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Massachusetts Competitive Position in Life Sciences: Where Do We Stand? Professor Michael E. Porter Institute for Strategy and Competitiveness Harvard Business School Massachusetts Life Sciences Summit 12 September 2003 This presentation

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Massachusetts’ Competitive Position in Life Sciences: Where Do We Stand?

Professor Michael E. Porter Institute for Strategy and Competitiveness Harvard Business School Massachusetts Life Sciences Summit 12 September 2003

This presentation is composed of excerpts from reports and presentations created by the Boston Consulting Group, Professor Alan Clayton- Matthews, the Howell Group of Boston, the Massachusetts Biotechnology Council, MassMedic, the Massachusetts Medical Device Industry Council, the Massachusetts Technology Collaborative, the Milken Institute, the Monitor Company Group, Professor Michael E. Porter and the New England Healthcare Institute. See Sources.

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Situation Facing Massachusetts

Massachusetts is one of the world’s leading centers in Life Sciences, but the

State is facing a crowded and increasingly competitive field

The Life Sciences cluster encompasses a wide range of products and

services, including medical devices, pharmaceutical products, research and testing, and health care delivery

Massachusetts has a rich set of institutions in the field, but each tends to be

narrowly focused on one aspect of the cluster

There has been no overarching strategy for the cluster and no structure to

develop one

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A Crowded Field

Source: BIO, State Government Initiatives in Biotechnology, September 2001; life sciences institutions’ web sites

U.S. States U.S. States

  • 41 states have launched Life Sciences

initiatives

  • 16 states have appropriated funds for

new biotech activities

  • 12 states have a dedicated Biotech

specialist in government

  • 10 states have explicit biotechnology

strategies

  • 41 states have launched Life Sciences

initiatives

  • 16 states have appropriated funds for

new biotech activities

  • 12 states have a dedicated Biotech

specialist in government

  • 10 states have explicit biotechnology

strategies

Countries Countries

  • Denmark/Sweden, Mediconvalley
  • Germany, BioRegio-Initiative
  • Netherlands, BioDelta
  • Saudi Arabia, Jeddah BioCity
  • Singapore, Biopolis of Asia
  • United Kingdom, Genome Valley

… and many other countries

  • Denmark/Sweden, Mediconvalley
  • Germany, BioRegio-Initiative
  • Netherlands, BioDelta
  • Saudi Arabia, Jeddah BioCity
  • Singapore, Biopolis of Asia
  • United Kingdom, Genome Valley

… and many other countries

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Life Sciences Cluster

Research Organizations Research Organizations Research Organizations Biological Products Biological Biological Products Products Specialized Risk Capital

VC Firms, Angel Networks

Specialized Risk Capital

VC Firms, Angel Networks

Biopharma- ceutical Products Biopharma Biopharma-

  • ceutical

ceutical Products Products Specialized Business Services

Banking, Accounting, Legal

Specialized Business Services

Banking, Accounting, Legal

Specialized Research Service Providers

Laboratory, Clinical Testing

Specialized Research Service Providers

Laboratory, Clinical Testing Dental Instruments and Suppliers Dental Instruments and Suppliers Surgical Instruments and Suppliers Surgical Instruments and Suppliers Diagnostic Substances Diagnostic Substances Containers Containers Containers Medical Equipment Medical Equipment Ophthalmic Goods Ophthalmic Goods Health and Beauty Products Health and Beauty Health and Beauty Products Products

Health Services Provider Health Services Provider Educational Institutions

Harvard University, MIT, Tufts University, Boston University, UMass

Educational Institutions

Harvard University, MIT, Tufts University, Boston University, UMass

Cluster Organizations

MassMedic, MassBio, others

Cluster Organizations

MassMedic, MassBio, others

Analytical Instruments Analytical Instruments Analytical Instruments

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Clusters and Competitiveness

Clusters Increase Productivity / Efficiency – Efficient access to specialized inputs, services, employees, information, institutions, and “public goods” (e.g. training programs) – Ease of coordination and transactions across firms – Rapid diffusion of best practices – Ongoing, visible performance comparisons and strong incentives to improve vs. local rivals Clusters Stimulate and Enable Innovations – Enhanced ability to perceive innovation opportunities – Presence of multiple suppliers and institutions to assist in knowledge creation – Ease of experimentation given locally available resources Clusters Facilitate Commercialization – Opportunities for new companies and new lines of established business are more apparent – Commercializing new products and starting new companies is easier because of available skills, suppliers, etc. Clusters reflect the fundamental influence of externalities / linkages across firms and associated institutions in competition

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Institutions for Collaboration

Selected Massachusetts Organizations

Economic Development Initiatives Economic Development Initiatives

Massachusetts Technology Collaborative Mass Biomedical Initiatives Mass Development Massachusetts Alliance for Economic

Development

Massachusetts Technology Collaborative Mass Biomedical Initiatives Mass Development Massachusetts Alliance for Economic

Development

Life Sciences Industry Associations Life Sciences Industry Associations

Massachusetts Biotechnology Council Massachusetts Medical Device Industry

Council

Massachusetts Hospital Association Massachusetts Biotechnology Council Massachusetts Medical Device Industry

Council

Massachusetts Hospital Association

General Industry Associations General Industry Associations

Associated Industries of Massachusetts Greater Boston Chamber of Commerce High Tech Council of Massachusetts Associated Industries of Massachusetts Greater Boston Chamber of Commerce High Tech Council of Massachusetts

University Initiatives University Initiatives

Harvard Biomedical Community MIT Enterprise Forum Biotech Club at Harvard Medical School Technology Transfer offices Harvard Biomedical Community MIT Enterprise Forum Biotech Club at Harvard Medical School Technology Transfer offices

Informal networks Informal networks

Company alumni VC community University alumni Company alumni VC community University alumni

