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Exploring the competitive and unique offerings in three of the US’s lower-cost economic development regions—and how success in these areas has been boosted by COVID
A recent article in the Financial Times (July 7, 2022) discussed how New York was struggling to lure large-scale life sciences companies in the shadow of Boston, San Francisco, and San Diego, those “thriving” life sciences hubs that are “the envy of mayors and economic development planners.” New York City, bemoaned Joel Marcus of real estate firm Alexandria, is simply “too expensive to host large-scale life sciences companies.” The article countered though that after a “sluggish start,” the life sciences industry has “begun to percolate in NYC,” with a record 433,000 square feet leased to companies in the city in 2021. Nevertheless, it is interesting to note that even a commercial powerhouse like New York has a very long way to go before it can reach the heights of Boston–Cambridge, the San Francisco Bay Area, and San Diego, the biggest three life science clusters in the US.
With its cost of living, taxes, and premium real estate, New York may not yet present a viable alternative to those other high-profile areas, but there are other regions across the US that offer facilities, expertise, and talent on a par with the big clusters for a lot less capital outlay. Pharma Commerce looks at the some of the competitive offerings and unique life sciences opportunities in three such regions—Texas, Wisconsin, and Minneapolis–Saint Paul (MSP)—and reviews how success in these areas has been boosted by COVID-19.
Texas is home to the headquarters of Fortune 500 companies McKesson, Tenet Healthcare, and Kimberly-Clark, as well as more than 6,000 firms in the biotech and life sciences sector. Galderma, Novartis, Abbott, Allergan, Lonza, Johnson & Johnson (J&J), and Merck all have significant operations in the state. Texas also houses six of the nation’s top 100 medical schools and $6.6 billion in annual research and development (R&D) expenditures. The Texas Medical Center (TMC) in Houston is the largest medical complex in the world and is partnering with three universities—University of Texas Health Science Center, University of Texas MD Anderson Cancer Center, and Texas A&M University Health Science Center—to develop a state-of-the-art collaborative campus called TMC3, which “will help keep Texas on the cutting edge of discovery and innovation in medicine.” The Texas Medical Center features JLABS@TMC, part of J&J Innovation, a network of incubators hosting emerging pharmaceutical, medical device, and consumer and digital health companies.
“The state of Texas is working to position itself as the premier location for biotech, life sciences, and biopharma companies to relocate and expand,” Adriana Cruz, executive director at Texas Economic Development & Tourism, tells Pharma Commerce. It is also a leading pharmaceutical research state. “The Lone Star State ranks No. 2 nationally for number of clinical trials, with more than 32,600 studies underway, according to the National Institutes of Health (NIH).”
Wisconsin’s biohealth sector is responsible for more than 47,000 jobs statewide, not including academic research institution and health systems jobs. The state is home to more than 1,800 biohealth companies. Wisconsin’s research universities are especially focused on bioscience, with $914 million allocated to bioscience academic R&D in 2016, accounting for more than two-thirds of all academic research at these institutions. Federal grants contribute over $1 billion in funding to Wisconsin’s economy each year, with the NIH supporting more than 900 grants in 2016. The University of Wisconsin system alone contributed more than 9,100 academic R&D projects that year.
On the manufacturing front, the Wisconsin Economic Development Corporation (WEDC) proudly asserts, “We build things in Wisconsin, and we’re good at it.” The state “excels in the manufacturing of diagnostics, molecules, cells, and tissues.” Active pharmaceutical ingredient (API) manufacturers such as Scientific Protein Labs, Alcami, MilliporeSigma, and Catalent are located in Wisconsin. The Waunakee-based Scientific Protein Labs is among the largest commercial suppliers of heparin sodium, a widely used anticoagulant to treat and prevent blood clots. Ongoing stem cell research at UW-Madison and its affiliated institutes has led to a concentration of medical and scientific instruments in 2018, making it the state’s third-largest export category, with 131 medical device manufacturers based in the area.
The Minneapolis–Saint Paul region accommodates the country’s largest private health insurance company, UnitedHealthcare; the largest digital health company, Optum; and the largest medical device firm, Medtronic. With more than 750 health and life science companies, the region has the highest concentration of medical device jobs in the US, and the fifth-lowest operating cost among life science clusters. According to the Minneapolis Saint Paul Regional Economic Development Partnership (GREATER MSP), Minnesota companies average FDA premarket approvals over six months faster than average.
