Biotechnology is a perfect example of a "new economy" industry, a sector that did not exist as we know it a century ago but is a major economic driver for many national and regional economies today. Biotechnology involves the use of living organisms and biological processes to identify, analyze, and produce useful products. Traditional biotechnology includes selective breeding of plants and animals; modern biotechnology includes DNA testing medical devices, and pharmaceutical products, among others.
North Carolina is an attractive terrain for biotechnology firms—from 2001 to 2010, the state experienced the highest job growth rate (23.5%) of any of the top biotechnology states in the country (18). In that time, the growth rate of NC’s biotechnology sector as measured in jobs far outpaced the national average for biosciences as well as the state’s overall job growth rate (18). Since 2001, the popularity of NC as a biotech destination has resulted in the creation of more than 12,000 jobs with three specific subsectors—drugs and pharmaceuticals, research, testing and medical labs, agricultural feedstock and chemicals—showing robust growth (18).
Some of the key factors that make North Carolina attractive for the biotechnology industry include the presence of the pioneering North Carolina Biotechnology Center; financial incentives the state government has provided to companies such as Merck and Quintiles; and the educational programs developed at both the community college and university to help firms fill openings with qualified local employees.
In this section we introduce the key sections of the website, including the structure of the industry using a value chain framework, an overview of the industry across multiple areas including the labor market, international trade and policy, and the key trends and dynamics that are shaping this industry now and in the future. In each section the past and present trends in the industry are analyzed from the perspective of North Carolina, the United States and North Carolina’s footprint compared to other states.
Biotechnology Value Chain
The biotechnology industry can be divided into four main segments:
- Discovery, which includes initial research to identify a genetic or chemical target, subsequent analysis to turn that target into a corresponding compound, and detailed screening and optimization processes;
- Product Development, which includes both pre-clinical trials and clinical studies (divided into Phase I, II and III)
- Manufacturing, which encompasses both production of drugs and placebos for clinical trials, as well as final manufacturing for market;
- Marketing and sales, which entail the distribution and marketing of products to consumers.
Overview of the Industry
The biotechnology industry in North Carolina gained traction through the establishment of Research Triangle Park (RTP) in the late 1950s and the North Carolina Biotechnology Center (Biotech Center) in the 1980s. While RTP was designed to serve as a research vessel for firms across the entire spectrum of the North Carolina economy (20), the North Carolina Biotechnology Center concentrated on nurturing the environment for businesses concentrating in life and health sciences.
The Biotech Center was the first state-sponsored initiative in the U.S. whose mission was to develop biotechnology (21). It was originally based in downtown Raleigh as part of the North Carolina Board of Science and Technology, but was reconceived as a non-profit organization in 1984 and provided with an annual budget of $6.5 million (21). When the center started in 1981, there were six North Carolina companies in the field of biotechnology; by 1988, that number had increased to 15-20 with sales of $100 million; in 1998, there were 80 companies with sales of $1.2 billion; in 2005, there were almost 175 companies with sales of $4 billion (21). Inspired by NC’s efforts, 35 other states have duplicated the model, and in 2000, the Charlotte Research Institute was created with designs of providing that region with a similar accelerator.
Below is a brief timeline of biotechnology-related events in North Carolina.
|1958||The Research Triangle Park is created in land between Raleigh, Durham and Chapel Hill.|
|1981||The North Carolina Biotechnology Center is created by the North Carolina General Assembly as the country’s first state-sponsored initiative to develop biotechnology.|
|1982||Quintiles founded in Chapel Hill by UNC professors Dennis Gillings and Gary Koch.|
|1983||GSK moves its U.S. headquarters to RTP.|
|1988||Gertrude Belle Elion shares the Nobel Prize with George Hitchings for their work developing drugs that became critical for leukemia treatments.|
|1996||Biogen builds $50 million plant in RTP to manufacture Avonex, its drug used in the treatment of multiple sclerosis.|
|2000||A Charlotte research institute is created to accelerate the creation of biotechnology jobs in the Charlotte region.|
|2004||Merck builds a $300 million research facility in RTP.|
|2007||UNC professor Oliver Smithies wins the Nobel Prize for work on gene modification.|
|2009||Quintiles moved its world headquarters to Durham, NC.|
The biotechnology industry has grown steadily in the last two decades with North Carolina becoming an important part of the economy. In 1992, the industry employed 33,514 workers and has nearly doubled to 62,348 in 2012. In 2012, North Carolina was the 9th largest employer, representing 4% of U.S. employment.
Activities along the chain include agriculture feedstock and chemicals; drugs and pharmaceuticals; medical devices and equipment; and research, testing and labs. North Carolina’s main segment in comparison to all U.S. states is in the drugs and pharmaceuticals segment. In 2012, North Carolina was the 5th largest state in this segment with 5.9% of U.S. employment and 3.1% of establishments. North Carolina’s main U.S. competitors in this segment are California, New Jersey, New York and Illinois. Within North Carolina, the largest concentration of establishments and employees in drugs and pharmaceuticals is in Wake and Mecklenburg counties.
