Cover Story: Global Rush: Foreign life sciences companies flock to the Triangle
TRIANGLE BUSINESS JOURNAL | December 1, 2017
The Triangle has long been known for its hefty hub of life sciences companies.
While universities and big pharma have played a major role in developing this ecosystem over the past couple of decades, a new trend is emerging that may soon disrupt the traditional landscape.
Foreign-owned life sciences concerns are moving and starting their U.S. operations in the Research Triangle Park area at a faster rate than in recent history.
Not only does that trend offer high-paying jobs, observers in the life sciences industry point out that it opens up the doors for joint ventures, licensing arrangements and financing with the home-grown concerns.
“What we have can’t be created overnight,” says Gerald Roach, managing partner of Raleigh law firm Smith Anderson. The Triangle, he says, has to “continue to protect our reputation.”
The Triangle has been a hotbed for research and development for life sciences companies based outside the U.S. for decades, dating back to when British giant Burroughs Wellcome & Company (now GlaxoSmithKline) moved its U.S. headquarters from New York to Research Triangle Park in 1971.
Since 2013, life sciences companies based outside the U.S. have announced roughly $2.5 billion in planned Triangle investments and more than 2,000 new jobs, according to data compiled by the North Carolina Biotechnology Center.
Even though not all of these companies are the size of GSK, they can grow – and grow quickly. And that’s why other cities across the U.S. are fighting to get them as well.
In 2017 alone, companies including PlantResponse of Spain, RedHill Biopharma of Israel and Höganäs of Sweden tapped the Triangle for major expansions after considering other American cities.
These companies cite factors such as talent, cost of living and infrastructure among the reasons for deciding to call the Triangle home.
But the competition is steep in areas such as sheer size, urban amenities and international flights. And there’s a steady flow of foreign life sciences companies that will continue to shop the Triangle against big cities such as Boston, New York and San Francisco.
An abundance of talent – and more
Tel Aviv-based RedHill – named for a red-colored hill in its founders’ small, agricultural hometown in Israel – considered many sites across the U.S. before deciding on the Triangle as the headquarters for its American operations.
Chief Business Officer Guy Goldberg says RedHill evaluated Boston, New York, San Diego, San Francisco, Houston, Dallas and Chicago, among others.
But from recruiters to the RedHill executive team, Goldberg says, “The one thing that everyone could agree on is that everyone loved Raleigh.”
So early this year, RedHill – which trades on the Nasdaq exchange – commenced commercial efforts and a continuing expansion in Raleigh after recruiting a number of former Salix Pharmaceuticals employees.
The company opened an office on Arco Corporate Drive and its Raleigh-based team has since grown to about 20 people. RedHill also has about 40 field sales professionals in territories across the U.S. and another 20 executives and employees in Israel. Like Salix – which was acquired by Valeant Pharmaceuticals for about $11 billion in 2015 – the company is focused primarily on the treatment of stomach and intestinal diseases. The Triangle not only provides the necessary talent pool for continued growth, Goldberg says, but it also scores well when it comes to “the costs of rent and salaries;” quick travel through Raleigh-Durham International Airport to New York, New Jersey and Washington, D.C.; corporate and individual tax rates; and lack of red tape when it comes to business operations.
Additionally, Goldberg says, there were talented former Salix employees who weren’t at the company anymore after the acquisition by Valeant but who loved the Triangle and decided to remain.
There is also a cultural affinity between Israel and the Triangle, he says, including “respect for the individual [and] not seeing people as a number.”
RedHill is a small company with an annualized revenue stream of slightly more than $5 million, but, as Goldberg notes, the company is sizing up to launch new products in the coming quarters that would accelerate its top line — a scenario prime for local expansion of operations and hiring.
And all of that is being spearheaded from a nondescript office near Brier Creek.
A major impact
Data from Capital IQ and compiled by Clarkston Consulting show the influence of foreign-owned life sciences companies is rising expotentially in the Triangle region.
There are 507 North Carolina-based life sciences companies between Burlington and Greenville. Of those, 52 are from parent companies outside the U.S. – or roughly 10 percent.
Most recent revenue numbers for those with foreign parent companies total more than $1.7 billion, not including privately held companies that don’t publicly report those figures.
And these companies are bringing jobs – many with big salaries.
For instance, Swedish research and manufacturing company Höganäs – which has 65 offices and 1,800 employees globally – recently opened a new office and laboratory in Cary, where it expects to add 100 employees over the next two years.
Salaries will be in the range of $90,000, notes Avinash Gore, Höganäs’ president of environmental solutions. And the Triangle’s plethora of Ph.D. talent was particularly important given the company’s line of business, he says.
Those dollars will flow into the local Triangle economy and not those of San Diego, San Francisco, Pittsburgh or even Austin, Texas, and Boulder, Colorado – other sites Höganäs considered for its U.S. expansion.
Höganäs began more than 200 years ago as a coal mining company but now makes metal powders for both industrial and environmental uses. Its Cary outpost will serve as an international hub for its new water and soil remediation business.
Global revenue for Höganäs was about $1 billion last year. The company is projecting about 3 to 5 percent growth for 2017, according to President and CEO Fredrik Emilson.
