The Pharma-biotech Complex and Interconnected Regional

Transcription

47(13) 2867–2894, November 2010
The Pharma-biotech Complex
and Interconnected Regional
Innovation Arenas
Christian Zeller
[Paper first received, February 2008; in final form, August 2009]
Abstract
Large pharmaceutical firms, biotechnology firms, publicly funded research organisations
and financial organisations which are inseparably connected and located in a few key
regions have built a hierarchical pharma-biotech complex. It is argued that large
corporations establish networks to access regionally concentrated knowledge bases.
These networks consist of money flows, knowledge and personnel. By establishing such
networks, large firms considerably shape and interconnect the development dynamics
in the regions in which they have strategic assets. The paper reveals how the economic
development trajectories of the urban regions of Basel, New Jersey and Boston are
connected by large pharmaceutical firms and the industrial dynamics of the combined
pharmaceutical and biotechnology industries. Such strong corporate networks result
in the globally combined and interdependent development of urban regions.
1. Introduction
Changes in macroeconomic configurations,
global corporate strategies and industrial
restructuring, as well as the reconfiguration of
state power and institutional frameworks, are
strongly interwoven with urban and regional
reshaping. The debates on the pattern and
dynamics of such integration of cities and
urban regions into complex transnational
networks of capital, goods, work forces and
knowledge have been nurtured by different
approaches.
The world and global city literature (Sassen,
1994; Friedmann, 1995) characterised global
cities as spatial nodes in the financial and
command relations of international capital,
and thus as nodes in hierarchical urban
systems. Following Sassen, Taylor and the
Globalization and World Cities Study Group
and Network (GaWC) analysed the transnational locations of advanced producer
service office networks within the global
urban systems (Taylor and Walker, 2001).
The GaWC group focused its analyses on the
organisational structures of transnational
business service firms based on the conceptualisation of global cities as global service
Christian Zeller is a Professor of Economic Geography in the Department of Geography and Geology,
University of Salzburg, Hellbrunnerstrasse 34, A-5020 Salzburg, Austria. E-mail: [email protected].
0042-0980 Print/1360-063X Online
© 2010 Urban Studies Journal Limited
DOI: 10.1177/0042098010377370
2868 CHRISTIAN ZELLER
centres (Hoyler, 2005). However, by reducing
globally linked cities to their function as
financial centres and centres of specialised
business services, the world cities literature
tends to underestimate the roles of urban
regions as industrial locations and promoters of processes of innovation and industrial
restructuring (Veltz, 1996; Krätke, 2007).
The contributions on new industrial spaces
(Scott, 1988) and on regional innovation poles
(Storper, 1997) emphasised the importance of
spatially concentrated industrial production
clusters. Scott even argued that global city
regions are the drivers of the world economy
(Scott, 2000). Maskell and Malmberg (1999)
underlined the importance of localised learning processes for the competitiveness of firms
and regions. Cooke (2004, 2005) showed how
a few urban regions in the world are home to
spatially concentrated centres of knowledge
production in biotechnology and, thus, can
be considered as bioscience mega centres.
These mega centres dispose of dense regional
relations which permit intensive knowledge
exchanges between the involved actors.
At the same time, they are also integrated
into transnational collaboration networks
composed of large pharmaceutical corporations, biotech firms and publicly financed
research organisations such as universities
and research institutes.
The approaches of global commodity
chains (Gereffi et al., 2005) and global production networks (Henderson et al., 2002;
Smith et al., 2002) investigate how enterprises,
in shaping the division of labour and transnational value flows, are forced to embed
themselves into specific regional and national
supplier and buyer networks and to adapt
themselves to specific institutional conditions (Dicken et al., 1994). Both, the transstate and transregional flows of information,
money and commodities within a network
of cities as well as within global innovation
and production networks can be integrated
in a common framework (see Bunnell and
Coe, 2001; Brown et al., 2007). Indeed, one
way to reach a better understanding of relations between urban regions is to analyse
how large corporations organise their value
chain in space. Large corporations, so-called
global players, are the key actors in networks
that connect different spatially concentrated
production and innovation systems (Howells,
1998). Thus, the development and innovative capacities of regional innovation and
production systems depend not only on
agglomeration economies—their regional
and internal network qualities—but also on
the national institutional context and on their
relations and connectedness in transnational
or global networks, which are maintained
and structured by transnational corporations
(Krätke, 2007; Rozenblat and Pumain, 2007;
Birch, 2008).
The aim of this paper is to reveal the interplay between the corporate strategies and
global innovation and production networks
of large pharmaceutical corporations on
the one hand and, on the other, the regional
conditions in some key areas where these
firms place strategically important research
centres. The paper analyses how the two largest Swiss pharmaceutical companies, Novartis
and Hoffmann-La Roche, in organising their
research and development network also
considerably shape local conditions in key
regions such as Basel, New Jersey and Boston.
Thus, studying companies’ innovation and
production networks helps us to understand
the dynamics of urban regions (see Markusen,
1994), which can be viewed as localised hubs
of different internal and external corporate
networks.
I argue that large corporations create internal, international innovation and external
collaboration networks to access regionally
concentrated knowledge bases. These networks
consist of money flows, knowledge and personnel. By establishing such networks, large
firms considerably shape the development
dynamics in their home regions, in the regions
where they have previously expanded and in
the regions where they launch new activities.
Founding and operating such organisations
and networks, large firms connect the fates of
different regions throughout the world. Thus,
large firms are key players that interconnect
regional development and path-dependencies
in a selective way. Approaches uniquely focusing on the regional, national or global scales
as well as pure industry analysis have rarely
revealed this interconnected and uneven
development. Investigating the organisation of
knowledge production as well as the external
networks of large enterprises implies conceptualising the analysis on all scales, from local
to global, as well as the interconnections and
interrelations between actors acting at and
across different scales (Bunnell and Coe, 2001).
I further argue that a historical reconstruction of the evolution of corporate organisation
and expansion is necessary to understand such
networks connecting different urban regions
structured by large firms. Therefore, the paper
is based on a qualitative approach focusing on
the spatial face of corporate expansion strategies. Necessarily, I restrict the analysis to a few
companies and to their research and development organisation as a key segment of their
value chain. Moreover, I only consider three
key regions. The study is based on an updated
comprehensive analysis of Novartis’ and its
predecessor firms’ globalisation strategies
(Zeller, 2001). Basic information on corporate
investments and divestments was collected by
analysing corporate resources such as annual
reports and media releases as well as media
reports in regional and business newspapers.
Interviews with decision-makers within
Novartis and Roche working in Basel, New
Jersey, Boston, the San Francisco Bay area and
San Diego were crucial to evaluate information on corporate strategies in specific fields.
The interviews were conducted in two periods,
the first lasting from 1996 to 1998 (with about
40 corporate and regional representatives
in Basel, New Jersey, the San Francisco Bay
THE PHARMA-BIOTECH COMPLEX 2869
area and San Diego) and the second in 2005
and 2006 (7 interviews with representatives of
different firms and hospitals in Boston). Only
the interviewees directly quoted are listed in
the notes.
However, the developments at the corporate
and regional levels need to be put in a broader
context of industry evolution. Therefore, the
first level of analysis focuses on the major
characteristics of the combined pharmaceutical and biotechnology industries. In this
sense, the next section explains the economic,
institutional and technological conditions
favouring selective vertical disintegration in
the pharmaceutical industry and the emergence of a pharmaceutical-biotech complex.
The third section outlines the historical
evolution and the basic features of internal
and external formal corporate research networks. This analysis of two key players in the
pharma-biotech complex forms the second
level. The fourth section reveals how the fates
of the urban regions of Basel, New Jersey and
Boston are interlinked by large pharmaceutical firms and the industrial dynamics of the
combined pharmaceutical and biotechnology industries. Thus, on the third level, by
studying the networks of firms in industries,
this paper explores the interconnectedness of
urban regions. Finally, the concluding section
raises some questions for further research.
