MA LifeSciences Summit 2003.09.12

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.
Situation Facing Massachusetts
z Massachusetts is one of the world’s leading centers in Life Sciences, but the
State is facing a crowded and increasingly competitive field
z The Life Sciences cluster encompasses a wide range of products and

services, including medical devices, pharmaceutical products, research and
testing, and health care delivery
z Massachusetts has a rich set of institutions in the field, but each tends to be
narrowly focused on one aspect of the cluster
z There has been no overarching strategy for the cluster and no structure to
develop one
LSConsolidated-20030806 2 2003 Life Sciences Summit

A Crowded Field
U.S.
U.S. States
States Countries
Countries
•• Denmark/Sweden,
Denmark/Sweden, Mediconvalley
Mediconvalley
•• 41
41 states
states have
have launched
launched Life
Life Sciences
Sciences
initiatives
initiatives •• Germany,
Germany, BioRegio-Initiative
BioRegio-Initiative
•• 16
16 states
states have
have appropriated
appropriated funds
funds for
for •• Netherlands,
Netherlands, BioDelta
BioDelta
new
new biotech
biotech activities
activities
•• Saudi
Saudi Arabia,
Arabia, Jeddah
Jeddah BioCity
BioCity
•• 12
12 states
states have
have aa dedicated
dedicated Biotech
Biotech
specialist
specialist in
in government
government •• Singapore,
Singapore, Biopolis
Biopolis of
of Asia
Asia
•• 10
10 states
states have
have explicit
explicit biotechnology
biotechnology •• United
United Kingdom,
Kingdom, Genome
Genome Valley
Valley
strategies
strategies
…
… and
and many
many other
other countries
countries
Source: BIO, State Government Initiatives in Biotechnology, September 2001; life sciences institutions’ web sites
Life Sciences Cluster
Cluster
Cluster Organizations
Organizations
Health
Healthand
and Beauty
Beauty MassMedic,
MassMedic, MassBio,
MassBio,others
others
Products
Products Health
Health Services
Services Provider
Provider
Surgical
Surgical Instruments
Instruments
and Suppliers
and Suppliers
Medical
Medical Equipment
Equipment Specialized
Specialized Business
Business
Services
Services
Biopharma
Biopharma- - Banking,
Biological
Biological Banking, Accounting,
Accounting, Legal
Legal
Dental
Dental Instruments
Instruments ceutical
ceutical
Products
Products
and
and Suppliers
Suppliers Products
Products
Specialized
Specialized Risk
Risk Capital
Capital
Ophthalmic
Ophthalmic Goods
Goods VC
VC Firms,
Firms, Angel
Angel Networks
Networks
Diagnostic
Diagnostic Substances
Substances Specialized
Specialized Research
Research
Service
Service Providers
Providers
Research
Research Organizations
Organizations Laboratory,
Containers Laboratory, Clinical
Clinical Testing
Testing
Containers
Educational
Educational Institutions
Institutions
Analytical
Analytical Instruments
Instruments Harvard
Harvard University,
University, MIT,
MIT, Tufts
Tufts University,
University,
Boston University, UMass

Clusters and Competitiveness
z 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
z 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
z 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
Institutions for Collaboration
Selected Massachusetts Organizations
Life
Life Sciences
Sciences Industry
Industry Associations
Associations University
University Initiatives
Initiatives
zz Massachusetts
Massachusetts Biotechnology
Biotechnology Council
Council zz Harvard
Harvard Biomedical
Biomedical Community
Community
zz Massachusetts zz MIT
MIT Enterprise
Enterprise Forum
Massachusetts Medical
Medical Device
Device Industry
Industry Forum
Council
Council zz Biotech
Biotech Club
Club at
at Harvard
Harvard Medical
Medical School
School
zz Massachusetts
Massachusetts Hospital
Hospital Association zz Technology
Association Technology Transfer
Transfer offices
offices
General
General Industry
Industry Associations
Associations Informal
Informal networks
networks
zz Associated
Associated Industries
Industries of
of Massachusetts
Massachusetts zz Company
Company alumni
alumni
zz Greater
Greater Boston
Boston Chamber
Chamber of of Commerce
Commerce zz VC
VC community
community
zz High
High Tech
Tech Council
Council of
of Massachusetts
Massachusetts zz University
University alumni
alumni
Economic
Economic Development
Development Initiatives
Initiatives Joint
Joint Research
Research Initiatives
Initiatives
zz Massachusetts
Massachusetts Technology
Technology Collaborative
Collaborative zz New
New England
England Healthcare
Healthcare Institute
Institute
zz Mass
Mass Biomedical
Biomedical Initiatives zz Whitehead
Initiatives Whitehead Institute
Institute For
For Biomedical
Biomedical
zz Mass
Mass Development
Development Research
Research
zz Massachusetts zz Center
Center for
for Integration
Integration of
of Medicine
Medicine and
Massachusetts Alliance
Alliance for for Economic
Economic and
Development
Development Innovative Technology (CIMIT)
Innovative Technology (CIMIT)

