Nicholas Basta, Editor Emeritus

The US pharma industry has been on a roll for the better part of a decade (and, arguably, for much longer) in sales revenue, capital investment, and Wall Street interest. Once the Human Genome Project unlocked many of the mysteries of human DNA (officially, in 2003), pathways were created for developing drugs with a genetic or biomolecular component. Equally revolutionary developments like CAR-T therapies and CRISPR genetic manipulation have only added to the momentum.

As a result, biotechnology has been one of the favorite targets for venture capital and Wall Street stock pickers. According to statistics from the Alliance for Regenerative Medicine, the cellular and genetic therapy (CGT) component of this biotech revolution alone garnered nearly $20 billion in funding in 2020—double the previous year—even though only a handful of CGT products have reached commercial stage.

This frothy level of funding has intensified the interest of state and regional economic development authorities, who are charged with attracting business growth in their territories. Each region—even down to the level of individual counties—has created a bundle of incentives to draw pharma interest. The pharma companies, in turn, run their own calculations on the best fit for where they should put their business development dollars. Who is winning this high-stakes game, and why?

Major corporate real estate organizations have published rankings for site selection in life sciences for years. The JLL Life Sciences Real Estate Outlook, for example, published its latest assessment in 2020, giving the top positions to perennial favorites, the Boston area (No. 1), and the San Francisco Bay area (No. 2). (See Table 1; a 2021 ranking is expected later this year.) “[T]he strength of the Boston and San Francisco life sciences real estate markets has not precluded the growing strength of newer hotspots. New York, Los Angeles and Philadelphia have all increased their cluster scores since 2019, reaching new peaks in venture capital funding and life sciences employment," noted the report authors.

 JLL combines statistics on volume of companies, employment and research or venture funding, the overall concentration of life sciences establishments in a region, and the real estate market occupancy rate, to compose a cluster rank. Source: JLL 2020 Life Sciences Real Estate Index.

Indeed, in early 2021, JLL followed its annual rankings report with another, “Life Sciences Emerging Markets Index.” Using somewhat different ranking criteria, the company identified a number of locales with life sciences “momentum,” based on GDP growth, millennial population and housing growth. Up-and-comers were western North Carolina and South Carolina (Charlotte-Concord-Gastonia); Washington (Seattle-Tacoma-Bellvue); and a near-tie between the Denver, CO, metro and metro Austin, TX. (See Table 2 below.)

“The incredible dynamism of the industry is jump-starting new markets that are of growing interest to life sciences investors and companies alike thanks to their lifestyle, cost of living and demographic advantages,” the JLL report concludes.

Governmental economic development authorities welcome nearly any kind of business investment in their regions—that brings jobs, growth of a tax base, and many sorts of support services. But within life sciences, a special emphasis is put on startup companies that are beginning the R&D journey from an idea to an approved, commercial healthcare product. And because much pharma development originates in translational research—turning patient care experience into product development, there has been an emphasis on building out from healthcare facilities and academic centers—the so-called “meds and eds” combination. Cities or regions with a concentration of healthcare and higher education have been capitalizing on these assets for years now, transforming or diversifying cities ranging from Pittsburgh, PA, to Houston to New York City into pharma R&D hubs.

One successful approach in this effort is the development of incubator facilities—a combination of linking academic researchers with real estate development of lab space, which can be rented to the startup company. If research progresses successfully (and if the funding grows rapidly enough through investment rounds and winning research grants), the startup company can soon seek its own facility.

 JLL’s “Emerging Markets Index” uses a variety of measures to rank up-and-coming regions for life sciences siting. The “Potential” ranking looks at economic growth in the region combined with millennial population. Source: JLL Emerging Markets Index.

Incubators for life sciences need, among other things, wet lab space—dedicated buildings with the right combination of air and water controls, power and structural support. “Not all commercial buildings can accommodate these needs,” says Tara Mulrooney, a construction legal analyst and project manager at the New York law firm Zetlin & De Chiara LLP. “Facilities with wet labs need specialized floors and ceilings to accommodate mechanical ductwork, among other things. It’s very different from most office buildings.”

The incubator concept also happens to mesh well with the progression that many life sciences startups go through—developing a product or technology to the point where it becomes attractive to a major pharma company, which acquires the startup. At that point, the startup simply moves out of the incubator.

