Tobacco launched a life sciences industry

Tobacco launched a life sciences industry

By Emery Dalesio

The sportscasters call it “Tobacco Road,” the short hops between three basketball-crazy North Carolina research universities. Never mind that the 1932 novel, the basis for a long-running Broadway play and film, was set in Georgia.

It’s “Tobacco Road” because it was tobacco that did the most to build the University of North Carolina at Chapel Hill, Duke University and North Carolina State University. The state’s wealthy tobacco plantation class established the country's first public university in Chapel Hill the same year George Washington became president. Duke took the family name of a monopolist who pioneered factory-rolled cigarettes. North Carolina State University researchers, who long studied how to better grow and cure tobacco for smokes, now explore medical uses for the leaf.

But even while North Carolina’s politicians defended the crop for decades after its harmful health effects were known, they launched an experiment in technology commercialization that created one of the country’s foremost centers for life sciences and human health care.

State, university and business leaders took a leap a half-century ago to shift the local economy away from low-wage industries into burgeoning high-technology companies. The three big research schools form the points of a triangle that gave its name to Research Triangle Park, a business center among acres of pines dedicated to luring knowledge-based corporations to land between the colleges and their allegiances.

A life sciences center

Thanks to the RTP and generations of entrepreneurs who have formed or moved more than 500 companies, the region is one of the country's biotechnology leaders. North Carolina ranked third in employment among all states in drugs and pharmaceuticals manufacturing, the Battelle Technology Partnership Practice reported in January. The state ranked eighth in jobs involved in R&D, testing and ¬¬medical labs, the report said.

Dozens of Triangle companies concentrate on vaccine research and production. Some are developing vaccines against cancer, rabies, malaria and other diseases. Merck and Novartis vaccine production plants employ hundreds of workers each.

The area is a hotspot for drug discovery and production. GlaxoSmithKline, which has played a central role in the region’s growth, employs more than 4,000 at R&D, administrative and manufacturing operations. Fellow drug-maker Biogen Idec has production and administrative functions in the area. Novo Nordisk makes diabetes treatments.

The drug discovery reputation also comes from more than 100 contract research organizations, companies that run and record human drug trials for the firms that own the compounds. Durham-based Quintiles Transnational, the world’s largest drug-testing outsourcer, raised $947 million when it went public for the second time in its history with an IPO in 2013. The company has 28,000 employees worldwide, including nearly 2,300 in the Triangle.

A draw for companies, talent

Access to the cluster of human health companies and their skilled workers drew Heat Biologics to Chapel Hill from Miami in 2011.

“We thought that there would be a much better pool of biotech talent here than there is in South Florida,” said founder and CEO Jeff Wolf, who hired five of the company’s seven employees since moving to North Carolina.

Wolf jumped from running an investment firm focused on forming and managing new biomedical companies to heading Heat Biologics, which aims to develop broad vaccines to treat lung and other types of cancers using licensed research developed at the University of Miami. The CEO said the relocation involved considering “a bunch of places,” including New Jersey, Boston and the Bay Area.

“We wanted something in somewhat close proximity to where the research is in Miami. We were looking at talent. We were looking at cost of living. We were looking at a place with the ability we could recruit people to,” Wolf said.

The Triangle seemed the best option because its lower cost of living and evergreen environment could lure recruits, while operating costs would be lower than in larger metro areas, he said. North Carolina ranked second-lowest in the country for cost of doing business —best among leading bioscience clusters — and ninth for growth prospects, Forbes reported in September.

The Triangle’s life sciences scene is typified by hundreds of growing startups seeking their niches rather than a big name like Genentech in San Francisco or Genzyme in Boston, said Firas BenAchour, cofounder and former CEO of Diagnosoft Inc., which developed software that analyzes cardiac MRIs. He now advises young entrepreneurs in the Middle East and Africa on how to grow startups.

The growth of the region’s life sciences companies got rolling when U.K.-based drug-maker Wellcome PLC’s U.S. subsidiary, Burroughs Wellcome, became the first international company to locate in RTP in 1970. Pharmaceutical rival Glaxo placed its U.S. headquarters just one mile away in 1981. While the companies tapped the research inside the universities, a cooperative state government made supercomputers available to them.

Glaxo, focused on developing blockbuster drugs, in 1995 bought Burroughs Wellcome, which built its reputation on superb basic research. Glaxo gave Wellcome scientists sweetheart deals to take their research and move on, launching dozens of startups, said Dennis Dougherty, who founded venture capital firm Intersouth Partners nearly 30 years ago to focus on life sciences startups.

“You had a thousand top-quality scientists from Burroughs Wellcome available,” he said. That sudden change in pharma job fortunes came on top of the three universities greatly expanding their efforts to license new technologies developed by academic researchers.

“Scientists became risk-takers and innovative ideas became small companies,” Dougherty said. That acceptance of risk is not universal in the conservative South, he said.

“We tried to hire employees for this company in Knoxville and it’s very, very difficult to get employees to leave the safety of the big company and come to work for the startup company, no matter how much the stock will be worth some day. They don’t have enough examples of success,” Dougherty said. But in the Triangle, “we have an environment where top employees will go to work for a startup company and not think twice about it.”

Lack of money, success stories

While the Triangle is fertile ground for life sciences companies, there are few well-known examples of enormous home-grown successes. Though not a household name, Quintiles’ story is well-known in the region. UNC-Chapel Hill biostatistics professor Dennis Gillings started Quintiles as an outgrowth of the consulting he did for pharmaceutical companies. He took a two-year sabbatical in the mid-1980s during which the company doubled, leading him to charge ahead with a vision that would change the pharmaceuticals business.

Now, Triangle entrepreneurs betting they can bring a revolutionary new vaccine or other drug to market know they’re just down the road from experts on how to run the crucial and costly regulatory process, how much it should cost, and how to do it, said Intersouth’s Dougherty.

Gillings, the former university professor, said nothing has been more important to the Triangle’s success in producing companies like Quintiles than the state government’s historically strong support of higher education. Indeed, the state constitution requires that public universities make education free “as far as practicable,” which means some of the lowest tuitions in the country. The universities create “a hotbed of knowledge coming out, in a time when knowledge-based industries are clearly the sorts of industries that are going to be successful,” Gillings said.

According to SCRIP Intelligence, a pharmaceutical industry analysis firm that studied biotech industry hubs around the world, the components needed for a successful biotech cluster include a strong science base, an entrepreneurial culture, a solid core of companies and the ability to attract a skilled workforce. If the Triangle has those covered, nearly everyone agrees the region lags behind Boston and the Bay area in another recommended ingredient: financing.

North Carolina drug development companies trailed those in New England, the Bay area, New York, Pennsylvania, New Jersey and San Diego in terms of capital raised and products in the regulator approval pipeline, according to Ernst & Young’s annual industry report. Dougherty, Gillings, and BenAchour echo a report last year by the Triangle’s Council for Entrepreneurial Development that found the region does not have enough angel investors willing to offer seed money, venture capital to help companies take off and investment banks that help small companies be acquired or go public.

“I’ve never myself raised capital locally,” said Quintiles’ Gillings, who partnered with investors including Bain Capital and Singapore’s sovereign wealth fund to take the company private again in 2003 after its initial, six-year run as a public company. “It’s close to New York and Boston, so if you’re willing to get on an airplane it’s not necessarily a problem.”

Dalesio is a business writer in Raleigh.

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