A Commentary On Biopharma's Current Boston Fixation

By Rob Wright, Chief Editor, Life Science Leader
Follow Me On Twitter @RfwrightLSL

Merck recently announced its plans to lay off R&D workers at three East Coast sites; a move that will supposedly affect less than 10 percent of discovery, preclinical, and early development employees in Kenilworth and Rahway, N.J., and North Wales, PA. What I find interesting is that in the same Wall Street Journal article announcing the downsizing a spokesperson states that Merck is making the changes to have “earlier access to emerging external science and technology to augment our leading discovery and development capabilities.” How does having fewer people in R&D provide earlier access? Well, at the same time the company is cutting staff in three geographical areas, it is also planning to start new laboratories in two other areas — Cambridge, MA, near Boston, and the San Francisco Bay Area. The new Merck “exploratory science” group in Cambridge will focus on emerging research, including the role of the so-called microbiome in human health. Maybe this explains why former Merck Chief Medical Officer Michael Rosenblatt, M.D. is now in the new position of chief medical officer at Flagship Ventures. Look, I understand Boston’s allure to biopharma. But I wonder if Merck’s recent move is like most trends: By the time you realize a trend is a trend, and you make a move to try to capitalize on it, you are already too late.

Is Boston-Bound Biopharma Really A Surprise?

Back in 2012, an article by Luke Timmerman noted that while the biotech industry has never really concentrated in one place, there have always been two biotech hubs that stood out above all others — San Francisco and Boston. And while San Fran’s legacy of being the number one biotech cluster dates back to the late 1970s with the formation of Genentech, Timmerman (four years ago) predicted Boston taking the title of being the world’s number one hub, and holding that distinction for a generation. As it turns out, he’s quite the soothsayer. Consider this: in March 2013, AstraZeneca announced plans to invest $500 million to establish a new purpose-built facility in Cambridge, MA. In June 2013, J&J announced it too would be opening a Boston Innovation Center. This was followed by GSK’s October announcement. Since then other Big Pharmas have followed (e.g.,  Eli Lilly announced the opening of an innovation center (May 2015); Bayer AG (March 2016)). However, other Big Pharmas had operations in the greater Boston area prior to Timmerman’s article (e.g., Pfizer’s Centers for Therapeutic Innovation was launched in 2010). Sanofi got its foothold in Boston in 2011 through its $20 billion acquisition of Genzyme. And while Merck spent less than half that of Sanofi when it acquired Cambridge, MA, antibiotic drugmaker Cubist in 2014, rather than keep the area talent responsible for creating the drug they found so appealing, Merck instead opted to cut most of the Cubist R&D staffers. That seems odd when talent is listed as one of the two key drivers (the other being funding) for why biopharmas are supposedly flocking to Boston in the first place.

But Boston-bound biopharma should not really come as much of a surprise. After all, there is definitely a history of Big Pharma having a follower mentality. If you have been in the biopharmaceutical industry for longer than 10 years, perhaps you remember the reach and frequency sales force model that led to the sales force arms race where the number of pharmaceutical industry field sales representatives went from approximately 50,000 in the mid-1990s to nearly twice that by 2004. If memory serves, it was Pfizer that started the whole “increase-share-of-voice” strategy. This soon led to Merck and others adopting “mirror” territories, and before you knew it, twice the number of reps were calling on a physician population that had remained fairly stable. Soon drug reps were finding doctors limiting the number of reps they could/would see in their offices, and thus we saw the advent of the “Dine–and-Dash” era, as reps still needed to get their 8 to 10 face-to-face calls per day. Eventually, Big Pharma knew it needed to scale back the size of their various sales forces, but it seemed none of the big players wanted to be seen as the first to blink. I remember speaking at a field sales force effectiveness conference with William J. Lundstrom, Ph.D. in the mid-2000s. Following our presentation was a speaker from Merck, who conducted a PPT presentation from Europe via telephone. He explained how in the EU they were getting better sales results and higher quality calls by actually using fewer sales reps. During the Q&A the first question came from a sales executive at Pfizer who asked if Merck had plans to roll out a similar initiative in the states. And soon we saw the follower mentality continue with Big Pharma sales force restructuring. I am sure we can find numerous other examples to make the point. So while I don’t find biopharma’s fascination with Boston to be a big surprise, I wonder what will be the long-term consequences of this latest trend.   

Biopharma — A Boon For Boston, But At What Cost?

There is little doubt that biopharma’s Boston fixation has been a boon for construction. Further, it is predicted that if the United States encounters another recession the magnitude of the economic downturn of 2007, home prices in the Boston area would actually go up, making Boston one of the lowest-risk housing markets in the country. This is great if you are a seller, but doesn’t bode so well for buyers. I personally know life science folks taking opportunities and relocating to Boston. With vacancy rates of around 0.7 percent, and rental rates making Boston the fourth most expensive place to live behind San Francisco, New York and Washington, D.C., they are finding it much more difficult to find affordable housing than first anticipated. Now to be sure, these people make a good living. However, one wonders how much longer drug companies will be able to pay the necessary salaries to attract top talent to work and live in these innovation hotbeds — especially when the public perception is that they are already paying too high a price for their drugs. But there are other factors to consider.

Some have speculated that millennials have a love for city life, and thus companies would be wise to have operations in the heart of metro areas to capitalize on another supposed millennial lifestyle — preference for using public transit. However, we are now seeing a reversing of this public transport penchant, and perhaps it was just an economic reality that millennials simply couldn’t afford cars. In fact, some have argued that millennials don’t love the city near as much as we thought; they just got stuck there longer than most. So if like their parents, millennials truly do yearn for the burbs, what is going to happen when the Boston biopharma contingent of the largest generation ever begin flocking to the outskirts in order to start their families? Can we soon expect Boston back in gridlock or maybe Big Dig II?

While many are focused on Boston as being the bastion for innovation, I wonder if soon the reverse might be true. Not long ago, the CEO of a state BIO association commented to me that if someone had a cure for cancer and wanted to do research in Boston, they wouldn’t be able to find enough lab space. I shared these sentiments with Chris Viehbacher (former Sanofi CEO and Boston resident). He knowingly smiled and commented in reply how difficult it was to find just 9,000 sq. ft. of space for his new startup, Boston Pharmaceuticals. Such scarcity of resources makes me wonder, at what point do hotbed hubs actually impede innovation, or put more succinctly, make it affordable for the haves, while the reverse is true for the have nots?

Beyond Boston — Where Is Biopharma’s Future Innovation Hotbed?

While not all companies are flocking to Boston, there is certainly enough evidence to support Timmerman’s assertion that Boston has surpassed San Fran as the number one biotech hub. But instead of being a biopharma follower and getting in on a trend at its most expensive price point, I wonder where might be the next biopharma innovation hotbed? What cities have or are building the infrastructure necessary where young people and young companies might be able to gain entry at a price point they can afford? Further, I wonder what Big Biopharma will be willing to take a Southwest Airlines approach and take a stab at doing business differently, and more importantly, just where that might be.

Here are some interesting 2015 findings from WalletHub that list U.S. cities by size and ranked by fastest growing economies. Now if you want to be a real trendsetter, see if you can figure out what life-science-friendly cities will top such a list in 5, 10, or 20 years. For if you want to get in on the ground floor of biopharma’s future innovation hot spot, it requires not just having a vision, but a willingness to lead the way. Maybe, just maybe, biopharma’s next brain belt will reside in a former Rust Belt?