After a decade of consolidation that led to blended organizations, shuttered R&D facilities and the shedding of tens of thousands of jobs, big pharma is rebuilding its internal pipeline. This time, however, the footprint looks distinctly different. Instead of constructing giant silos focused on carefully defined projects, the industry is fashioning R&D hubs with flexible designs that are close to the ground floor of discovery. Although a variety of models exist, they more closely resemble dynamic clusters of biodiversity than static brick and mortar structures, with the attendant opportunities for reshaping and cross-pollination.

The trends driving the change have been easy to track. With pipelines shriveling, blockbuster drugs losing patent protection and cost pressures squeezing bottom lines, pharmas are seeking whatever competitive advantages they can find to maintain or build market share. Consequently, nearly all have left the mother ship to establish sites near global academic and research hubs.

And the trend has legs, insisted Joel Marcus, founder, chairman and CEO of Alexandria Real Estate Equities Inc., a real estate investment trust that focuses on collaborative science and technology campuses in urban innovation clusters and had a market cap of approximately $9.3 billion as of June 30.

"The trend is huge, and it's been in the works over the last decade," Marcus told BioWorld Insight, citing four key ingredients of biopharma research hubs: a highly skilled work force, a nexus of academic institutions with cutting-edge science, "livable" cities with a 24/7 culture and availability of risk capital.

Although big pharma endured one of the most gut-wrenching restructurings of any industry, companies have, for the most part, come out stronger, with healthy balance sheets, he pointed out. In the meantime, the biotech industry has matured, creating a new class of companies with market caps nearing or surpassing $100 billion.

"All of these are now concentrating in a few hubs," Marcus said. Although it's impossible to see whether the phenomenon will play out over decades to come, "in the short- and medium-term, over the next two, three, five, seven years – maybe even over the next decade – this is a dominant, irreversible trend."

'WE NEEDED TO BECOME CUSTOMER-FRIENDLY'

Whether called innovation centers, R&D hubs or biopharma parks, these clusters serve as "a front door" for entrepreneurs, academic institutions and early stage companies that are seeking partnering opportunities, seed funding and access to people and equipment they can't otherwise afford, observed Ken Drazan, head of Johnson & Johnson (J&J) Innovation LLC's California centers. For J&J, the concept emerged from the company's analysis "of where important discoveries were being made, both inside industry and outside," he said.

J&J recognized that many – perhaps most – early drug discovery work was occurring far from its New Brunswick, N.J., headquarters. "In order to tap into that, we needed to become customer-friendly and local, with a full fleet of capabilities as well as people to work collaboratively with whatever opportunity either came in the door or was just outside the door down the street," Drazan told BioWorld Insight.

Eighteen months ago, J&J began systematically to establish innovation centers in Menlo Park and other technology hubs, including Boston, London and a newly opened site in Shanghai. The move represented "the first important large step forward in establishing a pipeline of activities for all of our business units," he said, including pharma, medical devices and consumer products.

Drazan echoed many of the tenets cited by Marcus, confirming that J&J looks for geographic locations with close proximity to academic institutions, an entrepreneurial "ecosystem," a cluster of emerging companies and availability of private capital.

"You can certainly find other academic clusters in other important cities, and you can certainly find clusters of private capital in other cities, as well, but you can't always get the intersection of all of these assets in one place," he said.

In every instance, however, science trumps the other situational factors, according to Drazan. No market is perfectly optimized for all entrepreneurs and technologies, so J&J helps by seeding those ecosystems. In June, the pharma unveiled a string of equity investments and research collaborations formed through its innovation centers to advance early stage therapeutic, medical device, diagnostic and consumer health programs. (See BioWorld Today, June 20, 2014.)

"We've tried to step in to that void with a variety of tools that we think can help buttress the sector and move certain important inventions and companies forward," he said.

NEED TO ATTRACT TALENT 'DOMINATING THIS WHOLE LANDSCAPE'

But the lemming rush by pharmas and biotechs to conglomerate in research hubs also is creating a new source of competition.

"The winners keep winning, and the losers get short shrift," Marcus said.

He named Cambridge, Mass., San Diego, the Bay Area and Seattle as dominant sites for attracting biopharma talent and resources, with New York and North Carolina's Research Triangle rapidly emerging as contenders. Secondary or tertiary locations, in contrast, are falling out of favor.

"The work force wants to live in these urban innovation hubs," Marcus said. "That's the reality."

Eli Lilly and Co., one of Alexandria's largest clients, read the tea leaves and signed on in 2009 as the first tenant in New York's Alexandria Center for Science and Technology precisely because it faced challenges recruiting young researchers, according to Marcus. The center has grown into Lilly's core cancer research hub, and the pharma subsequently opened a second biotech complex in San Diego.

"They couldn't drive enough new talent into Indianapolis," Marcus said. "That's a fact of life that's dominating this whole landscape."

And the old real estate adage – location, location, location – is creating winners and losers even within the biopharma hot spots. Marcus cited Pfizer Inc.'s exodus from R&D facilities in Groton, Conn., to build up the pharma's presence in Cambridge, Mass., beginning in 2011. But Pfizer quickly decided that just any spot in Cambridge wouldn't do. Last year, the company disclosed plans to relocate more than 500 employees from four buildings in the Alewife neighborhood of north Cambridge to two build-to-suit facilities totaling more than 500,000 square feet in Kendall Square, near the Massachusetts Institute of Technology and Harvard University, where it already had some 400 employees.

