the pharma-biotech complex and ... - uni salzburg · university of salzburg, hellbrunnerstrasse 34,...

47(13) 2867–2894, November 2010

0042-0980 Print/1360-063X Online © 2010 Urban Studies Journal Limited

DOI: 10.1177/0042098010377370

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].

The Pharma-biotech Complex and Interconnected Regional Innovation ArenasChristian 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.

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 trans-national 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 concep-tualisation of global cities as global service

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

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 promot-ers 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 learn-ing 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 corpora-tions, 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 pro-duction networks (Henderson et al., 2002; Smith et al., 2002) investigate how enterprises, in shaping the division of labour and trans-national value flows, are forced to embed themselves into specific regional and national supplier and buyer networks and to adapt themselves to specific institutional condi-tions (Dicken et al., 1994). Both, the trans-state 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 rela-tions 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 innova-tive 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 inter-play 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 larg-est 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 inter-nal, international innovation and external collaboration networks to access regionally concentrated knowledge bases. These networks consist of money flows, knowledge and per-sonnel. By establishing such networks, large firms considerably shape the development dynamics in their home regions, in the regions

THE PHARMA-BIOTECH COMPLEX 2869

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 focus-ing 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 concep-tualising 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 reconstruc-tion 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 strate-gies. Necessarily, I restrict the analysis to a few companies and to their research and develop-ment 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 informa-tion 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

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 pharmaceu-tical 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 emer-gence of a pharmaceutical-biotech complex. The third section outlines the historical evolution and the basic features of internal and external formal corporate research net-works. 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 pharmaceuti-cal firms and the industrial dynamics of the combined pharmaceutical and biotechnol-ogy 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 organisa-tion and the emergence of a pharma-biotech complex with its specific geography. A multi-plication 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 own-ership 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 share-holders (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 recip-rocal dependent relations which intercon-nect the small number of large corporations (Caves, 1996, p. 90; Chesnais, 1997, p. 112). The oligopolies increasingly rely on knowl-edge and technologies (Delapierre, 2000). Hence, firms implement specific appropria-tion 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 temporar-ily, 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, outsourc-ing 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, sub-contracting, 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 pat-ents have become a strategic commodity for firms. The explosive expansion of intellectual property monopolies is mainly a result of far-reaching economic and institutional changes (Coriat and Orsi, 2002; Mowery and Sampat, 2004, p. 228). Stronger intellectual property rights promote the trend towards disintegra-tion. They encourage spin-off activity, active licensing markets and arm’s length transac-tions between independent firms (Arora and Merges, 2004).

The technological revolution in biotechnol-ogy has been parallelled by a vast differentia-tion 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 develop-ment power as well as to shut down surplus capacities. The pharmaceutical companies’ second response is to amplify the acquisition and the appropriation of knowledge, tech-nologies and active substances through col-laboration with specialised biotech companies and with publicly funded research institutes. The third response aims towards the exten-sion and reinforcement of intellectual prop-erty monopolies. All three strategies express the efforts of large pharmaceutical firms to appropriate externally produced resources, primarily knowledge, and to establish net-works 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 devel-opments (Figures 1–3). The large pharma-ceutical 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 impor-tant 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 pharma-ceutical 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 biotech-nology regions (Gambardella, 1995; Peyer, 1996; Zeller, 2001; Chandler, 2005). Recently a fourth wave has begun, with the establish-ment 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; Powellet 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 high-tech regions such as Cambridge and Munich, as bioscience mega centres (Cooke, 2004, 2005). In these privileged knowledge- and technology-intensive urban regions, collabo-rating, competing and conflicting actors in specific socioeconomic contexts contribute to localised learning, innovation and exclusion processes. Therefore, I understand these spa-tial concentrations of firms and other institu-tions 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.


Thus, the pharmaceutical biotech complex has adopted a specific geography. Large phar-maceutical and biotech firms systematically

observe technological development at a global scale and acquire promising substances and technologies. By locating their research centres

Figure 2. North America: 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.


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 pri-vate firms, generate the essential technological inputs. Small and mid-size biotech companies

Figure 3. South and east Asia: 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.


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 phar-maceutical 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 understand-able 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 net-works, 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 estab-lished 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 consid-erable 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 deterio-rated. 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 pharma-ceutical companies launched a fundamental strategic reorientation and changed their corporate organisation as well as their R&D and manufacturing processes. Instead of fur-ther diversifying into new markets, it became increasingly important to increase productiv-ity in the corporate core sectors.