Joint Research Initiatives Joint Research Initiatives

New England Healthcare Institute Whitehead Institute For Biomedical

Research

Center for Integration of Medicine and

Innovative Technology (CIMIT)

New England Healthcare Institute Whitehead Institute For Biomedical

Research

Center for Integration of Medicine and

Innovative Technology (CIMIT)

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Shifting Responsibilities for Economic Development

Old Model Old Model

  • Government drives economic

development through policy decisions and incentives

  • Government drives economic

development through policy decisions and incentives

New Model New Model

  • Economic development is a

collaborative process involving government at multiple levels, companies, teaching and research institutions, and institutions for collaboration

  • Economic development is a

collaborative process involving government at multiple levels, companies, teaching and research institutions, and institutions for collaboration

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The Massachusetts Life Sciences Cluster

Performance

Productivity

Average wages in the Massachusetts Life Sciences Cluster are amongst

the highest in the country, and growing strongly

The Cluster has the largest share of national life sciences employment

  • f any metropolitan region but growth is only slightly above the national

average for life sciences Innovation

The Massachusetts Life Sciences Cluster has generated many recently

approved biotech products, and has about 7.5% of the world’s pharmaceutical product pipeline

The Cluster is the leading metropolitan region in terms of life sciences

patents, but growth in patents is only slightly above average Establishments

The Massachusetts Life Sciences Cluster has relatively few large local

  • firms. Establishment growth is only slightly above average
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Bay Area, CA $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 $90,000 $100,000 2% 3% 4% 5% 6% 7% 8% Average Wage, 2001

Note: S. F. Bay Area — Average wage of San Francisco, San Jose, Oakland Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School

Percent Change in Annual Wage Growth, 1990–2001 Nassau, NY Orange Ct. Chicago Los Angeles Salt Lake City Minneapolis Baltimore Philadelphia New Haven Raleigh-Durham Washington DC New York Oakland Middlesex, NJ San Jose San Diego Seattle San Francisco Newark

Boston

Atlanta Houston Indianapolis Tampa, FL Cleveland Cluster average wage: $56,741 National cluster wage growth: 5.1%

Wages in Leading Life Science Clusters

New Jersey

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Bay Area, CA New Jersey 2 4 6 8

  • 2%

0% 2% 4% 6% 8% 10%

Employment in Leading Life Science Clusters

2001 National Life Sciences Employment (in 10,000 workers)

Note: S. F. Bay Area — San Francisco, San Jose, Oakland, New Jersey – Newark, Middlesex Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School

Compound Annual Growth Rate (CAGR) of National Life Sciences Employment, 1990–2001 Losing Share Gaining Share Middlesex, NJ Nassau, NY Chicago Los Angeles Philadelphia New York Orange Ct. Baltimore New Haven, CT Oakland Salt Lake City San Jose Raleigh-Durham Washington DC San Diego San Francisco Newark Minneapolis Seattle Indianapolis Tampa, FL Houston Cleveland Atlanta

Boston

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Bay Area, CA New Jersey

1,000 2,000 3,000 4,000 5,000 6,000 7,000 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Innovation Output in Leading Life Science Clusters

Patents and Patent Growth, 1990–2001

Los Angeles Life Science Patents, 1996–2001 Average Annual Growth in Number of Life Science Patents, 1990–2001 Chicago Washington, DC San Diego Newark New York Minneapolis San Jose Philadelphia Orange Ct. Middlesex, NJ Nassau, NJ San Francisco New Haven Oakland Salt Lake City Seattle Raleigh, Durham

Note: S. F. Bay Area — San Francisco, San Jose, Oakland, New Jersey – Newark, Middlesex Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School

Houston Atlanta Indianapolis Cincinnati Tampa, FL Cleveland

Boston

Baltimore

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218 201 196 145 470 100 200 300 400 500 CA MA NJ NY PA

Innovation Performance in Leading Life Sciences Clusters

Share of Global Clinical Development Pipeline by U.S. State

Number of Products in Pipeline

Note: Pipeline includes large- and small- molecule drugs, diagnostic tests, and biodevices. State attribution based on headquarters location of product’s primary owner Source: Biospace Clinical Competitive Intelligence Systems (CCIS) database, September 2002 from Massachusetts Biotechnology Council, BCG- MassBiotech 2010: Achieving Global Leadership in the Life-Sciences Economy Share of Products in Pipleline 17.5% 8.1% 7.5% 7.3% 5.4%

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Relative Performance Competitive Assessment Strategic Issues

Massachusetts' Competitive Position in Life Sciences

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Assessing Life Sciences Competitiveness

Sources of Data

Findings from recent studies of the cluster:

– The Economic Contributions of Health Care to New England, New England Healthcare Institute, Milken Institute, 2003 – Massachusetts Life Sciences Data, Massachusetts Technology Collaborative, 2003 – MassBiotech 2010: Achieving Global Leadership in the Life-Sciences Economy, Massachusetts Biotechnology Council, Boston Consulting Group, 2003 – The Medical Device Industry in Massachusetts, Alan Clayton-Matthews, MassMedic, Massachusetts Medical Device Industry Council, 2001

Survey of 250 Massachusetts’ companies, 50+ from the Life Sciences

– Conducted by Monitor Company

125+ in-depth interviews with cluster leaders

– Conducted by Monitor Group and the Boston Consulting Group

Analysis of regional and cluster data from the Institute for Strategy and

Competitiveness at Harvard

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Massachusetts Life Science Cluster

Summary Assessment

Demand Conditions Demand Demand Conditions Conditions Factor (Input) Conditions Factor Factor (Input) (Input) Conditions Conditions Context for Firm Strategy and Rivalry Context for Firm Context for Firm Strategy and Strategy and Rivalry Rivalry Related and Supporting Industries Related and Supporting Industries

