Report sees jackpot with BioCrossroads, but expert sees obstacles

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The devil's always in the details.

That's why three months after launching an initiative to boost drug-development firms in Indiana, officials at BioCrossroads
have written a report that attempts to show in detail the vast market opportunity they see.

The report, to be released Feb. 4, focuses on the conglomeration of firms that provide services to both large pharmaceutical
companies, such as Indianapolis-based Eli Lilly and Co., and tiny biotech firms, such as West Lafayette-based Endocyte Inc.

Worldwide, those firms make up a $14 billion market, which is burgeoning at roughly 15 percent a year, according to the BioCrossroads
report. There are even backlogs for some services, such as animal studies and other analysis required to get a new drug compound
into human testing.

The growth of the drug development industry plays right into Indiana's hands, said BioCrossroads CEO David Johnson, since
Indiana already has numerous companies in that industry.

"As Hoosiers, I think, we're almost to a fault modest. And we think the big trends of the future aren't going
to happen here … [but] on the coasts," he said. "But this one is here."

Maybe. But one life sciences consultant on the West Coast has his doubts. Joe Cortright, an economist and vice president
of Impresa Consulting in Portland, Ore., said Indiana would have a hard time finding a niche between more established biotech
clusters and the low-cost hot spots, China and India.

"The question that has to be asked [is], 'What's Indiana's competitive position relative to other areas?'"
Cortright said. "As it grows, biotech is becoming more concentrated in just a few centers."

Assessing assets

The report catalogs the more than 40 drug development companies already operating in Indiana. It also highlights five industry
subsectors that are Indiana's biggest opportunities and examines challenges to grabbing this business. Last, the report
discusses how Hoosiers might launch more drug development firms and attract more funding for them.

BioCrossroads officials said they would distribute the report to drug development firms and to biotech drugmakers in San
Diego and similar biotech clusters around the country. They will also give it to life sciences investors, as well as analysts,
lawyers and other professionals focused on life sciences.

Drugmakers both large and small need more help testing and manufacturing biotech drugs, which are more complex than traditional
drugs derived from chemicals. Biotech drugs use living cell cultures to produce the large, organic ingredients that are key
to the drugs.

There are two main forces driving the growth of contract service providers.

First, big pharmaceutical firms are shedding thousands of jobs each, looking to save costs by outsourcing everything from
scientific research to manufacturing to sales.

Pharmaceutical companies announced more than 32,000 layoffs last year. They are desperately trying to cut costs as they approach
the patent expirations on the mega-blockbuster drugs that have sustained the industry for years.

Lilly has cut 5,000 jobs worldwide, including 2,200 at its Indianapolis headquarters, since mid-2004. Its officials have
promised to cut more.

The second driver is a greater need of biotech firms to find partners to help them develop their drugs. Investors have poured
billions of dollars into biotech firms; it typically takes years for any company to reach a point where those investments
pay off.

So biotech firms need to keep themselves as lean as possible by outsourcing nearly everything that isn't focused on their
scientific mission.

Endocyte has partnerships with 30 to 40 companies, company CEO Ron Ellis said.

Since drug development firms from all over the world offer their services to companies like Endocyte, the key problem for
BioCrossroads is finding or creating a distinct advantage for Indiana firms.

"We can run toxicology studies in China, and we can run clinical trials all over the world. Indiana's ability to
be competitive in this has got to be viewed on a global scale," Ellis said. However, he said, it's difficult for
a small company to manage across-the-globe partnerships. He would prefer to have partners closer to home.

Most biotech companies would, said Cortright, the life sciences consultant. That's why the reigning biotech clusters
just keep grabbing a larger share of the pie, he said.

Cortright cited a report that Impresa Consulting and the Brookings Institution wrote in 2002. It showed that as the biotech
industry grew rapidly in the 1990s, the nine leading hubs took a larger share of the pie.

Those metropolitan areas were San Diego; Los Angeles; San Francisco; Seattle; Philadelphia; New York; Boston; Raleigh-Durham,
N.C.; and Washington, D.C.

A more recent study, by Ohio-based consulting firm Battelle, showed central Indiana as the ninth-largest center of "biosciences"
jobs, a category that includes the making of medical devices as well as biotech drugs.

Among states, Battelle said Indiana has the fourth-highest concentration of "biosciences" jobs.

As large pharmaceutical firms outsource more functions that require sophisticated science, engineering or coordination, they
likely will try to keep those functions close to their existing operations, Cortright said.

But for large-scale or routine functions, large pharmaceutical firms are looking to save money, Cortright said. They will
be drawn to China and India before they're drawn to Indiana.

The BioCrossroads report acknowledges that challenge. But it argues that-unlike the offshoring of jobs that has racked Indiana's
auto industry-most pharmaceutical outsourcing will stay in the United States because of drugmakers' concerns about protecting
intellectual property, and about the quality of clinical trials and language barriers in China.

Proving the point

At least one company in Indiana has proved BioCrossroads' case. Cook Pharmica in Bloomington has drawn business from
both large pharmaceutical firms and small biotech firms–even though it's not near any of them.

"The big pharmas that do a biotech component of their business, more and more of them have quietly and now publicly
said that they're going to outsource a lot of that work," said Dan Peterson, vice president of industry and government
affairs at Cook Group, the parent company of Cook Pharmica. "It just matches our strengths perfectly."

That last statement applies both to Cook Pharmica and to Indiana generally, Peterson said. He noted how many former Eli Lilly
employees with expertise in developing drugs, manufacturing drugs and getting them approved by regulators have started or
staffed Indiana's drug development firms.

Cook Pharmica's president, Jerry Arthur, is a former Lilly employee.

Cook Pharmica and BioCrossroads have worked to establish deep connections in San Diego, perhaps the nation's single richest
cluster of small biotech firms focused intently on discovering new drugs.

In May, BioCrossroads co-sponsored a conference in San Diego with CONNECT, San Diego's biotech development group. Panelists
discussed how drug development firms in Indiana could help San Diego's firms bring the drugs they discover to market more
quickly and less expensively.

San Diego officials have said the price of labor and land in California drives up expenses for things like manufacturing
small batches of drugs. But costs are markedly lower in Indiana.

BioCrossroads has interviewed candidates to work for it in San Diego and intends to name a representative within weeks. The
latest BioCrossroads report will be one of the main exhibits in that person's sales kit.

Five areas are most ripe for growth, the report states. Those are: analytical chemistry services; "proof-of-concept"
services, such as studies into how a person absorbs or breaks down a drug; preclinical trial services such as toxicology,
bioanlytical and animal studies; contract manufacturing, such as Cook Pharmica does; and services needed after a drug hits
the market, such as adverse-event reporting.

The report identifies the assets Indiana already has, counting 43 companies in and around Indianapolis, Lafayette, Bloomington,
Seymour, Evansville, Terre Haute and Elkhart. Those companies employ nearly 8,300 workers.

Johnson hopes the report helps get Indiana's companies and outside investors all focused on the same market opportunity.

"It's very important that we have the same opportunity in mind," Johnson said. "And somebody from the
outside needs to know what they'd be investing into."

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