2. Globalising Innovation and
Production Networks and the
Pharma-biotech Complex
The industries involved in the production of
therapeutics have changed considerably over
the past 30 years. Economic, institutional,
organisational and technological changes
resulted in new forms of industrial organisation and the emergence of a pharma-biotech
complex with its specific geography. A multiplication of collaborations and the emergence
of firm networks are key characteristics of the
pharma-biotech complex.
2.1 Changing Industrial Organisation
The economic changes must be seen in the
context of extensive change in capitalism’s
mode of operation and the rising power of
financial capital since the early 1980s. In
most OECD countries, institutional investors
substantially increased their part in the ownership of companies. The shareholder value
concept is a lever for dividing profit in favour
of the shareholders. The stock exchange has
become an instrument for subordinating
corporations to the management norms and
profitability standards requested by the shareholders (see Lazonick and O’Sullivan, 2000;
Chesnais, 2004; Serfati, 2008).
In many industries, global oligopolies have
arisen. These relational spaces of rivalry are
structured and limited in markets by reciprocal dependent relations which interconnect the small number of large corporations
(Caves, 1996, p. 90; Chesnais, 1997, p. 112).
The oligopolies increasingly rely on knowledge and technologies (Delapierre, 2000).
Hence, firms implement specific appropriation regimes to acquire products, technologies
and knowledge. Access to or even control of
specific knowledge and technologies allows
companies to establish entry barriers against
potential competitors and, at least temporarily, to skim technological surplus profits or
rents (Zeller, 2008).
Increased profit expectations, shareholders’
claims, sharpened international competition
and uncertainty pressure firms to externalise
risks and to reduce amounts of fixed capital.
This favours vertical disintegration, outsourcing and acquisition of externally produced
intermediates, components, technologies
and knowledge. These strategies can combine
a great variety of transnational activities
and interweaving, such as licensing, subcontracting, supply with intermediates and
corporate alliances (Henderson et al., 2002,
p. 448; Gereffi et al., 2005). The creation of
specific dependence and power relations in
the value creation chains permits the core
firms to absorb values already produced by other
enterprises inexpensively (Smith et al., 2002).
On the one hand, shareholder value-driven
corporate governance and the institutional
investors’ time-limited expectations to pocket
their returns have weakened corporate ties
with regional contexts in various industries
(Pike, 2006). On the other hand, however,
the more strategic and knowledge-intensive
an operation is, the more it tends to remain
located in or shift to attractive rich regions. In
general, these structural changes have resulted
in the strengthening of already-strong regions.
The evolution of the biotechnology industry
clearly illustrates these findings (Cooke, 2004;
Zeller, 2010b).
Further institutional changes, such as a new
regime of intellectual property rights as well
as a modified role for publicly funded research
and universities, have altered the operation of
innovation systems (Coriat and Orsi, 2002).
Knowledge and know-how in the form of patents have become a strategic commodity for
firms. The explosive expansion of intellectual
property monopolies is mainly a result of farreaching economic and institutional changes
(Coriat and Orsi, 2002; Mowery and Sampat,
2004, p. 228). Stronger intellectual property
rights promote the trend towards disintegration. They encourage spin-off activity, active
licensing markets and arm’s length transactions between independent firms (Arora and
Merges, 2004).
The technological revolution in biotechnology has been parallelled by a vast differentiation of technologies and a multiplication of
information to be managed. Biotech firms
focusing on specific new technologies, drug
targets or substances have emerged. Even
the largest pharmaceuticals are no longer
able to cope on their own with important
technological progress. Since the 1980s,
therefore, they have developed strategies to
acquire drug targets, new active substances
and technologies through collaborations
with biotech firms (among others, see Powell,
1996; Pisano, 2006). Particularly in the US,
universities increasingly became partners with
the pharmaceuticals (Gambardella, 1995,
pp. 48–61; Drews, 1998, p. 248). Collaborations
with ‘big pharma’ are an important financial
resource for biotech companies (Zeller, 2010b).
Nevertheless, the pharmaceutical industry
suffers from an innovation deficit (Drews and
Ryser, 1996, 1997). The number of new active
substances introduced per annum strongly
dropped from an average of 56 between 1981
and 1985 and around 40 in the 1990s to less
than 30 in the current decade. The new
biotechnologies could not compensate for the
rapid fall of new chemical active substances.
The large pharmaceutical firms essentially
developed three responses to these challenges.
First, they increased takeovers and mergers in
order to strengthen their market and development power as well as to shut down surplus
capacities. The pharmaceutical companies’
second response is to amplify the acquisition
and the appropriation of knowledge, technologies and active substances through collaboration with specialised biotech companies
and with publicly funded research institutes.
The third response aims towards the extension and reinforcement of intellectual property monopolies. All three strategies express
the efforts of large pharmaceutical firms to
appropriate externally produced resources,
primarily knowledge, and to establish networks with external partners.
2.2 The Emergence of a Pharma-biotech
Complex
The location of the pharmaceutical firms’
research centres is the result of three developments (Figures 1–3). The large pharmaceutical corporations located their first
research centres mostly in close proximity
to their headquarters. In the context of their
international expansion, they located their
second-generation research facilities in
knowledge-rich regions in the most important markets. Whereas the Swiss chemical
and pharmaceutical firms had already erected
manufacturing and research facilities in
the US in the 1930s, firms from most other
European countries expanded to the US
between the 1950s and 1980s. US pharmaceutical companies crossed the Atlantic Ocean
after World War II as well. The emergence
of a spatially concentrated biotechnology
industry resulted in a third wave of expansion.
Most large pharmaceutical firms responded
to the emergence of regionally concentrated
biotechnology innovation arenas by locating
their newest research centres in these biotechnology regions (Gambardella, 1995; Peyer,
1996; Zeller, 2001; Chandler, 2005). Recently
a fourth wave has begun, with the establishment of pharmaceutical research centres in
India and China (Zeller, 2010a).
In the late 1980s, the creation of biotech
companies concentrated spatially in the
regions of the San Francisco Bay area, Boston,
San Diego, Maryland and New Jersey/New
York launched a real boom in the US (Gray
and Parker, 1998; Prevezer, 1998; Powell
et al., 2002; Bagchi-Sen et al., 2004). Cooke
describes these spatial concentrations of
biotech firms and supportive institutions in
these regions and in various European hightech regions such as Cambridge and Munich,
as bioscience mega centres (Cooke, 2004,
2005). In these privileged knowledge- and
technology-intensive urban regions, collaborating, competing and conflicting actors in
specific socioeconomic contexts contribute to
localised learning, innovation and exclusion
processes. Therefore, I understand these spatial concentrations of firms and other institutions as arenas of biotechnological innovation
(Zeller, 2004). Hardly more than 20 of these
arenas exist in the world, primarily in the US,
Switzerland, France, Germany, the UK, Japan,
and they have only recently also emerged in
Singapore and Shanghai. The regions are
arenas of specialised labour markets, localised
learning and uncodified knowledge exchange
(see Cooke, 2005).
Figure 1. Europe: location of research centres belonging to the 10 largest pharmaceutical
firms (by market share in prescription drugs), 2009.
Sources: IMS statistics, annual reports, company websites and media releases.
Figure 2. North America: location of research centres belonging to the 10 largest
pharmaceutical firms (by market share in prescription drugs), 2009.
Thus, the pharmaceutical biotech complex
has adopted a specific geography. Large pharmaceutical and biotech firms systematically
observe technological development at a global
scale and acquire promising substances and
technologies. By locating their research centres
Figure 3. South and east Asia: location of research centres belonging to the 10 largest
pharmaceutical firms (by market share in prescription drugs), 2009.
strategically, the large corporations profit from
the knowledge and technology concentrations
in these regions. At the same time, they shape
the local labour markets and living conditions.
