, announced in October that it would build a 1.2 million square-foot distribution and warehouse facility in a nearby location. According to Rossman, the almost $300 million project is expected to create more than 180 jobs and be operational sometime next year. 

Also headquartered in Philadelphia, GlaxoSmithKline is in the process of re-establishing its headquarters at the Philadelphia Navy Yard, the 19th-century site of the first naval shipyard in the United States that has been undergoing redevelopment in recent years. The company signed a 15.5-year lease on a 205,000 square-foot facility. According to GSK, construction is now under way and is expected to be completed by the end of 2012 or beginning of 2013. 

Other states haven’t been so lucky when it comes to their economic development incentives. 

According to the Battelle/BIO report, “States will continue to face difficult fiscal times for the next several years that may cause them to roll-back many of the key economic development programs that were put in place over the last decade.” 

Adds Rossman of the Pennsylvania governor’s office: “While we’re facing a deficit, it’s much less than what a lot of states are facing, particularly the ones we compete with. They’re implementing not just spending cuts, but also are facing some pretty significant tax increases.” 

	It’s not a competitor of Pennsylvania, but Puerto Rico, which had been considered an ideal site for biopharmaceutical manufacturing, is now facing much uncertainty, thanks in part to a new tax imposed this year by Gov. Luis Fortuño. “Known as Law 154, the measure imposes a 4% excise tax on goods and services sold by companies on the island to overseas affiliates, with the rate scheduled to decrease to 1% by 2016, the final year it will apply,” reported Adam Burns in an December 2010 edition of Site Selection magazine. While Burns reported that companies with operations in Puerto Rico were “surprised and disappointed with the tax legislation,” it’s not likely to cause companies to flee, according to Deloitte’s Mooney. “From what people have been telling me, Puerto Rico still will be relatively attractive,” he says. “Some companies have made huge investments there, so I don’t see anyone pulling out in the short term. But I’m not sure how much new investment will be going on there.” 

According to an October 2010 white paper on surplus property by the Industrial Asset Management Council (IAMC), of the 20 pharmaceutical manufacturing sites that were closed on the island, only two to three were sold to pharma users of any sort. Still, “the island holds benefits for the global pharma business,” according to the IAMC. “It is a dollar-baed economy. It permits a ‘Made in the USA’ label—very important given the strong U.S. inspection regimen covering pharma products. Education levels are still strong and employee applicants graduating are well qualified to train and work in the industry.” PC

	Check out these recently announced or completed projects:

Astellas Pharma U.S., Glenview, IL, and Santa Monica, CA 

	This Japanese drug company is building a new $150 million U.S. headquarters in Glenview, IL., and a $90 million manufacturing and R&D center in Santa Monica, CA, the home of biotech firm Agensys, which Astellas acquired in 2007. Construction in Illinois is slated to be complete in the spring of 2012, while the R&D center won’t be ready for occupancy for another two years. Together, the facilities are expected to create about 250 new jobs.

Bayer Schering Pharmaceutical U.S. Innovation Center, San Francisco

	This 49,000 square-foot research and development facility developed by Alexandria Real Estate Equities opened in January. Bayer chose San Francisco as the site “because of the leading role this area’s research community plays in life science discovery,” the company stated in a press release.

	Expected to create more than 1,000 jobs, BioBAT is a nonprofit partnership between New York City Economic Development Corporation and the State University of New York. The 500,000 square-foot space at the Brooklyn Army Terminal is being developed in stages to help bioscience companies—from early to late stage&mdash;secure hard-to-come-by space in the NYC area. “We are now developing 85,000 sq. ft. and this should be complete in Spring 2012,” says Eva Cramer, president of BioBAT. “We are actively meeting with a number of very interested tenants and expect to continuously add new space as demand warrants.”

	Almac, based in Northern Ireland, chose the greater Philadelphia region for its $120-million, 240,000-sq.-ft. North American headquarters, officially opened in May. The complex, which will employ over 1,000, includes administrative offices and facilities for the production, analysis and distribution of clinical trial materials. Other US facilities are in California and North Carolina.

	This global pharmaceutical giant is relocating its North American headquarters from Century City, Philadelphia to the Philadelphia Navy Yard, a 19th-century naval shipyard that has underwent redevelopment in recent years. The space, which will be designed to achieve the highest LEED certification level, will feature an open layout that will encourage collaboration. “We are delighted to continue our proud Philadelphia history, which dates back to 1830, and to offer our employees an exciting and collaborative new work space,” says Deirdre Connelly, president of GSK’s North American operations.

