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Survey: Mass. Life-Science CEOs Would Relocate Firms Due to State’s Cost Burden

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Massachusetts has long prided itself on its top-tier life-sciences cluster, with its concentration of academic powerhouses and number of biotech and pharmaceutical businesses.
 
Yet those inducements aren’t enough to keep some of their chief executives in the Bay State, according to a recent survey of the state’s life science CEOs. Around 73 percent of the 24 CEOs responding to the questionnaire said they would consider relocating outside of Massachusetts. The remaining six said they would not. The survey received responses from 8 percent of the roughly 300 biotechs headquartered in Massachusetts.
 
The CEOs said the number-one way the state could best help them was by offering them tax credits (16 CEOs) or by issuing grants and loans (11 CEOs). Other items that could change their opinions was workforce training and low-cost space (10 CEOs each).
 
They said the three biggest challenges to doing business as a life-science company in Massachusetts is the state’s cost of living, its real-estate tax burden, and its state and local permitting processes.
 
The decision makers said their most important set of criteria in their location decisions was proximity to other companies, R&D, hospitals and universities. Next important were space cost, customization potential, supply and ease of obtaining local permits; followed by employee quality of life, including school systems and ease of commute, and the cost of living. A complete set of survey results is available here.
 
The survey comes as state lawmakers work to fulfill a timetable announced in November by Gov. Deval Patrick to launch his $1 billion, 10-year Life Sciences Initiative. The bill would set aside $100 million per year over 10 years on economic incentives to attract and retain biotech companies, subsidize research, and train future professionals [BioRegion News, July 23, 2007].
 
Patrick introduced the bill to state lawmakers in July, two months after announcing the components of the plan at the Biotechnology Industry Organization’s 2007 global conference. That announcement followed a trio of reports concluding that Massachusetts’ life science leadership had eroded in recent years and needed additional state support to remain competitive with California, let alone up-and-coming states like North Carolina [BioRegion News, May 14].
 
Those cautions also surfaced in a pair of newer reports. The Massachusetts Institute for a New Commonwealth, or MassInc, advised the state against anchoring its economy on biotech and pharma companies. The advice came in a report that found Massachusetts the state with the second-lowest number of jobs created between 2001 and 2005; only Michigan scored lower due to the ailing auto industry.
 
Also last month, the Beacon Hill Institute, a policy research group based at Suffolk University, lowered from first to second Massachusetts’ ranking in its most recent annual survey of state economic development competitiveness. 
 
BioRegion News discussed the survey results with Glen Comiso, staff director of the Massachusetts Life Sciences Collaborative, a group formed to develop a strategy for enhancing the state’s biopharma cluster and promoting greater collaboration between business, academic, and government leaders. The collaborative is funded by Harvard University; the Massachusetts Institute of Technology; the Boston Foundation; the Massachusetts Technology Collaborative and its John Adams Innovation Institute, where Comiso is director of life sciences and health.
 

 
What was the purpose of the survey, and how did it come about?
 
Our business task force, which by the way is independent of the administration, had the intent of answering: ‘How can we really, in a systematic way, retain and attract companies? How can we streamline the process if we need to? And what are the key criteria for companies where we might need to focus?’ It was sort of an initial step in terms of understanding those issues so we can basically improve upon the process for attracting and retaining companies here.
 
I think it feeds into a lot of the work of the Life Sciences Initiative and its intent to grow the number of businesses here. That being said, this is something that [the task force] independently determined as something we need to think about and prioritize. … This is a study for the life sciences collaborative, the group of life science leaders throughout Massachusetts who are focused on developing a strategy for the state. One of their priorities is the business environment for life sciences. As sort of an initial step into understanding that priority, a committee [of the collaborative] focused on business launched a survey about two months ago to about 50 or so key decision makers. The survey reflects the response of 24 of them. It’s still in its raw form. The survey is actually still open for another couple of weeks.
 
Any concern that the 24 CEOs who responded reflect too small of a number to draw conclusions?
 
