Indiana’s life sciences industry has long been anchored by pharma giants like Eli Lilly and Semafore Pharmaceuticals, both of which are headquartered in Indianapolis, and on its concentration of medical device makers like Biomet and Cook Pharmacia, which earlier this month joined the Indiana Economic Development Corp. in announcing plans to create more than 200 new jobs through an $80 million, 80,000-square-foot expansion to its production facility at its development and manufacturing center in Bloomington, Ind. [BioRegion News, Feb. 11].
Last September, Beckman Coulter moved its centrifuge manufacturing operations from Palo Alto, Calif., to the Indianapolis region [BioRegion News, Sept. 24, 2007]. And three of the nation’s top five prosthetics makers — Biomet, DePuy, and Zimmer — are based in the Hoosier State, as is a cluster of device makers at the state’s northern end in Warsaw.
But a new report issued recently by the state’s life-sciences group recommends nurturing another bulwark for the industry in Indiana — companies that have grown in recent years by carrying out the operations farmed out to them by shrinking pharmas and fledgling biotechs.
BioCrossroads calls these companies contract service providers or CSPs, which include contract research organizations, or CROs.
In its 40-page report, BioCrossroads identified the state’s cluster of some 50 CSPs and five specialties it said represent opportunities for the segment’s future growth — non-GLP discovery services such as pharmacokinetics, analytical chemistry services, pre-clinical services such as toxicology, contract manufacturing, and post-launch services such as adverse-event reporting.
On March 1, the group is set to launch an online database of the state’s CSPs through its program that promotes workforce development and regional collaborations, BioCrossroads LINX.
Indiana CSPs include one major player: Covance, which employs some 900 people at its North American central lab facility near Indianapolis International Airport.
“For Indiana, the time is ripe for emerging CSPs in an appealing range of growth areas,” the report concluded. “Key assets can indeed be productively assembled to pursue new ventures with the highest prospects for success in accessing the capital markets, building the regional economy and enhancing our signature strength as a national center for the development and manufacturing of innovation.”
BioRegion News spoke with David Johnson, president and CEO of BioCrossroads, about the report and the broader challenges faced by CSPs looking to relocate to or expand in Indiana.
Why have contract service providers been able to grow in Indiana?
It is an industry that is growing up in response to both the increasing outsourcing trends in the pharmaceutical business, and also the creation of new biotechnology companies, which almost from the beginning are virtual companies. They’re increasingly established as proof-of-concept companies. We have companies that have grown up in response to both of those trends. We have a very large FDA compliant and FDA literate workforce as a result of historic concentration of pharmaceuticals and diagnostic companies. And increasingly those folks are finding their way into contract research organizations, clinical trial groups, biotech contract manufacturers. We’ve got the right people to take advantage of it here, to put these companies together.
How aware are Indiana’s biotech and pharma companies about the state’s CSPs?
We’ve also found that these companies are not all that aware of each other. Historically, it has not always been an organized industry. [For instance,] Covance, they’re not thinking about who else is doing contract manufacturing or bio-development or who else is doing formulation. They’re focused directly on their customers. And that’s been true for a lot of the laboratories and others. They haven’t seen themselves as part of a larger emerging industry, that’s part of what we want to do with this Biocrossroads LINX initiative. This is a new way of doing business. It is the coming way of doing business for both the pharmaceutical and biotechnology industries. It’s going to be a service industry in and of itself, and there’s a huge concentration of it over here.
How long term is this when there’s already talk in the industry that within 10 years manufacturing will face the same cost pressures and follow other industries offshore?
A lot of [CSP-type services for Indiana drugmakers have] already gone offshore. Major components of clinical trial work have gone offshore; it all depends on what the service is. The report tries to address the offshore challenge, which is an issue that in this part of the country, people think about a lot, because they’ve seen the automobile industry, the steel industry, and other industries with a lot of offshore migration. The work here, particularly on the biotechnology side, the manufacturing itself is not impossible to do, but it’s hard to do. A lot of the early development work is also pretty intensive upon a fairly deep scientific bench of people that you know, and are accustomed to working with. Proximity and control have value.
