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As NJ Sheds Pharma Jobs, Other Major Metro Areas Emerge as New Hubs for Life Sciences

Downsizing, consolidation, relocation take toll on New Jersey's pharmaceutical sector

The steady departure of pharmaceutical industry jobs in recent years has helped other states, but hurt the standing of the nation’s medicine chest. As more companies take root in far-flung locations, the New Jersey and New York City region has dropped significantly in the national ranking of life sciences markets, according to a recent report on commercial real estate.

Last year, the region slipped to seventh place among metropolitan life sciences clusters from second place in 2011, according to the latest annual report from Jones Lang LaSalle, the commercial real estate firm. The reasons cited for the slide: ongoing consolidation following big mergers and the simultaneous efforts among such cities as San Diego to offer competitive environments.

A big contributing factor was the decision by Roche to abandon its 119-acre site in Nutley, where the drugmaker had been located for decades, and shed some 1,000 jobs. This was the most visible body blow to the region since 2009, when Pfizer bought Wyeth and Merck acquired Schering-Plough, moves that eliminated thousands of jobs and prompted some workers to relocate.

Of course, it is hardly a secret that the pharmaceutical industry is no longer the growth engine it was in previous decades. The world’s largest drugmakers have been downsizing operations in numerous locations for years. But as global or U.S. headquarters have disappeared from the state, the report is arguably the first such indication that New Jersey has officially slipped below other regions.

Specifically, the combined New Jersey and New York region now ranks 14th in life sciences employment and 20th in life sciences companies, based on the percentage of overall total employment and number of businesses in this densely packed part of the country. These two categories, by the way, accounted for half of the weighting used to create the ranking.

Not surprisingly, the greater Boston area remains on top, while San Diego now boasts the number two position, and the Raleigh-Durham region in North Carolina climbed to fourth. Philadelphia inched up one spot to claim fifth place in the ranking and San Francisco held on to third place. The Los Angeles-Orange County region, however, sank four notches to eighth place.

life sciences

The ascendance of these other regions reflects what Bill Barrett, the managing director for the life sciences practice at the real estate firm calls the "if you build it, they will come mentality," which is the use of targeted incentive packages, new facilities, economic development groups, and public-private partnerships to attract life sciences companies.

This is not to say that New Jersey is not fighting back. Dean Paranicus, chief executive of the HealthCare Institute of New Jersey, a trade group for drug- and device-makers, notes that the state recently doubled the R&D tax credit, amended the corporate business tax so it is aligned with more than two dozen states, and restored full funding to the technology business tax certificate transfer program.

“There actually are a lot of things happening here and some constants that are very important,” he says, pointing to the underlying raw numbers in the report showing that New Jersey and New York directly employ some 106,000 people in life sciences, the second-highest amount in the nation, and the metropolitan area is home to more than 3,700 such businesses, which is the largest in the United States.

Indeed, the report did highlight some bright spots. For instance, the New Jersey and New York region was fifth in venture capital funding for biotechnology and medical devices, and second in National Institutes of Health funding. On the other hand, by itself, New Jersey was only 22nd among 50 states when it came to NIH grants.

This is not to say that the Garden State consistently fares poorly on its own. New Jersey had the third-highest ranking nationally in terms of the percentage of its workforce in life sciences, behind Massachusetts and New Mexico. The state also ranked third in venture capital funding for medical devices and fourth in venture capital funding for biotechnology.

And since 2010, about 1,500 biotech jobs were added in New Jersey, and the number of companies rose from 300 to more than 350, according to the BioNJ trade group. “The continued growth of the biotech sector in New Jersey is increasingly more important as we feel the impact of the retraction of Big Pharma,” says BioNJ chief executive Debbie Hart.

Meanwhile, as a percentage of overall leasing activity, life sciences are leasing more lab and office space, climbing from 12.4 percent in 2009 to 14.1 percent in the first half of 2012, according to Jones Lang LaSalle. A notable example: Allergan, which makes the widely used Botox treatment, opened an R&D center in Bridgewater and will create 390 jobs in exchange for $14.9 million in tax incentives.

And while Dendreon, which makes the Provenge prostate cancer vaccine, is closing a manufacturing facility in Morris Plains, its sales and marketing operation in Bridgewater is being expanded. Similarly, Novo Nordisk is roughly doubling the size of its U.S. headquarters on Route 1 in Princeton by leasing a different building nearby.

In short, the outlook remains mixed as New Jersey struggles to regain its footing. The take-away message from these varying statistics, however, is that Big Pharma is not the salve needed for growth in the competitive life sciences arena, says Gordon MacInnes, president of New Jersey Policy Perspective, a nonprofit think tank.

“The growth in biotech is encouraging. As the [Jones Lang LaSalle] report points out, our location is a huge advantage. We have some huge assets. But the idea of concentrating on Fortune 100 companies locating super-large facilities in New Jersey is not the path to our prosperity. And we’re likely to suffer more as decisions are continuing to be made to consolidate the larger operations,” he says.

In his view, a key to revitalizing the life sciences industry in the state will be the pending merger between Rutgers University and most of the University of Medicine and Dentistry of New Jersey, along with the partnering with Rowan University. One goal of this controversial effort is to boost the amount of NIH funding that flows to the state in order to jumpstart the number of jobs and companies.

“This will make us more efficient for conducting clinical trials, if research at the university and hospital are working together,” says MacInnes, who is a member of the Rutgers board of governors. “It can also lead to new activity in terms of research spinoffs. Holding onto the 'nation’s medicine chest' slogan is now what counts. We need to redirect the conversation to things that can attract research.”

To what extent, the merger accomplishes its goals remains to be seen. Certainly, the region -- and New Jersey, in particular -- remains well-positioned to exploit existing resources. But to regain its standing as one of the premier life sciences clusters, at least by some measurements, will clearly take time. “It’s not a fast or simple process,” he acknowledges.

Ed Silverman is the founder and editor of the Pharmalot web site, which tracks the pharmaceutical industry.

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