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Newer, Younger Fleet of Michigan Bios Try To Help Region Rebound After Pfizer Flees

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One year before Pfizer completes shutting down its Ann Arbor, Mich., research campus, and eliminated nearly 2,100 jobs in the process, the region’s life-sciences industry doesn’t appear down for the count.
 
While the pharma giant fades into history in the region, a casualty of cost-cutting tied to the rise of generic drugs and a dearth of new profitable compunds, a parade of local therapeutics and medical device companies, as well as automotive and aerospace companies, are growing.
 
But with most of those companies in early stages, the number of jobs they have created doesn’t come close to the number of positions Pfizer will slash by next year. The drug giant announced its plan to shutter the facility a year ago next week.

In fact, only about half of the 2,100 or so Pfizer jobs have been picked up by younger, smaller life-sciences companies in the region, according to Stephen Rapundalo, executive director of Michigan Bio, the state’ life sciences industry group.
 
“The general view here is, ‘Sure we’re going to miss Pfizer. But it’s not necessarily a bad thing in the longer-term view,’” Rapundalo told BRN. “What it’s forcing certainly the immediate local area here in Ann Arbor to do is to diversify. I think we were too much of a one-horse town in that sense.
 
“What we’re seeing growth in is the medium-sized, established companies, or startups that have been around maybe five to seven years,” as well as younger startups growing out of incubators, added Rapundalo, who worked for Pfizer for a few years after its 2000 acquisition of Warner-Lambert, the successor to Detroit-founded Parke-Davis.
 
According to Michigan Bio, Ann Arbor is home to some 200 life-science companies — almost half of the 549 biotech, pharma, and medical device businesses based in Michigan. About a quarter of that total number, or 127 companies, have been created sine 2001, when Michigan set aside part of its tobacco settlement money toward programs to encourage the development and growth of life-science companies in the state. Throughout Michigan, the sector currently employs more than 33,500 people, up from 29,037 in 2003.
 
Since 2001, to keep those numbers growing and to discourage life-science companies in Ann Arbor and elsewhere from leaving Michigan, the state and local governments have shelled out millions of dollars in cash and other economic subsidies. This goal has created a long-term concern as the state enters an uncertain fiscal future fueled by steep declines in its core automotive industry, though it has been buoyed by the short-term good news of a $350 million surplus so far into this year’s budget.
 
Another long-term concern: Ann Arbor is about 18 months to two years away from bringing its workforce back to pre-Pfizer-announcement levels. New and existing companies have committed to creating a total 2,300 jobs during that time, though only “about 30 to 40 percent of that would be life sciences related,” said Michael Finney, president and CEO of Ann Arbor SPARK, the region’s public-private economic development agency that focuses on life sciences, automotive R&D, and software/information technology.
 
“There’s good and bad in everything. Obviously it’s bad when companies decide to pull out,” Finney told BRN. “But the good news is that we got tremendous visibility for the community on a national and international basis that we would have never been able to pay for through buying advertising.”
 
Job creation is a key concern in the Ann Arbor region, which saw its unemployment rate swell to about the national average. Just how much a concern was evident on the lower-skilled employment end when more than 2,300 people applied for just 100 available jobs when IHOP opened a new restaurant in nearby Pittsfield Township in November 2007.
 
Better employment news has come on the higher skilled end. Spanish-owned aeronautics company Grupo Aernnova announced plans in September 2007 to create up to 600 jobs in Pittsfield, just south of Ann Arbor. The company cited the nearby presence of the University of Michigan and its strong engineering programs.
 
Farther south in York Township Toyota this summer is set to open a $187 million technical center and crash-test facility now under construction on 700 acres and set to employ 400 people. And in Ann Arbor, Hyundai last year began hiring 1,000 engineers as part of a $97 million expansion of an existing R&D center.
 
Those developments, Finney said, indicate that the Ann Arbor region will continue to serve as a mecca for tech-based jobs. The region has long been a home for R&D operations for auto giants, more so in recent years because of the presence of the US Environmental Protection Agency.
 
