Choosing a location for a Pharma or Biopharma manufacturing facility isn’t for the faint of heart. Regions and municipalities develop generous packages to bring companies in, but the decision isn’t always based on dollars and cents. While it’s true that, “The greater the scale, the greater the investment,” smaller firms have even more to lose from a wrong decision, and must go through the process as carefully as a topflight Pharma company.

For our inaugural installment of SiteLines, we spoke to a number of people who have been involved in the Site Selection process to find out how a site gets the green light and what sites are in demand.

“The first thing to know is that Pharma and Biopharma facilities are sought after by many regions,” said Andy Signore, co-founder and president of Integrated Project Services (IPS), a consulting, engineering, design/build and compliance firm. “They’re sources of relatively high wage and low environmental impact facilities that gain community support.”

Clark Gillespy, manager of business development at Duke Power Co., previously worked as a Site Selection consultant for construction firm Fluor Daniel. He agreed with Mr. Signore’s opinion: “At last count, I think it’s about 50 out of 50 states that are pursuing Biopharma. Everybody wants it. It’s the 21st century job: high skill, highly technical, a clean industry, good employed, and a great revenue base for the community.”

Mr. Gillespy walked me through the ins-and-outs of the process, using the example of a $1.4 billion project he once consulted. One of the first things he explained is that Site Selection is really a process of Site Elimination. He said, “The client came to us, explained the three phases of the construction, and asked us to find a suitable site. ‘And we want a worldwide search,’ they told us.”

This search generated a list of 126 sites around the globe. The firm engaged in desktop analysis, comparing such factors as cost of labor, cost of utilities, tax structures, permitting, environmental regulations, country issues—any sort of transfer policies, repatriation of profits, trade agreements. “We looked at overall capital investment costs, and we would run out a pro forma of the cost of doing business in a particular country over a 20-year period.”

MUST and WANT

With the full list compiled against preliminary parameters, the Site Selector then gets a more exact list of requirements, and separates them into the ‘Must’ and ‘Want’ categories. If, for example, the site MUST be a minimum of 100 acres, then an 88-acre proposal can be discarded regardless of its other benefits.

And the biggest ‘must,’ according to Mr. Gillespy? Immed-iate availability. “We have an adage in the industry: ‘We only go with what we know, not what we’re promised.’ Wherever we were looking at a site, we had to be sure that those sites were ready to go that day, not 18 months later when the sewage line would be running,” he said.

After screening out those ‘musts,’ it’s time to move onto the weighted factors of the ‘wants.’ “The client may have a list of ‘wants’ for the new site: a nearby symphony, regional airport, a certain average SAT score for the local college, proximity to a major research university,” said Mr. Gillespy. Those ‘wants’ form the next matrix that helps the Site Selector get the number of sites down to five or 10.

At that point, the frequent flyer miles start piling up. The Site Selection group visits communities, meets with local leadership, tours regions, and talks with state or country representatives. That winnowing process gets it down to two sites. “When you get it down to the final two, a lot of negotiating starts going on,” said Mr. Gillespy. “There are a lot of tax implications. The client may have to move some key personnel.”

The human factor can weigh heavily on the Site Selection process. When a region like Singapore declares that it’s going to have a zero-percent corporate tax rate for the next 10 years, the question becomes how many of a major Pharma’s NJ-based executives are going to volunteer for regular 21-hours flights to the new facility? Mr. Gillespy recalled one potential site that would’ve had 12 executive-level employees relocating halfway around the world. “A lot of times, it’s difficult to take your top staff and move them that far. They might have teenage kids getting ready to graduate, or children in college,” he said. “So there are some subjective elements that come into play. But most of it’s on  a very objective level, and you’re making a decision about where to put a plant that’s going to be in operation for the next 20+ years.”

Training Deals

When a company is at the end of the Site Selection line, one of the deciding factors Mr. Gillespy cites is the availability of trained personnel. “The typical large Pharma facility is going to take around 36-38 months to build, but at the same time the company wants the assurance from the state (or municipality) that, when the lights come on, they’re going to have the proper number of trained people that the state said they were going to get, and that the state was going to train.

“So, in month 38, if you need 300 people trained and ready to go in that facility, the package they’re offering has to meet that criteria. Training plays a big role in the site selection process.”

