Biotechnology has revolutionized drug design and development by using specific scientific knowledge about living organisms, including genetic information, that guides development and function. Prior to the creation of biotechnology, pharmaceutical companies produced drugs and vaccines without the genetic and molecular information that is available today. Since many pharmaceutical companies now apply the same techniques used by biotechnology companies, the term “life science” is used to describe both industries.
Sector Definition
The biotech sector is divided into several distinct industry sub-groups that encompass products that fall into the categories in the table shown to the right.
The biotechnology industry touches all aspects of our lives and can be divided into several sectors on techniques and products. According to the National Biotechnology Advisory Committee, the life sciences industry can be divided into six segments of biotechnology and biomedical manufacturing:
Agricultural biotech sector. For thousands of years, farmers have used “selective breeding” to enhance preferred traits in animals and plants. Now, genetically modified organisms (GMOs) are created through the introduction of desired traits via genetic engineering.
Industrial biotechnology sector. This sector uses living organisms to manufacture a variety of products that result in the reduction of pollution, resource consumption and waste. Silkworms have been engineered to produce human collagen, for example. Products produced in this sector include bioethanol, industrial enzymes, biological fuel cells, enzymes for bioremediation, biodegradable plastics and other materials.
Medical devices. Devices produced in this sector include pacemakers, cochlear implants, catheters, contact lenses, prostheses, hearing aids and more. Biosensors translate biological variables such as movement, chemical concentrations, etc. into electrical signals. These devices can be miniaturized and used to internally monitor biological systems. Diagnostics include a variety of testing equipment and techniques, including micro arrays and test kits (HIV, pregnancy, drugs and genetic). Genetic testing aids allow for the early diagnosis of disease and possible prevention.
Medical equipment and supplies. This industry is made up of establishments that are primarily engaged in manufacturing medical equipment and supplies, including grinding eyeglasses and hard contact lenses to prescription, on a factory basis. These establishments manufacture products such as laboratory balances, hypodermic needles and syringes, bandages and dressings, lab furnaces, blood transfusion equipment, lab furniture, catheters, contact lenses, dental chairs, medical and related instruments, orthopedic devices, dental furniture, prosthetic devices, safety appliances and equipment, gut sutures, sunglasses, hospital furniture and wheelchairs.
Pharmaceuticals and related manufacturing. Pharmaceuticals include prescription, generic and over-the-counter drugs. Biologics are classified by the FDA as “products derived from living sources” as opposed to a chemical process. Biological products include bacterial and viral vaccines, human blood products, skin grown for burn victims and gene therapy.
Research services. Research tools support discovery and development of technologies used in biotechnology endeavors. Tools such as gel electrophoresis, thermo cyclers, DNA and protein sequencers, and microarrays have revolutionized the industry. Research tools may also include the production of media to support cell growth, plasmids for use in genetic engineering, and the synthesis of DNA and protein molecules.
Biotech Growth
Gene therapy companies are expected to focus on expanded manufacturing strategies in 2020. Large pharmaceutical companies like Moderna Therapeutics have opened major manufacturing facilities in the U.S. and continue to build new facilities or buy capacity from smaller firms. Contract development and manufacturing organizations are adding capacity for gene therapy, as well.
Regulatory approvals from the U.S. Food and Drug Administration (FDA) are expected to drive much of this growth as up to 20 new cell and gene therapy products will be approved each year through 2025. Expedited approvals by the FDA for COVID-19 vaccines and therapies are likely to spike manufacturing growth in manufacturing in the United States. In fact, growth is expected to be so brisk that shortages of qualified personnel will be a huge challenge for the industry during this expansive phase.
COVID-19 Impacts
The COVID-19 pandemic has further underscored the need for robust methods of vaccine production to meet heightened demand. At the same time, research, development, and production of advanced therapy medicinal products (ATMPs), including cell and gene therapies, is expected to continue to accelerate over the next 10 years. This acceleration is being driven by a combination of increasing innovations in stem cell research, immunotherapy and viral vector production. Many of the technologies for producing these biologic therapies overlap and can be easily implemented into production workflows.
Political Response in the United States
Even prior to the COVID-19 pandemic, the biopharmaceutical supply chain was under pressure. More than 70 percent of the facilities that are registered to produce active pharmaceutical ingredients and more than 50 percent that manufacture finished doses for pharmaceuticals are located outside of the United States. Foreign dependency has serious potential consequences, including vulnerability to drug shortages. Shortages in the Strategic National Stockpile and hospital-reported shortages of both drugs and medical supplies have hampered the U.S. response to COVID-19.
Both U.S. presidential candidates have pledged to bring the manufacture of pharmaceutical ingredients, medical equipment, and protective gear back to the United States and end the near-total reliance on Chinese suppliers. According to IHS Markit, nearly $4 billion of pharmaceutical raw materials came from China in 2017, which represented an increase of nearly 25 percent over the prior year.
