No Clean Bill of Health for New Jersey’s Big Pharma

John Mooney, Ed Silverman | May 10, 2010
Cutbacks, mergers, and layoffs; intense competition from lower-cost generics; and fierce rivalry from other regions make for a troubled prognosis for NJ’s big drug makers

No Clean Bill of Health for Pharma_3
Like thousands of other highly skilled professionals, Steve Weissman became a victim early last year of the cutbacks and mergers that have been sweeping the pharmaceutical industry.

After working 18 years as a chemist at Merck, one of the world’s largest drug makers, Weissman found himself looking for a job. Months were spent crisscrossing New Jersey, networking and interviewing until, last winter, he finally became a success story by landing a good position—in Massachusetts.

“Landing a job in the pharma sector in New Jersey during all of 2009 was exceptionally difficult for me and other displaced chemists I was in touch with. You had a perfect storm of the recession combined with a downturn in R&D productivity in the large-cap drug sector,” says Weissman, who asked that his new employer not be named.

A Buyer’s Market

“As a result it became a real buyer’s market for those small- to mid-cap drug companies that were doing some small-scale hiring, he says.

“The competition was pretty fierce for those few openings in the New Jersey/Pennsylvania region. Certain areas were hiring, such as regulatory, clinical and formulation, while medicinal and process chemist jobs were few and far between. Meanwhile, even those chemists who were employed by big pharma in 2009 were in fear of losing their jobs due to the mergers. So they were left to wait for the ax to fall with nowhere else to go.”

There are no statistics on the number of people who, like Weissman, found jobs in the greater Boston area, where numerous drug makers and biotechs employ thousands of people. But there is no question that the mergers Weissman mentions were like a shock to the New Jersey’s economic system.

Vanishing Global Headquarters

Over the past several months, two global headquarters disappeared from New Jersey and a U.S. headquarters campus lost hundreds of jobs.

Merck bought Schering-Plough, which was based in Kenilworth; Pfizer acquired Wyeth, which was headquartered in Madison; and Roche, which has facilities in Nutley, gobbled up Genentech, a biotech located in South San Francisco, Ca., and then transferred more employees to the West Coast than vice versa.

The New Jersey campuses are hardly ghost towns —each facility continues to house employees, but the acquisitions contributed to a notable reduction in the total headcount in the state. Nearly 3,600 jobs were eliminated or targeted for elimination by drug makers between January 2008 and February 2010, according to filings made with the New Jersey Department of Labor. These included at least 500 jobs slashed by Merck, 400 jobs lost at Pfizer and another 500 jobs that Roche recently sent packing, although the drug maker says it transferred 200 people to Nutley from California.

The real numbers are probably a good deal higher, because the Labor Department filings may not reflect layoffs that occurred in dribs and drabs.

Structural Changes

Those developments reflect something larger than the sour economy, however. Like other industries undergoing structural change—when was the last time you bought a newspaper?—the pharmaceutical industry is being buffeted by difficulties that the recession is only compounding.

The central issue facing drug makers are patents that are starting to expire on best-selling drugs, such as Pfizer’s Lipitor cholesterol-lowering pill. Drugs that ring the register to the tune of $14 billion will lose patent protection next year, according to Wolters Kluwer, a market research firm. Once patents expire, a brand-name drug faces competition from lower-cost generics. Compensating for lost revenue is time-consuming and expensive, since the vast majority of medicines being developed never make it to a pharmacy or hospital.

The upshot is that big drug makers are finding it harder to replenish their pipelines just as key patents expire. To cope, these huge companies are trying to buy valuable products—and some time—by scooping up rivals.

An Industry Bleeding Jobs

The ramifications are hitting home. New Jersey has long prided itself on being the nation’s medicine chest, but the state has some increasingly bare shelves. Even before the merger wave prompted those losses, though, the industry was bleeding jobs. In its annual report released in June 2009, the HealthCare Institute of New Jersey (HINJ) trade group that represents both drug and device makers, reported that jobs in the life sciences sector fell to 59,948, a loss of 1,400 jobs over the previous year. That marked the first time in almost a decade the total dropped below 60,000.

“By and large, it’s a function of mergers and the trends behind those mergers, and there’s nothing anyone can do about that. None of them need two headquarters and that’s going to be a very hard trend to be blunt,” says Norman Glickman, an economist and an urban and public policy professor at the Edward J. Bloustein School of Planning and Public Policy at Rutgers University.

“The seriously bad part is that these are good jobs, high-paying jobs. We’ve lived very well all these years with pharma in the state. But you live by the sword and you die by the sword,” he says.

