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Betting on Biotech (in NJ)
North Jersey Newspapers ^ | 06.19.05 | CLINT RILEY

Posted on 06/26/2005 9:50:33 PM PDT by Coleus

N.J.'s big-bucks experiment

Sunday, June 19, 2005
Series archive: Betting on Biotech

First of four parts

With little fanfare and no direct approval of the electorate, the state of New Jersey has spent hundreds of millions of dollars supporting the biotech industry.

Powerful forces are hard at work in Trenton, selling biotechnology as a way to simultaneously bolster the state economy and improve the health of citizens. Acting Governor Codey has been front and center, promoting a plan to spend $380 million more on research into embryonic stem cells.

Much is at stake in a state where 200,000 jobs depend on the pharmaceutical industry and its ability to develop the next generation of miracle medicines.

But New Jersey's partnership with biotech is already running into problems. It is cloaked in secrecy and riddled with the potential for conflicts. Its goals are at times nebulous.

A thorough review of the effort by The Record found:

Millions of your tax dollars have gone to companies that take valuable research, profits and jobs from New Jersey and strengthen the biotech industry elsewhere.

Biotech proponents describe an appealing paradigm: First, a microbiologist at a public university makes an important discovery. School officials patent the breakthrough, then the technology is turned over to a local company. The company turns pure science into a moneymaking health-care product. Success requires the hiring of more workers.

The cycle can be repeated over and over, proponents predict, generating badly needed cash streams for medical research, higher education, maybe even the state's employee pension funds.

"This is the fundamental basis of a new industry," promises stem-cell researcher Wise Young, the Rutgers University neuroscientist who gained international renown when he became the personal physician to paralyzed actor Christopher Reeve. "We are facing an opportunity that will never come again."

Patient advocates and scientists such as Young say stem cells and other forms of biotechnology hold the promise of treating and possibly curing intractable ailments such as Alzheimer's and paralysis.

Codey calls public investment in biotech a "win, win, win" strategy.

"New Jersey is the natural place for stem-cell research, and we must be willing to put state dollars behind its potential," he said during a recent speech in Princeton. "A state investment will produce better health care, enhance our research and development industry and solidify New Jersey's place at the forefront of medical technology."

The acting governor has anticipated some of the concerns raised by The Record's review. He recently appointed Howard Shapiro, the former president of Princeton University, as chairman of a new Ethics Advisory Panel with the mission of ensuring that publicly funded research complies with state ethics guidelines. Shapiro, who did not respond to repeated telephone calls, is drafting the panel's policies.

A competitive game

Codey says the state must get in the game if it's going to compete with California and other states and nations developing biotech.

"Eventually, what all the scientists and physicians tell us is that the way to find a cure to so many diseases is through stem-cell research," Codey said in an interview. "It clearly is the wave of the future. It is where science is going, and I want New Jersey to be there first if it is humanly possible. As a result of that you spawn another industry. The dollars that the state will put in - down the road, not initially - we will reap the benefits of."

Codey, who is also president of the state Senate, has introduced legislation that would allocate $150 million in previously bonded funding to build the Stem Cell Institute of New Jersey on the New Brunswick campus of Rutgers. He has also said he wants to raise $230 million via a referendum to fund the research that would take place there.

Codey says he will earmark 5 percent of any patent royalties derived from research conducted at the institute for the state treasury.

Stem cells are easily the most discussed branch of biotechnology. But gene therapy, tissue engineering, targeted biomedicines - all are forms of biotech the state seeks to foster.

New Jersey law defines "biotechnology" broadly enough to encompass small research firms, large pharmaceutical houses, medical-device makers and aging chemical companies.

"Biotech is much more than stem cells," said Claudia Hirawat, a top executive at PTC Therapeutics, a small company based in South Plainfield. "Stem cells is the political aspect that makes it so interesting to everyone."

New Jersey Right to Life and others oppose embryonic stem-cell research because it necessitates the destruction of a human embryo. They are joined in that opinion by President Bush, who in 2001 severely limited federal funding of embryonic stem-cell research. Industry representatives say that private companies are hesitant to support embryonic stem-cell research for fear of being targeted by opponents.

Recently, Codey said he was frustrated that the state's major pharmaceutical companies had failed to join him in advancing the controversial research.

"If you don't want to get involved, say so," the acting governor said he told industry executives during a meeting last month. "If you want to get involved, put your money in; put it where your mouth is."

3 dozen agencies

Codey's stem-cell proposal builds on years of other moves made to protect the state's position as a world biopharmaceutical center.

No fewer than three dozen state-supported agencies, public commissions, universities and government-created non-profits provide financial and other support to the state's interdependent biopharmaceutical, biomedical and biotech industries. Most work autonomously and have missions that aren't necessarily aligned.

"We have specialties within government to provide certain services," explained Sherrie Preschie, executive director of the state Science and Technology Commission. "Organizing that all together wouldn't make sense. It is all arms of government that are trying to come together to achieve a common goal."

New Jersey is supporting biotech in other ways. The state has rewritten its laws in recent years to make it a more hospitable place to do business - shielding biotech partnerships from public disclosure laws and all but eliminating local inspections of biopharmaceutical research locations.

The track record for biotech has been mixed, so far. Most independent biotech companies make little or no profit. Since its birth in California's Silicon Valley in the mid-1970s, the industry as a whole has lost more than $45 billion, according to a recent study by consultant Ernst & Young.

Historically, fewer than one in 20 biotech companies ever become profitable. But among the winners have been some giants, companies such as Genentech, the $84 billion powerhouse based in San Francisco.

The Ernst & Young study was mostly upbeat about the future: Federal regulators approved 20 new biotech drugs last year. Some 230 biotech products are now on the market. The industry as a whole will become profitable by 2009, the report predicts.

