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Arizona Lawmakers Earmark $53M in FY'08 Budget to Build Biotech Cluster

Biotech advocates in Arizona were satisfied after the state set aside more than $50 million for programs aimed at developing an industry cluster, although officials cut the funding of one key program in return for a promise to pay for it at the same level for four years.
For the state’s 2008 fiscal year, which began July 1, Arizona will spend $25 million to expand the city-owned Phoenix Biomedical Campus at Copper Square, and $2.5 million for various programs that the state Department of Commerce is betting will benefit biotechs as well as other businesses.
The state also set aside $25 million — $10 million below last year’s allocation —for Science Foundation Arizona, a program in its second year that funds research, training and industry-academic collaborations.
SFAz board chairman Donald Budinger told BioRegion News June 29 that the public-private nonprofit and other biotech proponents agreed to accept the 29-percent cut after the state promised to authorize $100 million — $25 million a year for four years — for SFAz. Lawmakers will have to approve each $25 million installment each year as they craft a new budget.
“There were two ideas that were floating at the same time: One was to continue funding at the $35 million level and look at it every year, and the other idea was back to the original number of $25 million [discussed in 2006], but lock it in for four years,” Budinger said. “That multiple-year funding and that long-term thinking is a far better ingredient to be successful.”
Asked why SFAz took the security of multi-year funding over more cash this year, William Harris, SFAz’s president and CEO, told BioRegion News that “that’s how the [budget] process works out here. You have to make choices. There are always compromises.
“When you look at the matching funds, $50 million a year is a lot of money for a state this size to couple with the existing commitment of federal funding” to the state’s universities, he added.
“Matching funds” refers to the $25 million in private money SFAz has begun to raise from what Budinger described as “a number of investors.” During its first year SFAz raised $50 million from the Virginia G. Piper Foundation, in addition to the $35 million it received from the state.
That private money does not count another $2.5 million a year in operating costs for each of five years that is funded through the three CEO groups that founded SFAz: Flagstaff 40, Greater Phoenix Leadership, and the Southern Arizona Leadership Council. 
Gov. Janet Napolitano initially sought $35 million in her proposed state budget for SFAz, which she declared one of three linchpins of her plan to advance biotech and other high-tech industries in her state, called “Innovation Arizona.”
“Innovation Arizona is going to continue to build on the work we’ve begun to transform Arizona into a center of research by continuing the necessary funding to foster Science Foundation Arizona to success,” Napolitano said in her Jan. 8 State of the State address.
During its first year in operation, namely the fiscal year that began July 1, 2006, SFAz spent just over half its money, or $18 million, for “Strategic Research” seed grants to fund up to 10 industry-academic collaborations or “Strategic Research Groups”  toward commercializing technologies developed in universities [BioRegion News, May 14].
The remaining funds included:
  • $4 million in fellowships awarded to top first-year graduate science, engineering or biomedical researchers at Arizona State University, University of Arizona, and Northern Arizona University. Awards of up to $50,000 will be made to 80 students
  • $3.75 million for 23 projects from research institutions statewide under the Competitive Advantage Awards program, intended to identify bioscience, advanced communications/ IT, and environmental sustainability projects with the greatest potential for significant federal grants within 18-24 months, based on a review by outside experts, but as yet unfunded by NIH. Three additional projects are expected to be funded later this year.
  • $2.2 million in “Small Business Catalytic” funds to 10 proposals for up to $300,000 each. The program funds marketing studies, incubation and legal costs, among business development expenses for research institution projects considered most likely to generate “high-impact” successful commercial outcomes.
  • $2 million for unspecified strategic initiatives.
  • $2 million for research internships for high school science and math teachers set for this summer. Up to 150 science and math teachers would work in paid research-based programs statewide in academic and industry labs.
  • $1.5 million for activities and instructional programs intended to teach science and engineering to K-12 students.
  • $500,000 for program review and management costs.        
“We’re developing some revisions that our board will consider in September. This first year was really a way for us to kind of evaluate the strengths and weaknesses of the state and to go forward from there,” Harris said. “The majority of our money will go into these partnerships with industry to try to strengthen their relationships and research between the assets of the private sector as well as the not-for-profit sector.
“We’re going to make modifications to reflect what we’ve learned over the past year and what is needed to make the state more competitive going forward,” Harris added.
Those modifications, Budinger said, would promote state investment in the life sciences, as well as the physical sciences, including nanoscience, and solar and other sustainable forms of energy.
