More often than not, when talk in New Jersey turns to the pharmaceutical industry tones turn serious and the discussion centers around whether pharma will continue to support the state’s economy in the way it has for more than a century.
What most observers don’t realize is that New Jersey can rightfully call itself the undisputed global leader in biopharmaceuticals, a subset of the pharma industry hailed as key to its future.
However, if the state wants to maintain that position, the community needs to ensure that it’s fostering an environment that attracts and retains investment.
New Jersey’s pharmaceutical industry has suffered greatly over the past decade or so as massive consolidations have reduced workforces and closed facilities while drug patents that gave their developers exclusive rights to sell them have expired.
Meanwhile, advances in medicine and technology have opened up the field of biologics, which manipulates living cells from humans and plants as opposed to traditional pharmaceuticals that use chemical processes.
Industry still thriving in NJ
The combination of these forces with the reality that many New Jersey companies are doing their biologic research and development outside the state has people predicting doom for a sector that employs double the number of New Jerseyans than the national average.
So far, that hasn’t happened, as the existing infrastructure, an experienced workforce and a concentration of universities has kept the industry from fleeing entirely to competing states.
But industry advocates believe more needs to be done, and last month the Assembly passed a bill to establish a taskforce to study how to better align state and industry to ensure its growth.
One month earlier, BioNJ, a member-based network that works to promote the state’s healthcare innovation ecosystem, released a report arguing that the best way to attract and retain biologic resources is to coordinate efforts between stakeholders and to invest in life sciences and biotech startup firms that will grow independently within the state’s borders or be bought by their larger New Jersey neighbors. The report provides a clear blueprint for the taskforce, provided it forms and chooses to follow BioNJ’s advice.
“Biotech has been growing (in New Jersey) and (big) pharma has fallen off. This is the exact right time to be having this conversation again to make sure that growth continues,” said BioNJ CEO Debbie Hart.
The authors of Hart’s report call New Jersey the “undisputed leader” in biopharma, boasting ties to more than half of the new molecular entities and biologics approved by the Federal Drug Administration between 2011 and last year.
Employs hundred of thousands in NJ
Between 1998 and this year, the number of companies working in the traditional biotech sector rose from 80 to nearly 400 statewide. These companies account for 212,500 jobs internally and 3,100 supporting firms (the highest in the country) that engage in supplying administrative personnel, legal services, manufacturing, and distribution.
But it’s the intangibles that really give New Jersey its edge.
“New Jersey maintains distinct advantages nationally and globally with respect to talent, especially in drug and commercial development, and industry presence and infrastructure, and there is remarkable opportunity to build on and solidify this position for the next generation,” reads the report.
However, without concerted efforts, the state does risk losing its advantage to others. New Jersey hasn’t had a central agency to coordinate or fund scientific endeavors since 2010, when Gov. Jon Corzine cut the last of the budget for the state-sponsored Commission on Science and Technology, which provided up to $25,000 per year to life sciences start-ups.
New Jersey also lags far behind Massachusetts, for example, which implemented the 10-year, $1 billion Massachusetts Life Science Act in 2008 to stoke job creation and support research.
“We’ve got to concentrate on jobs of the future; We’ve got to take a look to see if we’re still competitive,” said Sen. Bob Singer (R-Lakewood), who chaired the state’s original biotech taskforce in the 1990s and sat on the now-defunct science commission for 15 years.
The questions to ask are how can the state retain its top position and how can the new taskforce help?
Last month, the Assembly almost unanimously passed the bill to create the New Jersey Biotechnology Task Force. Singer says he’s planning to introduce a Senate companion bill later this month. If it receives approval from the Senate and the governor, the task force will follow up on the work done by the one empaneled in the 1990s, which helped make New Jersey a national leader for government support of the industry.
Revamping tax incentives
With big pharma in transition in the Garden State, supporters feel it’s time for the state to revisit the tax incentives it offers these valuable companies, before too many more of them get lured to New Jersey’s top competitors – Massachusetts, California, North Carolina, Connecticut and the Mid-Atlantic region.
As stated in the legislation, (AJR 46), “The purpose of the task force shall be to communicate with the biotechnology industry and develop recommendations for actions the Legislature and State can take to retain and attract new biotechnology companies to the State.”
As written into the Assembly version of the bill, the task force would consist of nine members: two senators appointed by the Senate president; one senator appointed by the Senate minority leader; two members of the Assembly appointed by the Assembly speaker, and one member appointed by the minority leader; the CEO of New Jersey Economic Development Authority (EDA), who’ll serve ex officio; and two members of the public appointed by the governor from a list provided by BioNJ.
Members would issue a final report on December 31 the year following implementation of the law, and they won’t be paid.
Primary sponsor Assemblyman Gary Schaer (D-Passaic) said, “We always lament the fact that New Jersey was the capital of pharma. Now biotech needs to be a core interest in terms of bringing to New Jersey the kinds of jobs we want: high-paying jobs that use and need our well-trained, highly educated workforce.”