Along with the offer of suitable lab space, economic development authorities are aggressive in putting together financial incentives to attract a company. These can take the form of grants or low-interest loans, on one side, and tax incentives on the other. Ulrich Schmitt, a principal at KPMG’s State and Local Tax Practice, notes the rise of saleable or refundable R&D tax credits: Startup companies can go for years without generating net income (which could be taxable), but in the meantime, spending on R&D could generate a credit which could be sold to another company, thus bringing needed revenue into the startup. “As many as a dozen states now have programs to allow for saleable credits, offsets of employee withholding taxes, licensing taxes or refunds of fees paid to FDA,” he says.

KPMG worked with the Tax Foundation, a Washington public affairs organization, to assess the overall impact of these incentives. In 

 published earlier this year, the specific case of a life sciences R&D lab was analyzed. The overall tax rate for a startup ranged as high as 25.9% (for Rhode Island) to three instances where the tax rate is essentially negative: Nebraska at -0.6%, New York at -2.4% and Hawaii, at an incredible -18.2%. (These negative rates don’t necessarily mean that a company can make money simply by locating in those locales—but it’s conceivable that they could.)

An important distinction to be made with these incentives is that they are targeted at startups. “Mature” companies (as the Tax Foundation report labels them) can see effective tax rates ranging up to 20.4% (although Hawaii still has an effective negative rate of -13.2%.) Moreover, the taxation structures differ for R&D facilities, manufacturing plants, corporate headquarters and distribution centers, all of which have differing combinations of employment, capital investment, real estate requirements and revenue accounting.

While taxation is frequently the No. 1 incentive mentioned by state authorities, the reality is that it is not the No. 1 factor in where pharma locates its facilities. “I would say that tax policy is somewhere in the middle of the list, No. 4 or 5 out of 10,” says Schmitt. “The top consideration is the availability of labor—either a workforce, or the research talent. Cost of doing business, supply chain factors on transporting goods into or out of the facility, and the existence of a cluster of similar companies [to provide support services]—these are usually more important.”

Indeed, numerous surveys point to the importance of workers and research leaders in siting a facility. The proximity of top-ranked research universities is a key marker; some surveys tote up the number of NIH or NSF grants to a school as a measure of the pool of available research talent.

 TEConomy used government and market data to analyze the mix of employment types in the life sciences. Source: TEConomy 2021 Life Sciences Workforce Trends Report.

But the workforce includes others besides star researchers—specifically, the trained personnel for operating lab equipment or production lines. This is especially true when a pharma company graduates from a successful R&D program to commercializing its discoveries. At this year’s annual meeting of the Biotechnology Innovation Organization (BIO; the meeting was held virtually during June), a survey produced by TEConomy, a consulting firm, and the Coalition of State Bioscience Institutes (CSBI) focused on employment trends. (See Figure 1.)

While the proportion of “high-skilled” jobs (scientist, engineer, IT and data science) is, as expected, higher for biotech than for industrial businesses as a whole (47% vs 27%), the report showed that “middle-skill” categories—production, maintenance, technician—were also higher (34% vs 28%). “We need technicians as well as people with PhDs,” is how one industry executive sums up the matter. This point of view is motivating CSBI and others to expand the training programs offered at community colleges, or for associate degree programs, and that, in turn, is changing the mix of resources that state or regional educational organizations provide.

All that being said, educational and professional development organizations are still reacting to the changed environment wrought by the 2020 Covid-19 pandemic, specifically, the work-from-home movement. City managers are losing sleep wondering whether their downtown office complexes will remain empty or only marginally utilized; at the same time, professional workers are wondering what path their careers will follow, with or without the work-from-home trend.

According to JLL analysts who spoke with 

, the life sciences industry is somewhat insulated from the work-from-home trend. “Life sciences is much more impervious to work from home, as experimentation and trade secrets are much more limited to on-site work and collaboration is much more effective on-site,” says JLL. “What could raise the value of currently secondary locations is the massive current surge in strength and funding for the industry as a whole—the rising tide lifting all boats.”