Research facilities, including publicly funded
research centres and universities as well as private firms, generate the essential technological
inputs. Small and mid-size biotech companies
often transform and develop basic knowledge
generated in publicly financed institutes into
marketable knowledge. They can further
develop promising projects together with
pharmaceuticals or they can out-license. The
large pharmaceutical and biotech companies
then acquire knowledge and technologies and
undertake the marketing. Globally active pharmaceutical companies connect and process the
knowledge into products. They can outsource
large portions of the value creation processes
without losing their control function. Although
the smaller biotech firms are internationally
interlinked, they are to a large extent bound
to their region (for example, they do not have
development and marketing capacities).
3. Large Pharmaceutical
Corporations as Nodes in Global
Networks
International expansion, the establishment of
a research and production network and the
development of organisational capabilities
are path-dependent and only understandable in their historical evolution (Chandler,
1990; Ruigrok and van Tulder, 1995; Howells,
1996). This section first analyses the uneven
geography that characterises the internal
organisation of research and development
in the Swiss pharmaceutical firms Novartis
and Hoffmann-La Roche. Specific conditions
and strategic choices over different periods
have resulted in the current, quite complex
organisation. The density and geography of
corporate research collaborations and networks, presented in the second part, illustrate
the fact that the involved firms link specific
actors spatially in a highly selective manner.
Most of these partners are located in regional
biotechnology innovation arenas.
3.1 Internal Organisation and Networks
The Swiss chemical and pharmaceutical
companies Ciba, Geigy, Hoffmann-La
Roche and Sandoz internationalised their
research and development facilities very
early on (Fritz, 1992; Peyer, 1996; Zeller,
2001). They built an international sales
network in the 1880s, internationalised
production before World War II and established their first research centres in the US
in the 1930s. The Basel-based firms were
among the first foreign companies to carry
out research in the US. Almost from the
beginning, they not only created ‘listening
posts’ (Håkanson, 1990, p. 261), or ‘satellite
laboratories’, but real research centres with
independent activities. They established
a dense network with scientific institutes.
This strategy gave the Swiss firms a considerable advantage over other non-American
companies seeking access to the US market
(Enright, 1995, p. 91).
The merger of Ciba and Geigy to become
Ciba-Geigy in 1970 added research and
manufacturing facilities and reinforced the
international expansion. Since the late 1970s,
the chemical and pharmaceutical industry
has faced the challenge of increasing its
decreased profitability. At the same time,
the general economic situation has deteriorated. Sharpened international competition,
technological breakthroughs in molecular
biology and the enormous importance of the
US market obliged the Basel corporations to
reinforce their already strong position in the
US. In the 1980s, the chemical and pharmaceutical companies launched a fundamental
strategic reorientation and changed their
corporate organisation as well as their R&D
and manufacturing processes. Instead of further diversifying into new markets, it became
increasingly important to increase productivity in the corporate core sectors.
In the early 1990s, a broad restructuring
wave seized the entire pharmaceutical industry (Henderson et al., 1999). The restructuring of the R&D organisation of Ciba-Geigy,
Sandoz and Hoffmann-La Roche consisted
essentially in the organisational separation of
research and development, a stronger focus on
a few therapeutic areas, an acceleration of the
product launch and development process, and
a more precise allocation of the therapeutic
areas to the research centres (Peyer, 1996;
Zeller, 2001).
The merger of Ciba-Geigy and Sandoz
into Novartis in 1996 unified two huge
research and development organisations
with around 8000 employees, operating in
four large research centres in Basel (two),
Summit and East Hanover (both in New
Jersey), and six medium-sized or smaller ones
in Vienna, Horsham, London, Cambridge
(UK), Takarazuka, Tsukuba (both in Japan)
and Gaithersburg (Maryland). Additionally, a
broad collaboration with Chiron in Emeryville
near Oakland and dozens of smaller partnerships, mainly in the US but also in Europe,
had to be integrated. Trying to find an optimal way to integrate the R&D organisation
functionally and geographically, research
activities were regrouped into the seven specific therapeutic areas. Novartis integrated
its global research teams and named global
heads for every therapeutic area. As a result,
all researchers working in one therapeutic
area, independently of their working location,
were reporting to the same head. The goal was
to find organisational forms which favoured
creativity and ensured communication within
and between the teams.
Parallel to the reconfiguration of its global
and development organisation, Novartis
extended its organisation by building new
research centres. In 1999, it formed the
Genomics Institute of the Novartis Research
Foundation (GNF) in San Diego to focus
on new genomics-based drug discovery
technologies (Zeller, 2004). In May 2002, it
launched a new research centre in Cambridge
near Boston. The major pharmaceutical
research centres were regrouped in the
Novartis Institutes for BioMedical Research
(NIBR) and the global research headquarters
was moved from Basel to the newly created
research centre in Cambridge. In the same
period, Novartis responded to the growing
importance of Asia, especially China, by erecting
smaller research centres in Singapore in 2002
and Shanghai in 2007 (Zeller, 2010a).
Meanwhile, 1500 researchers, technology
experts and administrative employees currently work in Novartis’ research centre in
Cambridge. Nevertheless, the Basel location,
with approximately 2200 employees in research
departments, remains the company’s most
strategically important innovation hub. It
profits from a unique co-location with major
management, development and manufacturing
facilities. Furthermore, about 1300 researchers
work in East Hanover, Emeryville (California),
Horsham (Great Britain) and Shanghai. Two
relatively small research centres located in
Vienna and Tsukuba (Japan) had been closed
in 2008. In parallel, Novartis maintains three
corporate research institutes with around 800
scientists and supporting staff whose mission is to establish a bridge to basic research
and to address new scientific challenges: the
Friedrich Miescher Institute Basel, with around
320 researchers, the Genomics Institute of
the Novartis Research Foundation in San
Diego, with 400 researchers and technicians,
the Novartis Institute for Tropical Diseases
in Singapore, with about 100 employees and
the The Novartis Vaccines Institute for Global
Health opened in 2008 in Siena (Italy) (FMI,
2008; Novartis, 2009a, 2009b, 2009c). Thus,
a dense organisation includes two interconnected networks with almost 5000 employees
working with NIBR and more than 800 persons working in corporate research (Figure 4).
Additionally, the NIBR is closely linked to the
development organisation which employs 7000
associates and its activities located in seven
major sites: Basel, East Hanover, Cambridge,
Horsham, Shanghai and Changshu (China) and
Tokyo, Hyderabad (India) and Rueil near Paris
(Novartis, 2009d). Additionally, the Novartis
Vaccines and Diagnostics Division, created
after the acquisition of Chiron Corporation
in 2007, maintains its specific global research
network with associates in Boston, Emeryville,
Siena and Marburg (Novartis, 2009a, p. 75).
Boston
Cardiovascular
Diabetes&Metabolism
Infectious Diseases
Oncology
Ophthalmology
Musculoskeletal
East Hanover
Cardiovascular
Diabetes&Metabolism
Genome&Proteome Sc.
Horsham
Gastrointestinal
Respiratory
Wien (closed in 2008)
Autoimmunity &
Dermatology, Respiratory
Genome&Proteome Sc.
Global Discovery Chem.
Translational Medicine
Biologics Center
Protemic Chemistry
Developmental &
Molecular Pathways
Discovery Technologies
Epigenetics
Genome & Proteome Sc.
Shanghai (from 2007)
Oncology
Siena
Vaccines
Tsukuba (closed in 208)
Cardiovascular
Emeryville
ex. Chiron Corporation
Oncology
Discovery Chemistry
Toll-Like Receptor
Chemistry
Vaccines
Basel
Autoimmunity &
Transplantation
Gastrointestinal
Musculoskeletal
Neuroscience
La Jolla, GNF (2001)
Functional Genomics
Friedrich Miescher
Institute Basel
fundamental
biomedical research
Singapore
Tropic diseases
Biologics Center
Center for Proteomic
Chem.
Developmental &
Molecular Pathways
Discovery Technologies
Genome&Proteome Sc.