According to BioNJ, New Jersey’s venture capital investment levels haven’t returned to pre-recession levels. Life sciences venture funding averaged an annual $138 million from 2010-2014 — a significant drop from earlier years. A BioNJ survey whose results were included in the report revealed that most life-science entrepreneurs started up with just $200,000 loaned from family and friends, and very few used st ate funding or tax credit programs. With Tufts University calculating that it takes $2.6 billion for a new drug to be developed, “Life sciences companies require significant investment to achieve milestones,” reads the report. The need is most critical at the early stages.
• Create a life sciences venture fund and a working group to determine why venture funding in New Jersey is failing to keep pace with other states. BioNJ doesn’t understand the roots of this problem but notes that the state has fallen since 2004 and 2008, when PriceWaterhouseCoopers and the National Venture Capital Association found that the geographic cluster containing New Jersey ranked number three for venture capital funding for biotech companies.
• Establish a state-supported angel investor matching program.
• Nurture inventions that support life-sciences research (like advanced instruments) that often can be brought to market more quickly but don’t qualify for venture capital investment by establishing a technology-advancement fund and a consortium led by a university to dole out the money.
• Increase the “angel investor” tax credit from 10 percent to at least 25 percent to rival nearby states like Maryland, which offers a 50 percent credit on biotech investments. In Maryland, this works by extending a 50 percent income-tax credit to investors in qualified biotech startups who give these companies between $25,000 and $250,000 per year. No one company can claim more than 15 percent of the total annual pot for its investors.
Cultivating ‘angel investors’
BioNJ calls angel investors a “critical source of seed capital and expertise to the life sciences ecosystem,” yet notes that they are a diverse and disparate group with insufficient connectivity between them. As far back as 2009, then-executive director of the science commission Peter Reczek told New Jersey Monthly magazine, “One of the groups that have been largely ignored is the angel investors across the state and the country … (who) “may represent a larger pool of potential investment money than the venture capitalist community.”
• Create a forum where self-identified angels can interact with entrepreneurs and brainstorm how to promote New Jersey as a worthy place to invest. Program events to bring these communities together.
• Considering that immigrants established more than half of Silicon Valley’s start-ups from 1995 to 2005, work around visa requirements to allow universities to sponsor qualified immigrants while they found their STEM companies. States like Massachusetts are able to do this by piloting a program at the University of Massachusetts that places entrepreneurs in part-time jobs that qualify them for a cap exemption while they build their firms. Develop an online guide that lists existing resources for entrepeneurs.
Similar to business incubators, entrepreneurship labs (or “eLabs”) offer tenants space to develop their businesses.
They usually involve students in academic and practical study that contains two components: an educational curriculum and a project, like a business plan or a product, that has students applying their learning to the needs of an eLab firm. For example, JPMorgan Chase has funded a Small Business Forward Initiative for New Jersey Institute of Technology students to coach HealthIT firms as they scale up.
• Appoint a research university to establish an eLab in conjunction with a life sciences incubator and with help from the EDA and the business community.
• Establish a system for entrepreneurs to tap into the expertise of the business community to help them strengthen the business side of their companies.
Finding new locations
Second only to securing start-up funding, finding suitable real estate emerges as the primary challenge for entrepreneurs seeking to build life science companies in New Jersey. Though appropriate facilities exist – mainly in Central and Northern New Jersey – costs can prove challenging.
• Draw up an inventory of “incubators, accelerators and specialty real estate.”
• “Expand on, leverage and network existing infrastructure that is affordable and accessible.”
New Jersey has a lot to brag about when it comes to its life sciences infrastructure. According to the report, “New Jersey is a major global biopharma cluster known for its unique confluence of big biopharma multinationals, emerging and start-up companies, university and academic research centers and the world’s largest physical infrastructure of establishments for R&D, clinical research and development, manufacturing and distribution, and corporate headquarters and management.”
The state is situated in a region that lays claim to some of the highest federal and industrial research investments and one that grants easy access to international financial centers like New York. Add to that the unrivaled concentration of technical personnel and one gets ideal conditions that lead BioNJ to remark, “Nowhere is the potential for advancing healthcare stronger and more promising than in New Jersey for entrepreneurs who are developing tomorrow’s cures.”
However, “The perception of the state does not reflect that strength.”
Promoting the Garden State
• Harness the resources of agencies like BioNJ, Choose New Jersey, the EDA and the Secretary of State’s Business Action Center to design and execute a robust public relations campaign that will use local and national press, e-newsletters, op-eds and advertising to relay the message that New Jersey is open for business.
According to Hart, the original task force conversed with the industry for the first time about what it needed and returned with several proposals, including increased funding from the EDA, which had been reluctant to offer assistance to an industry with such little collateral. What resulted was a first-in-the-nation technology business tax certificate transfer program that permitted the state to invest in early-stage companies (which don’t make money for years or decades) and sell the losses. Today it’s a $60 million annual program that every governor has supported since Whitman.
Singer said, “At the time it was cutting edge and everybody looked at what was New Jersey was doing.”
But perhaps most important was how it made lawmakers and state agencies finally understand and accept the sector.
“Legislators and the EDA have looked at the industry in a way that has dramatically changed,” Hart said.
If all goes according to Hart’s plan, the second task force will do the same for a new generation of life sciences entrepreneurs.