Even with those companies emerging as newer anchors of Ann Arbor’s economy, Finney said, the city and surrounding towns have plenty of new life sciences activity to report. Ann Arbor SPARK last year helped a pharmaceutical startup, Lycera, spin out of the University of Michigan and locate at the group’s wet-lab incubator in Ann Arbor at the Traverwood office park north of Pfizer's main campus. Lycera plans to create 28 direct jobs and six indirect jobs in return for a five-year, $499,000 state tax credit.
 
Last October, SPARK and UM won a $1 million state grant to assume Pfizer’s lease of the 34,400-square-foot Traverwood lab as an incubator. SPARK will sublease up to 12,000 square feet to startup companies, while UM will occupy the remaining 22,400 square feet. SPARK has also opened a second incubator in downtown Ann Arbor, and in May will open a third in Ypsilanti, both of which could be used by CROs and other non-lab-based life-science businesses.
 
SPARK also helped the company secure $150,000 in used lab equipment from Pfizer through its Michigan Innovation Equipment Depot program.
 
Among other growing Ann Arbor-area life science companies:
  • HandyLab, a developer of clinical diagnostic testing products, last summer chose Pittsfield Township over med-device powerhouse Minnesota as the site to manufacture its new Jaguar benchtop nucleic acid-testing system. HandyLab promised the $3 million project would create 56 direct jobs and 82 indirect jobs in return for receiving a seven-year, $672,000 tax credit from the state, plus a six-year, $75,000 property tax abatement.
  • Cayman Chemical, also of Pittsfield, won a $3.1 million state tax credit from the Michigan Economic Growth Authority in return for creating 208 direct jobs and 525 overall jobs through a $9.7 million, 40,000-square-foot expansion of its facility.
  • Fulcrum Pharma, based in the UK, last year opened a second US office in Ann Arbor that it said will focus on early drug development services, especially preclinical development.
  • Kendle, the contract research organization, is also expanding into Ann Arbor. The firm grew its workforce from three employees when it opened in December 2006 to about two dozen by last fall.
  • Xoran Technologies, an Ann Arbor medical device maker, plans to hire 20 to 25 additional employees this year after growing in 2007 from 47 to the current 63 staffers. None of last year’s new hires was an ex-Pfizer employee. Xoran’s hires were part of a $3.8 million expansion of Ann Arbor operations announced in 2006, in which the company pledged to create 171 direct and 215 indirect jobs. In return, the company received a Single Business Tax credit from the Michigan Economic Development Corp. valued at more than $7.1 million over 10 years, plus a five-year, $31,990 tax abatement from Ann Arbor.
Xoran, a developer of point-of-care and portable CT scanners, was established in 2001 by two research scientists from the University of Michigan, and has grown into a $17 million company. That growth has come despite regulations that keep its devices out of most doctors’ offices in its home state of Michigan, as well as in Virginia and Connecticut. Michigan, for example, requires doctors to first apply for certificates of need in which they commit to performing 7,500 scans per year, many more than what a community hospital or medical practice can carry out.
 
Neal Clinthorne, co-founder and vice president of Xoran, told BioRegion News via e-mail that while Ann Arbor and the rest of the state can transform into tech-based powerhouses, the state’s business, economic development and government leaders must counteract the gloom of recent job losses like Pfizer’s. 
 
Those officials were sent reeling again in June after chief economist Dana Johnson of Comerica Bank, which is moving its headquarters from Detroit to Dallas, issued a report citing Michigan’s worst-in-the-nation 0.3-percent drop in the state gross domestic product from 2004 through 2006, compared with a 1.6-percent GDP growth for next-worst Ohio. He also cited a decline of 20,000 automotive jobs and 26,600 non-auto jobs in the year ended April 2007.
 
Johnson concluded in his report that Michigan “remains stuck in a one-state recession” wrought by the restructuring of the auto industry and the national economic slump.
 
Clinthorne disagrees with the conclusions of Johnson and state leaders. “Michigan in general has an attitude problem. Defeatist statements from those charged with developing our business climate such as, ‘We're a one-state recession,’ or ‘We're getting better but we'll never be a San Diego (in biotech) or a Silicon Valley,’ don't help morale much,” Clinthorne said. 
 