Shifting Responsibilities for Economic Development
Old
Old Model
Model New
New Model
Model
•• Government
Government drives
drives economic
economic •• Economic
Economic development
development is is aa
development
development through
through policy
policy collaborative
collaborative process
process involving
involving
decisions
decisions and
and incentives
incentives government
government at at multiple
multiple levels,
levels,
companies,
companies, teaching
teaching and
and
research
research institutions,
institutions, and
and
institutions
institutions for
for collaboration
collaboration

The Massachusetts Life Sciences Cluster
Performance
Productivity
z Average wages in the Massachusetts Life Sciences Cluster are amongst
the highest in the country, and growing strongly
z The Cluster has the largest share of national life sciences employment
of any metropolitan region but growth is only slightly above the national
average for life sciences
Innovation
z The Massachusetts Life Sciences Cluster has generated many recently
approved biotech products, and has about 7.5% of the world’s
pharmaceutical product pipeline
z The Cluster is the leading metropolitan region in terms of life sciences
patents, but growth in patents is only slightly above average
Establishments
z The Massachusetts Life Sciences Cluster has relatively few large local
firms. Establishment growth is only slightly above average

Wages in Leading Life Science Clusters
National cluster wage growth: 5.1%

$100,000
Bay Area, CA San Francisco
$90,000 San Jose
Oakland
$80,000 Boston
Philadelphia Baltimore San Diego Newark
$70,000
Washington DC
New Haven Atlanta Cluster
$60,000 Middlesex, NJ Seattle average
Average Minneapolis
Los Angeles New York wage:
Wage, $50,000 Orange Ct. Chicago
Indianapolis Raleigh-Durham $56,741
2001 Tampa, FL
$40,000 Nassau, NY Cleveland
Houston New Jersey

$30,000
Salt Lake City
$20,000
$10,000
$0
2% 3% 4% 5% 6% 7% 8%
Percent Change in Annual Wage Growth, 1990–2001
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
Employment in Leading Life Science Clusters
8
Losing Share Gaining Share
Bay Area, CA
6
Boston
New Jersey
2001 National
Life Sciences Chicago
Washington DC
Employment 4
(in 10,000 Los Angeles
San Diego
workers) Philadelphia San Jose
Newark
Middlesex, NJ New York Minneapolis
2 Orange Ct.
Nassau, NY Baltimore San Francisco Oakland
Raleigh-Durham Salt Lake City
Seattle
New Haven, CT Tampa, FL
Indianapolis Atlanta Houston
Cleveland
0
-2% 0% 2% 4% 6% 8% 10%
Compound Annual Growth Rate (CAGR) of

National Life Sciences Employment, 1990–2001
Note: S. F. Bay Area — San Francisco, San Jose, Oakland, New Jersey – Newark, Middlesex
Innovation Output in Leading Life Science Clusters
Patents and Patent Growth, 1990–2001
7,000
Bay Area, CA
6,000
5,000
Boston
Life
Science 4,000
Patents,
1996–2001
3,000 Philadelphia San Jose
Minneapolis
New Jersey San Francisco

San Diego
2,000
New York
Oakland Washington, DC
Middlesex, NJ Los Angeles
Chicago Seattle
1,000 Newark Indianapolis Orange Ct. Baltimore
Raleigh, Durham
Cincinnati New Haven
Houston Salt Lake City
Tampa, FL Nassau, NJ Cleveland Atlanta
0
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Average Annual Growth in Number of Life Science Patents, 1990–2001
Innovation Performance in Leading Life Sciences Clusters
Share of Global Clinical Development Pipeline by U.S. State
500
470
400
300
Number of
Products in
218
Pipeline 201 196
200
145
100
0
CA MA NJ NY PA
Share of Products
17.5% 8.1% 7.5% 7.3% 5.4%
in Pipleline
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
Massachusetts' Competitive Position in Life Sciences
z Relative Performance
z Competitive Assessment
z Strategic Issues

Assessing Life Sciences Competitiveness
Sources of Data
z 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
z Survey of 250 Massachusetts’ companies, 50+ from the Life Sciences

– Conducted by Monitor Company
z 125+ in-depth interviews with cluster leaders

– Conducted by Monitor Group and the Boston Consulting Group
z Analysis of regional and cluster data from the Institute for Strategy and
Competitiveness at Harvard