Strengths

Strong base of local companies that

compete on innovation using cutting edge science

Local companies compete and

cooperate intensively

Weaknesses

Limited manufacturing in the State,

especially in pharmaceuticals

Few headquarters of large,

international companies

Strengths

Sophisticated local medical

practitioners

Weaknesses

Reimbursement environment

does not foster the adoption of product and process innovations in health care delivery

High medical malpractice

costs in Massachusetts may deter new treatments

Barriers to performing clinical

trials with local institutions

Strengths

Presence of specialized service

providers such as law firms and consultants

Frequent interaction with local

suppliers

Presence of instrument companies

and other equipment suppliers

Strengths

Strong K–12 educational system Strong science base of leading

researchers and leading academic research centers

Frequent technology and knowledge

transfer from research to industry

High availability of risk capital and

federal research funding

Weaknesses

High cost of doing business High cost of living, especially housing Weaknesses in physical

infrastructure, notably Logan airport

Developing shortages of mid-level

professionals

Technology transfer lagging other

important regions

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Demand Conditions Demand Demand Conditions Conditions Factor (Input) Conditions Factor Factor (Input) (Input) Conditions Conditions Context for Firm Strategy and Rivalry Context for Firm Context for Firm Strategy and Strategy and Rivalry Rivalry Related and Supporting Industries Related and Supporting Industries

Massachusetts Life Science Cluster

Summary Assessment - Continued

Role of Government Role of Government Role of Government

Strengths

Increasing recognition of the

potential of Life Sciences for the Commonwealth

Weaknesses

Lack of consistent, predictable

process for site regulation, especially at the local level

Lack of overall responsiveness

and a coordinated approach to support the cluster by state government

R&D tax credits are not well

structured to benefit research companies

Strengths

Increasing recognition of the

potential of Life Sciences for the Commonwealth

Weaknesses

Lack of consistent, predictable

process for site regulation, especially at the local level

Lack of overall responsiveness

and a coordinated approach to support the cluster by state government

R&D tax credits are not well

structured to benefit research companies

Institutions for Collaboration Institutions for Collaboration Institutions for Collaboration

Strengths

Strong array of industry councils,

tech transfer offices, enterprise networks, and other institutions for collaboration

Very high frequency of

interaction among cluster members relative to other locations (producers, suppliers, customers, universities, etc.)

Weaknesses

Lack of institutions facilitating

networking across segments

Strengths

Strong array of industry councils,

tech transfer offices, enterprise networks, and other institutions for collaboration

Very high frequency of

interaction among cluster members relative to other locations (producers, suppliers, customers, universities, etc.)

Weaknesses

Lack of institutions facilitating

networking across segments

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New Jersey Bay Area, CA 1,000 2,000 3,000 4,000 5,000 6,000 7,000 0% 10% 20% 30% 40% 50% 60%

Note: S. F. Bay Area — San Francisco, San Jose, Oakland, New Jersey – Newark, Middlesex Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School

Share of Life Sciences Patenting from Hospitals and Research Institutions, 1996 – 2001 Chicago Los Angeles Philadelphia New York Washington DC San Diego Minneapolis

Boston

Role of Universities and Research Institutions

Leading Life Sciences Clusters

Life Science Patents, 1996–2001 Baltimore Houston Cleveland Raleigh-Durham Orange Ct. Indianapolis New Haven Seattle Salt Lake City Tampa, FL Nassau, NY Atlanta Middlesex, NJ Oakland San Jose San Francisco Newark

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Regional Knowledge Spill-Overs

Total Life Sciences Patent Citations by Region, 1990s

0% 5% 10% 15% 20% 25% 30% 35% Minneapolis-St. Paul San Jose San Francisco Los Angeles Oakland San Diego Philadelphia Chicago New York Washington, DC

Note: Data corresponds to non-individual patents issued between 1994-1998 and citing patents issued between 1990 and 1998; Self-citations are excluded; only life sciences patents citing life sciences patents are considered. Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School

Share of regional life science patents citing other regional patents Share of regional companies’ life science patent citations that are regional

Boston

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Availability of NIH Funding for Life Sciences

Source: National Institute of Health, Office of Extramural Research from Massachusetts Technology Collaborative - Massachusetts Life Sciences Data

$568 $472 $461 $336 $1,623 $1,601 $870 $724 $709 $484 $1,111 $1,055 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 Boston, MA-NH (NECMA) New York- Northern New Jersey-Long Island, NY-NJ- CT-PA (CMSA) San Francisco- Oakland-San Jose, CA (CMSA) San Diego, CA (MSA) Los Angeles- Riverside- Orange, CA (CMSA) Raleigh-Durham- Chapel Hill, NC (MSA) 1997 2001 $ Millions

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Massachusetts Life Sciences Cluster

Competition and Collaboration

Massachusetts vs. Regional Average: Perception of Local Competition

Survey and Interviews Highlights Survey and Interviews Highlights Survey and Interviews Highlights

Local Competition

Massachusetts Life Sciences Cluster has a

relatively intense level of local competition with high numbers of competitors based in the area – “Life science businesses in the area compete primarily for skilled labor, and competition here can get intense.”

– Senior Executive, Hospital Organization

Competition and Cooperation

Despite intense competition, companies work

together on common concerns – “We come together to lobby for regulatory reform and legislation that can benefit the

  • industry. It’s one of the perks of a high

industry concentration.”

– Senior Executive, Medical Device Company

Local Competition

Massachusetts Life Sciences Cluster has a

relatively intense level of local competition with high numbers of competitors based in the area – “Life science businesses in the area compete primarily for skilled labor, and competition here can get intense.”

– Senior Executive, Hospital Organization

Competition and Cooperation

Despite intense competition, companies work

together on common concerns – “We come together to lobby for regulatory reform and legislation that can benefit the

  • industry. It’s one of the perks of a high

industry concentration.”