One exception to the need for on-site worker presence is the trend toward data management in life sciences. Whether for analyzing a clinical trial, monitoring a drug’s promotional campaign or overseeing the flow of products through distribution channels, more and more pharma activities are driven by digitized, data-generating processes. That data science work can be done remotely, and the shift toward cloud computing for data analysis only accelerates this trend. KPMG’s Schmitt notes that pharma companies have in recent years been getting smarter about utilizing “shared services” to manage a variety of back-office or business analysis processes.

“Life sciences is learning better how to separate out business functions—manufacturing in one place, R&D in another and data centers in a third. Do the back-office functions needs to be in New York or New Jersey, or can costs be reduced by moving some of them to Tampa, Florida?” Schmitt says. Potentially, the shared-service model, where some of these functions are managed by third parties with multiple clients, can further cut costs.

If nothing else is certain, the site selection process that pharma companies go through needs to be broad-based; no one factor overrules the others. And, at least for as long as the pharma industry continues its booming growth, many regions of the country will benefit.

- Nicholas Basta is Editor Emeritus and Founder, Pharmaceutical Commerce

Articles

State and regional economic-development authorities compete fiercely for siting new pharma enterprises, and holding onto the ones they have. But pharma’s stupendous growth in investment is giving all regions a boost

Where will the next life sciences business cluster grow?

Radio-frequency identification (RFID) technology, mostly rejected a decade ago for pharma track-and-trace applications, is winning adherents, especially in hospital pharmacy systems. In the 2004-2009 period, the technology was actively pursued both by pharma companies and by wholesale-distributors, who envisioned streamlining the inventory management process in their vast warehouses. But technical difficulties and cost swung the pharma industry globally to deploying 2D barcode for serializing product and tracking it through the supply chain. Passage of the Drug Supply Chain Security Act (DSCSA) in the US in 2013, and the Falsified Medicines Directive (FMD) in the European Union around the same time, more or less locked in the path industry had chosen.

Over the past year, something of a critical mass of RFID providers and their hospital customers has been achieved. An industry consortium, DoseID, has been formed with (as of May) 24 members. One of the founding members, generally regarded as an industry leader, is Kit Check, which says it has some 500 hospital systems as customers, and has delivered over 150 million RFID tags, either to the hospitals themselves or to pharma manufacturers. DoseID is not the only source; at least one company, IntelliGuard, says that it has built up a customer base of 400 hospitals. (Both IntelliGuard and Kit Check generate revenue with the in-hospital stations that read and collect RFID data; the tags themselves come from business partners.)

Mention of DSCSA highlights a key element of this RFID movement: the technology can provide the same (if not better) anticounterfeiting and supply-chain visibility that the 2D barcode scheme offers—including all the data that DSCSA requires. Technically, FDA has mandated use of 2D barcodes plus human-readable product identification on packages—so at best, RFID would duplicate, but not replace, the 2D barcodes.

The Healthcare Distribution Alliance, the trade association of US wholesalers and distributors, is fairly adamant that any combination of DSCSA compliance and RFID adoption is a waste of time. While 

 on last year’s FDA Pilot Program summary, which included a demo from Kit Check, it told FDA that “urging widespread adoption of RFID or mandating its use would be contrary to the DSCSA and its persistent discussion at the public meeting was an unwelcome distraction.”

“I do not see DSCSA transitioning to RFID, except maybe at the shipper [case] level,” says Jeanne Sirovatka, senior director of packaging design and technical projects at Fresenius Kabi, which has recently announced that 20 of its injectable products are going to be RFID-tagged. “At this point, with the investments that the pharma industry has made in 2D barcode, nothing will stop that effort.”

But at least one manufacturer sees a future for RFID. “RFID is a step farther in tracking product than the 2D barcode for DSCSA compliance,” says Lou Kennedy, president of Nephron Pharma. “We consider it the gold standard for traceability, and eventually we will be moving our entire suite of products to it.”

For years, experts involved in DSCSA implementation have been looking for “value beyond compliance” in serialization and tracking; to its proponents, the value of RFID is already there. “DSCSA is a compliance requirement,” says Kevin MacDonald, CEO of Kit Check, “that adds cost to the system rather than taking costs out. Health systems aren’t doing RFID tagging because they have to but because they want to.”