“Moreover, I don't even agree with the last statement,” he added. “It will take time and it will take work but I don't see any fundamental reason that Michigan cannot be a high-tech economic powerhouse. We are what we decide to be.”
 
Other growing life sciences companies in Ann Arbor, Rapunaldo said, include medical device maker Accuri Cytometers, which last month announced plans to add between 30 and 90 jobs in Scio Township, and QuatRx Pharmaceuticals, a developer of endocrine, metabolic, and cardiovascular therapeutics. Accuri received $2 million in 2006 from Michigan’s $2 billion, 10-year 21st Century Jobs Fund, created in 2005 by Gov. Jennifer Granholm and overseen by MEDC.
 

“Michigan in general has an attitude problem. Defeatist statements from those charged with developing our business climate such as, ‘We're a one-state recession,’ or ‘We're getting better but we'll never be a San Diego (in biotech) or a Silicon Valley,’ don't help morale much.”

For its part, QuatRx, based in Ann Arbor, hired five people from Pfizer over the past two years as the company has begun Phase III pivotal studies for its lead candidate Ophena, a treatment for postmenopausal vaginal syndrome, QuatRx spokeswoman Julia Owens said.
 
Founded in 2000 by four senior Parke-Davis executives, QuatRx has four products in clinical development, with Ophena the furthest along. But a large expansion of its 25-person Ann Arbor staff is unlikely until the company completes additional successful pivotal studies and applies the drug for regulatory approval, Owens said.
 
“I think we’re probably a year away from making that level of commitment,” Owens told BRN.
 
Outside Michigan, QuatRx employs around 30 people in Turku, Finland, where it acquired Hormos Medical to attain its two most-advanced drug candidates. QuatRx has since shifted its advancement operations to Ann Arbor but maintains the Turku site for research and to oversee European clinical trials.
 
One group that has benefited from Pfizer departure comprise intellectual property law firms. In September, Brinks Hofer Gilson & Lione said they had hired four ex-Pfizer attorneys to work in its Ann Arbor office. The hires expanded the law firm’s Biotechnology & Pharmaceutical Group to 39 attorneys and six scientific advisors. Young Basile also named an ex-Pfizer lawyer a leader of its biomedical practice in Ann Arbor.
 
Growth by professional firms tied to life sciences, not to mention the life sciences companies themselves, have generated enough activity to keep Ann Arbor’s commercial real estate vacancy rates steady. As of December 2007, Ann Arbor’s total commercial vacancy rate dipped to 14.23 percent from 14.69 percent during the same period one year earlier, to a report by Swisher Commercial.
 
Pfizer’s departure “hasn’t been that bad. It hasn’t been the tsunami that people predicted at the time of the announcement,” Ronald Dankert, president of Ann Arbor-based Swisher Commercial, told BRN. “There’s just a lot of entrepreneurial activity that has been going on under the radar.”
 
However, two sub-regions dominated by office-warehouse “flex” properties showed vacancy increases. That reflects the fact they are not life-science properties and in many cases have been searching for tenants since the 2000 dot-com meltdown. Yet property owners have not undertaken the costly conversion of older buildings to lab or R&D uses, Dankert said.
 
Swisher Commercial has not included Pfizer’s campus in its vacancy rate reports, pending the pharma giant leaving the site. By then, Pfizer hopes to find another acquirer, either through a sale or lease deal. The company has hired Staubach to market its Ann Arbor site; the asking price has not been disclosed.
 
The campus consists of 27 buildings built between 1960 and 2005 totaling more than 2 million square feet, plus about 29 undeveloped acres “with corner frontage creating significant redevelopment potential,” Staubach wrote in a promotional brochure.
 
As of August 2007, Ann Arbor SPARK reported to the city government that it had referred inquiries from more than 60 prospective buyers to Pfizer and Staubach, a number that has risen since to about 100 potential buyers.
 
“It’s a first-class site that has a real upside potential for multi-tenant use, so we’re focused on backfilling it,” Finney said. “We think it’s probably going to take the next two to five years to really start to see some momentum in repopulating that site.”
 