In the early 1990s, a broad restructuring wave seized the entire pharmaceutical indus-try (Henderson et al., 1999). The restructur-ing 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 partner-ships, mainly in the US but also in Europe, had to be integrated. Trying to find an opti-mal way to integrate the R&D organisation functionally and geographically, research activities were regrouped into the seven spe-cific 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 cur-rently 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 mis-sion 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 intercon-nected networks with almost 5000 employees working with NIBR and more than 800 per-sons 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).


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 organisa-tion. 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 inte-gration of internationally organised project teams. Novartis’ and Roche’s research organi-sations correspond quite well to an ‘integrated research network’, characterised by several so-called centres of excellence and a syner-getic integration of the international research

Wien (closed in 2008)Autoimmunity &

Dermatology, Respiratory

SingaporeTropic diseases

HorshamGastrointestinal

Respiratory

Genome&Proteome Sc.Global Discovery Chem.Translational Medicine

La Jolla, GNF (2001)Functional Genomics

BaselAutoimmunity & TransplantationGastrointestinalMusculoskeletalNeuroscience

Biologics CenterCenter for Proteomic

Chem.Developmental &

Molecular PathwaysDiscovery TechnologiesGenome&Proteome Sc.Global Discovery Chem.Translational Medicine

Shanghai (from 2007)Oncology

Global Discovery Chem.Translational Medicine

Tsukuba (closed in 208)Cardiovascular

Global Discovery Chem.

Friedrich MiescherInstitute Basel

fundamentalbiomedical research

BostonCardiovascular

Diabetes&MetabolismInfectious Diseases

OncologyOphthalmologyMusculoskeletal

Biologics CenterProtemic Chemistry

Developmental &Molecular Pathways

Discovery TechnologiesEpigenetics

Genome & Proteome Sc.Global Discovery Chem.Translational Medicine

East HanoverCardiovascular

Diabetes&Metabolism

Genome&Proteome Sc.

Emeryvilleex. Chiron Corporation

OncologyDiscovery ChemistryToll-Like Receptor

Chemistry

Vaccines

SienaVaccines

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.


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, increas-ingly 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).

WelwynVirology, closed in 2002and shifted to Palo Alto

BaselMetabolic disorders,

Central nervous system

Kamakuraformer Roche center2002 integrated into

Chugai

NutleyOncology

Palo AltoVirology, inflammation

GenentechSouth San Francisco

Roche holds majorityComplementing research

organizationCenter for Medical Genomics, Basel

fundamental biomedicalresearch

Shanghai(from 2004)

Medicinal chemistry

ChugaiFuji GotembaLaboratories

Roche holds majorityComplementing research

organization

Penzberg (Munich)Therapeutic proteins

Mannheim/Penzberg

Diagnostics

Rotkreuz, CHDiagnostics

Burgdorf, CHDiagnostics

Pleasanton/Alameda

Diagnostics

Branchburg, NJDiagnostics

IndianapolisDiagnostics

GrazDiagnostics

Figure 5. Roche’s internal research organisation in 2009. Sources: company website, annual reports and media releases.


Roche and Novartis, and their predeces-sors, 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 coun-tries in 2007, out of which 120 were with biotechnology firms and 280 with aca-demic 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 part-ner 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 com-pany’s own research efforts, such as the access to and appropriation of therapeutic lead sub-stances, 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 candi-date, 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

UKAmidipharm

AntisomaElan

GE HealthcareGSK

Plethora

USAAffymetrix

AmbitAmbrxxAmgenAmiraArQule

BioCrystConneticsEmisphere

EntelosEntreMedEpitomics

Gene LogicGenentech

GileadKosan Biosciences

MaxygenMemory

OSIPartners Healthcare

PDL BioPharmaPharmasset

TrimerisValeantXencor

IndiaChembiotek

Hetero Drugs

CanadaAspreva

IsotechnikaStressgen

BelgiumGalapagos NV

SolvayDenmarkGenmab

FinlandBioTie Therapies

FranceIpsen

GermanyCardionEvotec

MorphoSys

IcelanddeCODE

ItalyBioXell

ChinaHECPharmShanghai

Pharmaceuticals

South AfricaAspen

SwedenKarolinska

Medivir

JapanAstellasChugai

Nippon ShinyakuJapan Tobacco

SankyoTanabe

SwitzerlandActelionBasilea

ETHHelsinnSpeedel

Figure 6. Roche’s external network with biotechnology companies in 2007. Sources: company website, annual reports and media releases.


