Furniture to pharma

Exela Pharma Sciences helps bring manufacturing jobs back to a region where furniture once reigned.

Challenge: Identify an ideal location for a startup biotechnology manufacturing operation.

Solution: Previously a hub for large-scale furniture manufacturing, North Carolina’s western region already had a solid infrastructure, including abundant electricity and water from area rivers.

By Edward Martin
Photos by Mike Belleme

Founder Phanesh Koneru. Photo by Mike Belleme

Hyderabad would seem to hold the high cards. Construction cranes loom over skyscrapers in the area dubbed “Genome Valley” in deference to its established biomedical and pharmaceutical industry. The city’s nearly 7 million people speak dialects unfamiliar to American ears but not to Phanesh Koneru. He grew up in the southeastern India state of Andhra Pradesh, though not in Hyderabad, the capital.

“Our little village had about 80 people,” he says, and no running water or electricity. His parents didn’t attend college, but Koneru was bright. “I was good in school,” he says, earning scholarships and multiple degrees from colleges in India and later, advanced degrees from prestigious California and New York universities.

To Koneru, founder and CEO of Exela Pharma Sciences LLC, it’s the North Carolina town of Lenoir that might seem strange. That’s where Koneru established his drug-manufacturing business, with employment more than tripling since launching a decade ago.

The Caldwell County town of about 18,000 is in the state’s foothills region, in the shadow of the Blue Ridge Mountains. More than a century ago, hydroelectricity from the region’s rivers attracted furniture and textile manufacturers. More recently, a $1.2 billion Google data center arrived, also drawn in part by abundant energy.

Gradually, manufacturers withered, including Tar Heel icon Broyhill Furniture Industries Inc., founded here in 1926 and lured away by cheaper labor overseas. “You have to remember, in the first three years of this century, we lost more manufacturing jobs than any other state in the country,” says Tony Copeland, North Carolina’s secretary of commerce.

Caldwell’s unemployment inched up until nearly one potential worker in five could not find a job.

But some things didn’t change. It still had energy, clean air and water, open spaces and a mild climate — plus ample workers. As industries shut down, they left empty buildings, prompting state and local authorities to sweeten incentives to attract newcomers, such as Google, and startups to fill them.
In 2008, Koneru chose Lenoir over Hyderabad and several other U.S. locations as the home of Exela, now one of North Carolina’s most successful biotechnology companies.

“We’ve gone from about 75 employees two and a half years ago to more than 300 now,” says Mark Hartman, chief commercial officer. “We started with one product in 2008 and have 20 now,” mostly injectable drugs used in more than 5,000 U.S. hospitals and clinics during surgery and in emergency rooms. They’re marketed both as generics and Exela brands.

In a state that bled manufacturing jobs to cheaper overseas venues for decades, Exela Pharma is a welcome addition.

“We looked at many different places in India and this country, at things like availability of buildings, labor, personnel costs and taxes,” says Koneru, a former pharmacist and patent attorney. His search included sites in California, New York and Pennsylvania. “Generally, labor costs in India are lower, but we concluded overall, North Carolina was the best place to do business.”

Ten years later, Exela’s decision to locate in western North Carolina underscores a trend that is tilting the region’s economic landscape. Life-sciences industries are locating and expanding in the area 200 miles west of the traditional biotech bastion of the Research Triangle and Raleigh-Durham.

“As a percentage of growth, biotech jobs in the west, over a five-year period, have increased by about 25%,” Copeland says. “That compares to about 4% for the state in general.” Hollis Crosby, the Commerce Department’s labor and economic analysis manager, calculates that more than 225 life-sciences businesses such as Exela employed 5,699 workers in western and northwestern North Carolina in 2017, up from 4,572 in 2013. The figures include pharmaceutical manufacturing, medical and diagnostic labs, research-and-development groups and medical-equipment manufacturers. At the Asheville Area Chamber of Commerce, Research Director Heidi Reiber cites a study finished in 2018 that concludes bioscience is the top-performing cluster of industries in the region.

Particularly important to a young company are state and local financial incentives. For Exela, those inducements included local incentives and an initial $250,000 grant from the One North Carolina Fund, a state program that awards cash based on job creation, investment, location and expected economic impact. Starting with 18 employees in 2008, the company grew steadily, and when Exela added 38 jobs in 2013 in an $8.5 million expansion, it received another $190,000 from the fund. Another $5 million expansion followed in 2016, adding 50 jobs and making the company eligible for a $2,000-per-job credit from Caldwell County.

Some view those incentives as investments rather than costs. “Our average [annual] wage in Caldwell is going up and is currently about $37,600,” says Deborah Murray, executive director of the Caldwell County Economic Development Commission. “But the average wages at Exela are approaching $60,000, and it’s exciting when you go in and tour these kinds of companies. You see large numbers of young people. They offer good upward mobility in addition to strong, 21st-century skill-driven careers.”