– Senior Executive, Medical Device Company

Percentage of Respondents in Agreement 58% 56% 48% 46% 0% 25% 50% 75% 100% Local competition is intense Local competitors are numerous Massachusetts Life Sciences Life Science Average Note: Life Sciences average reflects data from the life sciences clusters of San Diego, Pittsburgh, and the Research Triangle Source: Professor Michael E. Porter, Monitor Company survey and interviews

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Massachusetts vs. Regional Average: Characteristics of Local Customers

Massachusetts Life Sciences Cluster

Local Demand

Survey and Interviews Highlights Survey and Interviews Highlights Survey and Interviews Highlights

Local Customers

Local customers in the Massachusetts Life

Sciences cluster are relatively sophisticated, demanding, and offer frequent feedback to firms – “Customer needs are sophisticated because

  • f the high concentration of medical treatment

and academic centers. Patients’ expectations are very high, both in terms of access and quality.”

– Senior Executive, Hospital Organization

– “Our customers are primarily hospitals . . . It’s a real benefit to be located so close by. In addition, we can get immediate feedback from doctors about how a product is working.”

– Senior Executive, Medical Device Company

Local Customers

Local customers in the Massachusetts Life

Sciences cluster are relatively sophisticated, demanding, and offer frequent feedback to firms – “Customer needs are sophisticated because

  • f the high concentration of medical treatment

and academic centers. Patients’ expectations are very high, both in terms of access and quality.”

– Senior Executive, Hospital Organization

– “Our customers are primarily hospitals . . . It’s a real benefit to be located so close by. In addition, we can get immediate feedback from doctors about how a product is working.”

– Senior Executive, Medical Device Company

Percentage of Respondents in Agreement 86% 57% 50% 55% 38% 47% 0% 25% 50% 75% 100% Local customers are very sophisticated Firms frequently get customer feedback Local customers have special needs Massachusetts Life Sciences Life Science Average Note: Life Sciences average reflects data from the life sciences clusters of San Diego, Pittsburgh, and the Research Triangle Source: Professor Michael E. Porter, Monitor Company survey and interviews

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Massachusetts Life Sciences Cluster

High Cost Location

Survey and Interviews Highlights Survey and Interviews Highlights Survey and Interviews Highlights

The cost of doing business in

Massachusetts is high relative to other regions and may represent a barrier for further expansion in the region – “Labor costs and price for space are much higher here.”

– Senior Executive, Medical Device Company

– “Space and the cost of space are significant barriers to future expansion in the region.”

– Senior Executive, Biotechnology Company

The cost of doing business in

Massachusetts is high relative to other regions and may represent a barrier for further expansion in the region – “Labor costs and price for space are much higher here.”

– Senior Executive, Medical Device Company

– “Space and the cost of space are significant barriers to future expansion in the region.”

– Senior Executive, Biotechnology Company

Massachusetts vs. Regional Average: Cost of Doing Business

4% 28% 0% 25% 50% 75% 100% The cost of doing business is low relative to other regions Massachusetts Life Science Life Science Average Percentage of Respondents in Agreement Note: Life Sciences average reflects data from the life sciences clusters of San Diego, Pittsburgh, and the Research Triangle Source: Professor Michael E. Porter, Monitor Company survey and interviews

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Massachusetts vs. Regional Average: Physical Infrastructure

Survey and Interviews Highlights Survey and Interviews Highlights Survey and Interviews Highlights

Physical infrastructure

The quality of the transportation and

communications infrastructure are seen as lacking relative to other life science clusters – “The transportation infrastructure is a significant barrier to future expansion for companies in the area.”

– Senior Executive, Industry Organization

– “Something needs to be done about the Logan Airport. It’s becoming a bigger problem for our employees, most of whom travel a great deal.”

– Senior Executive, Medical Device Company

Physical infrastructure

The quality of the transportation and

communications infrastructure are seen as lacking relative to other life science clusters – “The transportation infrastructure is a significant barrier to future expansion for companies in the area.”

– Senior Executive, Industry Organization

– “Something needs to be done about the Logan Airport. It’s becoming a bigger problem for our employees, most of whom travel a great deal.”

– Senior Executive, Medical Device Company

Massachusetts Life Sciences Cluster

Physical Infrastructure

Percentage of Respondents in Agreement 64% 36% 84% 35% 0% 25% 50% 75% 100% Communications infrastructure is very good Transportation infrastructure is very good quality Massachusetts Life Sciences Life Science Average Note: Life Sciences average reflects data from the life sciences clusters of San Diego, Pittsburgh, and the Research Triangle Source: Professor Michael E. Porter, Monitor Company survey and interviews

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Research Organizations Research Organizations Research Organizations Biological Products Biological Biological Products Products Specialized Risk Capital

VC Firms, Angel Networks

Specialized Risk Capital

VC Firms, Angel Networks

Biopharma- ceutical Products Biopharma Biopharma-

  • ceutical

ceutical Products Products Specialized Business Services

Banking, Accounting, Legal

Specialized Business Services

Banking, Accounting, Legal

Specialized Research Service Providers

Laboratory, Clinical Testing

Specialized Research Service Providers

Laboratory, Clinical Testing Dental Instruments and Suppliers Dental Instruments and Suppliers Surgical Instruments and Suppliers Surgical Instruments Surgical Instruments and Suppliers and Suppliers Diagnostic Substances Diagnostic Substances Diagnostic Substances Containers Containers Containers Medical Equipment Medical Equipment Medical Equipment Ophthalmic Goods Ophthalmic Goods Ophthalmic Goods Health and Beauty Products Health and Beauty Health and Beauty Products Products

Health Services Provider Health Services Provider Health Services Provider Educational Institutions

Harvard University, MIT, Tufts University, Boston University, UMass

Educational Institutions

Harvard University, MIT, Tufts University, Boston University, UMass

Cluster Organizations

MassMedic, MassBio, others

Cluster Organizations

MassMedic, MassBio, others

Analytical Instruments Analytical Instruments Analytical Instruments

Among National Leaders (1–5) Established Position (6–20) Significant Presence (21–40) Less Developed (41+)

Note: Competitive position based on relative employment Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School

Massachusetts Life Sciences Cluster

Competitive Position by Sub-Cluster, 2001

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Massachusetts Life Sciences Cluster

Role of Government

Massachusetts vs. Regional Average: Perception of Government Regulation

Survey and Interviews Highlights Survey and Interviews Highlights Survey and Interviews Highlights

Government Regulation

Massachusetts ranks below other regional

clusters in perceived governmental support for Life Sciences – “Local government regulations and compliance procedures can often be a problem; in contrast, there aren't as many issues at the state level."