And the other point is that for a lot of biotechnology companies, managing offshore relationships is challenging, the logistics of those relationships, the quality assurance and control, all apart from the intellectual property issues, make proximity and being closer to home have some value to them. One of the biotechnology companies we’re working with that has helped us in putting this together is a fairly large [but undisclosed] company out of state, they already use two or three of our 45 Indiana service providers. And they’re interested in knowing what else is here, because they’re already doing business here. And to the extent they can concentrate that activity in one geography, that has logistical benefit for them, because they’ve only got one or two people who are really managing the company’s relationship.
What will keep the CSPs in Indiana? Is it simply building local relationships? Are there conditions?
The logistics here are very good. There’s a whole logistics industry that’s growing up around it. At [Indianapolis International] Airport, we have a huge FedEx distribution hub here. This FedEx facility does a huge amount of sophisticated package delivery. And as a result, you’ve had grow up around the airport here a number of logistics providers, three or four that are out there already, that store and ship pharmaceutical samples, tissue samples, clinical trial samples, and have the ability to network and get that out. The logistics part of it is a critical component.
Indiana is an interesting state from the standpoint of a strategy like this. The capital city of the state is the geographic center of the state is the business center of the state. There’s a very healthy corridor of activity starting at West Lafayette, up by Purdue [University], and going down to Bloomington, where Indiana University is, that’s very strong in this entire sector we’re talking about. We’re literally right here in the middle of it, so again the logistics of that help.
In addition to that, there’s a pretty significant customer base here. These 50 companies that are already here have grown up in response to global customer demand. That demand is not going away. And again, a lot of those customers have some other, many other out-of-state and offshore alternatives. It’s not that they’re doing all their business here. But all things being equal, if they can do work with people that are local, they will.
Is there any way to gauge how much of that business is being done in-state and out of state?
No, not really. On the central laboratories function, something like Covance does, I suspect a huge amount of it is done here, because you’ve got that kind of concentrated facility, and a large number of people available to do the work on a cost-effective basis. It’s got to be done sector-by-sector.
How much are the CSPs expected to make up for the job losses of pharma companies in Indiana over the next few years?
We would expect to see our pharmaceutical employment base here increase rather than drop. If you look at this area, this region, even this [Metropolitan Statistical Area], which today has about 26,000, 27,000 people in the biopharma business, including medical devices, that puts it on an employment par with a number of other significant regions of the country. We would actually expect to see that number go up rather than go down. Companies such as [Eli] Lilly, who are already here, are clearly interested in working with us and in using local service providers to the extent that makes sense to them. They’re already doing that. They’re expected to do more, and we expect to see a net influx of business in this area.
There just aren’t that many parts of the country that have the right concentration of assets and workforce to be able to do this kind of work. You do not start one of these businesses from scratch. You’ve got to have people who come out of industry, have the FDA experience, who also are known to others in the industry so that they’ll be trusted to do the work. And we’ve got those folks here.
When you say you expect biopharma to grow, would that be because of the CSP growth anticipated?
Yeah, in terms of the number of jobs, that is clearly going to be the driver of job growth. Again, we’re busy starting a lot of biotechnology discovery companies, too. But those don’t employ a whole lot of people. You can have a $50 million company that has a payroll of 10 because those are increasingly virtual companies. They’re not being built as small, integrated companies. They’re being built as project management and scientific discovery companies, to try to validate and add value to a scientific discovery, and then sell it. That’s increasingly the business model.
When you spoke earlier of the number of CSP jobs, that’s in relation to how many total life-science jobs in the state?
I think there are 270,000 life-science jobs in the state today. You have a major piece of the orthopedics industry up in Warsaw, and tens of thousands of people who work in that. You have a large cardiovascular device presence with Cook [Pharmica], Boston Scientific, and others throughout the southern part of the state. Roche Diagnotics’ North American division is headquartered here. You’ve got a lot of the agrisciences sector with Dow. So it’s a pretty broad and diversified sector.
To what extent are the CSPs a better fit for Indiana’s life-science industry going forward given the high concentration of manufacturing and distribution in the state?