Exela is just one of the region’s successful life-sciences companies. Also in Lenoir, London-based Stallergenes Greer Plc has grown to about 350 employees who develop and distribute allergy drugs. Less than 10 miles down the road in Hudson, with a population of fewer than 4,000, Adhezion Biomedical LLC researches and develops cyanoacrylate adhesives that seal skin wounds, protecting them against bacteria. “It’s like Super Glue for skin,” Murray says. Like Exela, its growth has been aided by economic incentives, such as a $100,000 state grant when it added 40 employees in a $3.5 million expansion in 2017. Blue Ridge Energy, the region’s electric cooperative, and Caldwell County and its economic-development commission, also pitched in.

Obviously, such incentives help startups. “Your business is not established enough to go to the bank and get a loan, and it can be daunting,” Koneru says. But other factors come into play. Newcomers make headlines, but the region also has a bedrock of established bioscience companies that encourage outsiders. One of the oldest is Baxter Healthcare Corp., an hour from Lenoir in mountainous McDowell County, which makes about a million sterile intravenous solution units a day, according to spokeswoman Jessica Szramiak. Its plant, “equivalent to nearly 20 football fields,” she says, was established in 1971 and employs 2,800.

Avadim Health Inc., founded by Buncombe County native Steve Woody in 2007, is building a new $25.4 million headquarters on the outskirts of Black Mountain and expects to add more than 500 employees by 2020. The skin-care products manufacturer landed one of the top spots on Inc. magazine’s list of the nation’s fastest-growing health care companies in 2018, with revenue of almost $11 million and a three-year growth rate of 901%.

“One thing that happens when you have this type of growth, particularly in biotech, is that employees feel more secure in moving to an area that has multiple biotech companies,” Copeland says. “It gives them flexibility of career growth.”

Like financial assistance and available buildings, Koneru agrees that such successful companies figure into a startup’s location decision. “It should be reassuring, showing them that the people of the community are aware of the technology and that it’s not foreign to them. It’s beyond the proof-of-concept stage now. Companies can come here and make a commitment.”

Still, Exela underscores how difficult it can be for a startup to gain a toehold, but also how aggressive recruiting and salesmanship can help surmount difficulties.

Koneru didn’t lack credentials. Exela’s founder arrived in America with bachelor’s and master’s degrees in pharmaceutical science, then plunged into similar studies at the University of Southern California School of Pharmacy in Los Angeles. He obtained a doctorate in biomedicine and chemistry and became a licensed, practicing pharmacist.

After earning a degree from the University of San Diego School of Law, he shifted coasts, earning a master’s in law from Columbia University School of Law in New York. He worked for law firms there and in Palo Alto, Calif., and became vice president for intellectual property at Watson Pharmaceuticals Inc., a drug-development company that’s now Allergan Inc., known for its premier product, Botox.

At the former headquarters of Broyhill, whose furniture saws once whined and the scent of sawdust prevailed throughout the region, Exela has nearly doubled its footprint to more than a quarter-million square feet in three buildings — a fourth is in reserve for expansion — but in doing so it has faced challenges.

“For Lenoir, we have the power infrastructure dating back to the furniture industry,” Koneru says. “It’s a huge power grid, and we had the water and transportation, so getting into pharmaceutical manufacturing from that standpoint was not difficult. But we also had to factor in the labor … and the training costs. We knew if we hired somebody, they would not be ready to work for some time, so we factor in about six months of training.”

Exela scientists, researchers and employees must deal with the intricacies of stringent Food and Drug Administration requirements and highly technical and specialized equipment. “We’re finding very dedicated, committed people, willing to learn,” Koneru says. For example, an Exela job fair for 35 positions last January attracted 200 job seekers.

Though companies such as Exela will always depend on in-house training, the region is responding to the education and training needs of life-sciences industries. Murray says it starts at the public-school level. Caldwell High School’s Middle College program is a magnet school on the campus of Caldwell Technical Community College where students can earn industry-standard credentials and graduate with half of their two-year associate degree already in hand. “These days, the largest concern of any company is, ‘Where do I find my prospective workers,’” she says. “This is developing a nice pipeline into community college.”

Copeland, the commerce secretary, points to the state’s three universities in the west: Western Carolina in Culhowhee, UNC Asheville and Appalachian State University in Boone. He also commends the community-college system’s customized training and BioNetwork, which can provide training in biomanufacturing, pharmaceuticals, natural products and other areas, including on-site sessions.

