A Biotech Factory Rises in the Southland
To the steady rumble of construction equipment, one vision of the future of the biotech industry in California is taking shape on former ranch land in Oceanside, 80 miles south of Los Angeles.
When Biogen Idec Inc.’s $380-million pharmaceutical factory being built there opens in 2005, it will be the sixth-largest in the world -- a three-story complex with 91 stainless-steel vats connected by 47 miles of pipe and 300 miles of electrical wire.
But the most important figure of all is 800 -- the number of manufacturing jobs Biogen Idec will be delivering to a region hungry for them.
That the company, formerly called Idec Pharmaceuticals Corp., elected to build in San Diego County is something of a minor miracle. First off, there were the drawbacks of doing business in the state: high taxes, steep workers’ compensation premiums, power outages, water rationing and the threat of earthquakes. What’s more, Sun Belt cities dangled free land and other incentives.
Yet they couldn’t match what Oceanside had to offer: an exit off the 405 Freeway a 30-minute drive from Idec’s then-headquarters in Torrey Pines.
That was California’s luck. Biogen Idec rejected several attractive bids, including one worth millions of dollars in tax breaks and other perks from San Antonio, because it was wary of long-distance management of such an important endeavor. It takes four to five years to build a drug factory and obtain Food and Drug Administration approval to run it, and the FDA regulates the entire construction process.
“To keep the project on time and on budget, the senior management team had to be there,” said William Rohn, the company’s chief operating officer when the decision was made four years ago. “And that required building close to home.”
California has a lot to lose if others in the industry don’t follow Biogen Idec’s example.
Right now, California is the largest biotechnology state, with about 450 companies, more than double the total of second-ranked Massachusetts. One-third of the country’s 200,000 biotech workers live here. Two of the world’s largest biotech drug manufacturing plants, both owned by Genentech Inc., an industry giant, are in Northern California.
The competition for biotech jobs has heated up in recent years. With companies like Genentech and Biogen Idec in line to win FDA approval for a bounty of new products -- drugs that will fight cancer, diabetes, multiple sclerosis and other illnesses -- more manufacturing facilities will have to be built before 2010. In fact, at least 50 new biotech drugs could reach the market in the next six years, and new factories are needed to make them, said Rolf G. Werner, corporate director of German drug maker Boehringer Ingelheim.
That explains why tax breaks for bioscience companies are standard fare in 30 states, as the Battelle Memorial Institute said in a report this month. Raising the ante are states such as North Carolina, which is spending $60 million on training programs for drug factory workers.
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Foreign Competition
Foreign countries are in the game too. Singapore is courting drug companies to meet a national goal of doubling the value of all biomedical production to $12 billion by 2010. A state- supported biotech manufacturer is close to reaching production deals with two small U.S. biotechs, said Singapore economic development official Beh Swan Gin, who declined to identify the companies. Manufacturing costs are 30% to 40% lower in Singapore than in the United States, he said.
In South Korea, Celltrion soon will have the technology to produce biotech drugs for $50 a gram, 80% lower than what is possible in the United States, said the company’s business development director, Jae Chung. At the biotechnology industry’s recent conference, BIO 2004, in San Francisco, Chung gave a talk titled “Made in Asia,” in which he predicted that continued consumer pressure on drug prices in the U.S. would force pharmaceutical companies to lower production costs.
That worries civic leaders in San Diego, which has lost a net 17,200, or 14%, of its manufacturing jobs since 2000, largely because of outsourcing by the electronics industry. The San Diego Regional Economic Development Corp. envisions biotech factories helping fill the middle of what the agency’s president, Julie Meier Wright, calls the “barbell” economy, with highly paid scientists on one end and low-wage hotel clerks at the other.
Biogen Idec’s factory workers in Oceanside will earn $50,000 to $60,000 annually, according to Jane McVey, the city’s economic development director. Today, Oceanside’s median household income -- the point at which half of households earn more and half make less -- is $62,000.
There will be all kinds of other positive spillover, McVey figures.
“Freeways will be less congested because workers can afford to live in town,” she said. “The quality of life will improve because people will have shorter commutes.”