So far, the manufacturer-RFID-tagging trend is of most interest either to producers of generic injectables, or to outsourced compounding pharmacies (503b facilities) And while it seems to be a growing trend, it has a long way to go to approach a significant fraction of the US pharma market. Data from IQVIA’s 2020 Medicine Spending and Affordability 

 show that, at best, 25% of pharma sales occur in hospitals and clinics. According to industry estimates, some 11% of US hospitals have RFID systems paired with pharmaceuticals currently.

Health systems have been energetic users of RFID for years: tracking medical devices’ location and identity; connecting patient wristbands with the nurses who treat them, and the procedures being performed; inventory of healthcare supplies. For pharmaceuticals, a key use case is surgical trays equipped with the drugs typically used during certain surgeries. Related cases include “crash carts” that are brought to the patient’s bedside during emergencies, and dedicated cabinets for anesthesia, or for refrigerated products.

According to Kit Check’s MacDonald, the key issue for hospital pharmacies is that drug dosages need to be hand-tagged with RFID labels before they are loaded into trays or carts. There is a substantial labor overhead to doing so; in addition, if the dosages are not tagged, a considerable inventory of expensive drugs could be sitting in the trays, potentially expiring.

(left-right) How labels could look on Kit Check-enabled vials and Fresenius Kabi’s “+RFID” smart-labeled products. Credit: Kit Check; Fresenius Kabi 

In practice, Kit Check’s automated cabinets read incoming product data, and the products are tracked into trays or other storage options. Kit Check maintains a cloud-based database, branded as Bluesight, to record all these details. A valuable benefit of the system, says MacDonald, is the ability to derive a “beyond use date” (BUD) for a product that might be withdrawn from a refrigerated cabinet, then returned; as long as the product’s stability budget (time out of refrigeration) has not been exceeded, it can be reused.

The company touts at least one health system client, Reading Hospital in Reading, PA, that used this BUD tracking for Covid-19 vaccine management. The hospital’s pharmacy was nearly overwhelmed with hundreds of dosages being administered daily, while striving not to lose vaccine that had been taken out of its ultracold storage, but not given to a patient.

Yet another important application for Kit Check, IntelliGuard and other players in the RFID/pharma space has been diversion control of controlled substances. Kit Check’s Bluesight for Controlled Substances won an award from the KLAS Research organization for this application in 2021. At IntelliGuard, CEO Gordon Krass says that his company’s tracking technology enables linkages to the pharmacist or nurse dispensing a controlled substance, as well as to the hospital’s electronic health records (EHRs) database, to enable “preventive, not just retrospective” control of dispensing.

There appears to be an obstacle to widespread use of RFID by manufacturers (let alone contemplating filling in a DSCSA function): who controls the data? As things stand now, any user of Kit Check equipment and services has its data stored in a cloud-based “registry” (as Kit Check calls it). CEO MacDonald says that this centralization provides an important benefit—avoiding the silo effect with automation. “There are so many siloed systems,” notes MacDonald, as one moves from the pharmacy to the operating room to the EHR system. “A key benefit of the DoseID program is that if I have a [DoseID-certified] piece of equipment, I’m not perpetuating these silos.”

The DoseID program, managed by the Auburn University RFID Lab, is intended to provide certification of equipment performance, as well as compatibility across its membership. And while the DoseID website says that this standardization includes the GS1 EPC UHF protocol, it is apparently not limited to that. Kit Check’s MacDonald says that “DoseID is trying to both support GS1 standards and create compatibility that works with modern RFID silicon [i.e., the onboard memory of an RFID tag] and the cloud more broadly.”

For its part, IntelliGuard says that it is the first company to provide GS1 EPC standards in hospital pharmacy applications. When Fresenius Kabi announced its RFID program last year, it specified GS1 compatibility (and is working with a tag supplier, eAgile, that is a business partner of Intelliguard. Neither Intelliguard nor eAgile are currently members of DoseID.) On the other hand, Kit Check issued a press release saying that it has worked out interoperability issues with Fresenius Kabi.

