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2008 Financial Woes Will Impact Regional Bioscience Economic Efforts Through 2009

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The economic upheaval that all but flattened life sciences job attraction efforts late last year will continue in 2009 to cast long shadows on states, regions, cities — and especially businesses scrambling to grow and prosper around the life sciences.
 
For the nation’s three publicly traded real estate investment trusts focused on laboratory development, the new year offers an opportunity to re-examine their strategies for where, and especially, how quickly, they can grow. At the same time, the REITs will celebrate completion of a few projects begun months before the financial market freeze that more than chilled the nation’s economy beginning in September.
 
Meanwhile, states, cities, and regional public-private groups struggling with widespread budget shortfalls are likely, in many cases, to cut back on launching new economic incentives and expanding existing ones tied to life-sci job creation and investment.
 
BioRegion News previews some of the key life sciences economic development stories likely to take shape in 2009, with more than a cursory look back at the past year’s stories:
 
 
COMMERCIAL REAL ESTATE
Completing Pipeline, Watching and Waiting for Credit Market Thaw
 
Alexandria Real Estate Equities and BioMed Realty Trust have both ruled out breaking ground on new construction and renovation projects in their development pipelines, at least for the first half of 2009. By then, the REITs said, they will reassess whether they can again obtain the financing they would need to start the projects.
 
At the same time, both REITs have sought to reassure investors they would complete projects already under construction before the economic upheaval. Those include the first phase of the East River Science Park taking shape in New York City, and the Alexandria Center for Science and Technology at Mission Bay in San Francisco. There, Alexandria has continued construction of a third building that broke ground in August, the 210,000-square-foot 455 Mission Bay Blvd. South, where Pfizer has agreed to lease 100,000 square feet, with an option for 50,000 more square feet, as a new home for its Biotherapeutics and Bioinnovation Center, set to move from South San Francisco, Calif.
 
A third REIT, HCP, did not preclude groundbreakings on new projects in 2009, but did say it would start new life-sciences space construction or renovation projects only after securing commitments from tenants to lease “significant” amounts of space [BRN, Nov. 17, 2008].
 
On Dec. 23, Alexandria announced that it won a refinancing that would extend by one year, to 2010, its repayment date for a $175 million debt facility originally due this year. Alexandria also announced a “solid” fourth-quarter leasing effort, paced by a pair of new leases at existing projects.
 
Alexandria said in its that announcement Pfizer took a long-term lease for an undisclosed amount of space at the Technology Square campus in Cambridge, Mass., for its Capsugel division, while “a multinational, large cap biopharmaceutical company” entered into a long-term lease at the 158,000-square-foot 1500 Owens Street, the second building completed within Mission Bay. Addressing analysts on Oct. 30, Alexandria Chairman and CEO Joel Marcus said 1500 Owens was “fully leased or committed to” the company, which it described only as a “multi-billion-dollar equity-market-cap” tenant, and the University of California, San Francisco [BRN, Nov. 3, 2008].
 
 
CALIFORNIA
Bay Area, State Struggle with Slowdown; Stem Cell Agency Faces Scrutiny
 
The San Francisco Bay Area finds itself this year in the unusual circumstance of scrambling to revive its life sciences real estate market, buffeted as elsewhere in the US by the effects of the economic slowdown.
 
“The market is flattening, to softening a bit on the life science side. Rents are not going up. There’s a relative interest in available, previously improved, re-let space,” said Robert Schwartz, a senior vice president and northern California representative in the national life science practice group of the commercial real estate firm Colliers International.
However, the Bay Area continues to enjoy advantages over other areas of the US for life-sci, said Matthew Gardner, president and CEO of BayBio, the life-sci industry group for the Bay Area and northern California. Among them: The region still attracts the most venture capital of any region in the US. And the stock prices of public life-sci companies have held their own at a time when they have plunged for companies in most other industries.
 
“The industry is not strictly speaking countercyclical, but it’s as close to anti-cyclical as you can possibly get. The industry’s timelines are much more dependent on product development cycles than economic cycles,” Gardner said. “At the back end of that product development cycle, there’s a healthcare community that’s always going to need to treat sick people. That is part of what continues to keep demand there for unmet medical needs.”
 