This begs a difficult question: what, if anything, can the state do to make a difference? Even in good times, when the economy was thriving and drug makers were reveling in blockbuster products, New Jersey was regularly competing with several states, notably nearby New York and Pennsylvania. This was never an easy proposition, and it was made still more difficult since Boston, another pharmaceutical hub, is just a few hours away and offers a plethora of university teaching hospitals and a thriving venture capital community. Over the years, for instance, Merck and Novartis both chose to establish important research facilities there.

The Silent Treatment

Nonetheless, the state has, for more than a decade, fought to retain or attract companies and jobs. But given the budget crunch, Trenton may be hard-pressed to find new ways to maintain, let alone bolster, the pharmaceutical industry. No one, from Gov. Chris Christie’s office—including chief of staff Rich Bagger, a former Pfizer lobbyist—wanted to talk about the problem.

Perhaps that’s because there is little encouragement to offer at a time when the state is slashing services. Christie, in fact, recently proposed cutting the level of funding for one program that has helped nurture biotechs here. The state makes $60 million available to the Technology Business Tax Certificate Transfer Program, which enables unprofitable, but promising biotechs to turn net operating losses and R&D tax credits into capital. But Christie wants to reduce that by half, to $30 million.

“At a minimum, we’d like the programs that currently exist to be maintained, but we have to be realistic. Everything is on the table at this point,” acknowledges Debbie Hart, president of BioNJ, a trade group for biotechs, which now number at least 250, up from 85 in 1998.

Cashing In On Intellectual Capital

“We’re hoping to make the case for continuation based on job creation and also that these are the kinds of jobs we want here—intellectual capital,” she adds. “The potential is now, because the competition is dramatic and significant, especially from states like Pennsylvania. As companies come into the region, they’d love to snap them up.”

Mindful of the political climate, Hart praises such efforts as the Business Employment Incentive Program, which offers grants for expanding or relocating here.

About 400 companies have benefited since 1996, including 13 drug makers and biotechs that last year received $51.7 million, according to state officials. Hart, however, would like to see the state enhance the Business Retention and Relocation Assistance Grant program, which offers tax credits for each job brought here, assuming a minimum of 50 positions is transferred. To make it more attractive, she suggests raising that to 60 jobs in order for a company to qualify.

Whether even that kind of tweaking can take place in the current environment appears unlikely, though. “It’s a hard question to answer at the moment. The governor is dealing with budget constraints,” says Kathleen Coviello, director of technology and life sciences at the New Jersey Economic Development Authority. “We’re using the tools in our toolbox and we’re working closely with BioNJ. We’re seeing folks leaving big pharma, who are looking to start young companies. We’re incubating them and working with wired initiatives for training these individuals.”

Tapping Into NJ’s Talent Pool

Certainly, some companies find New Jersey desirable. One example is Soligenix, a small biopharma company that moved from Miami to Princeton in late 2007, and was lured by a combination of the large number of experienced pharmaceutical people here and the tax credit transfer program, as well as the chief executive’s fondness for the Garden State.

“I’m from this area, so I relocated back here, in part, for personal preferences,” says Chris Schaber. “But the number of people in this area with expertise for developing drugs is immense, so tapping into that talent pool is very important. And the tax credit program allowed us to bring some money into the company at a time when the market was difficult.”

Over the past year or so, Soligenix, which is developing treatments for cancer, gastrointestinal disease and vaccines for certain bioterrorism agents, has grown from five employees to 14. That may not sound like a lot, but further expansion his and other small companies may increase the odds that the Steve Weissmans of the world will have more opportunity in New Jersey than Massachusetts. Schaber, however, frets the state’s budget crisis may place New Jersey at a permanent disadvantage.

“We’re losing a little bit of ground. There’s so much drug development here, but we need to keep expanding that,” he says. “Because we have so many companies and such a talent pool, a number of states are being much more aggressive in trying to bring biotech there and New Jersey may not be as aggressive as it once was.”

However, some say there are steps that can be taken that would make New Jersey more attractive without necessarily breaking the budget. The recently deceased Bob Franks, a former congressman and former executive director at HINJ, had argued that permissions for facilities has been an issue that constrains drug makers, but is the sort of problem that shouldn’t require a lot of money to review and remedy in a way that makes the state more competitive.

Restrictive Regulatory Climate

“The regulatory climate is just not as productive as in some other states. We need more timely review of permit applications.” Franks continued, “If you can’t build your plant quickly to manufacture your new biologic or vaccine or small molecule facility, then you’ll go where you can.

“This was rated the second-highest issue of concern in a survey we did three years ago and it’s a reason why Bristol-Myers Squibb went to Massachusetts” Frank said. “They built a $400 million facility in Devens, MA, in large measure because the special regulatory provisions allowed them to secure permits within just 75 days.

“It’s really an important consideration, but it appears the new administration (in Trenton) understand the needs to bring some stability to this,” he continued. “That said. I don’t see the silver bullet that cures everything. These are long-term problems that are going to require significant intellectual power. It’s not something that we can address overnight.”