Trends in site selection, regional economic development and business expansion

For a Lucky Few, Biopharma Expansion a Reality Again

Cushman & Wakefield is finalizing a white paper examining the role the life sciences sector plays in influencing real estate growth. The paper, expected at the end of Q2, is a follow-up to a similar report released in 2007, which credited the life sciences sector as a growth driver. In the course of three years, and in the wake of the Great Recession, the commercial real estate firm’s message is now about the challenges facing the industry that are limiting its ability to expand. 

Chris Kinum, author of both reports and executive director of Cushman & Wakefield’s Global Life Science Practice (East Rutherford, NJ), points to a couple of major game-changers in the life sciences landscape. First, last year’s flurry of mergers between pharmaceutical companies, including Pfizer and Wyeth, Roche and Genentech, and Merck and Schering-Plough, virtually eliminated big pharma’s need for new expansion. These companies had been a main source of marquee projects in past years. Also, Kinum says, changes to the healthcare system signed into law this year are changing the cost and pricing structure for many biopharma companies, which will have a negative impact on their P&L statements, further limiting their ability to expand. 

The site selection game has changed. Biopharma companies are still using the same checklist: low cost of doing business, access to a skilled labor pool, high quality of place and a culture of innovation. But gone are the days of marquee projects creating thousands of jobs and millions in revenue for single communities. Today, the projects are smaller, the competition is fiercer and the stakes are higher. To succeed, the economic development authorities in many cities and states are being forced to reshape their recruitment strategies, and in some cases, reinvent themselves. 

	Despite the nationwide lack of activity in new biopharma site development, Joe Snell, president and CEO of Tucson Regional Economic Development (TREO), says his city’s recruitment success rate is “through the roof.” Earlier this year, Sanofi-Aventis opened a new 110,000-square-foot Tucson Research Center, more than doubling its footprint there. The impact of the 2008 acquisition of Tucson-based Ventana Medical System by Roche Diagnostics has yet to be fully realized, but Snell expects the number of jobs to balloon from 645 to 3,000.

An emerging bio center whose 100-plus companies generate $6 billion in revenue annually, Tucson has all the right assets to attract and retain biopharma companies. Major pharma companies already are located there. It’s home to the University of Arizona, as well as the country’s eighth-largest community college system. And Snell classifies his state as “very aggressive” when it comes to offering strong financial support to bioscience companies locating in Arizona. The city also has invested $1 billion in a downtown revitalization project and is on the fast track to establishing a light-rail system. Tucson also has taken on an even more targeted approach to recruiting new businesses: Through a strategic planning process initiated in 2006, the city carved out an economic blueprint that identified and then focused on diagnostics as a primary industry that could realistically help establish Tucson as a leading biotech center. As a result, TREO now focuses its bio recruitment efforts on diagnostics companies. “Like many cities and states, Tucson was shot-gunning its approach, targeting the whole bio industry,” Snell says. “But now we’re much more focused, and it’s really paying off. We’ve realized it’s better to be deep with a few industries than to dabble in many.” 

Taking a more focused approach to recruitment is a trend that Jay Garner, president of site selection consulting firm Garner Economics (Atlanta), is seeing with economic development organizations across the country. “Eight years ago, everyone wanted to be a biotechnology capital of the world,” says Garner, who this year is working with the Research Triangle Park Foundation on a new comprehensive master plan. “Now they’re looking at doing things smarter. They’re getting more strategic with their marketing and targeting companies that fit their niches. They see the value of focusing their resources smartly, rather than throwing a bunch of marbles up in the air and seeing where they land.” 

	For Indiana, the focus in the past few years increasingly has been on supply chain and logistics. The state, which is already home to major pharmaceutical companies like Eli Lilly and Roche Diagnostics, welcomed Medco Health Solutions, the largest US pharmacy benefits manager, to a new mail-order pharmacy and research facility last year. The 452,000-square-foot facility is located in Anson, a 1,700-acre mixed-use development in Boone County situated right on the I-65 corridor near Indianapolis. 

In choosing the greater Indianapolis area, Medco president Kenneth Klepper noted the site’s location and access to infrastructure as key in helping the company get prescription medications out to patients in a timely and cost-effective way. 

Last year, PBM giant ExpressScripts (St. Louis) took over WellPoint’s in-house PBM and its specialty drug distribution facility at the Indianapolis Airport. The company plans to add 182 jobs at that facility by the end of 2012, the Indiana Business Journal reported in January. The company is also expanding in St. Louis, which chose that city over Philadelphia as the site for its new $60-million drug distribution facility. 