A related issue is management of the database that contains the drug-tracking data. One thing has become clear from the years of wrestling that manufacturers and wholesalers have had with DSCSA, is an unwillingness to put all supply chain data in one database. So far, Kit Check’s MacDonald says the company has had “no pushback” either from hospitals or from manufacturers over how it runs its registry; data can be protected from one user looking into another’s.

At IntelliGuard, Krass says that there is significant potential for manufacturers in the RFID data: “Today, pharma companies rely on distributor reports, but don’t have visibility inside the hospital. They spend millions of dollars with third-party firms to find out what happens with their products. We could eliminate all of that, with data sharing, and blinding patient info. This gives pharma an understanding of how their products are used.”

Nor is the data-sharing problem solely a competitive matter between Intelliguard and Kit Check. When Avery Dennison, a leading tag and label manufacturer, announced a new family of tags earlier this year, they also announced (see https://bit.ly/2T9fJlD) a relationship with a Silicon Valley firm, SUKU, for a blockchain-based data-storage system. Moreover, there exist other system providers (such as AmerisourceBergen, with its Cubixx station) that provide their own data-storage systems. Ultimately, provided that more hospitals get on the RFID bandwagon, and pharma manufacturers follow suit, these issues will be worked out.

Nicholas Basta is Editor Emeritus and Founder, Pharmaceutical Commerce

Bypassed a decade ago for traceability applications, radio-frequency identification is making a comeback in hospital pharmacies

RFID on the rise again in pharma

The Pfizer-BioNTech vaccine is here, approved by FDA under an 

 on Dec. 11. The Moderna version (also based on mRNA technology, and from a company that has never had a commercially approved product) is expected to have an FDA public hearing on Dec. 17; if the Pfizer-BioNTech pattern holds, that product could be approved the next day.

Extraordinary excitement—and no little anxiety—has built up over how the vaccine will be delivered to the US population quickly. But the realities, at this point, appear to be that a) distribution providers—wholesalers and third-party logistics providers like UPS and FedEx—are well-adapted to delivering the temperature-controlled products; b) there won’t be much flowing through the system initially.

According to press reports and FDA statements, only 2.9 million doses of the Pfizer product will be on hand for administration, starting Dec. 14. And while it’s possible, at least in the near term, to administer all of those to patients immediately, the health officials will administer only half, pending later deliveries, to ensure that patients get the second dose three weeks later. (Moderna’s vaccine calls for a second dose after four weeks.) By comparison, there are 21 million healthcare workers, and three million long-term care patients—the two groups tagged as first in line for vaccination—nationally.

 on Dec. 8 claiming priority for supplying vaccines to Americans first, but given that the Pfizer vaccine is already being supplied to the UK, Canada and Bahrain, and Moderna has commercial agreements with the EU, Canada, Japan and other countries, Trump’s action is more symbolic than substantive. Together, Pfizer and Moderna hope to deliver 25 million doses in the US by the end of the year.

On Dec. 8, the White House’s Operation Warp Speed program held a 

 (the relevant comments begin around 1:18 into the video) at which representatives of McKesson, UPS and FedEx presented. McKesson is responsible for delivering vaccines other than Pfizer’s (although there is coordination going on with the company) as well as the kits containing supplies for vaccine administration. UPS is handling, mostly, the US east of the Mississippi, and FedEx the western portion. UPS Healthcare’s president, Wes Wheeler, demo’d the materials the company will use: insulated boxes from Softbox and Cold Chain Technologies, an end-to-end tracking device (for location and environmental conditions) from Controlant, and its own RFID tag, and Sentry GPS system, that is read at UPS way stations. FedEx is using its own SenseAware device for location and environmental monitoring, and FedEx Surround, a predictive analytics monitoring system. UPS is also preparing to send supplemental dry ice, alone, through its network, from dry ice production capacity it has installed.

There have been numerous statements to the effect that the vaccine-distribution process is a monumental undertaking (

 called it “a challenge of staggering proportions”), but the delivery companies pooh-poohed these concerns. UPS’ Wheeler noted that while hundreds or thousands of vaccine parcels might be in transit soon, the company handled 34 million packages through its network on Dec. 7 (the day before the Summit). FedEx’s Richard Smith, regional president, allayed concerns that there are enough cargo aircraft available; his own company could, in theory, manage delivery to the entire world itself in a short period of time (of course, many other carriers are and will be involved). Deliveries on this scale “is what we do every day,” he said.