Figure 4. Novartis’ internal research organisation and external network with biotechnology
companies in 2009.
Sources: company website, annual reports, media releases and correspondence with corporate
media relations.
The geography of Hoffmann-La Roche’s
research organisation looks quite similar
(Figure 5). The research centre in Basel is
the main hub of its research organisation,
including a centre in Nutley (New Jersey),
Palo Alto (California), Penzberg (Bavaria) and
Shanghai (since 2004). In 2007, the company
established Disease Biology Area Leadership
Teams, which are located either in Basel,
Nutley or Palo Alto and lead research efforts
in specific therapeutic areas. In 2008 and
2009, Roche completely acquired south San
Francisco-based Genentech in which it had
held a majority stake for nearly 20 years and
partially integrated its huge research organisation. Moreover, Roche owns a majority stake of
Chugai (Japan). Thus, this company’s research
organisation is also combined with Roche’s
organisation. However, the research site at Palo
Alto is being closed with the research activities
being transferred to Nutley and to Genentech
(Roche, 2009a, p. 66; Roche, 2009b, p. 57).
Despite this expansion in the US and in
Asia, both firms still operate the largest and
strategically most important research and
development facilities in Basel. We can observe
a transition to internationally integrated
research centres and to a far-reaching integration of internationally organised project
teams. Novartis’ and Roche’s research organisations correspond quite well to an ‘integrated
research network’, characterised by several
so-called centres of excellence and a synergetic integration of the international research
Genentech
South San Francisco
Basel
Metabolic disorders,
Central nervous system
Nutley
Oncology
Roche holds majority
Complementing research
organization
Penzberg (Munich)
Therapeutic proteins
Center for Medical
Genomics, Basel
fundamental biomedical
research
Chugai
Fuji Gotemba
Laboratories
Roche holds majority
Complementing research
organization
Kamakura
former Roche center
2002 integrated into
Chugai
Welwyn
Virology, closed in 2002
and shifted to Palo Alto
Palo Alto
Virology, inflammation
Pleasanton/
Alameda
Diagnostics
Indianapolis
Diagnostics
Shanghai
(from 2004)
Medicinal chemistry
Branchburg, NJ
Diagnostics
Mannheim/
Penzberg
Diagnostics
Rotkreuz, CH
Diagnostics
Burgdorf, CH
Diagnostics
Graz
Diagnostics
Figure 5. Roche’s internal research organisation in 2009.
Sources: company website, annual reports and media releases.
units (Gassmann and von Zedwitz, 1999).
However, because of the speed requirements
and the homogenisation of procedures, the
development organisation (mainly the clinical
studies) is much more centralised. Therefore
the development function more resembles
the form of a ‘centralised hub’. Although the
Swiss pharmaceuticals internationalised their
R&D earlier than their competitors the R&D
network of most large pharmaceutical firms
has a similar geography (Figures 1–3).
3.2 Corporate Collaborations and
External Networks
In the 1980s, Ciba-Geigy, Sandoz and Roche
began to invest heavily in biotechnology and
created their own biotechnology research
units. In parallel, they entered into numerous
collaboration agreements with biotech firms,
mostly located in the Boston area, in the San
Francisco Bay area and, from the 1990s, increasingly in San Diego (Figures 5 and 6). Responding
to the challenges and new opportunities offered
by the molecular biology revolution and the
emergence of biotechnology firms, the three
Swiss companies have pursued the strategy of
biotechnology alliances so systematically and
rigorously that The Wall Street Journal Europe
observed (with some patriotic concern and
admiration)
With direct or indirect stakes in more than
100 companies such as Genentech Inc. and
Chiron Corp., plus near-exclusive access to
research centers such as the Scripps Research
Institute, the octopus-like Swiss have
stealthily captured what may be the biggest
foreign share ever of an emerging American
technology (King and Moore, 1995, p. 1).
Iceland
deCODE
Canada
Aspreva
Isotechnika
Stressgen
USA
Affymetrix
Ambit
Ambrxx
Amgen
Amira
ArQule
BioCryst
Connetics
Emisphere
Entelos
EntreMed
Epitomics
Gene Logic
Genentech
Gilead
Kosan Biosciences
Maxygen
Memory
OSI
Partners Healthcare
PDL BioPharma
Pharmasset
Trimeris
Valeant
Xencor
UK
Amidipharm
Antisoma
Elan
GE Healthcare
GSK
Plethora
Belgium
Galapagos NV
Solvay
Denmark
Genmab
France
Ipsen
Germany
Cardion
Evotec
MorphoSys
Finland
BioTie Therapies
Switzerland
Actelion
Basilea
ETH
Helsinn
Speedel
Sweden
Karolinska
Medivir
Italy
BioXell
China
HECPharm
Shanghai
Pharmaceuticals
Japan
Astellas
Chugai
Nippon Shinyaku
Japan Tobacco
Sankyo
Tanabe
South Africa
Aspen
India
Chembiotek
Hetero Drugs
Figure 6. Roche’s external network with biotechnology companies in 2007.
Sources: company website, annual reports and media releases.
Roche and Novartis, and their predecessors, were the most active deal-makers
in the industry in the 1990s (Hullmann,
2000). The Strategic Alliances unit of
Novartis Pharmaceuticals managed more
than 400 collaborations in over 20 countries in 2007, out of which 120 were with
biotechnology firms and 280 with academic centres. About 44 per cent of all
these collaboration partners were located
in the US (NIBR, 2007). Out of all research
collaborations published by Novartis up
until 2002, almost two-thirds of the partner firms were located in the metropolitan
regions of New York/New Jersey, Boston,
the San Francisco Bay area and San Diego.
This underscores ‘big pharma’s’ efforts
to get in touch with the regional biotech
arenas (Zeller, 2003).
Collaborations can serve to support a company’s own research efforts, such as the access
to and appropriation of therapeutic lead substances, drug targets and disease models, new
discovery technologies and entry into new
fields. The form of appropriation also can
vary, including in-licensing, acquisition of
a technology and takeover of an entire firm.
A substantial increase in late-stage deals has
been observed since the late 1990s (McCully
and van Brunt, 2005, 2006). That means the
biotech firms have been taking over a larger
part of the value chain, sometimes up until
the proof of concept stage of a drug candidate, and therefore a larger risk (Zeller, 2002).
On the other hand, the pharmaceuticals
reduce their share of risk in case of project
failure. With late-stage deals, ‘big pharma’
concentrates on the development and
particularly on the marketing of the drugs.
Large pharmaceuticals, with their world-wide
and broad sales organisation, are potentially
attractive partners for out-licensing small
firms, because a broad commercialisation of a
drug promises an increasing flow of royalties
from licensing.
Collaboration with venture capital firms
and the establishment of a firm’s own venture
funds are further methods of technological
scanning and efficient observation of the
biotech scene. In the early 1990s, Sandoz,
Ciba-Geigy and Roche contributed to the
founding of venture capital firms (Mehta
and Isaly, 1995). In 1997, Novartis launched
its own venture funds, which in addition
to being quite profitable allowed them to
contact start-up companies and to weave
extended networks with them. Not surprisingly, the location of the funded firms has
a similar geography than Novartis’ internal
network and the network with collaborating
small biotech firms (Novartis Venture Fund,
2007, 2008).
Even without internalising the entire value
chain, ‘big pharma’ and large biotech firms
are able to steer the production system and
the innovation processes to a large extent.
The power of the pharmaceutical corporations relies on their capital endowment,
sales and development power and ability
to unify different technological inputs.
Although small biotech firms are organisationally independent, they remain structurally dependent research suppliers of large
pharmaceuticals and biotech firms. Thus a
pyramid of value acquisition has emerged.
The pharmaceutical giants are the spiders
weaving the webs, linking and structuring knowledge and technology strings
created in the innovation arenas. Because
the value chains, innovation processes and
capital flows are hierarchically organised,
the different urban regions involved in
the pharma-biotech complex are also tied
into the hierarchical relations. While a few
urban regions host the headquarters and
the command-central of the value creation
process, other regions only deliver less strategic resources.