“We’ll respond to the best opportunities in those areas and we’ll set up some goals and aspirations after the board meeting in September,” he added, referring to a planned meeting of the SFAz board of directors “We’re going to keep working this summer, meeting with leaders of industry, leaders of the universities, faculty leaders, and research leaders throughout the state.”
In all, the $52.5 million set for biotech programs this fiscal year is less than 1 percent of the state’s total budget for 2007-08.
Rising Under Fire
Because overall state spending will grow 7 percent in fiscal 2008 over fiscal 2007’s $9.9 billion spending plan, and $200 million above Napolitano’s original proposal, the new budget has come under fire from the Goldwater Institute. The free-market policy research group based in Phoenix has clashed with Napolitano before, last year awarding Napolitano an “F” grade in fiscal discipline.
“If biotechnology was a worthy investment (and it may be) then private investors would be jumping at the opportunity to make a profit,” Patrick Gibbons, a spokesman for the conservative think tank Goldwater Institute, named for former Arizona Sen. Barry Goldwater, told BioRegion News via e-mail. “If this was the case there would be no need for state support. If someone thinks there is not enough private investment then either 1) it is not a profitable venture or the risk is far too great or 2) state spending is so high that it has crowded out private investment. Given the seen profitability of the biotech sector this is the likely reason.”
Biotech advocates disagree, arguing that state spending is necessary to grow their industry into a cluster large enough to generate thousands of new, high-paying jobs and millions of dollars in activity.
A leading biotech advocate said one potential cloud on the horizon for the industry is the fact Napolitano, state Senate President Timothy Bee, and other key lawmakers friendly to biotech interests will have to leave office over the next three years due to term limits.
“I believe it is a good commitment. But there are some procedural issues; it has to be re-enacted each year. And there are going to be changes in the legislature driven by term limits or political decisions by individuals,” said Martin Shultz, chairman of Arizona's Bioscience Roadmap Steering Committee, in an interview. “In the case of biosciences and science and math in this economy, generally the commitment is systemic. It goes from the governor through the lawmakers.
“This year was a big year, but it frankly was a follow-up of prior years that have been pretty significant as well. You can see a steady march toward revising our economy and our priorities to reflect a 21st-century commitment to bioscience,” said Shultz, who is also vice president, government relations for Pinnacle West Capital Corporation, whose subsidiaries include the state’s top electric utility, APS.
Arizona’s bioscience “roadmap” was launched in 2002 when the Flinn Foundation, an independent grant-making charity based in Phoenix, commissioned Battelle to study how Arizona could develop national stature in the life sciences. The study recommended Arizona become a leader within three to five years in bioengineering, bioimaging, cancer research, and neurological science, and spend between five and 10 years doing likewise in agricultural biotechnology, asthma, diabetes, and infectious disease.
In Phoenix, the state will spend $25 million to grow the Phoenix Bioscience Campus. Almost half of that money, $10.5 million, will be used for design and pre-development work for the two buildings that will comprise the campus’ second phase.
“The goal is to get them built and open in 2010 or 2011 at the latest,” Rick Naimark, a deputy city manager for the Phoenix city government, told BioRegion News.
The second phase will consist of an interdisciplinary building for the medical, pharmacy, some nursing, and some allied health programs offered by the University of Arizona College of Medicine-Phoenix Campus, Arizona State University, and Northern Arizona University.
The second building will be a research facility to be filled in later phases as the academic programs grow, Naimark said.
Another $6 million in state money will allow the UA College of Medicine-Phoenix to double its enrollment at the biomedical campus to 48 students, toward its long-term goal of 150 students. The school launched earlier this summer with 24 students.
Of the remaining $8.5 million earmarked for the Phoenix Biomedical Campus:
  • $4 million will be spent on NAU’s allied health programs;
  • $2 million is for ASU’s department of biomedical informatics;
  • $1.5 million is for UA’s College of Pharmacy, a Tuscon-based program set to expand into Phoenix;
  • And $1 million is for UA’s Arizona Telemedicine Program.

“Multiple-year funding and that long-term thinking is a far better ingredient to be successful.”

The campus now includes three buildings built in 1911, a year before Arizona became the nation’s 48th state, and renovated last year for use by UA’s medical college. Also on campus are the Translational Genomics Research Institute, the International Genomics Consortium, the National Institute of Diabetes and Digestive and Kidney Disorders, and Barrow Neurological Institute of St. Joseph's Hospital and Medical Center. , the Barrow Neurological Institute of St. Joseph's Hospital and Medical Center. , the Barrow Neurological Institute of St. Joseph's Hospital and Medical Center. , the , the Barrow Neurological Institute of St. Joseph's Hospital and Medical Center.
