British Global Biotechnology Expansion

Of the forty-five European nations the United Kingdom has one of the strongest economies; high per capita income, low unemployment, and a low inflation of consumer goods. The nation is also on the leading edge of medical and biological research – Oxford, Cambridge and Aston universities are ranked among the best in the world in medical and bioscience research. The British have recently been excelling at transforming those discoveries into safe therapies and aids for clinical research in large part due to government policies to “pull through the work of the science base into industry” as stated by the UK Department of Trade and Industry. Despite a difference of three time zones and a distance almost twice that between New York and London, British biotechnology companies have in turn been expanding to join United States bioscience clusters on both the nation’s east and west coasts. Cities along the coasts, however, do not attract companies equally and New York, in particular, has been loosing potential business to other metropolitan areas.

The Global Scene

Since the 1990’s Europe has emerged as an important center for biotechnology, but is still far behind the United Sates with regard to developing research into effective and safe therapies. Although significant improvements have been made towards increasing profitability during the last two years, low stock valuations and meager investment have hurt European biotechs since the year 2000. Solutions to waning venture capital investment as well as disappointing clinical trials have included expansion into foreign markets as a way to raise capital and increase revenue. However, the balancing of costs with the optimizing of potential funding and securing of Intellectual Property all make choosing a region difficult.

Continued funding for and increased regulation of biotechnology companies within Asian countries led to a 36% increase in revenues for the Asia-Pacific Region, according to 2004 data summarized in Ernst and Young’s Beyond Borders Biotechnology Report 2005. With recent legislation passing intellectual property protection for drugs, a combined population of 2.39 billion people and a low cost of living China and India may become another important center for biotechnology. However, their pipelines are only in early stages and patent enforcement remains a problem. Korea’s industry, ranked 14th in the world, is attempting to develop their cutting edge research in stem cell and cloning, and has passed legislation to attract companies experimenting in the field. New Zealand, despite an even greater isolation from venture capital and R&D collaborations, would still like to develop a $660 million biotech industry by 2010 leveraging their own knowledge of animal husbandry and agriculture. In each of these cases, the detriment of isolation seems to outweigh the benefit of funding by Western investors.

However, more government funding and venture capital is available in the United States than in any other country. The US is also the world’s largest market for knowledge-intensive technology; a result of the post-World War II economic boom combined with lower government regulation and world-class academic research. British biotechs trying to recover after the downturn have no need travel to Asia-Pacific region except perhaps to capitalize on a trend of building low-cost R&D and manufacturing facilities.

The United Kingdom

According to data issued by the United Kingdom Trade and Investment, the British government organization that supports UK business abroad, British scientists produced 16 papers per every 1 million USD of biological and medical research funding between 2001 and 2002 compared with 9.2 papers per 1 million USD in the US. Additionally, over 20% of all University graduates in the UK have obtained a degree in medical or biological science. Therefore, with regard to primary research, the UK has more discoveries from which to develop novel technologies and medicines as well as the same number if not a greater of talented applicants from which to draw upon. The British Government has worked hard to create a favorable business climate for innovation as well as to encourage productivity. In particular, UK government funding is second only the US, and its general policies have yielded strong results.

Though lower in number than the US pipeline, both private and public UK biotech companies had slightly less than half of all European drugs waiting approval or in clinical trials in 2003. This point is significant when one considers that the UK accounts for roughly 18% of all the biotechs in Europe. Given these advantages, the UK has been in a good position to engage foreign companies and venture into new markets.

According to 2004 data published by Ernst and Young, 22% of all European biotechnology company alliances with foreign biotech or pharmaceutical companies originated in the United Kingdom; just less than one-eighth of all such alliances for that year – the highest percentage next to the United States. While expansion is a solution, the US’s large geographic area has made quality of communication with a potential office an important consideration when determining location.

United States Expansion

The east coast of the United States is home to over 48% of the country’s biotech companies and has established clusters in Massachusetts, New York and North Carolina as well as five other states that share their border with the Atlantic Ocean. The area is also home to the Food and Drug Administration, which regulates the industry, as well as the National Institutes of Health, a part of the US Department of Health and Human Services - a heavy source of the nation’s life science research funding. Only five time zones away, this area is perfect for UK based companies to set up offices with the intention to penetrate the US markets; the east coast is also aggressively providing tax breaks and others incentives for expanding European companies.

ProImmune Ltd., headquartered in Oxford, was awarded space in Virginia’s Fairfax County BioAccelerator in 2004 after winning the County Government’s annual Transatlantic Business Plan Competition. The private company expanded with the intention of doubling revenues from their immune system monitoring products and services, namely recombinant MHC pentamers that allow clinical researchers to more rapidly fine-tune novel therapies. In addition, London-based, ApaTech is a leader in synthetic bone graph technologies, and has its US satellite office just outside of Boston where it markets ActiFuse as an orthopedic bone void filler, and ApaPore, a bone graph, to its US markets. ApaTech is also privately with east coast offices as their only secondary location.