“In the last five years, the number of life sciences firms in Minneapolis–Saint Paul has grown by 15%. In the last two years, the monthly job postings for life science occupations have doubled. And over the last decade or so, venture capitalist (VC) investment for bio-related companies is up 80%,” GREATER MSP’s CEO, Peter Frosch, tells Pharma Commerce. “One of the reasons for this growth is that the future of this sector is based on existing sectors of strength. Human health and medical devices are strong, long-standing sectors in the region. As are food and agriculture; Cargill and General Mills are based here. Companies in these sectors are growing fastest at their bio edge.”
GREATER MSP is strongly linked with the Medical Alley Association, based in Minneapolis, MN. Widely recognized as a “critical piece of the healthcare landscape,” Medical Alley supports and advances Minnesota’s healthcare industry and its connectivity around the world. Founded in 1984 by Lee Berlin, chairman of drug delivery company LecTech, and Earl Bakken, creator of what is now Medtronic, Medical Alley has honed its focus in recent years—shifting from Life Science Alley, which included agriculture, back to Medical Alley in 2016, with three key components: starts, global, and health transformation.
“Our vision is to be the global epicenter of health, innovation, and care,” says Medical Alley’s new president and CEO Roberta “Bobbie” Dressen. “A legacy work product of our transformation pillar is revolutionizing health through state and national government policy and advocacy, not just for med tech and pharma, [but] rather for the health ecosystem. Everything that touches us as a patient across our life health journey.” Medical Alley Starts is a program focused on startups and innovation. Roughly 20% of startups associated with Medical Alley are in the bio space. Another component, Medical Alley Global, includes startups and companies of all sizes from around the world. “Our strongest international relationships are in Australia, New Zealand, the UK, and Canada, followed by Germany, the Nordic countries, and with increasing interest from South America, Africa, and Eastern Europe. Last year, Medical Alley was responsible for 14 companies choosing Minnesota to open their first United States facility,” notes Dressen.
Incentives and talent
Wisconsin has a variety of incentives aimed at attracting businesses, promoting startups, and encouraging mature businesses to grow. These include new business venture tax credits for Wisconsin investors and technology development loans for startups; business development and enterprise zone refundable tax credits, which provide performance-based incentives for job creation and expansion, capital investment, and training; and an R&D credit that offers a refund of up to 15%. Wisconsin also exempts the purchase and use of machines and specific processing equipment, fuel and electricity, and qualified research and biotechnology equipment from state and local sales taxes.
“Apart from these financial incentives, our state has an effective and growing network of formal and informal organizations and partnerships to assist businesses in the life sciences, most notably BioForward Wisconsin,” Missy Hughes, secretary and CEO of WEDC, tells Pharma Commerce. BioForward Wisconsin’s 200-plus members include biohealth companies, research institutions, and healthcare organizations, from startups to larger, well-known companies such as GE Healthcare, Exact Sciences, Promega, and Illumina. To assist startups with their operational needs, the organization Forward BIOLABS offers co-working life science labs that are fully equipped, maintained, and come with concierge introductions, training, and networking. “This incubator enables organizations to begin their important work in the first week instead of the first year, because time isn’t spent leasing, designing, and setting up the lab,” says Hughes. “Their investment funding can go into product development, not lab development. Many companies have graduated from this shared lab space to become successful second-stage companies.”
Texas offers the Governor’s University Research Initiative (GURI), which helps recruit Nobel Laureates and other distinguished researchers to the state’s schools in the fields of science, technology, engineering, mathematics, or medicine. The Research & Development Tax Incentive is available for companies conducting qualified research activities. The Product Development and Small Business Incubator Fund (PDSBI) is a revolving loan program with the primary objective of aiding the development, production, and commercialization of new or improved products and to foster and stimulate small business in Texas, while the Texas Enterprise Fund (TEF) is the largest “deal-closing” fund of its kind in the nation. This fund is used as a performance-based financial incentive for projects that offer significant projected job creation and capital investment, and where a single Texas site is competing with an out-of-state option.