He said his group is weeks away from announcing its legislative priorities for the coming year. BayBio, its San Diego counterpart BIOCOM, and the Los Angeles-area Southern California Biomedical Council met with success in September when Gov. Arnold Schwarzenegger and legislative leaders agreed on a $143 billion spending plan that extended from 10 to 20 years their carry-forwards on tax deductions on their net operating losses. But in a bow to the shaky economy, the budget also suspended the incentive for this fiscal year and next [BRN, Sept. 22, 2008].
 

“It’s going to be a tough year for economic development initiatives.”

The industry’s ability to repeat that success in 2009 with other priorities is uncertain at best, since California’s economy has worsened in the three months since the budget deal. The state budget shortfall has ballooned into a combined $41.8 billion chasm projected for this year and next that lawmakers and Schwarzenegger will spend much of the year scrambling to plug. The state’s three regional industry groups joined last summer to form an alliance aimed at amplifying its voice on state as well as federal issues.
 
“It’s going to be a tough year for economic development initiatives,” Gardner said. “We’re going to continue to have to be creative in all of our partnerships with government, in looking for ways that they can support industry’s growth. More and more, we see that our leadership position is threatened every day by the tremendous investment being made, not only around the US but increasingly globally.”
 
In 2009 the money scramble may, for the first time, affect the operations of California’s stem cell research funding agency. The California Institute for Regenerative Medicine has operated until now from proceeds of state bonds issued well before the economy soured.
 
Later this month, however, CIRM’s governing board will consider a contingency financing plan that could include a private placement with philanthropic investors, as well as bond anticipation notes. The plan is in response to the state’s suspension of bond sales due to the budget shortfall and inability to date of lawmakers to address it. A CIRM spokesman told the San Francisco Business Times last month that the agency can fund existing grant programs and new grants through July 2009, after which the agency would use reserve funds to monitor existing grants, manage its standards review processes, and carry out office operations for another 12 months.
 
Money woes aren’t the only challenge faced by CIRM this year. The agency will continue defending its structure and performance from reform efforts expected to arise from an inquiry into CIRM by California’s Milton Marks, or “Little Hoover,” Commission on California State Government Organization and Economy.
 
On Jan. 22, Little Hoover is set to resume its hearing into CIRM and its governing board, the Independent Citizens’ Oversight Committee, with an eye to possible changes aimed to eliminating conflicts of interest among researchers seeking funding from the agency. The inquiry was sought by lawmakers as the original purpose of Senate Bill 1565, ultimately rewritten to address drug access and governance issues affecting CIRM.
 
That bill passed both houses of California’s state legislature in 2008 before being vetoed last September by Schwarzenegger, who sided with patient advocates in objecting to a provision that would lower, from two-thirds to a simple majority, the margin needed for an advisory panel to recommend funding for applications that present what lawmakers consider a “vital research opportunity.” [BRN, Sept. 29, 2008].
 
For its part, CIRM will spend 2009 reaching out to researchers and the public in crafting a revised strategy that seeks over the next eight years to increase funding opportunities for biotech companies performing stem-cell research, perform more public and legislative outreach, and hire additional grant reviewers. [BRN, Dec. 15, 2008].
 
 
MASSACHUSETTS
Life-Sci Center Takes Grant Requests Amid Cuts, Joins in Suburban Push
 
The state agency charged with overseeing the $1 billion, 10-year Massachusetts Life Sciences Act has begun accepting online applications for grants to be funded through two programs created through the law enacted last June by Gov. Deval Patrick [BRN, June 16, 2008]. But the state’s widening budget gap, which has already spawned a 40-percent first-year spending cut to the new center, may further limit how much money is awarded.
 
Applications are now being accepted for funding under the Life Sciences Tax Incentive Program, authorized to award up to $25 million a year in incentives intended to encourage company growth; and the Life Sciences Accelerator investment program, created to support early-stage companies and translational research projects by matching grants and investments from the federal government, foundations, non-profit agencies, institutional investors, and other sources of capital.
 
To boost support for the accelerator program, the center recently launched a public-private Corporate Consortium Program, under which Johnson & Johnson and other businesses will match funds the center plans to spend on investment activities; J&J has agreed to give $500,000 over two years.
 