– Senior Executive, Pharma Company

Priorities for State Government

Speed up the approval process to decrease time

to market

Improve the incentives and processes for

innovation and investment in R&D initiatives – “Introduce legislation that permits life sciences to innovate in a clear and predictable framework (e.g., permitting and ability to do research).”

– Senior Executive, Biotech Company

Government Regulation

Massachusetts ranks below other regional

clusters in perceived governmental support for Life Sciences – “Local government regulations and compliance procedures can often be a problem; in contrast, there aren't as many issues at the state level."

– Senior Executive, Pharma Company

Priorities for State Government

Speed up the approval process to decrease time

to market

Improve the incentives and processes for

innovation and investment in R&D initiatives – “Introduce legislation that permits life sciences to innovate in a clear and predictable framework (e.g., permitting and ability to do research).”

– Senior Executive, Biotech Company

Percentage of Respondents in Agreement 29% 14% 27% 32% 38% 32% 0% 25% 50% 75% 100% Appropriateness

  • f state

regulations Government is highly responsive State incentives for R&D investments are high Massachusetts Life Sciences Life Science Average Note: Life Sciences average reflects data from the life sciences clusters of San Diego, Pittsburgh, and the Research Triangle Source: Professor Michael E. Porter, Monitor Company survey and interviews

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Tax Policy Tax Policy Institutional Support Institutional Support Financial Support Financial Support

Source: Massachusetts Biotechnology Council, Boston Consulting Group - MassBiotech 2010: Achieving Global Leadership in the Life-Sciences Economy; BIO, State Government Initiatives in Biotechnology, September 2001

Government Support for Life Sciences

Leading States

Massachusetts Massachusetts New Jersey New Jersey

  • 10% R&D tax credit;

can be carried forward for up to 3 years

  • 3% credit on

depreciable assets

  • Single sales factor
  • 10% R&D tax credit;

can be carried forward for up to 3 years

  • 3% credit on

depreciable assets

  • Single sales factor
  • 10% High tech

investment tax credit; transferable to other companies

  • Net operating-loss

can be carried forward for 15 years

  • 10% High tech

investment tax credit; transferable to other companies

  • Net operating-loss

can be carried forward for 15 years

  • Massachusetts

Biomedical Initiatives (MBI)

  • Massachusetts

Biomedical Initiatives (MBI)

  • Biotechnology

Council of New Jersey

  • New Jersey

Technology Council’s Life Sciences Network

  • Biotechnology

Council of New Jersey

  • New Jersey

Technology Council’s Life Sciences Network

  • Cumulative MBI

investment of $8 million

  • Some state-pension-

fund investment

  • Cumulative MBI

investment of $8 million

  • Some state-pension-

fund investment

  • Early Stage

Enterprises, $40m

  • NJ Technology

Council Venture Fund, $30m

  • Seed Capital

Program

  • Early Stage

Enterprises, $40m

  • NJ Technology

Council Venture Fund, $30m

  • Seed Capital

Program

California California North Carolina North Carolina

  • 15%-24% R&D tax

credit

  • 100% net-operating-

loss carry forward for 8 years

  • 15%-24% R&D tax

credit

  • 100% net-operating-

loss carry forward for 8 years

  • 5% R&D tax credit
  • 7% tax credit for

machine and equipment leases

  • 5% R&D tax credit
  • 7% tax credit for

machine and equipment leases

  • Jointly-funded

research programs

  • f state universities

and industry

  • Jointly-funded

research programs

  • f state universities

and industry

  • State-funded North

Carolina Center for Biotechnology (NCBC)

  • State-funded North

Carolina Center for Biotechnology (NCBC)

  • $500 million

CalPERS Biotechnology Program

  • $500 million

CalPERS Biotechnology Program

  • $10 million North

Carolina Bioscience Investment Fund

  • $42 million-$150 million

in tobacco money for bio-manufacturing

  • $10 million North

Carolina Bioscience Investment Fund

  • $42 million-$150 million

in tobacco money for bio-manufacturing

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Institutions for Collaboration

Helpfulness for Entrepreneurs

How Much Do the Following Local Institutions Help Entrepreneurs in Your Region Form Valuable Business Contacts or Obtain Valuable Business Advice?