A logistics hub, the Indianapolis International Airport is the eighth-largest cargo center in the US and the 21st-largest in the world, according to Airports Council International-North America. It’s home to the second-largest FedEx distribution center in the world, and global logistics company DB Schenker also has a large presence at the airport, which is located within the Greater Indianapolis Foreign Trade Zone. In 2006, the company worked with the Indianapolis Airport Authority to create a state-of-the-art cold-chain operation. Airport Authority Air Service Director Christofer Matney says the proprietary program, now in its fourth year, has been successful in mitigating the risks associated with transporting temperature-controlled materials, not only for DB Schenker but for other supply chain companies that have been able to take advantage of the facility. “The aircrafts are landing without any issues, and products are able to get staged indoors with minimal ramp exposure. It’s been very successful for them.” 

Matney notes that Indianapolis has long had a presence of companies involved with temperature-controlled supply chain logistics, but the DB Schenker facility has added to that expertise, making Indianapolis an even stronger center for this type of transportation. “Fifty-four percent of temperature-related excursions for pharma air cargo occur at the airport itself,” Matney says. “It’s clear that the airport and its environment are an area where most improvement in cold-chain transportation can be found. We’ve been very fortunate to have been able to help these companies create an environment where excursions are not an issue.” 

The Indianapolis Airport also boasts a new passenger terminal, which officially opened in November 2008. While having no effect on the transportation of cargo, the new terminal did make an impact on Medco when it was considering Indianapolis as a location, Matney says. “They mentioned the quality of the new airport serving as a welcome mat to visitors and potential clients they would bring to the region. Before, the airport was a function as opposed to a source of inspiration. It’s helped fuel a lot of enthusiasm toward economic development activities.” 

Kristin Jones, president and CEO of the Indiana Health Industry Forum, expects her organization’s upcoming supply chain conference to fuel interest in the state, as well. The Midwest Healthcare Supply Chain Conference, sponsored by IHIF and the Indianapolis Airport Authority, will attract more than 200 attendees from the Midwest and the East Coast to Indianapolis May 20—21. “The first day will deal with broader issues of supply chain management, and the second day is dedicated to temperature-sensitive supply chain issues,” Jones says. “It will be another way for Indiana to reinforce the strengths that we have and to raise awareness of this piece of the business.” 

Highlighting government’s role in attracting biopharma 

	While infrastructure improvements are key to developing a buzz around economic development, so is a government that understands the value biopharma companies bring to a state, says Caren Franzini, CEO of the New Jersey Economic Development Authority (NJEDA). 

In New Jersey, biopharma companies have a friend in newly elected Gov. Chris Christie and Lt. Gov. Kim Guadagno. “They meet personally with leading biopharma companies in the state to talk about two things: that we want them to stay in New Jersey and to ensure that New Jersey is doing all that can be done to make sure we have a business-friendly environment,” Franzini says. “They’re proactive in reaching out to businesses currently located in New Jersey, but also ones seeking to come into the states.” NJEDA also works closely with groups like BioNJ and the bio industry already established in New Jersey. “They are very much our partners in attracting new companies here, and we’ll continue to utilize them to grow the industry,” Franzini says. 

Another government contribution is the incentives, which, due to budget constraints, are on the verge of drying up in many states. Franzini says New Jersey still offers compelling incentives, pointing to the success of the state’s Business Employment Incentive Program, which offers annual incentive grants to new or existing New Jersey companies that create jobs. 

Among the 2009 recipients receiving grants through this programs were ImClone, based on its plans to create 900 jobs at a new production facility in Branchburg. The company received $32 million from the state. Bausch & Lomb also received employment incentives totaling $3.5 million from the state for 70 jobs at its new global pharmaceutical headquarters, which opened in Madison in July 2009 (corporate HQ remains in Rochester, NY). Under another incentive program administered by the NJEDA and designed for R&D companies, 40 companies received $33 million in tax credits in 2009, an increase of $7 million over the previous year. 

	Nowhere are the incentives more impressive right now than in Massachusetts, named the nation’s top life sciences cluster by the Milken Institute in its 2009 report, “The Greater Philadelphia Life Sciences Cluster 2009: An Economic and Comparative Assessment.” Companies are being lured to the New England state to take advantage of incentives and other programs created under the Life Sciences Initiative, a 10-year, $1-billion research and economic development investment program introduced by Gov. Deval Patrick in 2007.

Faced with fierce competition, dwindling budgets and intense pressure to create jobs, economic development authorities are reinventing their recruitment strategies to attract life sciences employers