In New Jersey, the electorate is intrigued, but guarded. A Quinnipiac University poll taken in January found that 68 percent of New Jersey's voters back research into the medical use of embryonic stem cells. Yet that same poll showed that only 47 percent support Codey's plan to use $380 million in public money for the effort; 42 percent are opposed.

Reason for skepticism

It isn't hard to find a basis for the skepticism regarding public financing. There are plenty of examples of private interests benefiting at the expense of the public.

Today, the cord-blood bank is home to the world's largest collection of human cells used in scientific research. It is housed in Coriell's state-of-the-art $7.7 million research center on the campus of the University of Medicine and Dentistry in Camden.

In 1996, Coriell received the first license from the state Department of Health to collect the umbilical-cord blood of newborns and store it for future use by scientists and patients.

Cord blood is a rich source of stem cells, which can develop into various other sorts of cells, given the right conditions. Because cord-blood cells are not derived from embryos, work with them is relatively non-controversial.

Coriell was among the first to recognize the potential revenue in marketing cord-blood banking to mothers eager to protect their children. The banked cord blood can help protect against leukemia and other genetic diseases.

To access that market, Coriell's 40-member volunteer board voted in 1995 to allow five fellow board members to create the for-profit Corcell Inc. in Philadelphia, just across the Delaware from New Jersey's poorest city.

Under a joint-venture agreement, Corcell planned to market the cord-blood bank while Coriell would do the collecting, testing and storing of the blood. Parents were charged an up-front $1,500 collection fee and an annual storage fee.

"We did it for a really good reason, to generate revenue for the parent Coriell," said Joseph L. Mintzer, Coriell's acting executive director and longtime chief financial officer.

But the partnership didn't work out as planned.

In 2000, higher-than-expected costs and growing ethical concerns prompted Coriell to sever most of its ties with its offspring, Mintzer said.

In August, Corcell went international, when it merged and became a wholly owned U.S. subsidiary of Vita 34 International AG, a privately controlled company based in Germany.

In 2004, Vita 34's combined cord-blood processing and storage operation reported $16 million in revenues.

But Coriell will see little or any of that income. It continues to rely on public support.

The downside is that the public gets the bill, in the form of higher taxes, and may not always like the way the biotechs use taxpayer money.

Between 2002 and 2004, state taxpayers granted Enzon tax subsidies that yielded $1,585,000 in cash. An equal amount wound up in the pockets of CEO Arthur J. Higgins when he resigned on May 10, 2004, to lead Bayer Healthcare, a unit of German pharmaceutical giant Bayer AG.

Documents on file with the federal Securities and Exchange Commission show that Higgins walked away with a cash bonus of $216,000 and an additional separation payment of $1.25 million - virtually every dime taxpayers invested to assist the company's biomedical research efforts during his three-year reign.

Higgins is a former chairman of the Biotechnology Council of New Jersey, a trade group that lobbied for the tax-relief program. During his turn at the helm of Enzon, the Bridgewater firm's stock price went from a high of $70 in May 2001 to a low of $10.80 in November 2003. The company's stock price now stands at less than $6 a share.

Between 2002 and 2004 state taxpayers allowed Pharmos to collect $887,795 from the sale of some of its state tax losses.

The justification for the tax-relief program is that technology companies create taxpaying jobs and produce innovations that might one day benefit the public. The subsidies are available to biotech companies that employ 10 or more people - a level that was lowered from 25 under the administration of Gov. James E. McGreevey.

As of January, Pharmos employed 11 full-time workers and one part-time employee in New Jersey, and 54 full-time and eight part-time workers in Israel, according to SEC documents.

New Jersey officials have actively encouraged such arrangements with Israeli biotech companies. In late October 2003, McGreevey signed a trade pact officially known as the "Declaration of Collaboration in the Life Sciences between the State of Israel and the state of New Jersey."

"In New Jersey, we're actively cultivating an environment that is conducive to the growth of emerging technologies," McGreevey said that day, a senior Israeli official at his side. "We are leveraging our natural strengths in biotech and pharmaceuticals, as well as creating the necessary tools to encourage these vital industry clusters to relocate or expand here."

Federal securities records show Pharmos had received more than $13 million in drug and medical-diagnostic research grants from the Israeli government through the end of last year. One binding condition of the grants is that "this prohibits the transfer or license of know-how and the manufacture of resulting products outside Israel without the permission of the [Israeli] Chief Scientist," the filings state.

There is no similar language prohibiting the transfer of technology from subsidized research in New Jersey. So any discoveries Pharmos makes here may well be of greater benefit elsewhere.

Job creation in doubt

History shows that promises of job creation from public biotech investment may be illusory.

During the 1980s, there were a dozen scientific "centers for excellence" built in New Jersey, at public universities around the state. Voters had approved a combined $440 million through the "Jobs, Science and Technology Bond Act of 1984" and the "Jobs, Education and Competitiveness Bond Issue of 1988."

"We're running for the gold and to make New Jersey number one," then-Gov. Thomas H. Kean was quoted as saying shortly after launching the effort.

Among the "Centers for Excellence" were a world-class Center for Advanced Biotechnology and Medicine, run jointly by Rutgers University and the University of Medicine and Dentistry of New Jersey, and the Center for Agricultural Molecular Biology (AgBio-Tech) at Rutgers' Cook College. Both are highly regarded in the scientific community for their innovation.

Dr. Roger E. Wyse, an internationally recognized plant scientist, was recruited to run AgBio-Tech at Rutgers before it was even built.

From the day the center opened, Wyse disagreed with state officials about how to measure success.

"After we spent the time raising the money and recruiting the people for the center," Wyse said, "the first question I got from the state Science and Technology Commission was, 'How many jobs have you created?'

"I replied, 'Three. Me and two assistants.'Ÿ"

Wyse eventually left Rutgers to become dean of the College of Agricultural and Life Sciences at the University of Wisconsin, Madison. Today, Wyse is a managing director at Burrill and Co., one of the world's largest biotech investment firms, based in California.