The type of manufacturing that we’ve done in the state has tended to be highly skilled manufacturing. And in that sense, the transition to some of this work may be easier. This is an industry that is growing quickly internationally. There aren’t that many industries that are growing at 15 percent per year. This one is. It will continue to. And we really are in a pretty good position to get a significant part of that.
Where does this leave the biopharma and medical-device segments of the life-sciences industry?
We hope they come in because of CSPs. It’s the same argument as with people who are interested in forming venture capital [firms], which we’ve worked on too, to get companies started. The theory is that if a company’s funding source is in a particular location, the company is likely to stay in that location. We would have the same argument with regard to service providers: If a young biotechnology company is having its manufacturing, its formulation, and some of its clinical trial work all done within a couple of miles of where that company is headquartered, it’s more likely to stay where it is. And we’re obviously interested in keeping the entire sector here.
Yet the report says that for contract service businesses, there has been less financing through venture capital than through private equity. What sort of parallel financing effort is taking place to draw more private equity?
We’re in the process of identifying private equity firms that might have an interest in working with us to help expand this sector here, either by investing in spinouts or startups, or by working with us in some other ways. It’s a specialized industry. It is more private equity than venture [capital], so the economics of it are different. They tend to be, in many respects, as many private equity deals are, larger deals. There is still going to be a challenge for how you get the right kind of funding to a small startup contract services provider. That is a tough proposition in the market today, and the market is going to have to grow around that. We’re in the beginning of it. We’re going to try to accelerate it. But there are no easy answers to how a small company in this sector gets started. There are some very good answers to how larger ones do.
Indiana’s desire to grow more CSPs mirrors that of other states. Ohio, for example, has touted some recent CSP expansions. How does Indiana go about competing with other states?
This is not a political competition. This is a business competition. We compete best by being able to make a strong business case for building on and expanding the companies we already have here. One such company is listed in the report — AIT Laboratories, which does a lot of toxicology work, [and] has doubled in its payroll. Just in the last six months, they’ve gone from 60 to 70 people to about 160. They’re doing that because it’s demand-driven growth. We are going to try to do everything we can to spotlight the assets here, to be sure that the companies that are already here are getting as much visibility as possible and have the opportunity to grow as quickly as they can. And hopefully by having enough of them here, it will attract even more to start or to come here.
You cite five different service segments among CSPs. Which ones seem most likely to be drawn to Indiana? And will Indiana specialize in that segment, or will it look to draw companies in all five?
We’re not the state, so we’re not making public policy. That is an important point: We are a private, market-driven initiative. We try to call it like we see it, we try to look for opportunities, and we try to attract money to them. So the report has spotlighted some areas in usually stuff that’s either pretty early or pretty late where we think the state has unusual competitive opportunities. We would like to see more money going to that in the pre-clinical and toxicology and analytical chemistry, but also, on the biotech, large-molecule contract manufacturing side. We see all of those as being good opportunities for growth here. There are already companies that are doing that, and they can be expanded and more can be expanded. They also tend to be high-value-add businesses, where the possibilities for financial return are significant.
That doesn’t mean that we don’t think we have a lot of good clinical trial groups here. We’d like to see more of them, and I’m sure we will. But we tried to put a particular focus on opportunities within those 128 identified services where we think there’s a special opportunity for high-value-add growth.
What role should the state and local governments play in growing the CSP sector?
They are helping. The state of Indiana is a part of our BioCrossroads LINX initiative. I suspect that when they’re involved in going out and trying to recruit new companies in to the state, understanding we already have this strength, understanding that it’s a very good market for companies to be a part of, will give them a much stronger case for recruiting more of those companies to come here, and we’d love to help them do that. I think you’re going to see the same thing at the local level.