All are within a $46 million, six-story, 170,000-square-foot research facility completed in December 2004. The city of Phoenix built and currently owns the facility. Construction is under way there on the first floor for temporary administrative offices and a lecture hall for UA’s pharmacy college.
By month’s end construction will be completed on a four-story, 90,000-square-foot building consisting of two floors of wet labs and two floors of new space for ASU’s biomedical informatics department.
Long-term, the three universities have teamed up with Arizona’s largest healthcare provider, Banner Health, to build a teaching hospital and a cancer hospital and clinic on the Phoenix Biomedical Campus. The hospitals will focus on personalized medicine with a curriculum based on genomics and biomedical informatics.
“They have a memorandum of understanding but they’re working on a detailed agreement about which programs will be emphasized in that hospital,” Naimark said.
The Banner plan has angered the region’s public hospital system, which had hoped to partner with UA in hopes of reducing its cost of building a new hospital. Maricopa Integrated Health System is considering asking state lawmakers to place a referendum asking voters to approve $600 million in bonds for a new hospital that would replace an antiquated four-decade-old facility. Maricopa’s district board on June 27 approved a $387 million budget for the year starting July 1 with a projected operating loss of $27 million.
Across the street from the biomedical campus, the Phoenix Union High School District is completing a new 62,000-square-foot Bioscience High School, set for occupancy later this summer. The school will feature a rooftop lab, science labs, classrooms, and an outside amphitheater. The first 100 freshmen students will start classes in September, with enrollment projected to reach 400 students. Students will be offered opportunities to work at institutions on the campus or at ASU's College of Nursing & Healthcare Innovation, a few blocks away.
A study completed in December 2005 by consultant Tripp Umbach, Economic Quantification Study: Phoenix Biomedical Campus, projected a best-case scenario of the biomedical campus generating about $2.1 billion in direct and indirect activity for the state, including about $1.3 billion for Phoenix, by the year 2025 if the teaching hospital and all other planned facilities were built.
If all planned facilities except the teaching hospital are built by 2025, the numbers shrink to $1.1 billion for the state, $660 million of that in Phoenix. In the worst case, if the only facilities in place by 2025 are those set to be open by the fall, the report projected $554.7 million in economic activity for the state, including $332.8 million for Phoenix.
The Tripp Umbach report projected a maximum 24,074 jobs statewide, 14,444 of them in Phoenix, by 2025 directly or indirectly attributable to the biomedical campus, if the teaching hospital and all planned facilities are built. The job numbers shrink to 14,653, including 8,792 in Phoenix, if all but the teaching hospital is built out. And if only facilities opened by the fall are included, the job numbers are 6,839 statewide, of which 4,103 would be in Phoenix.
Direct and indirect tax revenues in the best-case scenario by 2025 would be $110.2 million statewide, $66.1 million of that generated in Phoenix, the report also concluded. For all facilities but the teaching hospital, tax revenues drop to $60 million statewide, including $36 million from Phoenix. And in the worst-case scenario, tax revenues are projected at $33.6 million statewide, $20.2 million of that within Phoenix.
The biomedical campus, unlike SFAz, received all the funding proposed for it by Napolitano: “This funding will put us in a position to generate new doctors more quickly and tie the medical school in with key biomedical research and education initiatives,” Napolitano said in her State of the State address.
Among other bioscience-related items included in the state budget:
  • $4 million goes to the Arizona Alzheimer's Consortium toward research;
  • $3 million in new funding has been earmarked for Graduate Medical Education programs to recruit and retain physicians in Arizona;
  • $2.5 million is for a competitive grant program to promote improved pupil achievement in math or science, plus $2.3 million to increase the number of math and science teachers in Arizona, and the creation of a loan program for teaching-degree students who agree to teach science, math or special education in an Arizona public school;
  • $1 million goes to the Arizona Biomedical Research Commission to facilitate establishment of a nonprofit repository to store human stem cells of non-embryonic origin;
  • And $2.5 million is for the Arizona Department of Commerce — $1.8 million to foster business initiatives that include growth in high-tech sectors, foreign direct investment in Arizona, and strategic research and development; $700,000 for its Arizona Global Network to attract foreign business.
“There’s foreign direct investment which we have not marketed as much as we could,” Shultz said. “We get a lot of ad hoc investment. This would be a program where we could actually market to select countries, and select industries in those countries.”
David Drennon, a spokesman for the state commerce department, said he could not confirm details of how the commerce department money would be spent until state lawmakers put them in writing: “We won’t really know until about two weeks out, maybe three weeks.”

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