Anatomy of a Drug Manufacturing Plant (Part 1 in a Three-Part Series Examining the Financial Impact of New Plant Construction)

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Reported by Annette Kreuger, Industrial Info Resources (Sugar Land, Texas)--Drugs are essential in today's world. In addition to curing and treating a stunning array of medical conditions, the process to develop and manufacture those products can be a real panacea to financial woes.

Cities across the nation vie for pharmaceutical and biotech companies' consideration as the site for their next new plant or research campus. While economic developers recognize the value in landing one of these projects, there is often a lack of appreciation from the general population as to why these plants are sought so aggressively. This series seeks to illuminate just how pervasively the economy is impacted when a major drugmaker comes to town.

The financial effects start far ahead of construction. New business is spurred in unexpected sectors when preliminary site studies are under way. Local officials utilize the media industries to garner new business with splashy advertising campaigns outlining the positives and amenities of a particular location. Mundane products such as imprinted "gimme" caps and laser pens translate into major dollars as those companies specializing in such items enjoy a surge of business in order to be handed out by the thousands at trade shows across the country in the all-important quest of attracting new business. Real estate firms roll out the red carpets as they actively market suitable plots of land or shuttered plants closed by the downturn in other industries.

Caterers, hotels, airlines, restaurants--the list is virtually endless as to the industry types impacted in the site-selection process. The Bio Industry's upcoming annual conference BIO 2012 (June 17-21, 2012, Boston, Massachusetts) is forecasting more than 15,000 attendees from across the globe. In addition to highlighting the latest in medical wonders, one of the main objectives of the conference is to match corporations with site locations for new plants or R&D facilities.

Major capital investment projects are often dealt with using code names that bear absolutely no resemblance to the plant owner or what it will produce. One recent example of this is "Project Marathon." That was used by Baxter International Corporation (NYSE:BAX) (Deerfield, Illinois) during the planning process for its $1 billion plasma fractionation plant that will be built in Covington, Georgia.

In this highly competitive stage of site selection, local and state officials often agree to a non-disclosure policy until the final decision is made. This factor is often the one that causes the most frustration among the general populace, as tantalizing hints of snagging a $200 million to $300 million plant are leaked with no hint of what kind of plant it will be or the identity of the owner. Resistance tends to abate once the nature of the new plant is revealed, as drug companies still equate, industry fluctuation notwithstanding, in many minds as offering up big paydays to those they employ.

Attorneys, staffing firms, accountants--all are needed in the myriad dealings leading up to sealing the deal. No matter where in the country the plant is going to eventually be built, the drug company needs to look outside their in-house staff to test the feasibility of locating in the area. Locals are tapped for their own particular line of expertise.

Investors benefit from news of new plant construction. Who is doing what and how frequently? Often giving a clue to a company's confidence in their emerging drug pipeline, following new plant construction can be an early indicator to an upcoming blockbuster stock. Such was the case with astute investors who picked up on the four simultaneous capital projects launched by Dendreon Corporation (NASDAQ:DNDN) a couple of years ago. The nearly $200 million invested by the company was in anticipation of its innovative prostate cancer treatment Provenge receiving the stamp of approval from the Food and Drug Administration (FDA). Despite the company's wild financial gyrations in the ensuing months, those in before the initial FDA nod profited generously.

With not one brick yet laid, the new drug manufacturing plant has already proved to be lucrative. Having considered the potential for profit from just the site selection process, the next two installments will discuss the financial impact of the actual construction and eventual operation of a new pharmaceutical or biotech plant.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.