In the report, there’s an article on [prescription management and health information provider] Medco. And Medco is obviously not a contract services company. It’s not part of the biopharma sector per se. the reason that’s in there is to make the point Medco made the decision to locate a highly sophisticated, automated pharma distribution facility here, which will be a $150 million investment with 1,300 very highly paid, highly skilled employees, Those are not traditional manufacturing jobs. Those are new economy jobs that involve people with pharmacy and other scientific skills and certifications. It’s a highly educated workforce that you wouldn’t have if you didn’t already have a big pharma business here. You wouldn’t have two schools of pharmacy in the state unless there was an opportunity for graduates of those schools to find jobs here, and they already are. So when a company like Medco is looking for a Midwestern location for a facility, they’re looking here because they’re attracted by the scientific and FDA literacy of the workforce. It’s a very similar argument that we’re going to make on the growth of these CSPs.
Are state and local community colleges meeting the workforce needs of CSPs?
Indiana has an unusual community college system in that it is a statewide system that is supported by communities, rather than separate community colleges that feed into a statewide system. It’s called Ivy Tech [Community College of Indiana], and currently has two-year associates degrees in biotechnology development or biotechnology production. We are working directly with Ivy Tech — the president of Ivy Tech, Tom Snyder, is on our BioCrossroads LINX board. The head of the department of Workforce Development for Indiana is on that board. They are there and participating in this because they want to see first-hand what these opportunities look like, and they want to be sure in the case of Ivy Tech that they’ve got associates degrees that can capture that opportunity And in the case of the department of workforce development, they want to begin increasingly to gear their training programs to capture opportunity in this industry.
Has BioCrossroads LINX succeeded in bringing out a new template for workforce training?
Not yet, but this initiative has just started. The report you see is the intellectual underpinning of it. Working with Ivy Tech and the department of workforce development, that is something that we would be very prepared to try to help them do.
We are also going to retain somebody, a consultant in the San Diego area, and our desire in having someone there on the ground, who lives and works in San Diego, but who spends substantial amounts of time carrying a BioCrossroads LINX card, is to begin to not only hopefully drive some business to the state, but to help us understand what the best opportunities are, what those biotechnology companies really need, what kinds of services are the most in demand, where does proximity count the most, where is having a US-based solution going to be important. We think the best way to learn that is by doing that and by having a laboratory for that kind of information.
The workforce development and Ivy tech folks have been out with us out to San Diego. They’re going to spend a lot of time with this person and with the companies that this person will be working with us to introduce to the state. Hopefully, that again will give us a whole lot of information about what kinds of skills are really going to be necessary to meet the demand in this business.
What timeframe are you looking at for hiring that person?
We will have the website up within probably the next two weeks, and we are very hopeful of having our person on the ground within the next six weeks to two months — certainly well in advance of BIO out there [the 2008 Biotechnology Industry Organization International Convention, set for June 17-20 in San Diego]. We’ve been working a lot with Connect in San Diego, and they’ve been very helpful to us in facilitating this.
Servicing the Buckeye State
Indiana is not alone in looking to capitalize on the growth of CSPs.
Across the state’s eastern border, Ohio officials and life sciences leaders have persuaded a leading CSP, Kendle International, to expand its downtown Cincinnati headquarters. Earlier this month, Kendle received a $100,000 Rapid Outreach grant from Ohio’s Department of Development toward the $4 million expansion, which will add 75 jobs to the 550 positions now based in the city’s Carew Tower.
Another Ohio CSP, WIL Research Laboratories, last year added a 28,000-square-foot laboratory specializing in good laboratory practices, or GLP, bioanalysis to its complex in Ashland. And late last year, Charles River Laboratories began work on a $16 million, 58,000-square-foot expansion of its preclinical manufacturing plant in rural Spencerville, following a nearly $1.4 million state-local economic incentive package that included $300,000 in state tax credits [BioRegion News, Dec. 10, 2007].
Anthony Dennis, president and CEO of BioOhio, the Buckeye State’s life sciences group, told BRN last week his group is setting its sights on attracting and retaining CROs after spending recent years shoring up the state’s tech-commercialization and capital-formation efforts.
“We are now turning our sights to the supply side of the industry, but in a broader sense of this,” Dennis said. “We’re looking at the CROs to see what we can do to engage their growth. But we’re also looking at the entire supply chain. This is very much in line with what our thinking has been for the last year or two. It’s just that this priority kind of had to wait its turn.”