Directionally, it provides some good input because these are decision makers. Our intent is to get around a 50 [-respondent] range. The survey is actually still open. We’re making another push top get the remainder, or at least a good percentage of them, to fill it out. The good news is we have pretty good representation across the board in terms of types of companies, in terms of size, in terms of locations.
 
To what extent has the biotech bill driven the survey results?
 
I don’t have a good sense of that. There wasn’t a direct question regarding the bill. The intent was more thinking about the state’s strengths and weaknesses. From what we hear, talking to various companies, there are a handful of companies already that have stayed or are seriously thinking about staying in or coming to Massachusetts as a result on that bill. 
 
Most of the CEOs surveyed agreed Massachusetts has many assets for life sciences companies. Yet a 75-percent majority said they would leave all those assets in a heartbeat for a few more bucks from another state. How much confidence does that communicate in the state’s future as a life-sciences mecca?
 
That’s the piece we need to drill down more on. I think there are just different possibilities. The question was: ‘Would you consider expanding or moving beyond the state and locating outside the state?’ Part of it is CEOs thinking about the components of their company, such as manufacturing, that might be more cost-sensitive; those they would consider locating outside the state. That’s a possibility. Is it really just a cost issue, and what can we do about that? Really the point at this stage, at this level, is that there is an urgency to addressing this issue.
 
There are CEOs who are at least at some level considering locating outside. It’s not clear what percentage of their operation they would locate or what the circumstances are. That’s an element we need to drill down on. It definitely does show we need to be intentional and strategic in terms of [promoting] our life sciences here.
 
What does that say about the importance of talent and critical mass?
 
[The importance of talent and critical mass] is the continual message from not only the companies but the hospitals, universities and research institutions: The talent here is critical and is the reason they are here. That’s why this industry is doing so well in Massachusetts. We have the best scientists, and the best workers here.
 
What we need to understand, moving forward, is, there are various pieces of a company — the research and development, manufacturing, sales. Is it the manufacturing piece that is potentially less talent-critical, or maybe there’s a message that we need to improve, or work on the workforce on the manufacturing side. There are nuances we need to flesh out. I don’t think it means that workforce or talent is not as important. Again, we need to determine what piece of their company they’re talking about when they’re saying they’re willing to leave Massachusetts.
 
To what extent has the debate in Massachusetts over raising state corporate taxes stoked fears among CEOs that costs will rise further?
 
In the survey, the cost issues and tax issues were important to CEOs, so that is indicative of [possible additional concern]. But in terms of recent announcements or discussions, I don’t have a good sense of that.
 
How have the top three challenges identified in the survey — cost of real estate, cost of living, and permitting process — shaped the type of life-science operations companies and institutions locate in Massachusetts?
 
What we hear again is that they’re willing to spend top dollar to have R&D located in the greater Boston area, for example, to be near the research and to have the talent access. It becomes less critical as they move down the chain, to manufacturing, which there is still an advantage, but not as critical as the R&D piece. The manufacturing piece, I think, is the element where we can learn more in terms of cost, in terms of talent, in terms of real estate, etc.
 
On the manufacturing front, an Ernst & Young expert said last fall [BioRegion News, Oct. 1] that life sciences companies have less than a decade to establish such operations in the US before they are moved overseas to lower-cost countries. How much has that weighed into the thinking of CEOs?
 
There is definitely urgency on that front. We’re also working with a group from [Massachusetts Institute of Technology] to really understand the biomanufacturing opportunity in Massachusetts. There is, just to be fair, manufacturing that is coming to Massachusetts: Bristol Myers Squibb is building [a biologics-manufacturing plant] out in Devens. Avant Immunotherapeutics [of Needham, Mass.,] created a [vaccine pilot manufacturing] plant down in Fall River. On the medical device front, there is quite a bit of manufacturing here in Massachusetts. There are opportunities here and there are success stories. I think that’s part of the intent of the governor’s initiative, to provide the necessary incentives and environment to allow us to be more competitive on that front.
 