Mr. Signore of IPS agreed: “There are two types of costs in a new facility: construction costs and operating costs. The former set isn’t a huge issue for companies, despite regional variations (domestically) of 10-30% for construction. It’s the operating costs that are the long-term strategic driver for Pharma facilities.”

The biggest of those operating costs, he argued, is labor. “Where are you going to find skilled operating labor? You might be saving on construction costs by selecting a site in a remote area, but those savings can be chewed up by the added costs in finding quality labor. A severe recruiting burden will easily offset early savings in wage costs,” he warned. “Not everyone needs to have a Ph.D., but you need some well-trained staff.”

Similarly, Mr. Gillespy warned against the allure of ‘too good to be true’ site packages. “Often people make a big deal out of the incentives they’re being offered, but they have to remember, when you’re dealing with a large Pharma company, those incentives pale next to the company’s sales. We call it Flash Cash, and we tell them not to chase those incentives, but to make sound business decisions. If you pick the wrong site, you’ll never turn a dime on it.”

Success Breeds Success

One principle at play in the Site Selection process is clustering. Once a region becomes known for its Pharma and Biopharma facilities, it attracts more of them, creating a critical mass of labor and industry. “It’s about creating an attractive environment for all of the companies’ needs,” said Mr. Signore. “Take the Research Triangle Park region. It’s set up to attract higher-end research and management staff, but it’s also about 20 miles away from from a rural economy that is seeking non-agricultural jobs.”

Said Mr. Gillespy, “If I go to a site that’s throwing a lot of financial incentives at me, and they have no history of development and there are no Pharma companies on the ground, I’m in the unknown. The Site Selector is there to mitigate those risks for the Pharma company.

“That’s why you find so much of the industry locating in close proximity to one another. I mean, look at Ireland, Puerto Rico, San Diego, San Francisco, St. Louis, RTP, Cambridge, Boston, Montreal. You’ll find these Pharma/Biopharma clusters because all of those companies are dealing with billion-dollar drugs and they can’t afford to take a chance on a location.”

Gary Bingham, the director of marketing, new business development area, for the Puerto Rico Industrial Development Company (PRIDCO), contended that Puerto Rico’s strategy to bring in Pharma & Biopharma manufacturing was well planned. “In retrospect, what Puerto Rico did seems obvious.  The government officials met with the pharmaceutical and biotechnology companies to determine what were their ‘drivers’ in locating facilities, and adjusted the incentives to meet the needs. Some of these were already in place. Puerto Rico has a 40-year history of successfully manufacturing pharmaceutical products, so there was not only a trained workforce, but also a cadre of management people knowledgeable about working in a highly regulated environment. Also, as part of the U.S., Puerto Rico offers the same protection for intellectual property as does the mainland.”

With new investments from Amgen and Abbott totaling in the billions, it looks like PR is doing something right.

Still, Site Selection isn’t about just following the herd. Jeff Morhet of InNexus (profiled on the previous page), remarked, “For our manufacturing facility, we’re looking at the same group of cities we investigated for our new headquarters—San Diego, San Francisco, Seattle and Phoenix—but we’ve also spent a lot of time in Austin, and looked east, as well as toward some ‘non-traditional’ biotech cities.”

In a recent article, we discussed the case of Cytovance Biologics, which is working on its space in Oklahoma City. So are smaller companies in a position where they need to find ‘second-tier’ cities? Mr. Morhet contended that even the large players are looking at alternative regions.

“Look at Amgen’s facility in Boulder, CO,” he said. “That bulk site is a key manufacturing plant for them, but biopharmas aren’t flocking to Boulder. Each site is an individual fit: it comes down to qualified labor, numbers for your business model, distribution, and the economic development tools that a region offers.”

Mr. Signore concurred, “Global Pharma companies are clearly seeking tax incentives and economically favorable conditions. Beyond that, company’s are looking for any place that offers a reasonable cost of goods and a balance of labor and operating costs.” He indicated that regions in the south and southeastern U.S. were becoming particularly attractive lately.

“The competition for a good site is truly global,” said

Mr. Gillespy. “In my new role, when we looked at the RTP region in North Carolina, we also looked at 40 sites in Germany, several in Singapore, a number in Ireland, Puerto Rico, Canada, on the west coast, in the Midwest. You really have to see what else is out there, because there are a lot of great sites out there.”

Gil Y. Roth is the editor of Contract Pharma. He can be reached at gil@rodpub.com.