0% 20% 40% 60% University-based Networking Organizations University Technology Transfer Offices Regional Industry

  • r Cluster Councils

National Trade Associations Economic Development Organizations Massachusetts San Diego Pittsburgh Research Triangle Percentage

  • f

Respondents Rating Helpful

Note: Life Sciences average reflects data from the life sciences clusters of San Diego, Pittsburgh, and the Research Triangle Source: Professor Michael E. Porter, Monitor Company survey

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Relative Performance Competitive Assessment Strategic Issues

Massachusetts' Competitive Position in Life Sciences

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Competitive Agenda

Massachusetts State Government

  • Address weaknesses in the physical infrastructure, especially in

transportation

  • Increase the supply of housing to lower the cost of living in the State
  • Work with local governments to identify, develop, and permit promising

sites for life sciences companies (e.g., single site locator)

  • Improve the structure of R&D incentives for life sciences companies
  • Create a clear point of contact for existing companies in the Life

Sciences cluster as well as potential out-of-state investors

  • Participate actively in the Life Sciences cluster development process
  • Increase the overall responsiveness of state government to business

needs

  • Address weaknesses in the physical infrastructure, especially in

transportation

  • Increase the supply of housing to lower the cost of living in the State
  • Work with local governments to identify, develop, and permit promising

sites for life sciences companies (e.g., single site locator)

  • Improve the structure of R&D incentives for life sciences companies
  • Create a clear point of contact for existing companies in the Life

Sciences cluster as well as potential out-of-state investors

  • Participate actively in the Life Sciences cluster development process
  • Increase the overall responsiveness of state government to business

needs

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Competitive Agenda

Massachusetts Life Sciences Cluster

  • Improve technology transfer
  • Make Massachusetts' health care delivery the most advanced and

innovative in the nation

  • Create and environment and rules that facilitate the introduction of new

treatments

  • Adopt new service delivery technologies (e.g., IT)
  • Secure the State’s medium skilled workforce position
  • Expand clinical trials in the State
  • Capture more downstream manufacturing
  • Improve technology transfer
  • Make Massachusetts' health care delivery the most advanced and

innovative in the nation

  • Create and environment and rules that facilitate the introduction of new

treatments

  • Adopt new service delivery technologies (e.g., IT)
  • Secure the State’s medium skilled workforce position
  • Expand clinical trials in the State
  • Capture more downstream manufacturing
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31 LSConsolidated-20030806 2003 Life Sciences Summit

50 100 150 200 250 300

  • 10%

0% 10% 20% 30% 40% 50%

Life Sciences Patents

Top Patenting Universities and Affiliated Hospitals

Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School

Life Sciences Patents, 1996–2001 Compound Annual Growth Rate (CAGR) of Life Sciences Patents, 1996–2001 Average CAGR of Top 50: 11.6% UC San Francisco MGH Johns Hopkins UMichigan Rockefeller UC Berkeley UC San Diego Tufts Vanderbilt Harvard UPenn UWisconsin-Madison UFlorida MIT CalTech SUNY UCLA Columbia Cornell Average Patents

  • f Top 50 : 122

UMass Dana-Farber Stanford Duke UMinnesota Washington Univ. Thomas Jefferson Yale UPittsburgh Baylor UWashington Rutgers UNebraska NYU UUtah UFlorida Mayo BU BWH

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32 LSConsolidated-20030806 2003 Life Sciences Summit

1 2 3 4 5 6

  • 10%
  • 5%

0% 5% 10% 15% 20% 25% 30%

Life Sciences Research

Patents per Publication, 1996-2001

Life Sciences Patents per 100 Life Sciences Publications 2001 Compound Annual Growth Rate (CAGR) of LS Patents per 100 LS Publications, 1996-2001 Cal Tech (34.7%, 8.4)

Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School and NIH Pubmed.

Thomas Jefferson UC Berkeley MIT Iowa State Johns Hopkins UPittsburgh UConnecticut Tufts UC San Diego UFlorida UMichigan UC San Francisco Cornell UC Los Angeles Rutgers UC Davis UAlabama UWashington BU NYU UUtah North Carolina State Harvard UWisconsin-Madison UMass Columbia Washington Univ. Brown Michigan State Princeton UNorth Carolina UMinnesota UPenn Duke Stanford Penn State Dartmouth SUNY UTexas

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33 LSConsolidated-20030806 2003 Life Sciences Summit

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

  • 40%
  • 30%
  • 20%
  • 10%

0% 10% 20% 30% 40%

Technology Transfer Effectiveness

Note: Dana-Farber values for 1996 are averages of 1995 and 1997 Source: AUTM Licensing Survey 1995–2000 analysis by Professor Michael E. Porter and Monitor Company Group

Iowa State Licenses and Options Executed per Patent, 1996–2000 Compound Annual Growth Rate (CAGR) of Licenses and Options Executed per Patent 1996–2000 Average CAGR of Top 50: -2.9% Purdue Columbia Stanford UWashington Washington U. UPenn UKentucky UBritish Columbia Texas A& M Mayo Foundation Virginia Tech UWisconsin-Madison UNorth Carolina-Chapel Hill Cornell UMinnesota UTexas-Austin UVirginia Johns Hopkins SUNY UMass UC System Princeton CalTech Average Licenses per Patent

  • f Top 50:

1.2 Harvard MGH MIT Children’s Hosp. Dana-Farber BWH

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34 LSConsolidated-20030806 2003 Life Sciences Summit

Technology and Knowledge Transfer

Key Issues

  • The transfer of technology from research to commercialization is traditionally a

key competitive advantage of the Massachusetts Life Sciences cluster However

  • Other regions are catching up

– Life Sciences research institutions in Massachusetts show only average performance on a number of technology transfer indicators

  • Tech transfer performance is seen as lagging in some institutions, with

cumbersome decision-making processes and inappropriate understanding of appropriate deal structures

  • The context for technology and knowledge transfer is changing

– Pharmaceutical companies entering the cluster will need to establish new relationships with local research institutions

  • Massachusetts’ traditional approach of knowledge transfer via small start-up

companies needs to evolve

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35 LSConsolidated-20030806 2003 Life Sciences Summit

100 100.1 101.2 101.3 99 92.2 91 87.4 84.4 101.5 100 97.3 95.9 94.9 92.2 88.9 82.2 77.5 102 100 70 75 80 85 90 95 100 105 110 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 US MA

Source: Massachusetts Medical Society, MMS Index Report, March 2002

Massachusetts Physician Practice Environment Index, 1992-2001

Massachusetts Life Sciences Cluster

Health Care Delivery & Financing: Challenges Facing Physicians

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36 LSConsolidated-20030806 2003 Life Sciences Summit