Massachusetts Life Science Cluster
Summary Assessment
Context
Contextfor
forFirm
Firm
Strategy
Strategyand
and
Rivalry
Rivalry
Strengths
Factor z Strong base of local companies that
Factor compete on innovation using Demand
(Input) Demand
(Input) cutting edge science Conditions
Conditions Conditions
Conditions z Local companies compete and
cooperate intensively
Strengths Strengths
z Strong K–12 educational system Weaknesses z Sophisticated local medical
z Strong science base of leading z Limited manufacturing in the State, practitioners
researchers and leading academic especially in pharmaceuticals
research centers z Few headquarters of large, Weaknesses
z Frequent technology and knowledge international companies z Reimbursement environment
transfer from research to industry does not foster the adoption of
z High availability of risk capital and Related
Relatedand
and product and process
federal research funding Supporting innovations in health care
Supporting
Industries delivery
Weaknesses Industries z High medical malpractice
z High cost of doing business Strengths costs in Massachusetts may
z High cost of living, especially housing deter new treatments
z Presence of specialized service
z Weaknesses in physical providers such as law firms and z Barriers to performing clinical
infrastructure, notably Logan airport consultants trials with local institutions
z Developing shortages of mid-level z Frequent interaction with local
professionals suppliers
z Technology transfer lagging other
z Presence of instrument companies
important regions and other equipment suppliers
Massachusetts Life Science Cluster
Summary Assessment - Continued
Context
Contextfor
forFirm
Firm
Strategy and
Strategy and
Rivalry
Rivalry
Role
Role of
of Government
Government Institutions
Institutions for
for Collaboration
Collaboration
Factor
Factor
Strengths
Strengths(Input) Strengths
Strengths Demand
Demand
(Input) zz Strong Conditions
zz Increasing
Increasing recognition
recognition of
Conditions of the
the Strong array
array of
of industry
industry councils,
Conditions councils,
Conditions
potential of Life Sciences for the tech
tech transfer
transfer offices,
offices, enterprise
enterprise
potential of Life Sciences for the
Commonwealth
Commonwealth networks,
networks, and
and other
other institutions
institutions
for
for collaboration
collaboration
Weaknesses zz Very
Very high
high frequency
frequency of of
Weaknesses
interaction among cluster
interaction among cluster
zz Lack
Lack ofof consistent,
consistent, predictable
predictable members
members relative
relative toto other
other
process for site regulation,
process for site regulation,
especially Related
Relatedand
and locations
locations (producers, suppliers,
(producers, suppliers,
especially at at the
the local
local level
level customers,
Supporting
Supporting customers, universities, etc.)
universities, etc.)
zz Lack
Lack ofof overall
overall responsiveness
responsiveness
and
and a coordinated approach
a coordinated approach to to Industries
Industries
support the cluster by state Weaknesses
Weaknesses
support the cluster by state
government
government zz Lack
Lack of
of institutions
institutions facilitating
facilitating
R&D networking
networking across
across segments
segments
zz R&D taxtax credits
credits areare not
not well
well
structured
structured to to benefit
benefit research
research
companies
companies

Role of Universities and Research Institutions
Leading Life Sciences Clusters
7,000
Bay Area, CA
6,000
5,000
Boston
Life 4,000
Science
Patents,
1996–2001 3,000 San Jose
Philadelphia
Minneapolis San Francisco
New Jersey San Diego
2,000
Raleigh-Durham
Middlesex, NJ Oakland Nassau, NY
Orange Ct. New York
Chicago Seattle
1,000 Washington DC Los Angeles
Newark Indianapolis Baltimore
New Haven Salt Lake City Houston
Tampa, FL Atlanta Cleveland
0
0% 10% 20% 30% 40% 50% 60%
Share of Life Sciences Patenting from Hospitals and Research Institutions,