In MSP and across Minnesota, the Minnesota Job Creation Fund provides financial incentives to new and expanding businesses that meet certain job creation and capital investment targets. Companies eligible for the Minnesota Job Creation Fund can receive up to $1 million for creating or retaining high-paying jobs, and in some cases may receive awards of up to $2 million. There is also the Destination Medical Center project in Rochester, MN, which is a $5.6 billion, 20-year economic development initiative with strong biotech components. There are other incentives around real estate, workforce, and manufacturing. “There is a surplus of working capital available and ready to be deployed through private equity, venture funds, or investment banks,” says Dressen. “Medical Alley has a history of successful entrepreneurs in the bio space who want to give back with their time and financial resources.”
The MSP region is also competing in the national Build Back Better competition, which received 529 applications in October 2021. From those entries, 60 finalists were chosen, among them GREATER MSP’s Bold North BioInnovation Cluster. Explains Frosch, “We’re seeking around $60 million to fund a portfolio of seven projects. To add to our application, we’ve had 59 letters of support from all kinds of different entities that, in total, add up to $2.1 billion of pledged investment, 3,200 additional jobs, and 4.8 million square feet of bio-related real estate. We’re aiming to win, but win or lose, we’re going to really catalyze and accelerate the momentum that we already have.”
“A great deal of work is also underway focused on talent development for the Medical Alley region,” says Dressen. “For example, the Alley has an active partnership with Takeda and Minneapolis Community and Technical College to attract, educate, and retain talent.”
Talent has always been a differentiating factor for MSP, adds Frosch. “We have nearly 2,000 graduates completing a degree or certificate in biologic or biomedical sciences in the region every year, and that number is increasing. There’s a cost advantage to that, especially if you’re a fast-growing company. You need to find people, you need to find real estate, and you don’t want to burn a lot of capital. You want to put your capital into your science.”
In Texas, the medical universities “continue to churn out top talent, with 18,000 industry-related graduates annually,” says Cruz. The state boasts, she adds, “some of the brightest minds in medicine,” pointing out that Texas is among the top 10 for the number of doctorates awarded in biotech-related fields. The state’s network of academic and research institutions, including seven of the nation’s top 125 medical schools and $6.6 billion in annual R&D expenditures, is further developing this talent pipeline. “There’s no doubt that Texas can readily supply life science companies with a highly-skilled pool of talent across all areas of the state, well into the future,” notes Cruz.
Wisconsin, meanwhile, boasts two R1 research universities: the University of Wisconsin-Madison and the University of Wisconsin-Milwaukee. UW-Madison consistently ranks in the top 10 of research universities by expenditure, with more than $1.3 billion spent on research annually. Wisconsin also established the first technical college system in the US. With 16 two-year colleges, the Wisconsin Technical College System enrolls about 250,000 people every year. “Madison College even offers a Stem Cell Technologies certificate program to support local workforce needs,” says Hughes. “Wisconsin has a strong history of promoting collaboration between the public and private sectors and between education, industry, and state government, particularly in the field of life sciences,” she continues. “These relationships have provided a talent pipeline for local firms, especially in the Madison and Milwaukee areas.”
Geography of opportunity
The spread and location of clusters and companies within a region is driven by the talent, the real estate, and the economic incentives offered by the communities there. In Minnesota, Texas, and Wisconsin, these areas of concentration are expanding, and, importantly, there is the space for them to grow further. When Medical Alley was founded in 1984, its activities “followed the Mississippi river through Minneapolis and St. Paul,” says Dressen. Today, however, Medical Alley’s influence extends across the region and beyond. “In Minnesota, we reach as far north as the Canadian border with a bio company in Baudette, through the southern part of the state, where the Mayo Clinic was established more than 150 years ago. Our membership also stretches into Wisconsin and the Dakotas,” says Dressen.” Urban Minneapolis–St. Paul is also spreading. Back in 1984, it was known as the Seven County Metro area; today, there are 15 counties, with much larger populations. “There are about 3.6 million people living in this metropolitan area,” explains Frosch. “In addition to our largest city, Minneapolis, our region includes other major population centers, such as Saint Paul and Bloomington. In this sense, we are different from, say, Chicago or Atlanta.”