Massachusetts Health Care Delivery

Overview

  • Competitiveness and innovation in a region are strongly influenced by

sophisticated local demand

  • Having the most advanced health care delivery offers major benefits to the

cluster as well as to patient care

  • While Massachusetts is seen as the home of demanding companies,

research institutions, and medical practitioners, cost pressures, and reimbursement structures have the potential to slow down innovation – Health care delivery runs the risk of becoming driven by short-term cost reduction

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37 LSConsolidated-20030806 2003 Life Sciences Summit

Massachusetts Life Sciences Cluster

Mid-Level Workforce Retention and Recruitment

Highlights from the Survey and Interviews Highlights from the Survey and Interviews Highlights from the Survey and Interviews

The cost of living in Massachusetts makes

it difficult to recruit employees at all levels – “The high cost of living, especially housing, makes it difficult to convince people to move to Boston.”

– Senior Executive, Hospital Organization

– “I don’t even try to recruit people from California anymore.”

– Senior Executive, Biotechnology Company

– “We pay higher salaries here, but we lose people because of housing costs.”

– Senior Executive, Medical Device Company

The cost of living in Massachusetts makes

it difficult to recruit employees at all levels – “The high cost of living, especially housing, makes it difficult to convince people to move to Boston.”

– Senior Executive, Hospital Organization

– “I don’t even try to recruit people from California anymore.”

– Senior Executive, Biotechnology Company

– “We pay higher salaries here, but we lose people because of housing costs.”

– Senior Executive, Medical Device Company

Massachusetts vs. Regional Average: Cost of Living

10% 49% 0% 25% 50% 75% 100% The cost of living in your region makes recruitment and retention of employees easy Massachusetts Life Science Life Science Average Percentage of Respondents in Agreement Note: Life Sciences average reflects data from the life sciences clusters of San Diego, Pittsburgh, and the Research Triangle Source: Professor Michael E. Porter and Monitor Company Group

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38 LSConsolidated-20030806 2003 Life Sciences Summit

  • 80%
  • 60%
  • 40%
  • 20%

0% 20% 40% 60% 80% 100%

B i

  • m

e d i c a l E n g i n e e r s B i

  • c

h e m i s t s / B i

  • p

h y s i c i s t s B i

  • m

e d i c a l t e c h n i c i a n s I n t e r n i s t s R e g i s t e r e d n u r s e s P

  • s

t

  • s

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  • n

d a r y b i

  • l
  • g

y t e a c h e r s E n v i r

  • n

m e n t a l a n d h e a l t h s p e c i a l i s t s P h a r m a c y t e c h n i c i a n s P

  • s

t

  • S

e c

  • n

d a r y h e a l t h s p e c i a l t y t e a c h e r s M e d i c a l e q u i p m e n t r e p a i r e r s R a d i

  • l
  • g

y t e c h n i c i a n s M e d i c a l a p p l i a n c e t e c h n i c i a n s A n e s t h e s i

  • l
  • g

i s t s

Mid-Level Workforce

Employment Changes in Massachusetts

Source: NEHI

Change of Employment, 1999 - 2001 Decrease Increase

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39 LSConsolidated-20030806 2003 Life Sciences Summit

Mid-Level Workforce

Overview

  • The Massachusetts Life Sciences Cluster requires a strong base of mid-

level professionals – High cost of living makes the Boston-region increasingly unattractive – The growth of corporate research facilities increases the pressure on hospitals and research institutions to compete for mid-level professionals – Educational institutions need to be equipped to adjust supply to meet the need for mid-level professionals

  • A strategy is needed to expand the supply of needed skills for the cluster
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40 LSConsolidated-20030806 2003 Life Sciences Summit

Nationwide, 2.3 million people participated in industry- and government-funded

clinical trials in 2002 – In Massachusetts, an estimated 40 to 50,000 patients participated in clinical trials (ca. 2% of national trial participants vs. 2.2% of national population and 5.3% of life sciences employment)

The recruitment costs for volunteers are rising

– Spending on recruiting volunteers is rising nationwide by 18% annually, reaching $500m in 2002 (ca. $215 per volunteer)

The efficiency of carrying out clinical trials is declining

– Nearly 25% of those enrolled in clinical trials drop out before the trial is completed – Enrollment delays are increasingly pushing back the timetable for trials and product introduction

Clinical Trials

Current Situation

Source: Center Watch; presented at MBC

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41 LSConsolidated-20030806 2003 Life Sciences Summit

Clinical Trials

The Challenge for Massachusetts

  • The environment for conducting clinical trials in Massachusetts gets mixed reviews

– Many companies value the close proximity to leading research hospitals – However, there is widespread concern about the lack of responsiveness of teaching hospitals in conducting trials, and no mechanisms to facilitate the process of performing trials in the State “It is incredibly difficult to work with the hospitals here for clinical trials. I’d like to but it is just so difficult.” Executive, Biotech Company

  • Increasing the quantity and efficiency of clinical trials conducted here by

Massachusetts (and other) companies would be an important competitive advantage for the region

– Clinical trials are a meaningful source of revenue for hospitals – Involvement in clinical trials can enhance the image and improve the quality of health care delivery in Massachusetts hospitals – Conducting clinical trials at nearby institutions is cost effective and improves the level of innovation throughout the cluster

  • A concerted strategy is needed to address the barriers to conducting trials in

Massachusetts, widen the array of hospitals involved in trials, and make the process

  • f conducting trials more efficient
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42 LSConsolidated-20030806 2003 Life Sciences Summit

Capturing Life Sciences Manufacturing

  • Capturing downstream activities such as manufacturing represents a

major opportunity for the Massachusetts Life Sciences cluster – The State economy would benefit from new high-paying jobs in downstream manufacturing activities (scaling of production, prototype manufacturing, full-scale production) – Companies in the cluster would benefit from proximity to their manufacturing operations to allow easier coordination, shorter reaction times, and reduced complexity of management supervision