Wyse sees a lesson for the future in his New Jersey experience.

"There isn't enough patience," he said. "The state and the state Legislature only looks at: Has the science created jobs? In the longer term, you are investing in health and medicine."


* * *

Touting N.J.

The state of New Jersey is front and center in Philadelphia today as a co-sponsor of BIO2005, the annual convention of the biotech industry.

New Jersey has spent more than $500,000 on the effort to convince an estimated 18,000 researchers, executives and government officials from as far away as Singapore and New Zealand that the Garden State is "where life science lives."

Acting Governor Codey and other state officials will tout New Jersey as the epicenter of the global pharmaceutical industry, as home to 130 emerging biotechnology companies and as a business location offering a wide range of government financial and tax incentives. New Jersey has also teamed with Pennsylvania and Delaware to sell the three states as an important research corridor.

They face stiff competition from dozens of other states, such as California, Massachusetts, Maryland and North Carolina, and countries, such as Ireland, India and Singapore, which also will be represented at BIO2005.

During the four-day conference attendees will hear from international biotech experts on topics such as the policy implications of advances in stem-cell research.

BIO2005 runs through Wednesday at the Pennsylvania Convention Center.

- Clint Riley

On the

* * *

Biotechnology: Stem cells, and more

Stem cells are the best-known branch of biotechnology - partly because of the great promise of the technology, partly because of the controversy surrounding it. But there are many other branches that hold astonishing possibilities. Gene therapy, for example, attacks diseases caused by genetic defects. It attempts to cure them by fixing the faulty genes with complex medicines. Targeted biomedicines offer another avenue of great potential. These medicines are structured to identify specific molecular targets - for example, a specific protein on the surface of a cancer cell. They can deliver minuscule but lethal doses of poison to individual cancer cells. Tissue engineering promises to manipulate cell biology to create artificial structures, such as replacement organs and skin for burn victims. The special intrigue of stem cells is their flexibility.

Stem cells: The body's own miracle of healing

Discovered in the 1960s in bone marrow and later identified in various parts of the body, stem cells play a unique role in the body: They make specialized cells to replace those lost through disease, injury or normal wear and tear. When they divide, two cells are created: a replica stem cell and a specialized cell. In the brain, they become various neurons. In muscle, they become muscle cells. Researchers are trying to harness that capability to cure chronic diseases and heal devastating injuries.

Types of stem cells

There are two kinds of stem cells: adult and embryonic. Adult stem cells are found in various places in the body, and can be harvested from placentas after birth . Embryonic stem cells are found in fertilized eggs after a few days of cell division.

Secrecy shrouds taxpayer-supported research

Monday, June 20, 2005
Series archive: Betting on Biotech  Second of four parts

The church organist filled out a disclosure form.

So did the part-time bartender.

Both were required to disclose any jobs other than their positions with Rowan University, a state school.

Dr. Raphael Mannino, too, has employment beyond his public-sector position as an associate professor at the University of Medicine and Dentistry of New Jersey. He's an executive with one biotech start-up company and a paid board member of another.

But there's no disclosure form on file for him with the state Executive Commission on Ethical Standards. And there are none on file for anyone else at UMDNJ, or at either of the state's two other research universities.

Mannino is just one example of a hole in the system that ensures public interests, not private ones, are served by those involved in taxpayer-supported medical research.

Secrecy is important to the biotech industry, in both its business and research incarnations. After all, this is a world where the sole ownership of ideas is the basis of profits.

The picture is more complicated on the public side of the biotechnology partnership.

In particular, a closed-door culture poses significant challenges for those concerned about conflicts of interest. Acting Governor Codey, the most prominent advocate of public investment in stem-cell research and other forms of biotechnology, has anticipated some of those challenges, announcing a number of steps aimed at deflecting questions about ethics.

Earlier this year, he appointed a special counsel to recommend ethics reforms for the executive branch and an overhaul of the current "well-intended, but toothless" system for ensuring compliance with disclosure rules.

And, in an effort to quiet critics of his controversial plan to spend $150 million building the Stem Cell Institute of New Jersey, Codey in April created a separate ethics review panel to oversee research grants awarded by the state. He named Princeton's president emeritus, Harold Shapiro, as its chairman and a public member of the stem cell institute's board. Shapiro, an economist who for five years was chairman of the National Bioethics Advisory Commission under President Bill Clinton, also has the job of devising the panel's structure and rules.

Despite those moves, secrecy remains a key element of the state's plan to bolster the biotechnology industry. Acting in concert with New Jersey's university community, the industry pushed hard for legislation that would respect secrecy.

One of the key elements shielding the industry and its university partners is contained in the state's Open Public Records Act, enacted in 2001. A provision of that law bars public agencies - including public universities - from disclosing "any biotechnology trade secrets and related confidential information ... to any other public agency, or to the general public, except as allowed pursuant to federal law."

Those provisions are needed to protect the "intellectual property rights" and potential patents generated by research, as well as the trade secrets of partner companies, state officials and industry representatives say.

Friends of the industry argue that a certain level of secrecy is a fair trade-off for the benefits that will flow from the state's collaboration with biotech - new businesses and jobs, plus medical cures and technological breakthroughs.

"The challenge is whether the public's interest can be protected," says Robert Franks, a former congressman who is now a chief lobbyist for the state pharmaceutical industry. "There needs to be a way for the public's interest to be protected without full, open disclosure."

The game plan

Secrecy was part of the foundation for New Jersey's biotech initiative. As governor, James E. McGreevey empowered a number of commissions and study groups which developed the basic game plan. All toiled behind closed doors, only their final reports becoming public.

P. Roy Vagelos, the former head of Merck & Co., headed commissions that shepherded McGreevey's now-abandoned plan to merge the state's three top public universities. Vagelos had been McGreevey's boss when the former governor was a Merck lobbyist in the late 1980s.

