Good reasons for biotechs to use local Massachusetts CROs/CMOs

The New England CRO/CMO Council’s town hall meeting with Travis McCready, newly appointed head of the Massachusetts Life Sciences Center (MLSC), and Michael Kennealy, the Assistant Secretary for Business Growth in the office of Housing and Economic Development headed by Secretary Jay Ash, was a success, judging by the attendance and the quality of the conversation among McCready and Kennealy and council members.

Executives from approximately 30 companies were able to introduce themselves and their companies to McCready and Kennealy, and had a productive exchange about the business landscape of contract research organizations (CROs) and contract manufacturing organizations (CMOs). The companies represented work across a range of specialties from drug discovery to finished drugs and from small to large molecules, have a global client base, and employ more than 1,600 people in the area.

One attendee represented a biotech incubator occupied by 24 biotech companies including six CMOs.  Most of the attendees were founders who bootstrapped their companies, which ranged in size from small consulting groups to firms with hundreds of employees.

Undergoing Change & The Need for Modest Incentives

Ed Price, president of PCI Synthesis and a steering council member of the NE CRO/CMO Council, introduced the town hall meeting by noting that over the last eight years, the industry has undergone significant changes. Price made the point that, “there has been a consistent push to be as capital efficient as possible, which means outsourcing expertise” instead of hiring experts to be on staff.

The challenge Price said, is that the $1 billion incentives offered in the Massachusetts Life Sciences Center do support the state’s growing CRO/CMO cluster. “We’re looking for modest incentives to help drive more business locally rather than have companies go outside of Massachusetts to do the work we can do.” What’s discouraging, Price said, is that companies that established here because of Massachusetts’s investment and the Mass Life Sciences Center’s programs often spend their R&D dollars outside the region – even though there are many CROs and CMOs in the state who have the necessary skills and expertise.

“Those monies could just as easily be spent inside Massachusetts, which would spur additional hires and tax revenues,” Price said.  “We could create a better R&D ecosystem, with local companies growing through investment in the region, generating payback for the state.”

Several of the business executives pointed out that Switzerland is not a low-cost center but the tax incentives offered by Switzerland offsets the costs, making it difficult for local CROs and CMOs to be competitive. In fact, according to another executive, lots of foreign governments make it easier to receive incentives that can be the equivalent of a 40 to 50 percent discount. Some, including Canada and Australia, require recipients to spend the money first inside their countries.

McCready, who was appointed head of the Mass Life Sciences Center in September 2015, open his remarks by agreeing that, “the game has very much changed since 2008, when the Mass Life Science Act was enacted.” He acknowledged that tax incentives would help local CROs/CMOs but said there is no statutory reason to prevent the Mass Life Sciences Center from providing grants to them, adding in a point that was disputed by council members, that “CROs and CMOs have received a significant percentage of Mass Life Science grants.”

Beyond Grants

Jeffrey Kiplinger, founder and president of Averica Discovery in Marlborough and a co-founder of the council with Price, noted that, “Most of the incentive programs listed in the statute were aimed 10 years ago at attracting big pharma companies, and that made sense then. CROs and CMOs weren’t on the state’s radar.  For example, there’s a tax credit in the statute that pays a company back part of its R&D investment, but never says anything about spending locally.”

McCready agreed that it was time to look at “tweaking” the current incentives.

Kiplinger added, speaking for many of council members, “I’d just like to be able to meet with a local company we work with and say ‘Did you know there’s a tax break for doing business with us’?  It doesn’t have to be a big percentage, it’s the statement alone that’s powerful.”

Local Expertise

“We have the expertise. It’s not the technology or value proposition of the local CRO/CMO hub,” said another attendee, “but we could use more support,” which could include training programs and assisting with internships, which can have tremendous impact on students and companies. By way of example, several attendees mentioned that CRO/CMO have seen strong jobs growth but those jobs are not necessarily counted as part of the MLSC’s census of the local economy.

Summarizing the session, Price said, “We have three things that we need the help and support of the Mass Life Sciences Center and from Secretary Ash’s office: First, we need to write new, modest incentives that reward Mass based pharma companies when they do their development/manufacturing with local CROs and CMOs. Second, we need to better understand how many CRO/CMO jobs there are and if they are being counted towards the number of life science jobs in the state. And, third, we need the MLSC and the Economic Development office to better promote the local robust and diverse CRO/CMO sector – which many pharma companies are unaware even exists.”