Rick Chambers, a spokesman for Pfizer’s Midwestern operations, told BRN via e-mail that “it’s far too soon to discuss any specifics about potentially interested parties.
 
“However, our broker indicates that they are very pleased with the level of interest thus far and expects interest to grow as the marketing process continues,” Chambers added.
 
Pfizer last year said cost-cutting pressures were behind its plan to shut down the Ann Arbor campus, as well as a 250-person R&D center in Kalamazoo and a 60-person R&D site in Wayne Township. The news jolted life science, business, government, and community leaders in Ann Arbor, a city of 113,271 as of 2005 located 40 miles west of Detroit.
 
The city has until then been mostly spared the convulsive job-cutting and plant shutdowns seen elsewhere in Michigan that were driven heavily by the decline of the US auto and broader manufacturing industries.
 
In the year since its Ann Arbor announcement, Pfizer has shrunk its workforce there to 350 employees from 2,100. “That number will shrink slowly over the course of 2008 to around 50 by year-end, with closure shortly after,” Chambers told BRN.
 
To date, more than 850 of nearly 1,200 Pfizer employees have accepted transfers to other Pfizer sites, and 350 former staffers have stayed in the Ann Arbor region working for smaller companies.
 
Pfizer has yet to determine how much of its equipment and supplies will be shifted to other locations, Chambers said. “After that, we’ll determine how to best dispose of any surplus. Likely it will be some combination of sale and donation.”
 
Pfizer has long donated to schools and universities both surplus equipment and smaller consumables such as test tubes and other lab glassware. Under a program with Michigan Bio, Pfizer has made consumable equipment available at nominal cost, and capital equipment at 1 percent of fair market value.
 
Finney said Pfizer’s announcement last year sparked a public-private effort to retain as many of the company’s staffers in the state as possible including employment by the state, the University of Michigan, the public-private MEDC, and the city of Ann Arbor.
 
“We thought about Pfizer’s decision all of a few hours, and immediately helped organize the community to respond,” Finney told BRN. “That was driven primarily by the Pfizer colleagues that we were talking to really wanted to stay here and did not want to relocate. We felt it was appropriate to go after resources.”
 
SPARK quickly won $1 million from Michigan for worker retraining programs, then last November won $4.5 million to assist startups. SPARK also assisted some 650 Pfizer Ann Arbor staffers who contacted the group by helping them in their job searches, then sought to match them with about 200 companies offering 600 jobs.
 
“We’re continuing to get inquiries on a daily basis from companies who are seeking Pfizer colleagues, so those numbers, we expect, will continue to grow,” Finney said.
 
Michigan officials also helped by creating the $8 million Company Formation and Growth Fund, which issues low-interest loans to companies that agree to keep Pfizer staffers in Michigan, at $50,000 per job. On Nov. 29, the fund awarded its first $5.05 million to Lycera, which received $400,000, and 21 other companies in Ann Arbor, Kalamazoo, Portage, and Jackson.
 
Ann Arbor isn’t the only Michigan community where Pfizer has closed a facility. Last month, Michigan State University’s board of trustees accepted a gift from the pharma giant of a former 138,000-square-foot R&D facility some 125 miles west of Ann Arbor, in Holland.
 
Some 350 staffers had been based there in 2005 when Pfizer began phasing out operations as part of another cost-cutting move. MSU found an ally in the economic-development group Lakeshore Advantage, which joined the university in talks with Pfizer for the facility.
 
The R&D facility, which Pfizer has valued at $50 million, includes labs for up to 100 researchers, a 125-seat auditorium, a library, atrium, offices, and a pilot manufacturing plant with a chemical reactor capacity of 37,000 liters.
 
MSU plans to convert the facility into a center for bioresearch and commercialization, with a focus on biofuel refining and the use of biomass feedstock for production of chemicals.
 
The university is well under way to raising funds, having received $3.4 million from MEDC through a Michigan Strategic Grant and another $500,000 from the US Department of Labor’s Workforce Innovation in Regional Economic Development or WIRED program.
 
Another $4.8 million in pledges have been raised through another community group, the Holland Zeeland Community Foundation.

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