4. Swiss Pharmaceuticals and
Their Relations to Innovation
Arenas
After presenting the global internal and
external research networks of the Basel-based
pharmaceutical corporations, this section
analyses the relations between these firms and
some key regions. It shows how companies
restructuring their value creation organisation, penetrating new markets and sourcing
knowledge and technologies shape the local
conditions in the biotechnology arenas of
Basel, New Jersey and Boston. The interconnections and innovative relations between
Basel and the locations in California have
been described in two previous publications
(Zeller, 2003, 2004) and will be the subject of
further work. In all three regions, corporate
and industrial restructuring is closely linked
with the question of regional rejuvenation
(Gray and Parker, 1998), although with different outcomes.
4.1 The Basel Region: Globalising
Companies, Globalising Region
The chemical and pharmaceutical industry
has dominated the economy in the region
of Basel since World War II and was the
economic fundament of the long upswing
period until the end of the 1970s. This
industry underwent far-reaching industrial
restructuring processes in the 1990s and is
at the centre of current transformations in
the regional economy. The reorganisation
of the companies was accompanied by a
substantial job dismantling in the region
in the 1990s. However, the number of
persons employed in the pharmaceutical
industry and in biotechnology enterprises
has increased again since the end of the
1990s. The pharmaceutical industry remains
important, but it has had to renew its
technological basis and its organisational
structure (Zeller, 2001). Thus, the region
of Basel continues to be an industrial one.
The entire Basel metropolitan region,
including parts of the neighbouring areas of
Alsace (France) and South Baden (Germany),
depends considerably more on the performance of the life sciences industries than most
other regions with strong pharmaceutical
and biotechnology industries. The life sciences industry’s (including pharmaceuticals,
agrochemicals and medical technologies, but
not industrial chemistry) contribution to the
entire transnational regional gross domestic
product has been 16 per cent (Schoder, 2008;
see also Roth, 2008, p. 49). After a decade
shaped by far-reaching industrial restructuring and weaker growth, the real gross added
value in life sciences increased more than 8
per cent per annum from 2000 to 2006, thus
stronger than in Boston, New Jersey and the
San Franciso Bay area where, however, the
growth rates had been considerably higher
in the 1990s (metrobasel, 2006, p. 29; 2007,
p. 6; 2008, p. 9). With 36 000 employees, the
life sciences industry in this region is considered to be the strongest in Europe. However,
its headcount in Boston, New Jersey and San
Francisco and San Diego is higher (metrobasel,
2007, p. 5).
The region of Basel has remained the
most important regional anchor not only of
Novartis and Hoffmann-La Roche, but also
of the agrochemical company Syngenta and
the industrial chemical company Clariant,
whereas Ciba Specialty Chemicals has been
acquired by BASF in 2009. They operate
their headquarters here as well as their most
important research centres and even key manufacturing sites. Basel is the only location of
Novartis and Roche which unifies all corporate functions. For decades, they have maintained close relations with research institutes
and universities in the region. The knowledge
base and qualified work force developed over
the course of more than a century is a major
asset of the region. The corporate research
centres of Novartis, Roche, Syngenta, Clariant
and Ciba Specialty Chemicals together with
many other university research establishments and hospital research centres are the
foundation for the research, development and
innovation potential in the region of Basel.
The university Biozentrum opened in 1972 is
particularly important. Early on, it combined
the emerging molecular biology fields and
focused on basic research. Directly before
their merger in 1970, Ciba and Geigy jointly
created the Friedrich Miescher Institute,
which also concentrates on basic research
and creates a bridge to applied corporate
research. With similar intent, Roche opened
the Institute for Immunology Basel in 1971,
where three Nobel Prize winners had worked.
Roche transformed this Institute into a centre
for medical genomics and integrated it into
the global corporate research organisation in
2000 (Roche, 2000b). The research sections
of the university hospital, the Swiss Tropical
Institute and further university research institutes in the Swiss, German and French neighbouring cities of Zurich, Freiburg, Strasbourg
and Mulhouse complete this singular concentration of biological and chemical knowledge
in the Basel region (Zeller, 2001).
The Novartis merger triggered an additional
change impetus in the regional economy. The
redundancies of workers and the splittingoff of corporate activities promoted debates
about the regional economic perspectives.
In view of the catching up and fast growth
of the biotechnology sector in Great Britain,
Scandinavia and Germany, it was discussed
whether biotechnology companies could be
an answer to restructuring and job reduction
in the chemical and pharmaceutical industries
(Arvanitis and Schips, 1996). Indeed, parallel
to the increasing dynamics of the biotechnology sector in Europe and the downsizing
during the merger process of Novartis in 1996
and 1997, numerous biotech firms emerged in
the region of Basel and the upper Rhine valley.
Approximately 140 biotechnology and pharmaceutical firms have been created in the socalled ‘Biovalley’ of Basel and its neighbouring
Swiss, French and German areas, 30 of which
focus on the development and production of
medicines (Daniel et al., 2006, p. 14). The leading firms, Actelion, Arpida, Speedel and Basilea
Pharmaceutica, collected much capital with
successful initial public offerings. Actelion
and Arpida were created in 1997. Actelion’s
founding team previously had worked with
Hoffmann La Roche and transferred an
advanced development project into the new
company. Meanwhile, Actelion has become a
highly successful and profitable pharmaceutical firm selling three products, with about 2200
employees in July 2009. Actelion established an
international corporate network including two
important locations in the US, one in south
San Francisco (after the acquisition of another
company) and one in New Jersey which is
engaged in clinical research and maintains a
network with hospitals in the US. Arpida was
founded with former employees of Roche and
other pharmaceutical corporations and also
licensed an active substance candidate from
Roche in 2001. Arpida failed to get approval for
its drug candidate in 2008. Hence it suffered an
almost complete devaluation of its stocks and
laid off three-quarters of its workforce in early
2009. Some of the founders who launched
Speedel in 1998 came from Novartis, which
sold the licence of a promising substance to
Speedel but kept the option to license it back
in the event of good clinical test data, which it
did in 2002. Finally, in 2008 Novartis acquired
and reintegrated Speedel with its potentially
commercially successful drug Rasilez. Basilea
Pharmaceutica was founded in October 2000
and resulted from Roche’s decision to abandon the areas of antibiotics and dermatology.
Basilea Pharmaceutica started with approximately 100 employees. Roche provided generous start capital to the new company, holds a
minority stake and keeps options concerning
the global development and marketing rights
of selected active substances (Roche, 2000a;
Actelion, 2009; Arpida, 2009, p. 9; Novartis,
2009a, p. 90).
These enterprises are characteristic of
the new pharmaceutical and biotechnology
sector in the region of Basel. They all have
industrial backgrounds, contrary to most
new biotechnology firms in, for example, the
regions Boston, San Diego, Cambridge (UK),
Munich or Zurich. Their founders could bring
advanced drug development projects along
with them which Novartis and Roche dumped
from their portfolios for strategic reasons.
On this basis, it was comparatively easy to
convince venture capital firms and other
investors of the future prospects of the new
firm. Novartis and Roche supported numerous promising Swiss start-ups with their own
venture funds, although the largest portions
of their funded firms are located in the biotech
arenas of Boston, the San Francisco Bay area
and San Diego.
The corporate activities located in Basel
rank among the strategically most important,
not only in research but above all in development. Interestingly and contrary to the myth
of deindustrialisation, this is even true in
manufacturing. Roche continues to operate
strategically crucial chemical manufacturing
plants in the city of Basel. Roche even established a further biotechnology manufacturing
plant in Basel worth 400 million CHF for
the production of the successful cancer drug
Avastin and other monoclonal antibodybased drugs. In June 2009, Roche inaugurated
a manufacturing plant for the production of
sterile ampoules and syringes in the suburb
of Kaiseraugst which will replace an outdated
building in Basel. The investment amounts to
CHF 300 million (Roche, 2006, 2007, 2009d).