In taking up those assignments for McGreevey, Vagelos was not required to reveal his financial interest in two out-of-state biotechnology companies, one based in Tarrytown, N.Y., and the other in South San Francisco.

Vagelos did not return repeated telephone calls seeking comment for this article. Information about his outside interests was gleaned from federal securities records - of the sort available only for public companies; most biotech companies are privately held.

The same records reveal that a good many scientists and doctors at New Jersey's research universities had outside employment as board members, scientific advisory board members and consultants to biotech companies, some in states that are competing with New Jersey.

For instance, the records show that since 2002, Mannino has served as an executive, chief scientific officer and board member of North Carolina-based Biodelivery Sciences International Inc., a company UMDNJ helped Mannino spin out from discoveries made in his taxpayer-subsidized lab in Newark.

But those weren't the professor's only jobs.

Since June 2003, Mannino has been a director of Biovest International Inc., a Minneapolis-based cell-culture company. Both companies are financially tied to Accentia Biopharmaceuticals, a closely held, Florida-based company controlled by a private venture capital group based in Tampa. The federal records indicate that Mannino earned some $1.3 million with the two companies - counting stock - by the end of 2004.

UMDNJ holds an estimated $400,000 of Biodelivery Sciences stock and has a confidential research agreement with the company.

Mannino said he stopped filing outside employment forms with his dean's blessing three years ago when Biodelivery Sciences International went public.

"I am legally a public employee because I accept a paycheck from UMDNJ," Mannino explained. "I have two jobs. I am a state employee and I am an employee of BDSI [Biodelivery Sciences]. However, 100 percent of the money I receive originates from BDSI. My paycheck is totally reimbursed by BDSI."

The professor said he kept his faculty title with the school mainly as a publicity tool for UMDNJ, but that he actually toils "100 percent" for the company in his lab, which sits on UMDNJ's Newark campus.

It's hard to judge just how many of New Jersey's researchers might have similar outside interests. As of last week, none of the state's three research universities - UMDNJ, Rutgers and NJIT - had sent recent outside-employment forms to the state's Executive Commission on Ethical Standards, the central repository for the documents.

The three schools play a central role in the state's biotech effort. There are more than 4,750 full-time faculty and thousands of other administrators and support staff employed at the three schools.

Lure of profits

Sheldon Krimsky, a Tufts University professor and an expert on conflicts of interest between academia and the biomedical industry, says he is not surprised by The Record's findings.

All too often, he says, universities and government regulators limit their scrutiny of faculty researchers because they don't want to interfere with the big dollars that can be generated from successful research.

"The people involved with the money will turn a blind eye to conflict," said Krimsky, who recently published the book "Science in the Private Interest: Has the lure of profits corrupted biomedical research?" "We have seen it happen over and over."

Krimsky questioned the ethical underpinnings of university-affiliated non-profit research centers, like the proposed Stem Cell Institute.

"There seems to be an erosion of traditional boundaries in an effort to try and create new rules for institutions that no longer look like they once did," Krimsky said. "The university begins to look more like a for-profit institution than a non-profit institution."

Even with this transformation, Krimsky argues, "universities should be totally transparent about their finances, because it can impact the way research is done."

John J. Petillo, the president of UMDNJ, has vowed to institute broad financial and ethical reforms and improve transparency and accountability. His promise comes amid intense scrutiny by lawmakers and regulators, following revelations of questionable financial dealings at the school, which has an annual budget of $1.6 billion.

Michael Breton, the vice president of research at Rutgers, defended that institution's handling of conflict-of-interest issues among researchers.

"We are managing and reviewing our conflicts. We are doing a very good job," Breton says. "It's not that you should not have conflicts; you should not have undisclosed conflicts."

Rutgers provided documents detailing which companies had purchased or licensed the university's technology and the amount paid over several years. Since 1989, Rutgers has assisted in spinning off more than 45 start-up companies from faculty research. Three out of every five are or were based in New Jersey at one point. The university reported receiving $4.3 million in licensing revenue and holding another $2.2 million in equity interest in 2004.

The picture was far different at UMDNJ.

"We have reviewed every [university patent and licensing] contract and determined that in almost every circumstance we are contractually limited from disclosing the name of the other party and/or the terms of the agreement," said Susan Glick, UMDNJ's custodian of public records.

Seed money

Secrecy cloaks another key element in the state's biotech initiative: the use of public funds as seed money to encourage private investment in start-up biotechnology companies. Despite the risky nature of those investments, the public is not likely to know much about how effectively the strategy is playing out.

Since 1996, taxpayers have invested more than $25 million in four technology-based venture capital funds, and millions more in federal investment. The money was channeled through two state agencies, the Commission on Science and Technology and the Economic Development Authority.

Last year, the state investment council made it possible for as much as 13 percent of the state's $80 billion in pension funds to be in "alternative investments" such as the venture capital funds that invest in biotechnology. The strategy - designed to boost the returns on the funds while also supporting biotech - has yet to be fully carried out.

State officials refuse to disclose information on investment returns, fees, charges or investment partners. They won't even name the start-up companies the funds are invested in.

"The reports the EDA receives from the fund managers are not public information ... as they are comprised of confidential proprietary and financial information in relation to fund investments. As such, they can't be released," EDA legislative officer Marcus Saldutti wrote in response to a formal request by The Record.

Longtime EDA Executive Director Caren Franzini said she is proud of the results and would disclose the information if she could.

"I'm not a lawyer. I have no problem with it. It's not me," she said. "The Attorney General's Office is telling me I can't do it. They are my lawyers."

Franzini said taxpayers need to trust Economic Development.

"New Jersey taxpayers should know that 100 percent of the money invested by EDA is being invested in New Jersey companies and we are leveraging that at least three times with other people's money," she said.