1996 – 2001
Regional Knowledge Spill-Overs
Total Life Sciences Patent Citations by Region, 1990s
35%
Share of regional life science patents
30%
citing other regional patents
Share of regional companies’ life science
25% patent citations that are regional
20%
15%
10%
5%
0%
New York
Philadelphia
Minneapolis-St.
Washington,
Los Angeles
San Francisco
Oakland
Boston
San Jose
San Diego
Chicago
DC
Paul
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.
Availability of NIH Funding for Life Sciences
$ Millions
$1,800
$1,623 $1,601
$1,600
$1,400
$1,200 $1,111
$1,055
$1,000
$870 1997
2001
$800 $724 $709
$600 $568
$472 $461 $484
$400 $336
$200
$0
Boston, MA-NH New York- San Francisco- San Diego, CA Los Angeles- Raleigh-Durham-
(NECMA) Northern New Oakland-San (MSA) Riverside- Chapel Hill, NC
Jersey-Long Jose, CA Orange, CA (MSA)
Island, NY-NJ- (CMSA) (CMSA)
CT-PA (CMSA)
Source: National Institute of Health, Office of Extramural Research from Massachusetts Technology Collaborative - Massachusetts Life Sciences Data
Massachusetts Life Sciences Cluster
Competition and Collaboration
Survey
Survey and
and Interviews
Interviews Highlights
Highlights Massachusetts vs. Regional Average:
Perception of Local Competition
100%
Local
Local Competition
Competition Massachusetts Life Sciences
Life Science Average
zz Massachusetts
Massachusetts Life Life Sciences
Sciences Cluster
Cluster has
has aa
relatively
relatively intense
intense level
level of
of local
local competition
competition
with
with high
high numbers
numbers of of competitors
competitors based
based in
in the
the
area 75%
area
–– “Life
“Life science
science businesses
businesses in in the
the area
area compete
compete
primarily for skilled labor, and competition
primarily for skilled labor, and competition 58%
56%
here
here can
can get
get intense.”
intense.” Percentage of
Respondents 50% 48%
–– Senior
SeniorExecutive,
Executive,Hospital
Hospital 46%
in Agreement
Organization
Organization
Competition
Competition and and Cooperation
Cooperation
zz Despite
Despite intense
intense competition,
competition, companies
companies workwork
together on common
together on common concernsconcerns 25%
–– “We
“We come
come together
together to
to lobby
lobby for
for regulatory
regulatory
reform
reform and legislation that can benefit the
and legislation that can benefit the
industry. It’s one of the perks of
industry. It’s one of the perks of a higha high
industry
industry concentration.”
concentration.” 0%
–– Senior Local competition is Local competitors are
SeniorExecutive,
Executive,Medical
MedicalDevice
Device
Company intense numerous
Company
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
Local Demand
Survey
Survey and
and Interviews
Characteristics of Local Customers
100%
Massachusetts Life Sciences
Local
Local Customers
Customers Life Science Average
86%
zz Local
Local customers
customers in
in the
the Massachusetts
Massachusetts Life
Life
Sciences
Sciences cluster
cluster are
are relatively
relatively sophisticated,
sophisticated,
demanding,
demanding, and offer frequent feedback
and offer frequent feedback to
to 75%
firms
firms
–– “Customer
“Customer needs
needs are
are sophisticated
sophisticated because
because 57%
55%
of
of the high concentration of medical treatment
the high concentration of medical treatment Percentage of 50%
and academic centers. Patients’ expectations
and academic centers. Patients’ expectations Respondents 50% 47%
are in Agreement
are very
very high,
high, both
both in
in terms
terms of
of access
access and
and
quality.” 38%
quality.”
–– Senior
SeniorExecutive,
Executive,Hospital
Hospital
Organization
Organization
25%
–– “Our
“Our customers
customers areare primarily
primarily hospitals
hospitals .. .. .. It’s
It’s
aa real benefit to be located so close by.
real benefit to be located so close by. In In
addition,
addition, we
we can
can get
get immediate
immediate feedback
feedback from from
doctors about how a product is working.”
doctors about how a product is working.”
0%
–– Senior
SeniorExecutive,
Executive,Medical
MedicalDevice
Device Local customers Firms frequently Local customers
Company
Company are very get customer have special
sophisticated feedback needs
High Cost Location
Survey
Survey and
and Interviews
Cost of Doing Business
100%
Massachusetts Life Science
Life Science Average
zz The
The cost
cost of
of doing
doing business
business in in
Massachusetts
Massachusetts is is high
high relative
relative to
to other
other
75%
regions
regions and
and may
may represent
represent aa barrier
barrier for
for
further
further expansion
expansion inin the
the region
region
–– “Labor
“Labor costs
costs and
and price
price for
for space
space are
are Percentage of
Respondents
much
much higher
higher here.”
here.” in Agreement 50%
–– Senior
Senior Executive,
Executive, Medical
Medical
Device Company
Device Company
–– “Space
“Space and and the
the cost
cost of
of space
space are
are 28%
significant
significant barriers
barriers to
to future
future expansion
expansion 25%
in
in the
the region.”
region.”
–– Senior
Senior Executive,
Executive, Biotechnology
Biotechnology
Company 4%
Company
0%
The cost of doing business is low relative to other
regions
Physical Infrastructure
Survey
Survey and
and Interviews
Physical Infrastructure
100%
Massachusetts Life Sciences
Physical
Physical infrastructure
infrastructure Life Science Average
zz The
84%
The quality
quality of
of the
the transportation
transportation and
and
communications
communications infrastructure
infrastructure are
are seen
seen as
as
lacking relative to other life science clusters
lacking relative to other life science clusters 75%
64%
–– “The
“The transportation
transportation infrastructure
infrastructure is
is aa Percentage of
significant
significant barrier
barrier to
to future
future expansion
expansion forfor Respondents
companies
companies in in the
the area.”
area.” in Agreement 50%
–– Senior
SeniorExecutive,
Executive,Industry
Industry 36%
Organization
Organization 35%
25%
–– “Something
“Something needs
needs to to be
be done
done about
about the
the
Logan
Logan Airport.
Airport. It’s
It’s becoming
becoming aa bigger
bigger
problem
problem for
for our
our employees,
employees, most
most of
of whom
whom
travel a great deal.”
travel a great deal.”
0%
–– Senior
SeniorExecutive,
Executive,Medical
MedicalDevice
Device Communications Transportation
Company
Company infrastructure is very good infrastructure is very good
quality
Competitive Position by Sub-Cluster, 2001
Health
Healthand
and Beauty
Beauty
Products Health Cluster
Cluster Organizations
Organizations
Products Health Services
Services Provider
Provider
MassMedic,
MassMedic, MassBio,
MassBio,others
others
Surgical
Surgical Instruments
Instruments
and
and Suppliers
Suppliers
Medical
Medical Equipment
Equipment Specialized
Specialized Business
Business
Biopharma
Biopharma-- Services
Services
Biological
Biological Banking,
ceutical Banking,Accounting,
Accounting,Legal
Legal
Dental
Dental Instruments
Instruments Products
Products ceutical
and Suppliers
and Suppliers Products
Products
Specialized
Specialized Risk
Risk Capital
Capital
Ophthalmic
Ophthalmic Goods
Goods VC
VC Firms,
Firms, Angel
Angel Networks
Networks
Diagnostic
Diagnostic Substances Specialized
Substances Specialized Research
Research
Service Providers
Service Providers
Research
Research Organizations
Organizations Laboratory,
Containers
Containers Laboratory,Clinical
ClinicalTesting
Testing
Educational
Educational Institutions
Institutions
Analytical
Analytical Instruments
Instruments Harvard
Harvard University,
University, MIT,
MIT, Tufts
Tufts University,
University,
Among National Leaders (1–5) Significant Presence (21–40)