U.S. presidential candidates are touting preferential treatment of products manufactured in the United States, including a suggested $400 billion government purchase of U.S. manufactured products, Made in USA tax credits, and offshoring tax penalties by Democratic candidate and former vice president Joe Biden. Republican President Donald Trump issued an executive order on August 6, 2020 which would require deregulation, including a provision for the Environmental Protection Agency (EPA) to streamline processes for the development of advanced manufacturing facilities. Trump’s executive order seeks to reverse the offshoring of pharmaceutical production facilities to lower-cost locations with more favorable tax and environmental policies.
Reshoring Biotechnology Products
The RSH Group’s experience in working with companies around the globe to optimize their manufacturing footprints and select new manufacturing locations shows that reshoring pharmaceutical and medical device manufacturing facilities does not happen overnight. Advantages to reshoring include proximity to markets, more direct control in crisis situations, a higher degree of quality as well as regulatory control and overall lower supply chain disruption risk.
However, there are also significant barriers to reshoring that will need to be overcome. Examples of these include higher location costs that lead to higher landed cost levels for finished products, the lack of a supplier ecosystem and the availability of an experienced talent pool. Reshoring manufacturing can require years of planning, billions of dollars in investment, significant investment incentives and multiple regulatory approvals, and can still result in higher manufacturing costs. According to the FDA, sourcing ingredients in India can save pharmaceutical manufacturers as much as 40 percent in costs compared to the U.S. and Europe.
Even now, efforts are being made to incentivize companies to move the production of medical products to the United States. The U.S. International Development Finance Corporation (DFC) was recently established with the goal to produce 25 percent of the active pharmaceutical ingredients needed in the U.S. In one of the DFC’s first actions, Eastman Kodak was awarded $765 million to produce source materials for pharmaceuticals.
Recently developed case studies based on real-life projects show the comparison between 100 percent manufacturing in Asia (China) versus scenarios in which full or partial production is reshored to the United States or Europe. Although experience shows that the outcome of this analysis will be different for each individual company, a few general conclusions can be drawn. From an operating cost perspective (labor, facility, transportation), the 100 percent China scenario typically has a strong cost advantage. Other conclusions include:
• From a quality of the business environment perspective, the reshoring locations (U.S., Europe) are significantly favored over China, despite the lower score on supplier ecosystems.
• From a risk perspective as well as other factors that directly impact customer satisfaction, the reshoring locations have an advantage.
• In addition to operating costs, companies should consider potential lockdown costs. (What if the plant in China is closed for two months every five years?) They should also take into consideration trade duties between China and the U.S., which can play a significant role. For many life sciences companies, trade duties may help to decrease or even close the cost gap between China and the U.S. or Europe.
Site Selection Methodology for Biotech Companies
The RSH Group’s Location and Site Selection Methodology is based on a balanced, fact-based comparison of locations based on cost, quality of the business environment and risk factors.
The process is a funneling approach as shown in Figure 1, beginning with a clear definition of the potential future site’s profile from a labor, real estate and infrastructure perspective, definitions of the geographical search areas and detailed sets of location factors to be applied in the location comparisons.
In the first analysis step (Phase B) a relatively long list of locations is compared based on a limited set of critical location factors, resulting in a qualified shortlist of locations that are assessed in detail based on a detailed set of cost, quality of the business environment and risk factors (Phase C). In this phase, fact-based and project-specific data are gathered per location and per detailed factor from public sources, statistics agencies, economic development agencies, recruitment firms, universities and more.
Additional location factors that are critical, based on the RSH Group’s practice in conducting location studies for new life sciences manufacturing plants, include the following:
• The availability of a large talent pool for specific functions requiring specific expertise such as chemistry, lab analysis, gene therapy, etc.
• A life sciences ecosystem, partly to tap from the labor pool in such an ecosystem but also to be able to leverage existing knowledge through partnerships with academic institutes and specific research partners as well as other life sciences companies.
• Supplier availability for specific materials and/or activities (for example, API supply, contract manufacturers, contract packaging organizations, specialized life sciences logistics companies, etc.)
• A tax and regulatory framework that facilitates life sciences business, ranging from favorable customs and tax agreements to market access and intellectual property protection
• Risks such as natural disasters, political situations or economic/financial risks.
The result of Phase C is a selection of three to five top locations that will be visited for fieldwork in the next phase. In the fieldwork phase, all desk-based research and analysis is validated in the actual locations through discussions with local authorities, economic development agencies, recruiters active in the local markets, relevant research and education groups at universities, real estate owners and brokers and other applicable parties.
Finally, in Phase E, a final decision on the most optimal location is made and, if applicable, the investment incentives package is negotiated and confirmed. T&ID
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