In 2012, the overall export value of biotech-related products from NC was $3.4 billion; up from $2.1 billion in 2002. North Carolina’s exports are growing in absolute terms and NC is slowly improving its rank in terms of U.S. exporters, moving from the 16th to the 14th largest state between 2002 and 2012. Exports span all three biotech categories but are highest in drugs and pharmaceuticals ($2 billion in 2012; NC is the 6th largest exporting state). The largest destination markets for NC biotech-related exports are Canada ($923 million; 26.8% of total biotech-related exports) and Japan ($377 million; 8%); also the two largest markets for the United States as a whole. Despite this strong exporting presence, North Carolina is a net importer with imports totaling $6.8 billion in 2012. The drugs and pharmaceuticals sector is also the largest import category for North Carolina at $4.1 billion in 2012. The top three countries in terms of import sources for North Carolina account for 47% (Ireland, Singapore and Mexico).
At both the national and international level, IP protection is the primary public policy issue for the biotech industry. As an industry that poured more than $93 billion in 2013 into R&D (an increase of 5.1% from 2012) primarily for the purpose of generating patents through entirely new compounds or the improvement of existing ones (14), the biotech industry has a serious interest in strong international IP standards (19). While other forms of IP exist such as trademarks and copyright, patents have been the preferred IP in the biotech industry because they go beyond the expression of an idea, product, or process, offering more details into the very conception of each. Firms rely on patents to protect and validate their original work, and/or use patent licensing to access needed components or technologies owned by other firms. The importance of patents to biotech firms is especially acute in the U.S., as U.S. biotech firms have been the most prolific patent seekers in the world with an estimated 60% to 70% of all biotech patents in all OECD countries being first issued in the U.S. (14). Due to the intrinsic nature of global trade in biotech products, and the fact that many biotech patent holders engage in some/multiple form(s) of international business, ensuring patent protections are upheld and that the authenticity of patents are legitimized at national and international levels remains of crucial importance to the industry.
Trends & Developments
Outsourcing & Contract Research Organizations: Rising Global Competition
Outsourcing has become an increasingly important issue in high-tech industries like biotechnology, as other countries seek to build global technology hubs and attract top-notch talent. In 2006, 28% of biotech research and development was outsourced. By 2012 this figure had risen close to 40% (10). Much of the rise in this outsourcing has been through the development of contract research organizations (CROs), which in general, offer greater partnership than traditional fee for service outsourcing models. While much of global outsourcing has been primarily concentrated at CROs within the U.S. (64%) and Western Europe (15%) from 2000 to 2011 (11), outsourcing to Asia – especially to China and India – has been growing with remarkable pace. For example, the biotech R&D outsourcing market in China was estimated to be worth $4 billion in 2010 and growing at an annual rate of 25% (12).
Due to the inherent interest in securing proprietary information in an industry whose profit structure relies on intellectual property rights, not all processes/functions are able or willing to be outsourced. Most often, outsourcing affects clinical scientists far more than scientific bio-developers and engineers. Estimates from 2003 noted that 44.7% of jobs going overseas and 41.9% of those that get outsourced to U.S.-based companies were those of clinical scientists (3), and updated assessments in 2012 suggest similar numbers (10). Historically, engineers have been relatively immune. The North Carolina Employment Security Commission (NCESC) has suggested that bio-engineering jobs have been at 9.6% and 9.8% of the jobs that get outsourced to domestic (national) and foreign companies, respectively (4). Additionally, research and development-oriented computer specialists have made up approximately 12.4% and 28.8% of jobs outsourced to domestic and foreign companies respectively, whereas scientific laboratory technicians tip the other way, making up outsourcing percentages of 36.1% and 16.7% respectively over the same categories (4). Over time, however, as emerging talent clusters grow and evolve and as new technology and regulations are introduced, the global dynamics of biotech outsourcing will continue to be shaped and reshaped.
Driving much of the international growth in CRO outsourcing has been due to the emerging bio-clusters in China, Singapore, and India, which have been capturing larger shares of the global biotechnology market – as evidenced by the biotech cluster, Biopolis, in Singapore which grew by 30% in 2011 generating $22.8 billion in economic output and supporting over 6,000 jobs (13). This shift is occurring largely because the cost of doing early drug development work, such as toxicology studies, in places like China, Singapore and India can be as low as 10% to 40% of the U.S./Western Europe costs (5). Estimates in 2012, for example, have predicted that biotech operations in China will capture more than $110 billion by 2020 – if this holds true, China will likely move from the then fourth largest biotech market globally, to the second (12).
As illustrated above, several biotechnology firms have strategic interest in retaining control of proprietary information and to efficiently monitor and troubleshoot production. Thus, the growing trend in the use of strategic CROs which increasingly entail explicit partnership and/or joint ventures is likely a model that will continue to be present in Asian markets (10; 11; 14) As manufacturing tends towards the more complex biological-based large molecules, firms have and will likely continue to require a higher level of supervision over production (6). There is no denying, however, that given the rising level of skill found in offshore centers such as India, some drug development processes may eventually migrate offshore. North Carolina and the United States as a whole will have to continue to increase the skill level and experience of their workers, and to broaden the knowledge base to stay relevant in this industry.