The center will need to generate private funding given the state’s fiscal woes. Massachusetts faces a shortfall pegged at $1 billion this fiscal year. In response, Patrick announced $1 billion in budget cutbacks last October — including $10 million of the center’s first-year $25 million budget — and has promised to subtract another $1 billion in state spending by the end of January.
 
One action unlikely to be affected is the center’s upcoming relocation in March from state office space shared with the Executive Office of Housing and Economic Development in downtown Boston. The center announced plans last month to move into its own 5,855-square-foot headquarters within the Bay Colony Corporate Center in the Boston suburb of Waltham, Mass., under a five-year lease at $28 per square foot.
 
The center’s lease is cheaper than the $55.75 per square foot average “asking” rent sought by landlords for lab space in Cambridge, Mass., during the third quarter of 2008, according to a report by commercial real estate firm Grubb & Ellis, available here. The center followed the trend of several life-sci companies, which this past year sought the same savings by moving operations north, west, and south of Boston/Cambridge into suburban space.
 
In the largest such move, Shire said it would proceed with a $394 million expansion in Lexington, Mass. Shire Human Genetic Therapies will more than double its Massachusetts workforce over the next eight years to more than 1,350 people, and fill more than a half-million square feet of lab and office space at Lexington Technology Park.
 
Several developers hope to draw those companies this year into planned suburban life-sci campuses. They include a 1.6 million-square-foot complex proposed for Foxboro, Mass., by Kraft Group, owned by Robert Kraft, owner of the New England Patriots pro football team; and an up-to-2 million square-foot campus eyed by developer Patriot Partners of Lexington for the 247-acre “Landlocked” parcel in Burlington. Also in Burlington, the Gutierrez Company is seeking an anchor tenant for the roughly 200,000-square-foot first phase of its Burlington Research Center, a three-building, 590,000-square-foot project that won town approvals last summer.
 
 
MARYLAND
Strategy to Fulfill ‘2020’ Vision Weeks Away from Release
 
Maryland officials are set later this month to release a long-awaited strategic plan for strengthening the state’s life sciences sector, with an eye to fully funding and carrying out the $1.1 billion Bio 2020 life-sci initiative announced last June by Gov. Martin O’Malley [BRN, June 23, 2008].
 
The plan will be released by the Maryland Life Sciences Advisory Board, a 15-member panel appointed in 2007 by O’Malley. The Democratic governor unseated a Republican incumbent in 2006, in part on the promise to offer more state support for the state’s life-sci sector.
 
Anchoring Bio 2020 is a planned new Maryland Biotechnology Center that would serve as a proverbial “one-stop shop” or single agency for life sciences companies seeking to relocate to Maryland or expand within the state.
 
Maryland has said it would spend $91.5 million over 10 years to launch the center, starting with $6 million in FY 2010. But the state faces a $2 billion budget shortfall for 2009-10, and needs to erase a $410 million shortfall in this year’s spending plan. In response, O’Malley signed an order to furlough state employees without pay for two to three days through the June 30 end of the state fiscal year. In an e-mail to state employees last month, O’Malley promised to detail additional spending cuts “in the coming weeks.”
 
 
NORTH CAROLINA
UNC-Chapel Hill Campus Plan Awaits Summer Decision; Will Innovation Center Break Ground?
 
The University of North Carolina-Chapel Hill hopes officials from the namesake town can meet a timetable both sides have agreed to for reaching a final decision in June on an expansive project to build over 50 years a new 9 million square-foot campus that would include 720,000 square feet of research space.
 
The timetable, available here, calls for a Town Council decision by June 22 on a development agreement, and a zoning text and map to accommodate the project, known as Carolina North.
 
The research space includes an 85,000-square-foot “Innovation Center” designed to house university startups, and address a shortage of space for UNC-CH spinout companies. UNC-CH had planned to co-develop the building with Alexandria Real Estate Equities; a groundbreaking had been anticipated late in 2008. But because of the financial markets freeze wrought by the economic upheaval, UNC Chancellor Holden Thorp announced in November, Alexandria has suspended work on the project. The suspension reflects the REIT’s halt of work on projects yet to break ground [BRN, Dec. 8, 2008].
 