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Ripple Effects
Already, the factory at 1 Antibody Way has spurred the transformation of a nearby commercial district, which has gotten a face-lift and some new restaurants. The ripple effects, McVey said, “are tremendous.”
California wants to keep biotech factories in state, and it has an advantage.
Young biotech drug companies like their manufacturing operations to be close to headquarters. Making biotech drugs isn’t like stamping out dolls or assembling cars. Bits of DNA are spliced into live cells that then produce the medication. The cells are grown in a network of stainless-steel tanks, similar to those found in a brewery.
Construction of such a factory requires the skills of engineers, quality-control analysts and research scientists, but a small company doesn’t have the bench strength to assign a team of experts to the process full time.
Complicating the task is the enormous amount of documentation required by the FDA. Biogen Idec must maintain a paper trail on the steel equipment directly used in the manufacture of drugs so federal regulators can trace the vats and pipes to the mills where the steel was made. The company also must be able to pinpoint each of 80,000 welds holding the pipes together.
“When we started, we were a small company of 500 people,” said Johannes Roebers, the Biogen Idec manager overseeing the Oceanside project. “We couldn’t have people shuttling back and forth to Texas.”
An established company has talent to spare. So Genentech is expanding its factory in Vacaville -- doubling its size and adding possibly 500 jobs -- but is also building a plant in Spain. Amgen Inc. of Thousand Oaks makes drugs in Puerto Rico and Rhode Island.
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Future Sites
John Ward, vice president of global engineering for Biogen Idec, said the company certainly would not be limited to the Golden State as it scouted for factory sites. In fact, plans for a facility in Denmark are on the drawing board, he said.
“California could be the first stop” for companies based here, he said. “After that, it could be Singapore or Puerto Rico.”
Back in 2000, Idec Pharmaceuticals Corp. -- it became Biogen Idec after its merger with Biogen of Cambridge, Mass., last year -- was the crown jewel of San Diego’s biotech hub.
It paid $19 million for a 60-acre field overlooking the Pacific. At the time, the company had a market value of about $9 billion and three promising drugs in its development pipeline for psoriasis and other autoimmune diseases. Because it takes so long to build a drug manufacturing plant, Idec had to start construction before it knew whether any of its experimental drugs would become marketable products.
By the time Idec broke ground in Oceanside in 2002, all three drugs hit setbacks in clinical trials. Rather than cancel the construction project, Idec searched for drugs to license from other biotechnology companies that it could make in the factory. Those efforts led to the $5.7-billion stock merger with Biogen last year.
Last month, the merged company said it would use the Oceanside factory to make Antegren, a drug that was in development at Biogen for multiple sclerosis.
The project was a huge undertaking, requiring more steel than the San Diego Convention Center and more concrete than Petco Park -- two better-known San Diego landmarks. The company installed backup electricity-generating equipment and secured a guarantee from Oceanside officials of 1.4 million gallons of water daily, essentially exempting it from water rationing.
To keep the project flowing smoothly, the company picked up the expense of having an Oceanside municipal building inspector monitor construction full time. (McVey said the arrangement did not present a conflict for the city because Biogen Idec wasn’t paying the inspector directly.)
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Training Support
Biogen Idec also agreed to design and sponsor a training program for factory workers at nearby Mira Costa College, though there’s no assurance graduates will go to work for the company.
Once the factory is completed, it will take a year to teach employees how to use the equipment and demonstrate to the FDA that they can produce consistent batches of Antegren.
The project has suffered a few setbacks. Early on, Biogen Idec fired its engineering contractor over what Roebers called poor chemistry, a move that cost $10 million and stalled progress for three months. Last year, state manufacturing tax credits expired before the company could take advantage of all of them; Biogen Idec had expected a total credit of $12 million but said it would get less than half. Civic leaders say restoration of the tax credit is important to make California competitive with states that shower benefits on biotechnology companies.
“We’re feeling like we had the rug pulled out from under us a little bit,” said Rohn, now chief operating officer of Biogen Idec.
Recently, Biogen Idec purchased an additional 30 acres near its factory, an encouraging sign to local economic development officials. Rohn, however, said the company was simply keeping its options open.
“We are a bigger company now,” he said. “Whether we expand in Oceanside or build somewhere else will come down to hard dollars. We would make the economically efficient decision.”