Generics & Product Development Strategies
While profit margins have been mixed over the last decade amongst U.S. biotech firms due to high costs of investment and the global economic downturn in 2008-2010, growth from 2010 to 2013 has been strong, and in 2013 the industry reported record revenues over $93 billion (14). One of the principle contributors to the industry’s growth has been the contribution made through the manufacturing and sale of ‘biosimilars’ (generics). Initial legislation on the use of generics was not developed until the1970s and until the late 80s no biopharm generics were yet being manufactured (7). However, since that time, biopharmaceutical generics have been on the rise and in 2013 were predicted to continue to rise at an accelerated pace (15). The key rationale behind this growth is the enormous potential cost savings generics offer the consumer over brand name variants. 2013 estimates in annual savings to the U.S. health care industry from the use of bio-generics range from the conservative $42 billion/year, to $108 billion/year (15). Accordingly, more and more companies are producing drugs that compete in the same treatment areas, choosing to differentiate their products on terms such as having greater efficacy or lesser side effects.
New legislation in 2010 known as the, Biologics Price Competition and Innovation Act 2010 (BPCI) – As part of the Patient Protection and Affordable Care Act – has helped streamline the application and approval process for bio-generics (16; also see Biotechology Policy Section). Provisions within BPCI crucially helped to eliminate uncertainty in the protection periods brand-named biopharm patents have (12 years) as well as established a one year exclusivity timeframe for approved bio-generics. These developments have further supported the rise of bio-generics, and with numerous examples of bio-generics stealing market share from brand-name equivalents (see 8; 9; 14; 15), the trend is likely to continue – making it all the more important for brand-names to capture as much value as possible during their windows of patent exclusivity.
Mergers and Acquisitions, and Growth
In 2013 the value of mergers and acquisitions (M&A’s) in the U.S. biotech industry reached their all-time high at $113.8 billion (17). Relatedly, biotech stocks outpaced broader U.S. financial indices in 2013 setting a new record for IPOs with more than 52 firms going public and 81 firms more than doubling their share prices (17). Propelling this growth has been the strategy adopted by large biotech firms to acquire rather than develop new technologies (14; 17). As costs for developing a new biologic are often well into the billions of USDs, the growing trend for cash rich biotech firms is to buyout smaller biotech companies that own multiple patents and/or have multiple ongoing products in development. In many cases this has even applied to firms who at their time of purchase operated at large net deficits due to high research expenditures (14; 17). In this way M&A’s in the biotech sector have been both a way of seizing market share in the short-term as well as investing in longer-term returns from promising potential products not yet available on the market. While M&As have been increasing, new firm creation in the biotech industry grew at an average annual rate of 1.5% between 2008 and 2013 (14). This signals continued, albeit, small growth in new firm development that could quickly turn flat or begin to decline if biotech M&A’s continue to accelerate over 2013 levels. Reports on a 2015 pharmaceutical patent cliff (a period wherein numerous commercial patents expire) will likely continue to accelerate new firm entries as biotech firms of all sizes will look to capitalize on new market opportunities (14).
- North Carolina Biotechnology Center (2012). Window on the Workplace 2012. Retrieved from: www.ncbiotech.org/content/window-workplace-2012
- Lawrence, S. (2006). "Outsourcing - A Means of Survival," Bioscience World.
- U.S. Department of Commerce, Technology Administration, Bureau of Industry and Security, "A Survey of the Use of Biotechnology in U.S. Industry," October 2003
- North Carolina Employment Security Commission (NCESC), "Labor Market Information," Accessed on August 3, 2007.
- Tansey, B. "Are Biotech Jobs Next to Go? Stronghold of Bay Area Economy Not Immune to Trend", San Francisco Chronicle April 2004
- Bonduelle, Y. & J. Pisani. (2003, October). "The Future of Pharma: Back to Basics," PricewaterhouseCoopers.
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- BayBio and Booz & Company. Member survey: Biotechnology Companies will Increase R&D Outsourcing and Shift IT Overseas. Retrieved March 21, 2014.
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- Singapore Government, Pharmaceuticals and Biotechnology. Retrieved March 21, 2014 from http://www.edb.gov.sg/content/edb/en/industries/industries/pharma-biotech.html
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- GPhA. Biosimilars: GPhA Postion. Retrieved March 21, 2014.
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- Weisman, R. After Boom, 2014 repeat for Biotech is Uncertain. Beta Boston. Retrieved March 21, 2014.
- Battelle Technology Partnership Practice. 2013. “2012 Evidence and Opportunity: Impacts of the Biosciences in North Carolina.” Retrieved March 14, 2014.
- Biotechnology Industry Organization. Retrieved March 19, 2014 from www.bio.org
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- NC Biotechnology Center. Retrieved March 14, 2014 from www.ncbiotech.org
- Biotechnology Institute. Retrieved March 14, 2014 from www.biotechinstitute.org
- Quintiles. “Our Heritage.” Retrieved March 14, 2014.
- State Library of North Carolina. “Biotechnology.” Retrieved March 14, 2014.
- Forbes. “RTP: Research Triangle Primer.” Retrieved March 14, 2014.