Novartis operates one of its most important
chemical plants in Schweizerhalle, adjacent to
Basel, and its strategically crucial launch site
for new drugs in Stein, only about 30 kilometres
away from its headquarters. This plant will be
extended too within the next few years.
By launching further extensive investments,
Novartis and Roche underscore the strategic
significance they attach to the Basel area.
Novartis is transforming its complete corporate site in Basel into a research campus to be
completed in a first step in 2015. Novartis has
announced its intention to spend more than
US$2.6 billon on this industrial and urban
restructuring through to 2015 and to transfer
production facilities from the campus to other
sites in the Basel region (Novartis, 2009a,
p. 77). Roche will also completely reshuffle its
site during the coming years. Many administrative and research-oriented activities will be
unified in new buildings. Moreover, Roche is
investing CHF 250 million in a new research
and development building which in 2011 will
become a centre for researching and developing methods of formulating active ingredients
into tablets, capsules and injectables as well
as the manufacture of clinical trials samples
(Roche, 2009b, p. 17, 2009c).
The waves of restructuring since the 1990s
have reinforced the Basel region’s role as a
globalised pharmaceutical and biotechnology arena. The amplified rationalisation and
innovation pressure as well as radical organisational changes have triggered ‘windows of
opportunities’ leading to a new configuration
of the industry in the region. Novartis and
even more so Roche have transformed themselves from chemical-pharmaceutical firms
into biopharmaceutical corporations. Roche
claims to be the largest biotechnology firm
in the world. Whereas once the large, vertically integrated chemical and pharmaceutical
giants almost exclusively shaped the labour
market and the innovation processes in chemistry and molecular biology, biotechnology
companies—some founded as spin-offs of the
large firms—have participated in the regional
innovation arena since the mid 1990s. The
transformed biopharmaceutical industry
shapes the regional economy just as the
classical chemical-pharmaceutical industry
once created its specific location conditions
in the region of Basel. This trajectory of
geographical industrialisation (Storper and
Walker, 1989) did not occur on an isolated
regional scale, but was transnationally interconnected. The global innovation and manufacturing organisation of large corporations
as well as their networks with collaborating
partners have decisively shaped various
regional development trajectories. The following presentation of the Basel-based pharmaceutical companies’ relations with their
locations in New Jersey and Boston illustrates
this interconnected regional development.
4.2 Early Anchoring in New Jersey and
Regional Transformation
The reg ion between New York and
Philadelphia was the cradle of the pharmaceutical industry in the US in the early 20th
century. Most of the big US pharmaceuticals
have their origins there or later located important facilities there. Almost all European
chemical and pharmaceutical companies
located their first US research centres in this
region (see Noponen, 1993; Feldman and
Schreuder, 1996; Schreuder, 1998). In the
course of their internationalisation, Swiss
chemical and pharmaceutical firms expanded
to the US very early. Hoffmann-La Roche
had already established a fully integrated site
with production, development and research
in Nutley, New Jersey, in the 1930s. CIBA, too,
erected its pharmaceutical research laboratories in Summit, New Jersey, in 1937, after
it had already built local production in New
York in the 1920s. During the 1950s, following
strong economic recovery and diversification,
the companies’ internationalisation and spatial extension processes strengthened. Geigy
opened its pharmaceutical research infrastructure in Ardsley, approximately 15 miles
north of Manhattan, between 1959 and 1962.
In 1964, Sandoz opened a research centre at
the same location where it had a manufacturing
plant, in East Hanover, New Jersey (Zeller,
2001, pp. 134–155).
Roche’s launch of the Roche Institute of
Molecular Biology (RIMB) in Nutley in
1968 was scientifically and symbolically
important. Roche consciously created spatial
proximity to the emerging molecular biology industry in the US. RIMB researchers
were the first to isolate pure interferon alpha
proteins in 1986. Roche Nutley and the south
San-Franciso-based Genentech jointly developed a genetically engineered version of
interferon alpha. Based on these innovations,
Roche launched the drug Roferon A in 1986
and built a specialised biotechnology manufacturing plant to produce the drug in Basel
(Soltanifar, 1996). Over the course of a further
internationalisation push in the mid 1980s,
all three companies—Ciba-Geigy, Sandoz
and Roche—heavily expanded their existing
research centres in New Jersey, each spending several hundred million US dollars. The
companies increasingly began to co-ordinate
more strictly the organisation of their R&D
facilities internationally and to transform the
up-until-then relatively strong autonomy of
the US centres into a more explicit division
of labour corresponding to the therapeutic
areas. The research institutes in Summit,
East Hanover and Nutley established dense
networks with emerging biotechnology firms
in the US. Emphasising the importance of the
US location and the North Atlantic information flows, Jürgen Drews, Roche’s global
head of research and development, moved to
Nutley in 1990, from where he led his organisation until 1995 (Peyer, 1996; Zeller, 2001).
Ciba-Geigy and Sandoz were neighbours
in Basel and New Jersey—only a quarter of
an hour separates Summit and East Hanover
by car. This fact substantially facilitated the
merger process in 1996 and 1997. As a first
step, the research organisations merged only
on local levels, without undertaking large
transAtlantic shifts of activities and groups.
Research activities were concentrated at the
former Ciba-Geigy site in Summit, whereas
development was consolidated at the former
Sandoz site in East Hanover. This procedure
was chosen because the interactions within
both functions were much more intensive
than between them. Moreover, the Summitbased researchers’ contacts with their colleagues in Basel were much more intensive
than those with their pre-clinical and clinical
development colleagues in neighbouring
East Hanover. In this way, Novartis reduced
the risk of losing too many employees who
did not want to change their place of residence. The group leaders’ very high travel
expenditures, however, were the price for
this integration method, because regular
direct ‘face-to-face’ contact is indispensable,
despite the best electronic communication
technologies.1 No international team can be
properly formed by communicating through
electronic media alone, because of the misunderstandings that can arise due to cultural
and linguistic differences.2
Four years later, Novartis started further
rationalisation and spatial concentration. In
September 1999, Novartis announced that it
would expand its research complex in East
Hanover at a cost of US$100 million and
would close the research centre in Summit by
2004. In July 2000, Novartis sold its research
centre in Summit to New Jersey neighbour
Schering-Plough. Novartis planned to move
its discovery units and about 500 employees to
East Hanover. Until then, Novartis and CibaGeigy had been the most important tax-payers
in the town of Summit (more than 25 per cent
of the budget). Likewise, Summit had been
Ciba-Geigy’s most important pharmaceutical
site in the US since 1937 (Loder, 1999a, 1999b;
Silverman, 1999a, 1999b; Novartis Pharma,
2000; Schering-Plough, 2000).
Novartis’ integration strategy underlines
the importance of keeping and creating spatial proximity with qualified people. By the
same token, organisational, cultural and relational proximity with other major corporate
research centres had to be improved (Zeller,
2004). Novartis’ presence in East Hanover
remained strong, with about 4300 employees
in 2002 (Silverman, 2002b). However, in the
same year, when Novartis decided to erect a
big new research centre in Cambridge adjacent to Boston and to reorganise its entire
global research organisation, the situation
again changed for its New-Jersey-based
research organisation. Instead of shifting
research activities from Summit to East
Hanover, important research units and their
heads (around 100 to 130 persons) moved to
Cambridge (May, 2006).
In New Jersey, Novartis’ move to the
Boston area was perceived as an expression
of a broader tendency in the pharmaceutical
industry, resulting in a weakening of the state’s
traditional position as the nation’s pharmacy.