“There is a very delicate passing of the baton. The nth plant can be in Ireland – for the first one, the instinct is to go with Cambridge. We’d pay a 20% premium to stay here” Executive , Biotech Company

  • Massachusetts has a strong product pipeline and many companies will

have to make manufacturing site decisions over the next several years

Source: Massachusetts Biotechnology Council, Boston Consulting Group - MassBiotech 2010: Achieving Global Leadership in the Life-Sciences Economy

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43 LSConsolidated-20030806 2003 Life Sciences Summit

Product Pipeline of the Massachusetts Life Sciences Cluster

Expected growth of FDA-approved Massachusetts Biotechnology products

2002 2005 2010 ~40 ~90 ~130

Development phase Development phase Phase I Phase II Phase III Approval pending Current number Current number

  • f products
  • f products

63 73 48 23 Probability of Probability of success success(1)

(1)

21% 31% 59% 91% Time to Time to market market(1)

(1)

~6 years ~5 years ~3 years ~1 year Expected output Expected output 13 compounds by 2008 23 compounds by 2007 28 compounds by 2005 21 compounds by 2003

(1) Based on average figures for new chemical entities (NCEs); BCG analysis; Tufts Center for the Study of Drug Development Source: Biospace CCIS database; “A Revolution in R&D,” BCG, November, 2001; BCG analysis from Massachusetts Biotechnology Council, BCG- MassBiotech 2010: Achieving Global Leadership in the Life-Sciences Economy

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44 LSConsolidated-20030806 2003 Life Sciences Summit

Capturing Manufacturing in Life Sciences

Massachusetts’ Current Position

  • Companies report several competitive disadvantages for Massachusetts

as a location for manufacturing

– High cost of doing business “Massachusetts is almost prohibitively expensive” – Delays and red tape: “Research Triangle has a reliable 6 week process” – Unpredictability of the local regulatory environment “In MA, you never know what problem you’ll run into with placing a manufacturing plant”

  • Most companies with operations in Massachusetts have located some

manufacturing outside the State

Source: Massachusetts Biotechnology Council, Boston Consulting Group - MassBiotech 2010: Achieving Global Leadership in the Life-Sciences Economy

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45 LSConsolidated-20030806 2003 Life Sciences Summit

(1) Clinical development structure in state (2) Commercial manufacturing only Note: Sample is 134 human therapeutics companies Source: Massachusetts Biotechnology Council Survey 2002, BCG analysis from Massachusetts Biotechnology Council, BCG - MassBiotech 2010: Achieving Global Leadership in the Life-Sciences Economy

Commercial Commercial Research Research Development Development(1)

(1)

Manufacturing Manufacturing(2)

(2)

MA companies Out-of-state companies with MA locations

Activity in MA Activity outside MA

8 9 9 10 10 7 7 26 11 15 15 3 23 23 2 24 24

Massachusetts Life Sciences Cluster

Location of Manufacturing

108 57 26 26 26 17 17

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46 LSConsolidated-20030806 2003 Life Sciences Summit

80% 65% 62% 52% 20% 35% 38% 48% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0 to 5 6 to 10 11 to 15 16 and over Age of Company Out of State Employees MA Employees

Note: Base Massachusetts headquartered companies Source: MBC Survey 2002, Value Science, BCG analysis from Massachusetts Biotechnology Council, BCG - MassBiotech 2010: Achieving Global Leadership in the Life-Sciences Economy

Massachusetts Life Sciences Cluster

Location of Manufacturing

% of Jobs in MA

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47 LSConsolidated-20030806 2003 Life Sciences Summit

The Cluster needs to develop a strategy to increase its share of

upcoming manufacturing investments, especially from companies already present in Massachusetts: – Development and pre-qualification of suitable sites, including permitting, and infrastructure provision – A proactive approach to companies facing manufacturing investment decisions – Efficient interaction with potential investors through one point-of- contact – An explicit program to assist in workforce development – Approaches to minimizing the tax burden consistent with the State’s fiscal realities

A successful strategy to attract and retain Life Sciences manufacturing in

the State will need involve State government, local governments, companies, universities, and other institutions

Capturing Manufacturing in Life Sciences

The Need for a Strategy

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Other Strategic Issues Identified

Strategy for recruiting outside investors to the State Biogrid / IT infrastructure for life sciences Technology mapping and identifying technology gaps

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Discussion Questions

Are these the right issues? What are the priorities among them?

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Sources

The Economic Contributions of Health Care to New England New England Healthcare Institute, Milken Institute http://www.nehi.net/CMS/viewPage.cfm?pageId=29 Massachusetts Life Sciences Data Massachusetts Technology Collaborative http://www.mtpc.org/NewsandReports/the_index/index2001.pdf MassBiotech 2010: Achieving Global Leadership in the Life-Sciences Economy Massachusetts Biotechnology Council, Boston Consulting Group http://www.massbiotech2010.org/report/ The Medical Device Industry in Massachusetts Alan Clayton-Matthews, MassMedic, Massachusetts Medical Device Industry Council http://www.massmedic.com/01.pdf Why Care? The Howell Group of Boston http://www.whycare.info/pages/1/index.htm Massachusetts Life Sciences Cluster Professor Michael E. Porter and Monitor Company Group, L. P. New Jersey Life Science Super-Cluster Professor Michael E. Porter and Monitor Company Group, L. P. http://www.state.nj.us/prosperity/porter.shtml The Boston Life-Sciences Cluster Christian HM Ketels, PHD, Institute for Strategy and Competitiveness, Harvard Business School http://www.isc.hbs.edu/pdf/Boston_NHCM_CK_11-22-02.pdf