Citizens in other states aren't always so trusting. In the past three years, there have been battles over public investments in private venture capital in California, Texas, Massachusetts, Colorado and Michigan. In some instances, venture capital firms have refused to accept public money after states have increased disclosure requirements.

Jay Trien, president of the Venture Association of New Jersey, said that non-disclosure terms are common for any investor in a private venture capital fund.

"The only info that I believe should be public is the fund's name and the amount invested in it. Any other info should be limited to what the state already discloses about the other investments in its portfolio," Trien said. "The world doesn't know if I'm an investor in GM stock. Why should I be disclosed as an investor in a fund because a state has money in that fund?"


* * *

Biotech in New Jersey

Here are the locations of state-supported and state-run agencies that figure prominently in New Jersey's biotechnology initiatives.

1. Newark

Waksman Institute for Microbiology
New Jersey Institute of Technology
UMDNJ New Jersey Medical School
Public Health Research Institute
UMDNJ Center for Biodefense

2. Edison

Musculoskeletal Transplant Foundation
International Institute for the Advancement of Medicine

3. New Brunswick

MDNJ Informatics Institute
The Protein Databank at Rutgers
Rutgers DNA and Cell Repository
Stem Cell Institute of New Jersey
Cancer Institute of New Jersey
UMDNJ Robert Wood Johnson Medical School
Center for Advanced Biotechnology and Medicine
New Jersey Center for Biomaterials
Agricultural Molecular Biology Center
UMDNJ Child Health Institute of New Jersey

4. Princeton Lewis-Sigler Institute for Integrative Genomics

5. Camden EDA Waterfront Technology Center
Coriell Institute for Medical Research

6.. Stratford UMDNJ Stratford Campus

N.J. must fend off research rivals

Tuesday, June 21, 2005
Series archive: Betting on Biotech

Third of four parts

Merck and New Jersey. For years they've been perfect together.

The giant drug maker has been a showcase of the state's worldwide preeminence in the pharmaceutical industry. Merck received the state's first big job-creation grant - $2 million in 1974.

So state officials were stunned on April 6, 2004, when North Carolina officials announced that Merck was locating a new 166,000-square-foot vaccine plant in Durham - enticed by a $39.4 million tax incentive package quietly approved by the North Carolina Legislature months earlier.

That experience provides a cautionary tale for New Jersey as it vies with California and other states for dominance in the emerging field of biomedical research. Incentive programs, tax subsidies, even history - all can be overcome by the corporate balance sheet.

"The issue with companies today is there is no, as a right, state loyalty. It is very much a bottom-line loyalty," said Caren Franzini, executive director of the state Economic Development Authority. "These are international corporations that have their first loyalty to their stockholders, and they are making a financial decision."

To be sure, New Jersey has plenty going for it in the competition. It is home to the world headquarters of nine pharmaceutical companies, including Merck and Johnson & Johnson. Long called the "medicine chest to the world," New Jersey also is host to corporate names like Pfizer and Bristol Myers Squibb.

Situated in the heart of the East Coast research corridor between Baltimore and Boston, New Jersey has spawned some of the world's biggest chemical and pharmaceutical businesses and biotechnology breakthroughs since the 1940s. One company after another settled in the Garden State. The reason is simple.

Location. Location. Location.

Smaller start-up companies want to be near the big boys, hoping to license a product to them, collaborate with them on drug and product development or have their company bought out for a pile of cash. Young companies also have a need for cash, and New Jersey's proximity to the financial centers of New York and Philadelphia are quite a draw.

"New Jersey is unique in the United States. We have companies that the rest of the world is trying to recruit," said Daniel Levine, the assistant state treasurer overseeing economic development. "We have what they want."

Still, everyone from the governor to biopharmaceutical leaders acknowledges that New Jersey has yet to achieve the buzz often associated with biotechnology industries in North Carolina's Research Triangle or the Route 128 Corridor in and around Boston. Overseas locations also are becoming a factor, in such places as Israel, India and South Korea.

California, in particular, is stiff competition. Last November, voters there approved $3 billion in bonding to fund research into embryonic stem cells and other emerging medical technologies. The state also has the country's largest existing biotechnology industry.

"Almost every other state, province, and most countries in Western Europe are in an attraction mode, trying to get companies. We're in a retention mode," Levine said. During the past decade, New Jersey has lost more than 5 percent of its job base in pharmaceuticals.

As a result, New Jersey officials say incentives are becoming increasingly essential to keeping jobs here in a world gone global.

Three weeks after Merck's 2004 bombshell, state Treasurer John McCormac and eight top McGreevey administration officials met at the Madison headquarters of Wyeth, another of the state's biopharmaceutical heavyweights. Also in the room that day were other CEOs and top representatives of the state's biggest drug companies.

From that meeting, the state hatched its enhanced Business Retention and Relocation Assistance Grant program. State officials said they realized they did not have enough ways to entice large employers already here to stay and expand.

"People walked out saying, 'I feel good I made significant investments here,'Ÿ" said former Republican Rep. Bob Franks, head of the Healthcare Institute of New Jersey, the state's pharmaceutical lobby. "I walked out the happiest guy in America."

Not long after, Gov. James E. McGreevey unveiled plans for the Stem Cell Institute of New Jersey and a commitment of millions of dollars more in public money to support it.

His successor, Richard J. Codey, has introduced legislation allocating $150 million to build the facility in New Brunswick, and also wants to ask New Jersey voters to bond $230 million to fund research there, although he has yet to present the necessary bill to the Legislature.

"New Jersey continues to be a leader in stem-cell research, but other states and countries are catching up," Codey said. "This world-class facility will help attract the best researchers to New Jersey and will keep our state on the forefront of medical advancement."