UNC-CH had considered changing the sequence of construction for buildings at Carolina North to allow groundbreaking for a new law school. But the state froze $11.5 million approved by the Legislature for Carolina North infrastructure and law school planning, part of a package aimed at plugging a shortfall in the current fiscal year projected at between $800 million and $1.6 billion.
 
The squeeze has not stopped industry leaders from lobbying the state’s new governor, Bev Perdue, for millions of dollars in state funding to support early-stage companies that would otherwise go bankrupt — an effort expected to continue this year.
 
The cost-cutting effort contrasted with earlier in 2008, when the Legislature approved a one-time $4 million subsidy for the state-funded North Carolina Biotechnology Center that included $2.5 million for a planned expansion of the center’s headquarters, and $1.5 million for new loans.
 
 
FLORIDA
Budget Hole Augurs More Cuts as Institutes Gear Up for Move-In
 
Life-sci businesses, research centers, universities, and advocates will be scrambling in the new year to prevent further cutbacks in the state’s array of economic incentives — such as last year’s elimination of the $250 million Innovation Incentive Fund credited with persuading six West Coast research institutions to expand into Sunshine State.
 
Late last month, Gov. Charlie Crist issued his proposal for wiping out the $2.3 billion shortfall in the state budget for the fiscal year ending July 1; the plan combines previously announced cuts with money from the state’s rainy-day and tobacco settlement funds, plus postponing some construction projects; the plan requires approval by lawmakers. It’s a worsening of the state fiscal mess that prompted Crist to order an across-the-board 4 percent cut in the spending of all state agencies that took effect with this fiscal year’s budget.
 
“It is likely that a number of programs will be cut. It may affect all kinds of government spending, including programs that help Florida citizens, and programs that benefit Florida’s economy, and improve our regional and global competitiveness,” Robert Weissert, a spokesman for the budget watchdog group Florida TaxWatch, told BRN in an interview.
 
 
GEORGIA
Gearing Up for BIO Convention and New One-Stop Shop, Weathering a Setback
 
The Peachtree State this year will celebrate a flowering of a different sort — namely its life sciences effort, which is expected to be advanced by the presence in Atlanta of this year’s Biotechnology Industry Organization international convention. The event is set to draw some 20,000 attendees to the Georgia World Congress Center May 18-21.
 
State officials, led by Gov. Sonny Perdue and Kenneth Stewart, Georgia’s commissioner of economic development, are expected to continue work begun last year toward establishing a “one-stop shop” for life sciences employers seeking to relocate to the Peachtree Sate or expand existing facilities there. Speaking with BRN last summer, Stewart said the center should help Georgia grow its life-sci sector beyond its current 150 companies with more than 5,500 jobs [BRN, June 23, 2008].
 
So too, the officials say, will Georgia’s decision last year to spend $7.5 million toward a public-private $40 million Georgia Research Alliance Venture Fund, intended to finance seed-stage university spinouts with an emphasis on vaccine developers and other life-science specialties.
 
But Georgia’s life-sci effort suffered a setback last month when the US Department of Homeland Security rejected the state’s bid to build the planned $451 million National Bio- and Agro-Defense Facility — citing a $30 million economic incentive package that was smaller than that of three other states, as well as organized citizen opposition to the project.
 
 
KANSAS
State Hopes Budget Gap Won’t Spoil Fruits of Victory in Biolab War
 
Having prevailed over four states that sought to attract the Department of Homeland Security’s planned National Bio- and Agro-Defense Facility, the Sunflower State expects its bioscience effort this year to reap rewards that go beyond the NBAF project — namely additional life-sci jobs from businesses and institutions looking to take advantage of the facility.
 
“We pursued [NBAF] because we have unique strengths, but we also pursued it because it fit in very well with our existing capabilities in the animal health corridor,” Tom Thornton, president and CEO of the Kansas Bioscience Authority, told BRN last month.
 
The so-called  Kansas City Animal Health Corridor — a cluster of businesses, research institutes, and academic institutions focused on animal biology — stretches from Manhattan, Kan., east to Columbia, Mo. The corridor’s more than 120 animal health companies, which employ more than 13,000 people, played a key role in building support for the NBAF project among state and federal officials [BRN, Dec. 8, 2008].
 
Yet Kansas’ ability to shower the industry with additional funds is constrained: The state faces budget shortfalls of $140 million this fiscal year, and up to $1 billion projected for FY 2010.
 
