As the biotechnology industry continues to expand its global footprint it is giving rise to a plethora of new biotech clusters, particularly in emerging countries. Cities around the world are latching onto the significant economic potential that a thriving biotech hub can bring. As a result they are taking steps to build or expand regions and offering access to research excellence, highly qualified employees as well as lucrative tax and financial incentives designed to attract biotech and pharmaceutical companies to set up in their location. It certainly has become a high stakes game.

Visitors to the exhibit hall at the BIO International Convention in Boston last year will certainly attest to that with many states and countries sponsoring lavish booth displays vying for the attention of delegates.

With drug developers looking to stretch every precious research dollar, are they venturing from their familiar confines to take full advantage of these economic incentives?

This is exactly what Jones Lang LaSalle (JLL), a global professional services company focusing on commercial real estate, examined. Its recently released 2012 Global Life Sciences Cluster Report provides a detailed analysis on the trends among the established and emerging pharmaceutical/biotech clusters in the U.S. and Canada and internationally in Europe and Asia Pacific.

Beyond research and development costs, facility and real estate costs are among the highest other related expenses for drug developers. In the "patent cliff" era one industry response, the report says, has been the geographic reshuffling and right-sizing of the North American biotech and pharma industry. This is occurring in comparatively smaller metropolitan areas as these cities rise in industry influence.

Changing Dynamics of the Industry

Given the industry's consolidation and the rise in M&A's there has been a growth of middle-market companies and this appears to be benefiting smaller metropolitan areas, Erin Bovee, Life Sciences Senior Research Analyst at Jones Lang LaSalle told BioWorld Insight.

Cities in the U.S. that are rising in influence offer a workforce, academic community and public sector focused on R&D productivity and areas of opportunity within the sector.

In the U.S., life sciences clusters are at various stages in their evolution. While the Northeast and California continue to dominate with their extensive university networks and deep labor pools, emerging clusters are also offering these advantages coupled with more competitive real estate opportunities, the report explains.

Raleigh-Durham, for example, vaulted to fourth position, from their ninth place in 2011, in JLL's rankings surpassing such Mid-Atlantic markets as Washington, D.C. Similarly, the report notes, Philadelphia's institutions have fed the region's 432,000 jobs and $20.2 billion in life sciences earnings, accounting for nearly 15 percent of the city's economic activity.

JLL used quantitative data, such as employment statistics in the high-tech research and hospital/medical fields, the number of life sciences establishments, venture capital and National Institutes of Health funding, to determine a weighted ranking on individual clusters and their existing industry infrastructure and propensity to best support the industry.

In the year-over-year trends JLL found that Boston remained the clear worldwide leader for biopharmaceutical resources, with San Diego, Philadelphia and Raleigh-Durham rising in influence.

There were no new additions or drop-offs to the Top 10 U.S. markets for life sciences in 2012 compared with 2011.

The report points to three key factors that have helped both the established and emerging clusters in the U.S. to achieve success during rapidly changing times in the life sciences industry: middle-market growth, the need for access to innovation and the offering of economic incentive packages to fuel life sciences sector expansion.

In addition, right-sizing and consolidation by pharmaceutical companies have led to opportunity for middle-market corporations, as many former single-institution research campuses are now thriving, multi-tenant life sciences centers. This transformation is benefitting clusters located outside the nation's largest metropolitan areas because they offer lower overall costs of occupancy, yet retain premium access to academic resources and an educated workforce.

The exception to this trend, the report explains, is Greater Boston, which continues to "represent the center of the global life sciences industry, with more than 74,000 employees serving the pharmaceutical, biotechnology and medical device subsectors. Average asking rents for lab space in Cambridge, Boston's R&D epicenter has returned to peak levels of $54.61 per square foot."

In California, San Diego has risen from being the seventh to the second most-active U.S. cluster, leading the nation in life sciences employment and surpassing both San Francisco and Los Angeles in its ranking. San Diego recorded $13.8 billion in M&A activity in the last 12 months. While this type of consolidation could potentially leave empty space on the market, middle-market companies have driven a steadily increasing demand for space in life sciences-oriented facilities, keeping space occupied and rents stable.

Access to talent and resources is critical for innovative companies to support their core competencies, which is why Boston, San Diego and San Francisco remain desirable locations despite the comparative high cost of space in these cities, noted Bovee.

Countries Up the Ante

The trend for companies to also look toward emerging markets has helped catalyze the rise of global clusters. The ante has been raised with countries offering significant economic incentives coupled with industry-dedicated funding.

JLL notes that clusters such as China, Brazil, India and Singapore all have reported recent funding opportunities dedicated to their life sciences industries.

Exemplifying this trend is Sweden. Last year it made its largest ever investment in life sciences research, in the form of a $320 million funding package that is intended to secure its future as a global location for high-quality research. (See BioWorld Today, Sept. 12, 2012.)

SciLifeLab, a collaborative initiative involving Stockholm University, the Karolinska Institute, the Royal Institute of Technology (KTH) and Uppsala University, will receive some $100 million of the total funding.

SciLifeLab's Stockholm site is currently home to some 40 principal investigators and a total of 350 scientific staff and the funding will help it double that figure to 700.

Russia also is building on its domestic innovation. To further promote and stimulate growth in its biopharma sector, the Federal Program for the Development of Pharmaceutical and Medical Industry was launched, with a budget of $6 billion, with 80 percent earmarked for R&D and 20 percent going to infrastructure. (See BioWorld Today, Aug. 23, 2012.)

Africa is becoming an important destination. According to recent IMS Health research by 2016, pharmaceutical spending in Africa is expected to reach $30 billion with a 10.6 percent compound annual growth rate through that year, second only to Asia Pacific (12.5 percent) and about the same as Latin America (10.5 percent). (See BioWorld Today, Jan. 31, 2013.)

Another driver of the cluster phenomenon is the formation of public-private partnerships that take advantage of regional biotechnology innovation. It is a business model that is rapidly gaining traction among pharmaceutical and biotech companies alike. Not surprisingly, cities are leveraging these partnerships for economic advantage.

In Canada the Government of Quebec has joined forces with AstraZeneca Canada and Pfizer Canada to establish a new institute whose goals are aimed at strengthening the life sciences sector in the province. With a total of C$100 million behind it the newly created public-private biopharmaceutical research consortium Neomed Institute, of Montreal, will focus on becoming a bridge between promising academic research in Quebec and commercial development.