In research, the long term and what is “good for humankind” are both critical components, Gore says. The Triangle’s universities and the creativity enabled by those schools differentiates the region from other American locations.
Universities aren’t the only significant cluster that the Triangle has to offer when it comes to life sciences company recruitment. The area is also widely known for its collection of ag-tech mainstays and the global headquarters for the contract research industry.
Clusters are critical
Clusters of similar companies are also critically important when life sciences companies based outside the U.S. are considering where to expand in America, says Tom Finegan, chairman and CEO of Clarkston Consulting in Durham.
He says the Triangle has formed clusters for the life sciences industry such as access to contract research and contract manufacturing organizations, as well as contract sales organizations.
And the clusters of ag-biotechs and contract research companies “are great for life sciences, and if we can get others that would be wonderful,” Finegan says.
For Spain-based biotechnology company PlantResponse – which was founded in 2008 as a spinout of the Technical University of Madrid – the Triangle’s hub of ag-biotech companies contributed to it putting its new North American headquarters here.
“The Triangle is certainly widely considered the hub of ag-tech,” PlantResponse CEO Tom Snipes says.
The area “has done a great job of already building the presence of ag-tech companies [so] when you see that work, it gives you greater comfort that they’re going to maintain that,” Snipes says.
PlantResponse – which focuses in crop management – is currently calling the North Carolina Biotechnology Center’s Landing Pad home while it looks to secure a larger space early next year.
Additionally, Snipes says, as PlantResponse is a company with significant European operations, the East Coast of the U.S. is a six-hour time difference versus a nine-hour time difference that would exist between Europe and, say, San Francisco. RDU is also adding more international flights, and “in today’s world, those little things add up to make a big difference,” he says.
After raising about the equivalent of $6 million in its Series A round, PlantResponse is now looking to raise about $20 million to $30 million, according to Snipes. The additional funds will be used for research and development as well as commercialization efforts. PlantReponse currently has just a couple of employees based locally, but will be looking to increase that headcount next year to about 35 to 40 employees. It expects to have an equal presence in the Triangle and outside the U.S.
The presence of quality universities, as well as close proximity to both the coast and mountains, also can’t be ignored, when it comes to the Triangle, says Snipes. And neither can the area’s business services infrastructure, when it comes to consulting, legal and accounting expertise.
“The Triangle is a global marketplace,” says Smith Anderson’s Roach, and that “goes beyond life sciences, but applies to life sciences.”
Companies “can come here, and know that the service infrastructure is here to serve their needs,” he says.
No room to rest on success
While Roach notes that the Triangle’s recruiting of foreign life sciences companies is rooted in decades of success, he says the trend for this recruitment is cyclical. It certainly shouldn’t be taken for granted, and there are still headwinds.
The Triangle has a “great quality of life [and] affordable space” and also the ability for companies to scale, he says, but there will continue to be companies looking to larger cities.
Bill Bullock, senior vice president of economic development and statewide operations at the NC Biotech, echoes this sentiment.
“The Triangle and North Carolina are just so much more cost-effective,” he says, adding that he likes to use the word “accessibility” when talking about the area’s value proposition when it comes to its larger competitors.
While state and local incentives are important – with companies such as France’s bioMérieux taking advantage of economic development grants of $400,000 from Durham County and $220,000 from the One NC Fund for a recent $60 million, 100-job expansion at Treyburn Corporate Park – they aren’t the only thing companies consider.
For instance, Raleigh-based contract research organization INC Research (now INC Research/inVentiv Health) went for a state and local incentive package of $10.6 million for its 550-job expansion in Raleigh. The package was selected over those to expand in Cincinnati and Nashville, Tennessee, with estimated values of $26.5 million and $13.7 million, respectively.
“The incentives are helpful, but at the end of the day, if [companies] can’t find the talent, the incentives don’t mean anything,” says Clarkston’s Finegan. Without access to both current talent and a talent pipeline, operations will not be successful, he says.
When it comes to incentives, “We don’t have to match other states,” says Smith Anderson’s Roach, but the area has to be close enough that other benefits will make up for any difference.
The Triangle has lost out on some significant opportunities. In 2012, Baxter International selected Atlanta for a more than $1 billion pharmaceutical manufacturing expansion. And St. Louis – another ag-tech hub – has been the recipient of a number of foreign investments in recent years.
And while there has been improvement when it comes to access to capital outside the area, the Triangle still faces a dearth of venture capital locally. And large investments from venture capital firms are exactly the kinds life sciences companies need to move their drugs and devices throughout the regulatory approval process.
Two decades ago, large private equity firms “didn’t see enough critical mass here to come invest in the Triangle,” Roach says, but now they’re seeking companies out of the Triangle in which to invest. The Triangle’s an hour flight from Boston and New York, he notes, and it’s a great place to come and enjoy a round of golf at Pinehurst, for instance, or take in a college basketball game.
The challenge is that the Triangle needs “to continue to protect our reputation, and we need the business community and Republicans and Democrats to continue to work together to protect our reputation,” he says.
Additionally, infrastructure will continue to be critically important as will adding more manufacturing jobs, particularly with the support of area community colleges, enhanced transportation to neighboring rural areas, and waste water treatment, Roach adds.
“I think where you live matters a lot,” says RedHill’s Goldberg. “We’re looking to build a company for the long term.”