Although other large foreign pharmaceutical corporations such as Sanofi-Aventis and
Novo Nordisk increased their presence in New
Jersey in the same period, and even Novartis
recruited about 250 research-related employees to its East Hanover campus in 2006, a
longer-term observation revealed that New
Jersey had lost 11 per cent of its pharmaceutical jobs from 1990 to 2007, a period when
industry employment grew almost 40 per cent
nationally. New Jersey’s share of the nation’s
workforce in the pharmaceutical industry
sank from 20.2 per cent in 1990 to 13.1 per
cent in 2008 (Silverman, 2002a; May, 2006;
Peterson, 2009).
Whereas manufacturing jobs had partially moved to cheap-labour southern US
states in the 1990s, the relative weakening
of New Jersey’s position in pharmaceutical
and biotechnological research occurred in
favour of the expensive San Francisco Bay
area, San Diego and Boston. Apparently New
Jersey cannot compensate for the advantages of these regions’ knowledge pools by
paying grants to large pharmaceuticals that
encourage them to create jobs. Novartis, for
example, received $5.8 million to broaden its
US headquarters in East Hanover and SanofiAventis received $8.1 million under two grants
awarded since 1997 to extend its Bridgewater
facilities (Silverman and Fitzgerald, 2004).
The economic downturn starting in 2007
hits New Jersey stronger than its other pharmaceutical regions. Several pharmaceutical
companies including Novartis and Roche
announced job cuts in the state. Roche will
close its manufacturing plant in Nutley, with
a loss of 400 jobs, and is even considering
moving its North American headquarters to
south San Francisco after it has completed the
integration of Genentech. Merck’s acquisition
of Schering-Plough, both based in New Jersey,
and New-York-based Pfizer’s acquisition of
New-Jersey-based Wyeth will considerably
reduce the pharmaceutical workforce in New
Jersey (von Schaper, 2008; Morley, 2009;
Peterson, 2009).
4.3 Boston: A Rising, Globally
Interconnected Biotech Arena
With its universities, hospitals, financial
organisations and high-technology tradition, the Boston region together with the
San Francisco Bay area has become the most
important biotechnology cluster in the US. In
the past two decades, Cambridge, the location
of Harvard University and the Massachusetts
Institute of Technology, has transformed
itself into the area with the highest density
of biotechnology-related research activities in
the world (MBS and BCG, 2002; Owen-Smith
and Powell, 2004; Lazonick et al., 2007; Porter
et al., 2006). Yet in contrast to Basel and New
Jersey, the Boston area was not a traditional
chemical and pharmaceutical region. The
new technological capabilities developed out
of strong research organisations and were
based on an increasing capital inflow from
the federal government (especially through
the National Institutes of Health), large
pharmaceutical corporations and venture
capital. No other metropolitan area received
more NIH funding than Boston. The greater
Boston metropolitan area was second after
the San Francisco Bay area in venture capital
investments for biotechnology between 1995
and 2008 and received a huge capital inflow
through corporate collaborations between
1996 and 2001 (Cortright and Mayer, 2002;
Lazonick et al., 2007, p. 16; Zeller, 2010b).
The Basel-based pharmaceuticals have been
in touch with firms and research organisations located in the Boston area since the
1980s. Sandoz entered into a collaboration
agreement with biotech pioneer Genetics
Institute in 1982. The blood growth factor
Leucomax, the first recombinant drug introduced by Sandoz in 1991, was an outcome
of this early agreement. By entering into
collaboration with the Dana Farber Cancer
Institute, Sandoz significantly reinforced its
activities in oncology. Collaborations with
Procept and Biotransplant starting in 1993
emphasised Sandoz’s ambitions in transplant medicine. Novartis continued the early
activities of Sandoz mainly in the fields of
immunology and transplant medicine. In May
2000, Novartis entered into a strategic alliance
with Vertex Pharmaceuticals. This $800 million discovery agreement implied an intensive
knowledge transfer in the field of protein
kinases (Zeller, 2002). Hoffmann-La Roche
was more oriented towards the San Francisco
Bay area, establishing a close strategic alliance
with Genentech in 1989 and acquiring Syntex
in 1994. Nevertheless, it increasingly became
active in the Boston area, entering into collaborations with Millenium Pharmaceuticals
in 1994, LeukoSite in 1996, ArQule in 1996
and 2004 and other companies (Zeller, 2003).
The most significant boost for the Boston
area’s biotechnology industry and far-reaching change for Novartis’ research organisation
were triggered by Novartis’ announcement
on 6 May 2002 that it would establish a big
research centre in Cambridge just adjacent
to MIT. Novartis leased laboratory facilities
from MIT and additionally reshuffled an old
candy factory. In a first step, Novartis invested
$250 million and announced it would spend
up to $4 billion within the next 10 years to
operate the new research centre. The new
Novartis Institute for Biomedical Research
(NIBR) began its operations in July 2003.
Novartis recruited an award-winning academic to lead the institute: Mark Fishman,
formerly chief of cardiology and director
of cardiovascular research at Massachusetts
General Hospital. Fishman’s nomination was
a conscious step to improve the recruitment
of good research unit heads, scientists and
technicians (Krasner, 2002; MIT News, 2002;
Novartis, 2002). The Financial Times quoted
Novartis CEO Vasella: “We concluded that the
biggest pool of untapped top scientists and
hospitals was in the Boston area” (Griffith,
2002). Novartis also chose Cambridge because
it expected better chances there to rejuvenate
its research culture, compared with a traditional pharmaceutical location. Novartis’
reorganisation of its research organisation
and its taking on an academic cardiologist
without business experience to set its future
research priorities reflect the fundamental
challenges of the innovation deficit faced by
the pharmaceutical industry (Whalen, 2005).
The effects on the internal research organisation were far-reaching. Fishman became the
global head of its pharmaceutical research
organisation regrouped in the NIBR and even
a member of Novartis’ executive committee.
The majority of the Therapeutic Areas and
Platform Technology units now report to a
head in Cambridge; some units are composed
of researchers in different locations, others are
located only in one centre. Novartis’ current
research organisation is based on a strong flow
of money, personnel and knowledge between
Basel and Boston, as well as between these
two places and the other in-house research
operations and with numerous collaboration
partners. The exchange of knowledge and
experiences among collaborating employees working in different locations remains
an important challenge. Under Fishman’s
leadership and based on advances in genomics, the NIBR began to change its discovery
philosophy, emphasising more than before
the molecular pathways central to diseases.3
In January 2004, the NIBR formed a
Strategic Alliances unit. This Cambridgebased group is responsible for establishing collaborations with academic research
organisations and biotechnology firms on
pre-clinical programmes and early-stage
technologies. Once a compound reaches
human clinical study, the Basel-based Pharma
Business Development and Licensing Group
takes the lead (McCarthy, 2004). Novartis has
built strong ties to local academic research
institutes and biotech companies, notably
with the Broad Institute of MIT, Harvard
and the Dana Farber Cancer Institute as well
as local biotech and pharmaceutical firms
such as Idenix, Infinity and Alnylam. It has
also started collaborations with firms located
elsewhere, such as Munich-based MorphoSys.
Thus, while the global external research
network is led from Cambridge, the more
advanced steps in the drug development path
and the related external networks are guided
from Basel.
After the acquisition of Chiron Corporation
and the establishment of a new vaccines and
diagnostics division, Novartis moved the new
division’s headquarters to Cambridge, also in
2007. The vaccines and diagnostics division
inaugurated a new virology research section
in September 2008 which employs around
220 research and development scientists
(Novartis, 2009a, p. 77). In 2009, Novartis
even announced plans to expand further and
to build a new research facility adjacent to
the MIT. Meanwhile, Novartis increased its
workforce to 1500 employees in Cambridge
(Hillman, 2009; Ross, 2009). Novartis became
Cambridge’s largest corporate employer in
2007 (Heuser, 2006; Hillman, 2006).