Note: Competitive position based on relative employment Established Position (6–20) Less Developed (41+)
Role of Government
Survey
Survey and
and Interviews
Highlights
Massachusetts vs. Regional Average:
Government
Government Regulation
Regulation Perception of Government Regulation
100%
zz Massachusetts
Massachusetts ranks
ranks below
below other
other regional
regional Massachusetts Life Sciences
clusters
clusters in
in perceived
perceived governmental
governmental support
support for
for Life Science Average
Life Sciences
Life Sciences
–– “Local
“Local government
government regulations
regulations and
and 75%
compliance
compliance procedures
procedures can
can often
often be
be aa
problem;
problem; inin contrast,
contrast, there
there aren't
aren't as
as many
many
issues at the state level."
issues at the state level."
–– Senior Percentage of
SeniorExecutive,
Executive,Pharma
PharmaCompany
Company
Respondents 50%
in Agreement
Priorities 38%
Priorities for
for State
State Government
Government
32% 32%
zz Speed
Speed up
up the
the approval
approval process
process to
to decrease
decrease time
time 29%
27%
to
to market
market 25%
zz Improve
Improve the
the incentives
incentives and
and processes
processes for
for 14%
innovation
innovation and
and investment
investment in
in R&D
R&D initiatives
initiatives
–– “Introduce
“Introduce legislation
legislation that
that permits
permits life
life
0%
sciences to innovate in a clear
sciences to innovate in a clear and and
Appropriateness Government is State incentives
predictable
predictable framework
framework (e.g.,
(e.g., permitting
permitting and
and of state highly responsive for R&D
ability to do research).”
ability to do research).” regulations investments are
high
–– Senior
SeniorExecutive,
Executive,Biotech
BiotechCompany
Company
Government Support for Life Sciences
Leading States
Massachusetts
Massachusetts New
New Jersey
Jersey California
California North
North Carolina
Carolina
•• 10%
10% R&D
R&D taxtax credit;
credit; •• 10%
10% High
High tech
tech
can be carried
can be carried investment
investment tax
tax credit;
credit; •• 15%-24%
15%-24% R&D R&D tax
tax •• 5%
5% R&D
R&D tax
tax credit
credit
forward
forward for
for up
up to
to 33 transferable
transferable to
to other
other credit
credit •• 7%
7% tax
tax credit
credit for
for
Tax
Tax Policy
Policy years
years companies
companies •• 100%
100% net-operating-
net-operating- machine and equipment
machine and equipment
•• 3%
3% credit
credit on
on •• Net
Net operating-loss
operating-loss loss
loss carry
carry forward
forward for
for leases
leases
depreciable
depreciable assets
assets can
can be
be carried
carried 88 years
years
•• Single
Single sales factor
sales factor forward
forward for
for 15
15 years
years
•• Biotechnology
Biotechnology •• Jointly-funded
Jointly-funded •• State-funded
State-funded North
North
•• Massachusetts
Massachusetts Council
Council of
of New
New research
research programs
programs Carolina
Carolina Center
Center for
for
Biomedical
Biomedical Initiatives
Initiatives Jersey
Jersey
Institutional
Institutional of
of state
state universities
universities Biotechnology
Biotechnology (NCBC)
(NCBC)
(MBI)
(MBI) •• New
New Jersey
Jersey
Support
Support and industry
and industry
Technology
Technology Council’s
Council’s
Life
Life Sciences
Sciences
Network
Network
•• Early
Early Stage
Stage •• $500
$500 million
million •• $10
$10 million
million North
North
•• Cumulative
Cumulative MBIMBI Enterprises,
Enterprises, $40m
$40m CalPERS
CalPERS Carolina
Carolina Bioscience
Bioscience
investment
investment ofof $8
$8 •• NJ
NJ Technology
Technology
Financial
Financial Biotechnology
Biotechnology Investment
Investment FundFund
million
million Council
Council Venture
Venture
Support
Support Program
Program •• $42
$42 million-$150 million
million-$150 million
•• Some
Some state-pension-
state-pension- Fund,
Fund, $30m
$30m in
in tobacco
tobacco money
money for
for
fund
fund investment
investment •• Seed
Seed Capital
Capital bio-manufacturing
bio-manufacturing
Program
Program
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
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?
60%
Massachusetts
San Diego
Pittsburgh
Research Triangle
40%
Percentage
of
Respondents
Rating
Helpful
20%
0%
University-based University Regional Industry National Trade Economic
Networking Technology or Cluster Councils Associations Development
Organizations Transfer Offices Organizations
Source: Professor Michael E. Porter, Monitor Company survey
Massachusetts' Competitive Position in Life Sciences
z Relative Performance
z Competitive Assessment
z Strategic Issues