Multimillion-dollar state tax-incentive deals with Pfizer Healthcare, Novartis and other biopharmaceutical companies have followed. New Jersey taxpayers are now paying companies to stay and keep jobs here, in addition to handing companies millions of dollars in tax breaks for relocating new jobs to New Jersey.

Late last month, on Pfizer's Morris Plains campus, Codey, McCormac, Franks and Pfizer executives broke ground on an estimated $500 million expansion that officials say will keep more than 2,000 jobs in New Jersey. Cost to taxpayers: at least $25 million.

"Pfizer has a proud history in New Jersey, and the state is critical to our future success," said Pfizer Healthcare President Marc Robinson, whose son plays basketball in the same league as Codey's son. "Our significant expansion in Morris Plains reaffirms our commitment to New Jersey and to the strong partnerships we have established with governments, community organizations and other stakeholders in the state."

Industry officials, too, say that while New Jersey and the biopharmaceutical industry still need each other, the state must invest public dollars if it wants to compete.

The state needs to be willing to collaborate with the industry "in a variety of forms and settings," Franks said.

"The state and the education system need to train New Jerseyans to be the workers of tomorrow in the life sciences industry," he added. "In addition, the state of New Jersey needs to realize they are engaged in an intense competition for investment in these companies."

"New Jersey has done a lot. Other states are doing more," said Kenneth Moch, president of a Parsippany-based biotech firm and chairman of the Biotechnology Council of New Jersey, an industry lobby. "If we were to take the extreme case and stop investing in attracting and retaining biotech companies, 20 years from now the industry will be in different locations."

National critics argue, however, that taxpayer-financed subsidy/incentive programs are giveaways that encourage companies to merely move existing jobs from one state to another, rather than create new jobs.

"Over time there has been this economic development infrastructure of people ... who make money from playing one state against another," said Robert Orr, who recently left the North Carolina Supreme Court and formed the conservative North Carolina Institute for Constitutional Law. "To a large extent, not only is the system wrong, it is being gamed.

"We feel like you should just have free-market capitalism," added Orr, a Republican who has challenged the more than $230 million in corporate incentive packages North Carolina has awarded companies like Merck and computer giant Dell since late 2003.

Orr said he believes the economic-development wars for jobs and companies is a national issue that must be addressed. Orr and other critics hope the U.S. Supreme Court or Congress will intercede and decide that states are violating the commerce clause of the Constitution by enticing companies to relocate or stay put.

A federal lawsuit filed by Ralph Nader challenging subsidies Ohio awarded to DaimlerChrysler may be considered by the U.S. Supreme Court this fall. Corporations and business-interest groups have continued to vigorously lobby Congress to protect states rights to offer corporate tax subsidies/incentives.

Medical-research advocates have used the competition between the states to their advantage.

Days after California voters authorized $3 billion to support stem cell research, Rutgers University biomedical researcher and advocate Wise Young, widely recognized as the doctor of actor Christopher Reeve, posted the following to readers of the blog he hosts for patients and their families faced with currently incurable conditions:

"One of the arguments that work well at the state level is that the investment in research not only benefits the state by attracting the right kind of people and money to the state (i.e. companies and federal grants) but it directly supports state institutions (such as its universities) and relieves human suffering of its citizens. Maybe we have started a national trend that will one day be commented on in the histories of the United States."

Some blame President Bush for fueling the competition among states by severely limiting federal funding of embryonic stem-cell research.

"This is all a response to an artificially created problem," Moch said of New Jersey's biotechnology lobby. "The artificially created problem was the federal decision not to allow federal funding of stem-cell research."

"Everyone who is involved in biomedical research has focused their energy on the states," said economist Joseph Cortright, a private consultant who co-wrote a 2002 report for The Brookings Institute on various state efforts to develop biotechnology clusters. "Stem-cell research can't be the best biotech investment for every state."

Cortright said a national "group think" has developed among state and local officials nationwide who believe that, if their communities invest in becoming a hub of biotechnology research, lots of high-paying jobs and much needed tax revenue will follow.

"Mayors and governors assume this is the next big thing and they need to go after it," said Cortright, a former staff adviser to the Oregon Legislature on economic development. "There is a huge misconception that people have that if you do research in your communities, jobs generated by that research will accumulate to your community. It's very naïve to suggest that the commercial benefits of this will accrue to where the research occurs. It can be easily moved and often is."

Even those directing biotech strategy for New Jersey are not immune to the temptations offered by other states.

In February, Celldex Therapeutics, a tiny biotech start-up, received unanimous approval from the board of the state Economic Development Authority for limited subsidies over 10 years through the state's Business Employment Incentive Program (BEIP) to locate in Hunterdon County rather than Easton, Pa.

Companies must show that they have a serious incentive package offer from another state to qualify for subsidies from the BEIP program.

Donald Drakeman is CEO of Medarex, the Princeton-based biopharmaceutical company that controls the start-up. As chairman of the state Commission on Science and Technology - a job handed out by the governor - he leads an agency that has this mission: "to encourage economic development and job growth in New Jersey."

Asked why he would even consider relocating jobs to another state, Drakeman replied, "I actually said I'd like to stay in New Jersey all along."

But Drakeman also said it's part of a CEO's job to find the best deal for shareholders. In the end, Pennsylvania officials did not provide a large enough financial incentive. The company likely would have gone to Pennsylvania if the price was right, Drakeman acknowledged.

"It would be hard to tell our shareholders that we aren't taking $20 million," he said. "We require an ungodly amount of capital to do what we do."

Public, private partners in a brave new world

Wednesday, June 22, 2005
Series archive: Betting on Biotech
Candidates square off over biotech
If you want to learn more

Fourth of a series

There's a lot riding on the promise of biotechnology.

State officials say investing in the emerging medical science will improve New Jersey's balance sheet.

Scientists tout stem cells and other biotech research as the foundation of a whole new world of medicine, a world where the lame could walk and the old could live without debilitation.