Novartis is not alone in expanding its
research activities in Boston, but it has
undertaken the largest and most impressive
step in the industry so far. Madison,
New-Jersey-based Wyeth arrived in 1992
when it acquired the biotech firm Genetics
Institute. It employs about 800 people in its
Cambridge research lab and almost 2000 in
a biotech manufacturing plant in Andover,
30 miles north of Boston. New-York-based
Pfizer opened a small drug technology centre in Boston in the late 1990s. Merck & Co.,
also headquartered in New Jersey, opened a
research centre in Cambridge in 2004 and
plans to double its workforce from 300 to 600.
British-Swedish AstraZeneca started research
operations designed for 400 employees in
neighbouring Waltham in 2003. AstraZeneca
has been gradually swelling its head count
to around 1000 in 2009 and plans to expand
further. Schering-Plough from New Jersey
opened research facilities for 200 scientists
in October 2006. French Sanofi-Aventis has
operations in Cambridge and is considering
increasing its local presence. Other companies, including Amgen, Organon, Crucell
and DSM Biologics, have also announced
plans to establish research centres in the area
(Merck, 2001, 2002; Krasner, 2002; May, 2006;
Lazonick et al., 2007, p. 18; Donnelly, 2009).
Thus, the oligopolistic rivalry for access to the
regionally concentrated knowledge pool and
the rivals’ tendency to imitate corporate strategies additionally multiply the capital inflow.
Not surprisingly, Novartis’ massive expansion
and the rivals’ investments have considerably
influenced the labour and real estate market
in the area. Smaller biotech companies feared
difficulties in recruiting or keeping their key
personnel and were partially forced to seek
less expensive lab and office space in more
peripheral locations. Additionally, expensive
housing prices increasingly became a problem (Aoki, 2002, 2003; Ross, 2009). Because
manufacturing is weak, regional employment
growth has been limited and very selective.
These effects on the local labour market, the
lack of affordable housing and resulting gentrification processes (Sable, 2007) reveal how
industrial dynamics on a transnational scale
can have contradictory effects on a local scale.
In a long-term evolutionary perspective, it
can be argued that the absence of traditional
large pharmaceutical firms favoured the rapid
growth of biotechnology in Boston. Whereas
in Basel and New Jersey the labour market and
the industrial culture were largely shaped by
big pharmaceutical corporations, new scientific and technological paradigms could more
easily develop in the Boston area outside this
industrial context. However, public technology funding has been decisive for Boston’s
transformation and rise.
5. Conclusion: Corporate
Networks Linking Urban Regions
Economic, institutional and technological
changes have favoured a selective vertical disintegration in the combined pharmaceutical
and biotechnology industries which is parallelled by new forms of spatial organisation of
the entire value creation process. The emergence of a pharma-biotech complex is accompanied by new types of large firms embedding
in regionally concentrated knowledge pools.
They combine massive in-house investments
with the weaving of extended networks linking knowledge-producing actors.
Novartis and Roche rely on a well over 100year anchorage in the social contexts of the
Basel region and they have also been embedded
in New Jersey since the 1930s. In building a big
research centre and locating its pharmaceutical
research headquarters in Cambridge, Novartis
took a massive step towards establishing new
network relations with numerous knowledgeproducing actors in a dynamic regional
biotechnology arena. Large corporations create
and lead networks that link different actors
working and living in regions where these
companies and their collaborative partners
are located by setting up their transnational
administrative, research, development and
manufacturing organisations there.
These networks are geographically uneven
and selective. The major pharmaceutical
headquarters are located only in a few regions
in the world. Similarly, there are only about
20 biotech regions world-wide. In some cases,
these are the same regions (for example,
Basel, New Jersey) where pharmaceutical
companies have been located for a long time.
Other biotech regions are not shaped by a
long history of chemical and pharmaceutical
industry (for example, the San Francisco Bay
area, San Diego and Boston). By embedding
in localised innovation arenas, the transnational corporations internalise externally
produced knowledge not only through formal agreements and purchase contracts, but
also based on their market power and other
relationship forms, such as the recruitment of
local specialists and informal exchanges over
the course of common research projects with
local institutions.
The large pharmaceutical companies strive
to be influential players in a regional biotech
arena and try to weave themselves into the
social contexts relevant for the acquisition of
knowledge. They rely on recruiting skilled and
highly qualified employees and on the knowledge that is produced by and embodied in
the employees through their social relations.
They observe the technological development
carefully, establish intensive relationships
with key protagonists and scientists, attract
talented people, shape the technological
development and merge their own expertise
with locally created expertise (Zeller, 2003,
2004). Large companies shape the economic
development in these biotechnology regions
through their strong presence. In short, they
create their own environment (see Storper
and Walker, 1989). However, in connecting
different regions through flows of money,
personnel, goods and knowledge, they shape
their key locations’ and collaboration partners’ regions in an interrelated way. Thus,
they interconnect the regional development
and the path dependencies. More generally
expressed, this means that industries connect
the development trajectories of regions.
To be specific, the Basel-based chemical
and pharmaceutical companies contributed
to New Jersey’s development as the US ‘pharmacy’. In parallel, their early presence in the
US helped them to reinforce Basel as a major
chemical and pharmaceutical hub in Europe.
Almost 70 years later, by massively investing
in Cambridge, Novartis contributed to the
Boston area’s growth, partially at the expense
of its locations in New Jersey. Novartis’ partial
move from New Jersey to Boston also reflects
broader economic tendencies. Whereas New
Jersey’s economy is a result of the long-lasting
presence of large chemical and pharmaceutical companies, Boston has experienced a farreaching economic renewal in the past three
decades (see Glaeser, 2005).
In the context of global oligopolistic rivalry,
strategic investments and their regional consequences often provoke multiplying effects.
The invasion of large pharmaceutical companies in the Boston area, either through their
own investments, by takeovers or by entering
into strategic alliances with local firms, additionally reinforced the regional knowledge
base. Thus, regional development trajectories, rejuvenation of industries and regional
rejuvenation are to a considerable extent the
result of specific corporate networks and
productive relations. On the other hand, the
attractiveness of the Boston biotech cluster
is also a result of its strong publicly funded
science base and a globalising labour market
where the best and the brightest from all over
the world come to study (Sable, 2007, p. 44).
To generalise, it can be concluded that key
industries’ strong corporate networks result
in the globally combined or interdependent
development of urban regions. The economic
development of highly interwoven urban
regions not only springs from their own history and regional economic conditions, but
also depends on other regions’ dynamics.
Thus the challenge is to conceptualise research
on regional development and globalising
urban regions in a framework that explicitly addresses this uneven and interrelated
development that can have cumulative effects,
as has been shown with the oligopolistic
‘invasion’of large pharmaceutical firms in the
Boston region.
Large firms increasingly compare their
facilities as well as existing and potential locations to each other. Benchmark reports are
supposed to help in identifying productivity
improvements. Large firms promote interregional competition trying to drive down costs
(Christopherson and Clark, 2007, p. 1233). In
parallel, discourses of ‘regional’ competitiveness influence policies of local, regional and
national political authorities. Consulting
firms establish benchmark reports comparing
cities and regions with ‘similar’ competitive
urban regions. Often regional authorities
would like to emulate successful regions.
However, such attempts neglect the historical
development paths and resulting economic,
social and institutional conditions offering
specific ‘windows of opportunities’. The
interdependent urban development, strongly
influenced by large corporations acting at
almost all scales, raises a more fundamental
question. How can local communities and
workers living in different but highly interwoven cities, design shared perspectives about
the economic development in their regions?
Notes
1. Interview with Daniel Hauser, Head of Preclinical
Research Novartis Pharmaceuticals Corporation,
former President of Sandoz Research Center, East
Hanover, New Jersey, conducted by Christian
Zeller, 22 September 1997.
2. Interview with Alan Main, Head of Research
Novartis Pharmaceuticals Corp. U.S., Summit,
New Jersey, conducted by Christian Zeller, 19
September 1997.
3. Interview with Frances Heller, Head of
Strategic Alliances, NIBR, Boston, conducted
by Christian Zeller, 20 April 2005.
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The Pharma-biotech Complex and Interconnected Regional

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