Operation Warp Speed and the CDC are deciding how to allocate vaccine shipments among 50 states and territories, but after that, most of the decisions will be made at the state and local level, including what priority is given to which citizens. Fifty states have 50 plans (Kaiser Health News consolidated all these plans, as of mid-October, 

At least one state—Louisiana—is relying on an in-state wholesaler for local distribution for certain categories of dispensing locations. Paul Dickson, president of Morris & Dickson, says the company is handling delivery to 200 medical facilities that are not major hospital locations. It has installed sufficient ultra-cold storage for 750,000 doses of the Pfizer vaccine, and contracted with a local dry ice supplier to provide up to 4,000 lb of dry ice weekly. It will be able to receive vaccine from Pfizer and deliver to facilities the same or next day. (Morris & Dickson operates in 18 states across the Southeast and Midwest, but so far, no other state has asked it to step in.)

Like the UPS and FedEx representatives, Dickson is bullish that vaccine distribution will proceed smoothly. “In our everyday business, we’re tracking 30,000 products being delivered daily across a wide region,” he says. “We have our part to do, and we plan to do it well.”

On Dec. 14, Cardinal Health announced that it has been selected by the Ohio Dept. of Health to deliver Covid-19 vaccines to 350 locations within the state. The company, which is headquartered in Dublin, OH, but operates nationally, will be using its OptiFreight Logistics service to make these deliveries; OptiFreight is tailored to the needs of healthcare sites. Last month, the company announced that it has an agreement with CDC to be a network administrator for Phase 2 deliveries, when a wider portion of the US population will be served after the Phase 1 deliveries for healthcare providers and long-term care residents.

At best, 25 million doses might be available by year-end, sufficient for half that many Americans

Covid-19 vaccine is here, but supplies will be tight

It is probable that Amazon’s Nov. 16 announcement of the long-awaited Amazon Pharmacy has had a bigger impact on Wall Street than in drug distribution, at least for now. The day of the announcement, the prices of the leading chain pharmacies dropped by 6-10%, and the Big 3 wholesalers by 1-2.5%. Amazon’s entry into pharmacy services has been a fixation of market analysts for over two years—ever since 

, a mail-order pharmacy that packages multiple drugs in pouches for polypharmacy patients, for $700 million—and back then chain pharmacies and major wholesalers also took a financial hit. Market watchers expect Amazon Pharmacy to be an e-commerce disrupter, as it has been for so many other retail industries.

, however, is less dramatic. For one thing, retail pharmacies have by and large already adopted one of Amazon’s basic consumer benefits—home delivery in one or two days. At the same time, mail-order pharmacy has been a longstanding component of the pharmacy business, representing over a quarter of the market by sales. In its announcement, Amazon noted that it will be working with InsideRx, a business unit of Cigna (which is also the owner of the pharmacy benefit manager Express Scripts) to provide drug discounts that are potentially better than an insurer’s price (for those consumers on commercial insurance), as well as offering lower prices to the uninsured (cash) drug purchaser.

These discount programs are already available to consumers via other marketing programs—so, in the end, it will become the same sort of comparison shopping that consumers perform with many of their other purchasing decisions. Amazon noted that it will not share protected health information of its customers with others (without customer permission); however, this opens up the intriguing question of whether customers whose non-prescription purchases (of, say, glucose test strips used by diabetics) will be exposed to pharmaceutical marketing by the company.

There has been a buzz around Amazon for its potential in providing a range of health and wellness services, a trend that retail pharmacies, health systems, and a host of Silicon Valley startups have been looking at for the past few years. With a built-out pharmacy offering, Amazon takes a step closer to being a major player in healthcare. (One analyst even speculated that Amazon could co-locate a brick-and-mortar pharmacy in its Whole Foods stores, just as other supermarket chains have done.) But this big-picture view will take years to play out.

What effect does Amazon Pharmacy have on the pharma industry? For now, not much, beyond adding another retailer to the retail pharmacy channel. If it chooses to continue to go after the healthcare business, though, more changes might be coming from the company.

Pillpack continues its drugs-for-the-day packaging, while parent Amazon works with Express Scripts on drug reimbursement