Competitive Agenda
Massachusetts State Government
•• Address
Address weaknesses
weaknesses in
in the
the physical
physical infrastructure,
infrastructure, especially
especially in
in
transportation
transportation
•• Increase
Increase the
the supply
supply of
of housing
housing to
to lower
lower the
the cost
cost of
of living
living in
in the
the State
State
•• Work
Work with
with local
local governments
governments to
to identify,
identify, develop,
develop, and
and permit
permit promising
promising
sites
sites for
for life
life sciences
sciences companies
companies (e.g.,
(e.g., single
single site
site locator)
locator)
•• Improve
Improve the
the structure
structure of
of R&D
R&D incentives
incentives for
for life
life sciences
sciences companies
companies
•• Create
Create aa clear
clear point
point of
of contact
contact for
for existing
existing companies
companies inin the
the Life
Life
Sciences
Sciences cluster
cluster as
as well
well as
as potential
potential out-of-state
out-of-state investors
investors
•• Participate
Participate actively
actively in
in the
the Life
Life Sciences
Sciences cluster
cluster development
development process
process
•• Increase
Increase the
the overall
overall responsiveness
responsiveness of
of state
state government
government to
to business
business
needs
needs

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

innovative in the nation
-- Create
Create and
and environment
environment and
and rules
rules that
that facilitate
facilitate the
the introduction
introduction of
of new
new
treatments
treatments
-- Adopt
Adopt new
new service
service delivery
delivery technologies
technologies (e.g.,
(e.g., IT)
IT)
• Secure the State’s medium skilled workforce position
• Expand clinical trials in the State
• Capture more downstream manufacturing

Life Sciences Patents
Top Patenting Universities and Affiliated Hospitals
Life Sciences
Patents, 1996–2001
300
MGH Average CAGR of Top 50: 11.6%
UC San Francisco Johns Hopkins