For the sick and their loved ones, there is hope where there was none.

During the preparation of this series, The Record heard from dozens of national experts in medicine, science, commerce and government. There was plenty of divergence in their opinions.

But when asked to take the big view, almost all saw a role for both government and the private sector in the quest to turn the promise of biotech into the reality of better health.

Collectively, they offer a few simple guideposts that citizens and their elected representatives might consider when trying to assess how well the partnership is going.

Be patient

Abraham Abuchowski is a former Rutgers scientist who co-founded the New Jersey-based biotech Enzon in the 1980s. He now runs another biotech start-up.

- "[Stem cells are] the technology of the moment, but the reality is no one is getting out of a wheelchair in five years. The amount of money this is going to cost is far greater than they imagine."

Paul Berg is a winner of the Nobel Prize and a longtime Stanford University professor who spliced the first gene in the early 1970s. More recently, he helped organize the successful $3 billion stem-cell referendum in California last November.

- "There is a fine line between promising the world and being realistic to what we can achieve. And it is easy to cross that line. I think in many cases during the California campaign the line was crossed. We made promises that we were going to have cures for this, that and the other thing. Inevitably the question from the pack is: 'How long will it take?' A reputable scientist will say, 'I have no idea how long it is going to take.' One thing I try to argue is we are not going to have cures ... unless we do the science. We have to do the science. We may find there are pitfalls and hurdles."

Don't promise too much

Claudia Hirawat is a top executive at South Plainfield-based PTC Therapeutics, a small biotech developing targeted treatments for genetic disorders.

- "Hype just hurts the research community and hurts those waiting for a cure. You cannot be in the business and not have the hope from desperate parents become an intoxication. We have people who call us from all over the world who have been lied to. They say, 'You can bring me a cure.' This is an issue that really bothers me."

Dr. Shirley Tilghman is the president of Princeton University and a formally trained geneticist.

- "Some of the public pronouncements in the field of stem-cell research come close to over-promising at best and delusional fantasizing at worst. In either case, such pronouncements do not serve the long-term goal of developing effective treatment for diseases."

-"As the public interest in stem-cell biology has increased, and as stem cells have become the subject of intense political debate over the last four years, the temptation to over-hype and over-promise in order to make a political point has been very great indeed."


- "You have to separate how you fund research and how you attract business. Just because something was developed at Rutgers does not mean that technology will stay in the state."

Government must set social policy

Roger Noll is an economist at Stanford University.

- "If one picks only those research projects that are proposed today that you know have an extremely high probability of commercial success in the future, both a medical breakthrough and a business breakthrough - that is to say they become commercially viable - you are not doing your job because the private sector actually does that pretty well. They take things that are very obviously going to be a success and do them themselves."

- "It is very easy to spend a lot of money; it's harder to spend it wisely and effectively. This is a problem for all research and development programs and I believe it is going to be even more of a problem for state implementation of any kind of biomedical research, including stem-cell research."

Michael Santoro is an associate professor at the Rutgers Business School in Newark and the editor of a book on ethical and public-policy issues in the pharmaceutical industry.

- "We can't afford to have politics as usual, and conduct our public policy as usual. Complacency in a global economy and inaction in a global economy are not options. This is a situation that is just crying out for leadership."

Kenneth Moch is the chairman of the Biotechnology Council of New Jersey and co-chair of the international BIO2005 convention that concludes today in Philadelphia.

- "Stem cells are an important area, but it's long off in terms of developing therapies. It is good that all states have taken an interest in science. It could be bad if they do so to the exclusion of other scientific pathways. This is not the panacea. This should not be Nixon's war on cancer, and then everything else goes by the wayside. Stem-cell research is going to bear fruit, but it is going to be a long path."

Demand accountability

Daniel Perry is the president of the Washington, D.C.-based Coalition for the Advancement of Medical Research, a national umbrella group of 90 patient advocacy groups, scientific and medical societies and major research universities.

- "When there are public dollars, there will be public accountability and public oversight."


- "When we are dealing with tax rebates and tax expenditures, and with other public money there must be some measure of accountability. When we are dealing with public money, there needs to be public disclosure. Anything less than 100 percent transparency is not acceptable. The best public policy is going to be out in the open. If we don't know what the facts are, we can't know if the public interest is being met."

Sheldon Krimsky is a Tufts University professor and author of "Science in the Private Interest: Has the Lure of Profits Corrupted Biomedical Research?"

- "Surely there has to be someone in the state, an auditor, that looks at the tax benefits and the grants and other investments in biotechnology. You need to have that data."

Paul Gelsinger founded the non-profit advocacy group Citizens for Responsible Care and Research following his teenage son's death in 1995, four days after undergoing experimental gene therapy at the University of Pennsylvania's Institute for Human Gene Therapy. Federal authorities later determined that the founder of the institute and the university had undisclosed conflicts of interest in the research that was the basis of the treatment.

- The public should accept nothing less than full and open disclosure by those involved in biomedical research, especially those supported with public dollars. All we want to see is a system that is accountable. ... Once you take care of the ethics, you'll have better progress and better prosperity. It comes down to basic ethics. It should all be an open door. How does the public know otherwise?"