Nevertheless, some of the factors that attract life-sciences companies to the region can’t be reduced to tax breaks, campuses and colleges. “I lived in Los Angeles for 20 years, and in the Bay area,” Koneru says, followed by Washington, D.C., and New York City. “The traffic, I don’t miss. Five minutes, and I’m here at the building.” Nearby are the mountains for hiking, fishing and other pursuits. Lenoir’s relative isolation is an asset, not an obstacle, Koneru and others say.

“I came here from Atlanta,” Murray says. “Here, we’re just over an hour from Charlotte Douglas International Airport in Charlotte, and Asheville Regional. In Atlanta, you were an hour from everything. In Atlanta, I’d drive several hours to get to the great outdoors.”

Similarly, a survey of major biotech companies in the region — nine, including Exela, responded — found employees were willing to drive as much as an hour to reach jobs. “People are driving from counties all over the region to get to good employers,” says Jonathan Snover, executive director of the North Carolina Biotechnology Center’s western office, which covers 25 mountain and foothills counties.

Along with drugmakers, there is a strong cluster of global medical-device and -equipment manufacturing not counted as bioscience, Snover says. The biotech center calls them support industries. Thermo Fisher Scientific Inc. in Asheville makes ovens and cold-storage equipment for research laboratories, and Printpack Inc. in Marshall makes medical packaging. Others include Aeroflow Healthcare Inc., which makes medical products including respiratory equipment, breast pumps and walkers, and Atlas Precision Inc., a plastics manufacturer.

For western North Carolina and dozens of small communities like Lenoir, the surge of life-sciences industries means much-needed jobs. In Lenoir, unemployment has dropped from 17% two decades ago to less than 4%, partly as a result of new industries. Caldwell County’s cost of living is 82.2% of the national average, despite increasing demands on limited housing stock, Murray says.

“The truth is, Exela is certainly a shooting star for any industry, and a complement to our newly diversifying economy,” she says. “I hate to say it, but many folks do still know us as a furniture manufacturing hub from the old days, and we still are. But now we’ve added plastics and packaging and pharmaceuticals. We’ve added 1,000 jobs in the last six months. And with Google, we’re the birthplace of the North Carolina Data Corridor.” Google’s data center joins others nearby, including Facebook and Apple.

Far from Hyderabad, in early 2018, Exela sponsored a Chicago speech by former President George W. Bush at a convention of hospital administrators and executives. Koneru took the microphone, peppering Bush with questions about current events, but the former president changed the subject.

“How great is it,” Koneru asks, “that someone who grew up in a small village in India can come to the U.S., be successful, and be interviewing
a president?”

Natural attraction

Around Brevard, known for spectacular fall color, Gaia Herbs Inc. sticks out like a green thumb. Instead of the reds and yellows of autumn leaves, its colors are the vivid blues, pinks and purples of 40 fragrant species of medicinal herbs growing in arrow-straight rows in an incongruously flat valley in the rugged Blue Ridge Mountains.

One of its 260 employees compares this to working in the Garden of Eden. Elena Lecue, executive vice president for sales and marketing, doesn’t dispute him. “Since we were just a seedling in 1987, we’ve remained true to our original vision of connecting plants with people to nurture health and well-being.”

Gaia is the nation’s largest herbal brand, she says, growing and processing more than 200 liquid extracts, powders, teas and other products on its 350-acre farm here and a smaller farm in Costa Rica. In western North Carolina, it’s a reminder that the life-science industry’s roots are as deep as the Cherokees and pioneers who tapped nature for its health and healing properties.

“We have a strong history of natural products, which include botanical and medicinal materials,” says Chris Reedy, who heads industry training for food, beverage and natural products at the statewide BioNetwork. “Years ago, there was the traditional herbal healing that people knew about in the mountains.
The area was known for things like ginseng and goldenseal. That part of the industry is definitely growing.”

Gaia has lived most of its more than 30-year life in these mountains. President Rick Scalzo started it in Massachusetts in the 1980s and moved to Brevard in 1996 when demand for botanicals and natural-health products surged. Annual sales now top $50 million, and its products are sold at Whole Foods Markets, Publix Supermarkets and more than 2,300 health-food stores.

“We use only organic methods to cultivate our 6.5 million plants, and we test them in our analytical laboratory to pinpoint the exact right time to harvest them,” Lecue says. The result is increased potency and purity.

Now, the company is growing not only herbs but its footprint in western North Carolina. In addition to its Brevard site, where it maintains offices, a processing plant and laboratory, Gaia is building a 140,000-square-foot office, manufacturing and distribution complex in nearby Mills River.

By 2021, the company will have added 30 jobs and spent $12 million on the building and equipment in the Broadpointe development, where neighbors include the medical-device-maker Raumedic AG and beer brewer Sierra Nevada, one of the region’s heavily visited tourist attractions. The new complex represents Gaia’s outlook for the future of life-sciences industries. It will have room to nearly double in size in coming years, Lecue says.
— Edward Martin