250
UWisconsin-Madison
200 UPenn Washington Univ.

Columbia
MIT Stanford UC Berkeley
UMichigan
150 Duke Cornell
Harvard UC San Diego Average Patents
SUNY
UMinnesota Rockefeller Thomas Jefferson of Top 50 : 122
UCLA
UWashington UUtah UFlorida
100 Baylor UPittsburgh
NYU Mayo Yale
CalTech
UFlorida BWH
Dana-Farber
Vanderbilt
50 Rutgers UMass
UNebraska BU
Tufts
0
-10% 0% 10% 20% 30% 40% 50%
Compound Annual Growth Rate (CAGR) of Life Sciences Patents, 1996–2001
Life Sciences Research
Patents per Publication, 1996-2001
6
Cal Tech (34.7%, 8.4)
Thomas Jefferson
5
MIT
UC Berkeley
4
Life
Sciences
Patents per
100 Life 3 UWisconsin-Madison
Iowa State Harvard
Sciences Michigan State Columbia
UC San Francisco
Publications North Carolina State
UPenn UC San Diego
2001 UUtah Duke Princeton Cornell Johns Hopkins
2
Rutgers UC Los Angeles
NYU UMass UFlorida
Stanford UPittsburgh
BU UMichigan
UC Davis Penn UNorth
1 UTexas
State Carolina Tufts
UWashington
Dartmouth UMinnesota Washington Univ. UConnecticut
UAlabama
SUNY Brown
0
-10% -5% 0% 5% 10% 15% 20% 25% 30%
Compound Annual Growth Rate (CAGR) of LS Patents per 100 LS Publications, 1996-2001
Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School and NIH Pubmed.
Technology Transfer Effectiveness
Licenses and Options
Executed per Patent,
1996–2000
4.0
Average CAGR of Top 50: -2.9%
Iowa State
3.5
3.0
Purdue
2.5
UNorth Carolina-Chapel Hill UWashington
Texas A& M
Washington U.
2.0 UMinnesota Average
Mayo Foundation
Columbia Licenses
Stanford
per Patent
1.5 Cornell UWisconsin-Madison
of Top 50:
Harvard Virginia Tech 1.2
Johns Hopkins UVirginia
BWH Princeton UTexas-Austin
1.0
SUNY MGH UC System UPenn
UBritish Columbia
UMass MIT
0.5
Children’s Hosp. UKentucky
CalTech
Dana-Farber
0.0
-40% -30% -20% -10% 0% 10% 20% 30% 40%
Compound Annual Growth Rate (CAGR) of Licenses and Options Executed per Patent 1996–2000
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
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

Health Care Delivery & Financing: Challenges Facing Physicians
Massachusetts Physician
Practice Environment Index,
1992-2001
110
US
MA
105
102
101.5 101.2 101.3
100 100 100.1
100
99
97.3
95.9
95 94.9
92.2
91
90
88.9
87.4
85 84.4
82.2
80
77.5
75
70
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Source: Massachusetts Medical Society, MMS Index Report, March 2002
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

Mid-Level Workforce Retention and Recruitment
Highlights
Highlights from
from the
the Survey
Survey and
and Interviews
Interviews Massachusetts vs. Regional Average:
Cost of Living
100%
zz The
The costcost of
of living
living in
in Massachusetts
Massachusetts makes
makes Massachusetts Life Science
itit difficult
difficult to
to recruit
recruit employees
employees at
at all
all Life Science Average
levels
levels
–– “The
“The high
high cost
cost of
of living,
living, especially
especially 75%
housing,
housing, makes
makes itit difficult
difficult to
to convince
convince
people
people to
to move
move toto Boston.”
Boston.” Percentage of
Respondents
–– Senior
Senior Executive,
Executive, Hospital
Hospital in Agreement
Organization
Organization 49%
50%
–– “I“I don’t
don’t even
even try
try to
to recruit
recruit people
people from
from
California
California anymore.”
anymore.”
–– Senior
Senior Executive,
Executive, Biotechnology
Biotechnology
Company
Company 25%
–– “We
“We pay
pay higher
higher salaries
salaries here,
here, but
but we
we 10%
lose
lose people
people because
because ofof housing
housing costs.”
costs.”
–– Senior
Senior Executive,
Executive, Medical
Medical Device
Device 0%
Company
Company The cost of living in your region makes recruitment and
retention of employees easy
Source: Professor Michael E. Porter and Monitor Company Group
Bi
om
ed
Source: NEHI
Bi ic
LSConsolidated-20030806
oc al
100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
he En
m g in
is ee
ts r
/ Bi s
o
1999 - 2001
Bi ph
om ys
ed ici
ic st
al s
Change of Employment,
te
ch
n
Increase
ici
a ns
In
Po
R t er
st eg ni
-s i
e co st st
s
En er
vir nd ed
ar
on y nu
m bi rs
es
en ol
t al
og
y
an te
d a ch
Po he er
st
-S
al
th s
e
38
co Ph sp
n ar ec
da m ia
ry ac lis
he y ts
te
al
th ch
ni
M sp
e
ci
an
ed cia s
ic lty
al
eq te
u a
ip ch
Mid-Level Workforce
m e rs
en
R tr
ad ep
M i ol ai
re
Decrease
ed og
ic y rs
al te
ap ch
Employment Changes in Massachusetts
p lia n ici
nc a ns
e
te
ch
ni
An ci
es an
t he s
sio
lo
gi
s ts
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

Clinical Trials
Current Situation
z 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)
z 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)
z 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
Source: Center Watch; presented at MBC