"They sold property four miles away because they said it wasn't close enough," Marcus pointed out.

Pfizer isn't an isolated example. In 2012, Swiss drugmaker Roche AG, of Basel, revealed it would consolidate its R&D activities and shutter its mammoth campus in Nutley, N.J., eliminating 1,000 U.S. jobs. With most of the company's U.S. executives already relocated to the South San Francisco headquarters of its Genentech Inc. unit, most of the remaining activities were absorbed by existing facilities in Switzerland and Germany. (See BioWorld Today, June 27, 2012.)

The company subsequently opened a Translational and Clinical Research Center in New York to improve its proximity to research centers such as Mount Sinai Medical Center, Rockefeller University and Columbia University.

"You see a pretty dominant trend," Marcus said.

Boston's Cambridge neighborhood currently has more than 2 million square feet of pent-up demand for real estate from biopharmas, he added, with much of that pressure coming from big biotechs such as Biogen Idec Inc., Gilead Sciences Inc., Celgene Corp. and others. In July, Amgen Inc. – the second largest biotech by market cap – disclosed plans to expand its presence in Cambridge and South San Francisco and to retain its headquarters in Thousand Oaks, Calif., while closing research and manufacturing facilities in the states of Washington and Colorado. (See BioWorld Today, July 31, 2014.)

And just last week, the territory was rumored to be the new home for the R&D operations of Baxter International Inc., which is splitting off its biopharma unit. (See BioWorld Today, March 28, 2014.)

'PARTNERSHIPS AND COLLABORATION DRIVE MEDICAL PROGRESS'

The R&D hub model, largely spawned in the U.S., also is moving overseas. Astrazeneca plc, for instance, is investing in strategic R&D centers not only Gaithersburg, Md. – headquarters of its Medimmune's unit and the primary location for its biologics activities – but also in its home base in the UK and in Sweden.

"A core objective of this plan is to locate more of the company's scientists close to globally recognized bioscience clusters, making it easier to access world-class talent and opportunities for collaboration and partnerships," explained Astrazeneca spokeswoman Karen Birmingham.

Cambridge, UK, like its Boston counterpart, is world-renowned for life sciences innovation, boasting an ecosystem of academic research institutions, medical centers, biotech companies and scientific talent. At the Cambridge R&D hub, Astrazeneca researchers will work alongside counterparts at the Cancer Research UK Cambridge Institute's laboratories, supporting preclinical and clinical projects with the Institute and other organizations.

Astrazeneca also is collaborating with the Medical Research Council Laboratory of Molecular Biology to fund a range of preclinical research projects aimed to better understand the biology of disease, and the company has an agreement with the University of Cambridge and Cancer Research UK for a two-year collaboration on preclinical and clinical oncology projects.

"In a world where partnerships and collaboration drive medical progress, becoming an integral part of the Cambridge ecosystem offers compelling advantages for Astrazeneca," Birmingham said.

The Cambridge site, which is expected to house approximately 2,000 employees by 2016, also will bring together staff from the pharma's small molecules and biologics discovery and development units with individuals from the company's commercial and corporate functions.

'TO GET BIG, WE HAVE TO GET SMALL'

In many ways, R&D hubs help to align a pharma's innovation culture across the organization. Sanofi SA uses its five hubs – located in and focused on innovations in France, Germany, Boston, New Jersey (covering the rest of North America) and Asia – to foster collaboration among its diverse R&D organizations, which include Genzyme, Sanofi-Pasteur, Merial Ltd. and its pharma unit, explained Marc Bonnefoi, who heads the North America R&D Hub for the Paris-based pharma.

"An important aspect of our hub is to ensure that R&D does not innovate alone," Bonnefoi told BioWorld Insight. "Innovation exists in other parts of the company, so the hub helps to increase and foster collaboration between R&D and the rest of the businesses."

Nevertheless, the hub concept prompted Sanofi to move away from an innovation model that was "internally focused" to an open innovation platform that allows the pharma to create or participate in networks to solve challenging problems.

"We see the process more as a way of working and facilitating relationships," he said, noting that the leaders of the company's five hubs meet regularly, review project needs and share resources.

"There are soft aspects of a hub operation," Bonnefoi pointed out. "The hub provides a second dimension – a local dimension – and helps us to reach within the region, where the rubber meets the road."

Staying local also helps pharmas to ensure that their R&D hubs don't mutate into another form of silo.

"We can't cover all the geographies where great, interesting and important things are being developed for consumers and patients," J&J's Drazan conceded. "We also have to figure out how to get our work done between these important centers. Our geographic success is not limited to a few blocks around the neighborhood of where these centers have been established."

Drazan does wonder whether R&D hubs may outgrow the very efficiencies they were designed to create.

"We recognize that, to get big, we have to get small," he said, noting that the average head count at its innovation centers averages just 20 to 35 people. "At a certain number – call it north of 20 but under 50 – you're able to get all the talent you need to scale locally."

Marcus, on the other hand, sees nothing wrong with unbridled growth in those clusters. Ultimately, pure geography will constrain their size, he said, but "densification" could enable many centers to grow for years to come.

"If we talk in baseball metaphors, we're in the early innings in the growth of these hubs," he predicted.

Editor's note: Next week, BioWorld Insight examines another model in which a partnership among a corporate venture, a big pharma and a group of universities is facilitating early-stage technology transfer from academic labs.