FROM THE LAB TO THE FACTORY: THE FUTURE OF BIOTECH MANUFACTURING IN MARYLAND
Maryland biotech benefits from substantial scientific and technical resources, as well as the prior investments made by state and local government. While the industry is still in its start-up phase, there is a question as to whether Maryland will be able to retain its existing companies as they mature and begin to manufacture. The purpose of this report is to understand the factors that affect the manufacturing location decisions of biotechnology companies. Our finding is that manufacturing is critical to anchoring biotech in the state and ensuring the survival of companies and the realization of the industry's potential.
We conclude that manufacturing in biotech is important as a knowledge-creating activity. Biotech product development and manufacturing rely on laboratory processes that do not have a long history and present opportunities that necessitate novel solutions and extend the frontier of knowledge. The technical demands of manufacturing, especially in the early stages, are intense. Integrating manufacturing with R&D creates a reinforcing set of capabilities and competencies that define a start-up biotech company's most valuable asset: technical and technological expertise. The market success of biotech products is predicated on product quality and reliability, thus in addition to generating knowledge, manufacturing provides necessary controls and safeguards. Most critically, the experience gained in manufacturing may suggest ideas for new innovations that further create a sustainable competitive advantage.
In contrast to the traditional vision of manufacturing as standardized large-scale assembly lines, biomanufacturing is highly specialized and fragile, requiring unique facilities with high quality standards and controlled environments. Biotech begins with research in the laboratory and moves along a continuum that requires additional personnel, expertise, capital, and space as products are developed. Firms that have chosen to outsource manufacturing suggest that this strategy has left them vulnerable. Outsourcing has potentially high transaction costs, and companies lose control over their products.
The economic potential of the industry tempts state economic development officials to lure companies with a variety of incentives. Companies are most susceptible to these offers at the stage when they begin manufacturing, which may require $20 to $60 million. Maryland, with its high concentration of promising companies, has become a prime target for other states' recruiting efforts. In order to retain and develop biotech, the state needs a strategy that does not involve continuous bidding wars. The appropriate role of the state government may be in providing resources for growth generation through strategic, patient, long-term investment.
The consensus among business leaders is that access to adequate capital is a major problem facing the industry in general and in regard to locating a manufacturing site as well. Cost-reducing policies rank at the top for both manufacturing considerations and general policies to strengthen the industry. Our findings suggest business development incentives have done little to attract or retain the industry here. Maryland's resources, which include a robust research community and a pleasant quality of life, have given birth to current companies. The most effective way to accelerate growth is for state government to provide laws, incentives and infrastructure to reduce the costs associated with biomanufacturing and to assist the private sector in obtaining debt financing to support future growth. The industry could arguably be "turning the corner" in terms of profitability.