Last year’s JLL Life Sciences Emerging Markets Index, looking at up-and-coming cluster markets, pointed to the success of three Texan clusters in areas such as employment acceleration and STEM graduates. They are Dallas/Fort Worth/Arlington; Houston/The Woodlands/Sugar Land, which, as noted, hosts the Texas Medical Center, “which conducts more clinical trials than any other single site in the world;” and Austin/Round Rock/Georgetown. Complementing these biotech clusters are other emerging regions across the state, such as San Antonio and College Station. “In San Antonio, the Texas Biomedical Research Institute is developing vaccines and treatments against infectious diseases. The department’s facilities include the nation’s only privately owned biosafety level four (BSL-4) maximum containment laboratory,” Cruz tells Pharma Commerce. “Additionally, Texas is home to the largest military medical complex in the nation, the San Antonio Military Medical Center. In College Station, the Texas A&M University System and Fujifilm Diosynth Biotechnologies are manufacturing a COVID vaccine. Also, in December 2021, Fujifilm announced a new commercial manufacturing facility in College Station. The project is expected to create 150 new jobs and $300 million in capital investment.”
Madison, Wisconsin’s state capital and second largest city, offers specialized concentration in four of the Biotechnology Innovation Organization’s (BIO) five bioscience subsectors: bioscience-related distribution; drugs and pharmaceuticals; medical devices and equipment; and research, testing, and medical laboratories. The Madison metropolitan area is home to Promega, Exact Sciences, the biospecimen company, Gentueri, and the contract research organization, PPD, among others. University Research Park, located off-campus in Madison, supports businesses in a wide range of sectors, including biotechnology. The state’s largest city, Milwaukee, specializes in medical devices, with the fifth highest concentration of medical devices and equipment jobs in the nation.
Milwaukee, which is close to the Chicago metropolitan area, also accommodates companies such as GE Healthcare and Alcami. Outside the Madison and Milwaukee metropolitan areas is Phillips-Medisize (headquartered in Hudson, WI), which employs 2,600 people.1
Driving through COVID
In any given economic development region, there is a focus on available real estate, on facilities, and on the proximity to research and educational institutions and, sometimes, to government departments and agencies. As such, one might reasonably expect that the COVID pandemic inflicted some damage to such regions’ ability to function effectively. During the health crisis, however, the life sciences industry attracted extra attention, along with increased funding and investment. Even so, the boost to pharma and biotech companies in Texas, Wisconsin, and Minnesota has been quite remarkable. During the pandemic, for example, MSP “has seen some of the highest investment from private equity and venture capital in our history,” says Medical Alley’s Dressen. “There’s a pent-up demand for spending that capital. There’s more interest in drug development and manufacturing and finding ways of doing things sooner, earlier, faster. And we have proved to ourselves that things can be done more quickly.”
GREATER MSP’s Frosch identifies three “macro forces” that are reinforcing the momentum in the region’s bio sector. “There is more capital flowing into the space because of the pandemic,” he says. “There is increased concern about the security of American food and drug production, which is encouraging more manufacturing in the US. And, third, the enhanced real and perceived supply chain risks are driving the idea of locating, or at least diversifying, production in the US, as opposed to outside it.”
In Texas, says Cruz, as well as the Texas A&M University System and Fujifilm Diosynth Biotechnologies mass-producing a COVID vaccine, many other companies in the state “were able to pivot their operations to help manufacture personal protective equipment and other supplies for their communities.” Thus, the growth of the biotech industry continued apace. “In 2021,” says Cruz, “our team tracked 58 biotech-related relocation or expansion projects in Texas, expected to create more than $1 billion in capital investment and more than 4,700 new jobs in areas across the state.”
While Wisconsin has seen a lot of “the same benefits and challenges as other states from the shift to remote work created by the pandemic,” WEDC’s Hughes says that increased remote work “has opened a broader pool of talent beyond Wisconsin’s borders.” She explains, “For certain positions, Wisconsin-based life sciences companies’ employees can work from anywhere across the US or even the world, giving employers a larger pool of talent to choose from.” Of course, this has also led to increased competition for talent, but businesses in the state are addressing this challenge by working with the University of Wisconsin-Madison to develop specialist training programs. “These help students to develop valuable skills and encourage them to stay in Wisconsin to put those skills to use,” she adds. In addition, notes Hughes, “more individuals are starting their own businesses—and in the biohealth industry, entrepreneurial spirit is very much coveted.”
Encouragingly, there is no shortage of this entrepreneurial spirit in Texas, Wisconsin, Minnesota, and any number of their neighboring states. It is a spirit that seems to be flowing through these regions, just as healthily as it does through those high-flying clusters on the East and West Coasts.
1. Wisconsin: Outpacing Employment Growth in Biotechnology, University of Wisconsin, 2021.