Is there still a perception by the CEOs that other states are competing better than Massachusetts, as concluded by three reports preceding the announcement of Gov. Patrick’s life sciences bill?
 
I think Massachusetts is doing better. If you recall the BIO convention, if you compare these efforts this year as opposed to previous years, they’ve really shown a much more strategic and focused approach in terms of marketing the state and building on its strengths and then really promoting that. In the past, we had seen states such as Pennsylvania, New Jersey, and North Carolina being especially aggressive in terms of their approaches to luring companies and even talent through incentives. North Carolina spent tens of millions to bring a Novartis plant and a Merck plant to their state [The state and local governments shelled out some $40 million for Novartis, $36 million for Merck –Ed.]. They are quite aggressive in terms of their approach. [Patrick] has called companies and sent letters directly to companies. I think that’s why the current administration has made it a priority to make sure we can compete in that way.
 
Yet according to your survey, a visit from Gov. Patrick wouldn’t be as big as some other factors in the minds of CEOs. Massachusetts has instead trumpeted its Chapter 43D expedited permitting process as an example of being responsive to companies. What effect has that really had?
 
It really has helped in terms of just even the perception that it takes forever to get anything to get permitted in Massachusetts. Of course it doesn’t take forever. Bristol-Myers Squibb was able to go through the permitting process in a few months. Some of the smaller companies have definitely taken advantage of that.
 
Another survey result had CEOs most interested in learning from the state about ‘tax incentives, financing solutions, and grants and program incentives.’ What could the state do differently or better to communicate its existing benefits?
 
[Decision makers] want to have that single one-stop shop in terms of locating in Massachusetts and having all the elements taken care of: How can we provide the best type of incentive package and that type of communications. There’s an element of connecting all the various groups. About a year ago, the state launched [its] Business Resource Team effort, which does bring together various economic-development agencies — local and statewide — to work together to streamline that [permitting] process. The goal is providing the best package to the companies, whether it’s permitting, financial, or real estate related.

How far along is the state in developing that one-stop shop?
 
Elements are already in place, such as the BRT effort. There are pieces, but the administration is looking at, ‘How can we really take the next step?’ Part of what we’re trying to do is build upon other areas where we can help. This billion-dolar initiative will go a long way to keeping the companies here, and building upon groups such as the one I’ve been staffing, the Life Sciences Collaborative, groups like that can really help provide that path to keeping our leadership and prominence in life sciences.
 
In the set of answers for how the state can help life science CEOs, the lower-ranked answers included incubator facilities and finding suitable facilities. Is that a reason for the state to shift away from the life science ‘innovation centers;’ called for under the biotech bill?
 
The innovation centers are more than incubators. There are a couple of examples where incubators were effective in nurturing some of those new early-stage companies, as happened with the Massachusetts Biomedical Initiative facilities in Worcester. So I think there is definitely an importance and a role for incubators. The innovation centers will in addition also promote the research element and working with the key research institutions and universities and groups within those regions. What those innovation centers will entail, that’s still in its early stages in terms of development.
 
What, if any, difference could you discern in the survey results by types of life science companies: Pharmas vs. biotechs, for example?
 
That’s really the next step of analysis. Right now, we’ve sort of taken the raw data and had an initial discussion with our leadership committee. The next step is to really dig down and do that type of analysis.
 
Any additional steps of analysis?
 
The manufacturing follow-up is definitely a huge piece, determining the opportunity on the manufacturing front. Through this first survey, we’ve had the majority [of CEOs] say they would participate [in a follow-up survey] on the manufacturing component as well.
 
What are the next steps for the Life Science Collaborative?
 

The collaborative is now transitioning from the organizing phase, which really was launched almost a year ago, to a more permanent leadership council phase. The current organizing committee will morph into a leadership council, which will be chaired by Drew Faust, president of Harvard; Susan Hockfield, president of MIT; Jack Wilson, president of University of Massachusetts; and then Henri Termeer, the president and CEO of Genzyme. The task forces focusing on priority topics will pick up the ball and continue this strategic work and formulate a strategic plan for Massachusetts.

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