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
of conducting trials more efficient
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
Product Pipeline of the Massachusetts Life Sciences Cluster
Expected growth of FDA-approved Massachusetts Biotechnology products

~130
~90
~40
2002 2005 2010
Current number Probability of Time to

Development phase Expected output
of products success(1) market(1)
Phase I 63 21% ~6 years 13 compounds by 2008
Phase II 73 31% ~5 years 23 compounds by 2007
Phase III 48 59% ~3 years 28 compounds by 2005
Approval pending 23 91% ~1 year 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
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
Location of Manufacturing
Research Development(1) Manufacturing(2) Commercial
108
MA 57
companies
17 17
9 7
8 10
Out-of-state
companies
with MA
locations 26 26 26 26
15 23 24
11 3 2
Activity in MA
(1) Clinical development structure in state
(2) Commercial manufacturing only Activity outside MA
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
% of Jobs in
Location of Manufacturing
MA
100%
90% 20%
35%
80% 38%
48%
70%
60%
50%
40% 80%
65%
30% 62%
52%
20%
10%
0%
0 to 5 6 to 10 11 to 15 16 and over
Age of Company
Out of State Employees
Note: Base Massachusetts headquartered companies MA Employees
Source: MBC Survey 2002, Value Science, BCG analysis
from Massachusetts Biotechnology Council, BCG - MassBiotech 2010: Achieving Global Leadership in the Life-Sciences Economy
Capturing Manufacturing in Life Sciences
The Need for a Strategy
z 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
z 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
Other Strategic Issues Identified
z Strategy for recruiting outside investors to the State
z Biogrid / IT infrastructure for life sciences
z Technology mapping and identifying technology gaps

Discussion Questions
z Are these the right issues?
z What are the priorities among them?

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

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

MA LifeSciences Summit 2003.09.12

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Massachusetts’ Competitive Position in Life Sciences:

Professor Michael E. Porter

Massachusetts Life Sciences Summit

z The Life Sciences cluster encompasses a wide range of products and

LSConsolidated-20030806 2 2003 Life Sciences Summit

LSConsolidated-20030806 4 2003 Life Sciences Summit

z Clusters Stimulate and Enable Innovations

z Clusters Facilitate Commercialization

Clusters reflect the fundamental influence of externalities / linkages

LSConsolidated-20030806 6 2003 Life Sciences Summit

LSConsolidated-20030806 7 2003 Life Sciences Summit

LSConsolidated-20030806 8 2003 Life Sciences Summit

National cluster wage growth: 5.1%

Houston New Jersey

Compound Annual Growth Rate (CAGR) of

New Jersey San Francisco

Average Annual Growth in Number of Life Science Patents, 1990–2001

LSConsolidated-20030806 13 2003 Life Sciences Summit

z Findings from recent studies of the cluster:

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

z 125+ in-depth interviews with cluster leaders

LSConsolidated-20030806 14 2003 Life Sciences Summit

LSConsolidated-20030806 16 2003 Life Sciences Summit

Share of Life Sciences Patenting from Hospitals and Research Institutions,

Among National Leaders (1–5) Significant Presence (21–40)

How Much Do the Following Local Institutions

LSConsolidated-20030806 28 2003 Life Sciences Summit

LSConsolidated-20030806 29 2003 Life Sciences Summit

• Improve technology transfer

• Make Massachusetts' health care delivery the most advanced and

• Secure the State’s medium skilled workforce position

• Expand clinical trials in the State

• Capture more downstream manufacturing

LSConsolidated-20030806 30 2003 Life Sciences Summit

UC San Francisco Johns Hopkins

200 UPenn Washington Univ.

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

• The context for technology and knowledge transfer is changing

LSConsolidated-20030806 34 2003 Life Sciences Summit

• Competitiveness and innovation in a region are strongly influenced by

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

LSConsolidated-20030806 36 2003 Life Sciences Summit

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

LSConsolidated-20030806 39 2003 Life Sciences Summit

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

z The recruitment costs for volunteers are rising

z The efficiency of carrying out clinical trials is declining

Source: Center Watch; presented at MBC

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

• Capturing downstream activities such as manufacturing represents a

• Massachusetts has a strong product pipeline and many companies will

Expected growth of FDA-approved Massachusetts Biotechnology products

2002 2005 2010

Current number Probability of Time to

• Companies report several competitive disadvantages for Massachusetts

– High cost of doing business

• Most companies with operations in Massachusetts have located some

Research Development(1) Manufacturing(2) Commercial

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

z A successful strategy to attract and retain Life Sciences manufacturing in

z Strategy for recruiting outside investors to the State

z Biogrid / IT infrastructure for life sciences

z Technology mapping and identifying technology gaps