1. From Alchemy to IPO: The business of biotechnology. Author: Cynthia Robbins-Roth
2. Biotechnology Unzipped: Promises and Realities. Author: Eric R. Grace
3. Exploring the Biomedical Revolution: A look at the work of frontline scientists and how they are changing medicine. Author: The Howard Hughes Medical Institute.
4. The Research State: A History of Science in New Jersey. Authors: John R. Pierce and Arthur G. Tressler, The New Jersey Historical Series, Volume 15
5. Robert Wood Johnson: The Gentleman Rebel. Author: Larry Foster
6. The Merck Druggernaut: The Inside Story of a Pharmaceutical Giant. Author: Fran Hawthorne
7. The Truth About Drug Companies: How they Deceive Us and what to do about it. Author: Marcia Angell M.D.
8. The $800 Million Pill: The Truth Behind The Cost of New Drugs. Author: Merrill Goozner
9. Critical Condition: How Health Care in America Became Big Business and Bad Medicine. Authors: Donald L. Barlett and James B. Steele.
10. Science in the Private Interest: Has The Lure of Profits Corrupted Biomedical Research? Author: Sheldon Krimsky.
11. Between Politics and Science: Assuring the Productivity and Integrity of Research. David H. Guston
12. Universities in the Marketplace: The Commercialization of Higher Education. Author: Derek Bok
13. Who Owns Academic Work? Battling for Control of Intellectual Property. Author: Corynne McSherry.
14. On Competition. Author: Michael E. Porter
15. The Politics of Inclusion: Author: Thomas H. Kean, former New Jersey Governor.
16. Made In New Jersey: The Industrial Story of a State. Author: John T. Cunningham.
17. Garden State: The Story of Agriculture in New Jersey. Author: John T. Cunningham.
18. Princeton and Rutgers. Author: George P. Schmidt, The New Jersey Historical Series, volume 5.
19. Ethics and the Pharmaceutical Industry. Editors: Michael A. Santoro and Thomas M. Gorrie (scheduled for release in October).


State of New Jersey Departments, Commissions and Authorities —
Prosperity New Jersey —
National Institutes of Health —
National Science Foundation –
The National Academies –
The Henry J. Kaiser Family Foundation —
The Robert Wood Johnson Foundation —
The Howard Hughes Medical Institute —
IMS Health –
Tufts Center for the Study of Drug Development —
Biospace —
Biolink, Educating the Biotechnology Workforce in New Jersey —
Biotechnology Industry Organization –Biotechnology Council of New Jersey Inc. -
Pharmaceutical Research and Manufacturers of America (PhRMA) -
Healthcare Institute of New Jersey — New Jersey Hospital Association —
New Jersey Technology Council — Research & Development Council of New Jersey —
Association of American Universities —
Association of University Technology Managers -
National Venture Capital Association —
Forums Institute for Public Policy (New Jersey Policy Forums on Health and Medical Care) —
Edward J. Bloustein School of Planning and Public Policy Economic Report Series —
New Jersey Policy Perspective —
Coalition for the Advancement of Medical Research —
The Center for Public Integrity’s Lobby Watch -
The Stem Cell Institute of New Jersey —
New Jersey Right to Life —

TOPICS: Business/Economy; Culture/Society; Government; Politics/Elections; Technical; US: New Jersey
KEYWORDS: bettingonbiotech; bigbusiness; biotech; biotechnology; business; codey; dickcodey; escr; mcgreevey; newjersey; nj; stemcellinstitute; stemcells
NJ Gubernatorial Candidates square off over biotech
1 posted on 06/26/2005 9:50:33 PM PDT by Coleus
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To: 2ndMostConservativeBrdMember; afraidfortherepublic; Alas; al_c; american colleen; annalex; ...

2 posted on 06/26/2005 9:51:30 PM PDT by Coleus (I support ethical, effective and safe stem cell research and use: adult, umbilical cord, bone marrow)
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To: Coleus

El Dorado, Tulipomania, South Seas Bubble...

3 posted on 06/26/2005 10:03:17 PM PDT by sinanju
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To: Coleus

This is what happens when politicians get to pick the winners.

It didn't work for Japan and it won't work for California and NJ.

4 posted on 06/26/2005 10:04:46 PM PDT by sinanju
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To: Coleus

>>>>Codey, who is also president of the state Senate, has introduced legislation that would allocate $150 million in previously bonded funding to build the Stem Cell Institute of New Jersey on the New Brunswick campus of Rutgers.

Yeah. Right on top of St. Peter's Schools.

5 posted on 06/27/2005 5:05:39 AM PDT by Calpernia (
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To: Coleus

Remember we are talking about New Jersey, the home of Peter Singer, who advocates killing babies who are born with genetic diseases.

6 posted on 06/27/2005 5:07:45 AM PDT by mware ("God is dead" -- Nietzsche........ "Nope, you are"-- GOD)
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To: Coleus

>>>>N.J. must fend off research rivals

Not just research rivals, the state is fending off private practices too.

That is part of all the news you hear about the doctors fighting the costs of Malpractice Insurance.

Between the cost of the insurance, taxes and insurance companies turing down billings, the private practices can't afford to stay in business.

7 posted on 06/27/2005 5:08:46 AM PDT by Calpernia (
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To: Coleus

Doesn't Forrester have a pharmaceutical business of some type? Does his company weigh in on this in some shape or form?

8 posted on 06/27/2005 6:47:20 AM PDT by Calpernia (
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To: Calpernia
Doesn't Forrester have a pharmaceutical business of some type? Does his company weigh in on this in some shape or form?>>>
good point, and Corslime was in financial services.  I just hope Forrester comes out fighting like he did in the Primary, so far he's been pretty meek.   He could have pushed the issue on whether or not Corslime had any investments in the biotech area and could benefit in any way, just asking the question would have been a win on his side.  Oh well, another lost opportunity. - Prescription Benefit & Vision Care Programs

9 posted on 06/27/2005 9:52:54 AM PDT by Coleus (I support ethical, effective and safe stem cell research and use: adult, umbilical cord, bone marrow)
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To: Calpernia
NJ is up to almost a $1/2 billion.

S1909 $230 million to borrow via voter approval

S1471 $200 million to use cigarette-tax revenue bonds to fund not one but three stem cell institutions.

I'm wondering how much they would spend if we weren't in a budget deficit and didn't want property-tax relief.
10 posted on 08/29/2006 1:20:29 PM PDT by Coleus (I Support Research using the Ethical, Effective and Moral use of stem cells: non-embryonic "adult")
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