Restocking the Nation’s Medicine Chest

Ed Silverman | September 5, 2012 | Health Care
Allergan agrees to open R&D center in NJ, raising questions about what really attracts pharmaceutical companies to the state

Allergan chief executive officer David Pyott
In a rare sign that the nation’s medicine chest is filling some of its empty shelves, the maker of the widely used Botox treatment and other medications has agreed to open an R&D center in Bridgewater and create nearly 390 jobs over the next decade in exchange for $14.9 million in tax incentives.

The decision to expand an office of just 50 employees reflects the quality of the local workforce, not just incentives, says Allergan chief executive officer David Pyott. He adds that he met with New Jersey Gov. Chris Christie and several staffers two months ago as part of the negotiations. In the end, the California-based drug maker chose New Jersey over Pennsylvania and North Carolina.

“The biggest driver . . . is the ability of the educated, trained workforce,” he says. “We talked to various places . . . and then I would say the final decision came down to what incentives were being offered by the various states. But we also chose New Jersey because of the access to the freeways. You can see three freeways from our windows in our [existing] Bridgewater office.”

The move comes in the midst of a growing exodus of pharmaceutical industry jobs over the past few years, a trend underscored this summer by the announcement that Roche is closing a research center in Nutley — where the drug maker has operated for decades — and eliminating 1,000 jobs. Some of that R&D work, however, is being shifted to facilities in Switzerland and Germany.

Nearly every big drug maker, though, has cut its Garden State workforce as the pharmaceutical industry grapples with patent expirations on big-selling medicines, expensive efforts to refill their product pipelines, and, in some cases, mergers to restore their bottom lines. Mergers, in particular, have robbed the state of jobs: Wyeth and Schering-Plough headquarters and thousands of jobs disappeared.

In fact, the number of jobs associated with drug manufacturing and related activities in the state has plunged 21 percent to about 30,000 from 2001, according to the Bureau of Labor Statistics. In a telling comparison, New Jersey now employs less than 12 percent of all pharmaceutical-related jobs in the United States, down significantly from 21 percent in 1990.

The trend reflects a fundamental shift in research over the past decade that has placed more emphasis on biotechnology. This sort of work, which is often focused on expensive injectable medicines instead of pills, has increasingly been shifted to such states as Massachusetts, where a plethora of world-class universities and teaching hospitals offer an abundance of researchers.

New Jersey has been trying to fight back with incentive programs to lure biotechnology companies and a controversial program to merge several of the higher-education institutions in the state. The idea is to consolidate universities into more efficient, but well-honed operations that can one day attract more federal grants and academic stars.

“More research has to be conducted here” if the state wants to attract pharmaceutical activity, 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. “But we have to be happy with what we get. We’re not going to get those headquarters back.”

“That said, this [deal] does play to the strengths of the state,” Glickman added. “And maybe it will spur other companies to also locate here. Once you get started, you can always find other firms to follow. So in that regard, it’s a good sign. It’s the right kind of development, because it’s the sort of company and the kind of jobs we want to attract here.”

The state, in fact, has lured other drug makers here this year. In February, the New Jersey Economic Development Authority awarded a grant worth an estimated $570,000 over three years to encourage Watson Pharmaceuticals to locate a global R&D center in North Brunswick. The drug maker will invest about $4.5 million to renovate the facility, which is expected to employ about 50 scientists.

The EDA also awarded a grant worth an estimated $4.7 million over 10 years to Biomeasure, a subsidiary of Ipsen, to relocate U.S. headquarters from California to Bridgewater. The grant is tied to the creation of 91 new jobs. And the EDA approved last April an award of up to $15 million to Teva Pharmaceuticals to construct an R&D facility in the state that would create 215 new jobs.

Such numbers will not compensate for the loss of thousands of jobs in recent years that were shed by the largest drug makers. Nonetheless, the agreements signify that New Jersey continues to hold some attraction to the pharmaceutical industry, particularly the workforce and its proximity to the roads and airports that take their executives to Wall Street and Washington DC.

These advantages may prove more important than incentive packages. For instance, Ferring Pharmaceuticals last year bought a 25-acre site in Parsippany that the drug maker plans to renovate into an operations center to house management, administration, manufacturing, and product development, among other activities. No incentives were involved.

One expert, Julia Sass Rubin, an associate professor at the Bloustein School, believes that states such as New Jersey may be wasting their money dangling tax credits when companies know they can play poker with state officials.

“Companies are very smart now and are playing a race to the bottom with the states, and shareholders are almost expecting it from them,” she says. “I believe you’ve created a waste of taxpayer dollars with no data to affect the propensity for companies to stay in or move to the state . . . No smart businessperson would make a decision on the basis of $15 million.

“What’s most important is where executives want to live — their quality of life, school systems, cultural amenities. And there are, of course, business considerations, such as access to transportation systems. But there’s nothing to suggest a subsidy like this drives a decision. They’d have to offer an astronomical amount of money — not just $15 million — to get companies to move here.”