 
OHIO
Industry Seeks Tax Credit Extension, Details on Third Frontier 2.0
 
Industry leaders will seek an extension of the state’s Technology Investment Tax Credit during this year’s legislative session, as Buckeye State Gov. Ted Strickland and lawmakers wrestle with a budget shortfall projected at $7.5 billion over the next two years.
 
“The state likes the program very much and clearly intends to continue it. The only problem is, in the current budget, we’re nearing the cap of dollars that was originally allocated to it,” Anthony Dennis, president and CEO of the state’s life-sci industry group BioOhio, told BRN recently.
 
“There’s concern that in the current budget, when we cap out, there’ll be some dead space between now and the next budget” for the fiscal year set to start July 1, he added.
 
Dennis said state Lt. Gov. Lee Fisher and other officials have conveyed the state’s interest in maintaining spending for programs designed to help life-sci and other tech businesses.
 
“It’s hard to tell how things are going to shake out after the governor gets some kind of a reading from the Obama administration,” about how much money it will funnel to states as part of its proposed national economic stimulus bill. Strickland on Jan. 2 joined his counterparts from Massachusetts, New Jersey, New York, and Wisconsin in proposing that Washington spend $1 trillion on an economic stimulus for states like theirs.
 
Life-sci leaders hope this year to hear details from state officials of their plan to launch a second Third Frontier Project that could at least match, and maybe exceed, the existing $1.6 billion research and tech-commercialization effort of the same name — a 10-year initiative set to expire in 2012, and credited with helping Ohio draw more life-sci businesses and private venture capital funding for those companies during that time.
The new Third Frontier will focus on assisting small businesses versus academic and nonprofit research institutes that are often the source of life-sci startup companies, Fisher told BRN in an interview last fall [BRN, Oct. 27, 2008].
 
 
PENNSYLVANIA
Industry Eyes NOL Carry-Forward Extension; Rendell Faces Salk Impasse
 
Pennsylvania life-sci companies will spend 2009 picking up where they left off last year, namely lobbying state lawmakers and Gov. Edward Rendell to:
  • Lift the state’s $3 million cap on net operating losses, with the goal of making NOL credits tradable within three years;
  • Adopt a “single sales factor” limiting the state’s collection of corporate net income tax to the share of the corporation’s nationwide sales occurring in the state; and
  • Increase the amount set aside for research-and-development tax credits to $75 million from the current $40 million.
“We will continue to push for the issues that we believe the industry is concerned about, but we do not see any [incentives] that are at risk,” Dennis (Mickey) Flynn, president and CEO of Pennsylvania Bio, told BRN in an interview.
 
During the interview, Flynn said he did not foresee any softening by Pennsylvania lawmakers in their opposition to the $500 million Jonas Salk Legacy Fund proposed by Gov. Edward Rendell. The lame-duck governor, whose second and final term expires in 2010, told a regional biomedical conference last month that he would push for the program for a fourth straight year [BRN, Dec. 22, 2008], despite a state budget shortfall projected at $1.6 billion or higher.
 
Rendell says the Salk fund would strengthen the state’s life-sci sector by subsidizing new facilities for Pennsylvania’s top academic and research institutions. Salk is opposed by regional technology councils, since the new fund would reduce their ability to fund research projects — as well as leaders of the Republican-majority state Senate, who have urged the Democratic governor to focus instead on cutting state spending.
 
Those universities and institutions are expected to make some news of their own in 2009 — by releasing details of a set of efforts intended to accelerate the region’s commercialization of life sciences technologies [See related story, this issue].

The Scan

Booster for At-Risk

The New York Times reports that the US Food and Drug Administration has authorized a third dose of the Pfizer-BioNTech SARS-CoV-2 vaccine for people over 65 or at increased risk.

Preprints OK to Mention Again

Nature News reports the Australian Research Council has changed its new policy and now allows preprints to be cited in grant applications.

Hundreds of Millions More to Share

The US plans to purchase and donate 500 million additional SARS-CoV-2 vaccine doses, according to the Washington Post.

Nature Papers Examine Molecular Program Differences Influencing Neural Cells, Population History of Polynesia

In Nature this week: changes in molecular program during embryonic development leads to different neural cell types, and more.