California has the highest percentage of public and private US biotech companies within its borders, according to data derived from Ernst and Young’s 2005 report. Additionally, “The Dynamics of California’s Biotechnology Industry”, a report published by the Public Policy Institute of California, states that almost one-half of US biotech venture capital funding is given to Californian companies. Therefore, 28% of companies receive nearly half of the country’s funding, which make the state very attractive to both start-up and expanding companies. Like the first-class research universities and bioscience institutions on the east coast, the University of California system and Stanford University provide a large number of workers skilled as technicians and investigators. In terms of raising capital, the state may be seen as even more attractive for companies.

The difference between New York and San Francisco, a hub for biotechnology in California, is three time zones and roughly 3050 miles. From an operations standpoint, it is more difficult to run a branch or subsidiary when there is an eight hour difference in time between offices. In addition, the cost of living and doing business in California is high when compared to a state like North Carolina and companies take different strategies to achieve their goals. To reap California’s benefits UK companies with more money will make acquisitions not only to complement core competencies, but to off-set the risk of failure by buying companies with existing client bases and proven operations.

In June of 2000, Skyepharma PLC, a public drug delivery company based in London, completed its acquisition of DepoTech in the US. The DepoTech Corporation developed and manufactured sustained-released therapeutic products based on its patented DepoFoam. After the takeover the new US subsidiary SykPharma, Inc. kept the original company’s headquarters in San Diego, but also retained a secondary office in New York City. Another example of a British biotech taking over operations of an existing company is Solexa Ltd., a genome sequencing company located near Cambridge. In this case, Lynx Therapeutics, Inc. was the target of a reverse merger by Solexa, and Lynx’s former headquarters remained in the San Francisco Bay area. In both cases, additional offices existed in other parts of the country, which helped to offset the problem of geographic distance.

A case study, which sheds more light on the importance of communication, involves German-based and public MediGene AG, which is headquartered in Martinsried, a suburb of Munich. According to the Biotechnology Industry Organization, in January of 2001, the then seven year old business acquired NeuroVir Therapeutics, a Vancouver-based biotech, and relocated it to San Diego. MediGene CEO, Peter Heinrich, however, was quoted as saying the company wanted to originally locate to Boston, but changed its mind upon the insistence managers from the newly acquired company. Heinrich was also quoted as saying that there were many face-to-face meetings between MediGene executives and US managers in Martinsried within the first year. Conference calls were avoided most-likely because of the time-difference. The case demonstrates how European companies will find solutions to over come large time differences even if the needs of the company require them to expand to more distant locations.

Communication within a company is a key to its success; even more so is communication important when large amounts of scientific data lie at the heart of the operation. In the United Kingdom, biotechnology companies struggling to regain momentum both during and after the recent global downturn looked to the US to gain strength a new marketplace and raise fresh capital. While the east coast is favored for its location, larger companies seem to make acquisitions of existing US companies with multiple offices as a feasible way to gain access to California venture capital without loosing contact with Europe. In the future, East Asia could become even more attractive for companies seeking to lower R&D and manufacturing costs, and while in its initial stages it is a trend that could radically lower the price of medicines. As the European biotechnology industry continues to rebound more British companies will expand to the United States to diversify their operations, providing more stability during future economic troubles.

However, expansion of companies to cities and states along the coasts is not uniformly distributed. For example, in the east biotechs appear to prefer the greater areas of Boston and Washington DC to that of New York. High cost of rent, lack of available laboratory space and lower subsidies relative other metropolitan areas have all contributed to a relatively lower level of industry development in and around New York City. In the 2001 government report, “Preparing for the future: A Commercial Development Strategy for New York City”, a panel of thirty-five members led by New York Senator Charles E. Schumer found that the city’s long term economic growth was limited by a lack of physical space. The group determined that restrictions on new construction and significantly lower vacancy rates among other factors have made finding affordable office and laboratory space difficult.

Since the report’s publication Columbia University’s Audubon Biomedical Science and Technology Park began work on its third building, the Irving Cancer Research Center. The park’s two already existing incubators account for 10% of a proposed 1 million square foot campus being built adjacent to Columbia’s medical center. Another large incubator, the East River Science Park, also began development since 2001, and it is expected to open in 2008. The report also recommended that steps be taken towards offering subsides for bioscience “enterprise centers”, and New York City commercial expansion and State Empire Zone incentives are now offered to firms in these low rent centers. Competition for biotechnology companies is still strong between states and cities, and it is unclear whether the recent changes will impact Britons’ decisions to set-up offices and labs in New York. UK biotechs, however, are well informed and these improvements are sure to be noted by companies considering US expansion.