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 surpris-ingly, 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 corpora-tions relies on their capital endowment, sales and development power and ability to unify different technological inputs. Although small biotech firms are organisa-tionally independent, they remain structur-ally 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 structur-ing 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 stra-tegic 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 organisa-tion, penetrating new markets and sourcing knowledge and technologies shape the local conditions in the biotechnology arenas of Basel, New Jersey and Boston. The intercon-nections 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 dif-ferent 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 perfor-mance of the life sciences industries than most other regions with strong pharmaceutical and biotechnology industries. The life sci-ences 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 restructur-ing 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 consid-ered 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 man-ufacturing sites. Basel is the only location of Novartis and Roche which unifies all corpo-rate functions. For decades, they have main-tained 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 establish-ments 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 insti-tutes in the Swiss, German and French neigh-bouring cities of Zurich, Freiburg, Strasbourg and Mulhouse complete this singular concen-tration 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 splitting-off 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 biotech-nology 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 phar-maceutical firms have been created in the so-called ‘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 lead-ing 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 pharmaceuti-cal 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 aban-don the areas of antibiotics and dermatology. Basilea Pharmaceutica started with approxi-mately 100 employees. Roche provided gener-ous 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 numer-ous 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 develop-ment. 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 estab-lished a further biotechnology manufacturing plant in Basel worth 400 million CHF for the production of the successful cancer drug Avastin and other monoclonal antibody-based 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 corpo-rate 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 adminis-trative 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 develop-ing 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 biotechnol-ogy arena. The amplified rationalisation and innovation pressure as well as radical organi-sational 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 them-selves from chemical-pharmaceutical firms into biopharmaceutical corporations. Roche claims to be the largest biotechnology firm in the world. Whereas once the large, verti-cally integrated chemical and pharmaceutical giants almost exclusively shaped the labour market and the innovation processes in chem-istry 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 inter-connected. The global innovation and manu-facturing organisation of large corporations as well as their networks with collaborating partners have decisively shaped various regional development trajectories. The fol-lowing presentation of the Basel-based phar-maceutical 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 region between New York and Philadelphia was the cradle of the pharma-ceutical industry in the US in the early 20th century. Most of the big US pharmaceuticals have their origins there or later located impor-tant 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 labora-tories 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 spa-tial extension processes strengthened. Geigy opened its pharmaceutical research infra-structure 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 biol-ogy 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 devel-oped a genetically engineered version of interferon alpha. Based on these innovations, Roche launched the drug Roferon A in 1986 and built a specialised biotechnology manu-facturing 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 spend-ing 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 infor-mation flows, Jürgen Drews, Roche’s global head of research and development, moved to Nutley in 1990, from where he led his organi-sation 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 Summit-based researchers’ contacts with their col-leagues 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 resi-dence. 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 mis-understandings 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 Ciba-Geigy 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 spa-tial proximity with qualified people. By the same token, organisational, cultural and rela-tional 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 adja-cent 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 pharmaceuti-cal 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 employ-ees to its East Hanover campus in 2006, a longer-term observation revealed that New Jersey had lost 11 per cent of its pharmaceu-tical 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 par-tially 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 advan-tages 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 Sanofi-Aventis 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 phar-maceutical 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 tradi-tion, 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 organisa-tions 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 intro-duced 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 trans-plant 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 mil-lion 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 col-laborations 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-reach-ing 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 aca-demic 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 tra-ditional 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 organi-sation 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 employ-ees working in different locations remains an important challenge. Under Fishman’s


leadership and based on advances in genom-ics, 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 Cambridge-based group is responsible for establish-ing 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 cen-tre 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 compa-nies, 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 strat-egies 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 prob-lem (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 gen-trification 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 scien-tific and technological paradigms could more easily develop in the Boston area outside this industrial context. However, public technol-ogy 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 dis-integration in the combined pharmaceutical and biotechnology industries which is paral-lelled by new forms of spatial organisation of the entire value creation process. The emer-gence of a pharma-biotech complex is accom-panied by new types of large firms embedding in regionally concentrated knowledge pools. They combine massive in-house investments with the weaving of extended networks link-ing knowledge-producing actors.

Novartis and Roche rely on a well over 100-year 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 knowledge-producing 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 transna-tional corporations internalise externally produced knowledge not only through for-mal 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 knowl-edge 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 part-ners’ 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 ‘phar-macy’. 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 pharmaceuti-cal companies, Boston has experienced a far-reaching economic renewal in the past three decades (see Glaeser, 2005).

In the context of global oligopolistic rivalry, strategic investments and their regional con-sequences often provoke multiplying effects. The invasion of large pharmaceutical compa-nies in the Boston area, either through their own investments, by takeovers or by entering into strategic alliances with local firms, addi-tionally reinforced the regional knowledge base. Thus, regional development trajecto-ries, 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 his-tory 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 explic-itly 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 loca-tions to each other. Benchmark reports are supposed to help in identifying productivity improvements. Large firms promote interre-gional competition trying to drive down costs (Christopherson and Clark, 2007, p. 1233). In parallel, discourses of ‘regional’ competitive-ness 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 inter-woven 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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