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NJ Biotech Industry Remains Buoyant Despite Broader Life-Sci Slump, State Group Reports

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New Jersey’s biotech association last week painted a largely upbeat portrait of the industry’s growth statewide in a report that echoed some key findings of one recent national study, but differed sharply from a second that concluded the Garden State was slipping in its hospitability to bio and other technology sectors.
 
BioNJ, formerly the Biotechnology Council of New Jersey, contended in a new report that the state’s bio industry is growing and maturing despite the wobbly national economy and downsizing by pharmaceutical giants, many of which are based in the state or have facilities there.
 
Indeed, the report, New Jersey Life Sciences: Where Science is Life, cited an increase in the number of bio companies located in the state, from 226 to 238, as well as several signs of growth among New Jersey’s 32 public biotech Companies. Among other findings, the report showed that:
  • Staffing at biotech companies increased 5 percent from 2005 from 5,824 to 6,155 employees in 2007;
  • Biotech R&D expenditures rose nearly two-thirds since 2005 from $737 million to $1.2 billion in 2007;
  • Combined revenue among biotechs swelled 113 percent since 2005 to $3.2 billion; and
  • Market caps for these companies expanded 75 percent since 2005 from $16.9 billion to $29.7 billion.
The report also cited a survey in which 86 percent of respondents said they planned to hire on average an additional 20 employees in the next 12 months.
 
Click here to read the report, released June 30 by BioNJ and prepared with help from Ernst & Young.
 
“The fact that we did have growth despite the economy, and also the fact that our jobs are higher-paying than many other types of jobs, that’s how we can really impact the economy,” Debbie Hart, president of BioNJ, told BioRegion News. “That’s how we’re different than other industries.”
 
BioNJ’s findings echo those of a nationwide study conducted by Battelle Memorial Group for the Biotechnology Industry Organization, and released at last month’s 2008 BIO International Convention.
 
The Battelle study found sizeable increases in the number of establishments — defined as headquarters plus branch offices and facilities — in three of four life-science segments in the state:
  • Research, testing, and medical laboratories in New Jersey increased 31.4 percent to 925 between 2001 and 2006. The nation’s growth in this sector was actually higher, at 32.7 percent and 22,857 establishments.
  • Drugs and pharmaceuticals were up 22.2 percent to 248 establishments compared with 1.9 percent growth nationally, to 2,654 establishments.
  • Medical devices and equipment increased 5.5 percent to 537, well above the nation’s 0.3 percent growth, to 15,215 establishments.
  • Agricultural feedstock and chemicals fell 2.4 percent to 58 establishments, part of the nation’s 2,183, a 3.8 percent increase from 2001 to 2006.
However, the Battelle study painted a more mixed picture concerning employment within New Jersey’s life-science segments between 2001 and 2006, compared with national figures:
  • Drugs and pharmaceuticals: Up 6.4 percent to 40,379 jobs; compared with 4 percent national job growth and 317,149 jobs in the segment nationwide.
  • Research, testing, and medical labs: Up 1.3 percent to 24,880 jobs; compared with 17.8 percent job growth and 449,991 jobs in the segment.
  • Medical devices and equipment: Down 5.3 percent to 14,833 jobs, compared with an employment decline of 0.9 percent and 422,993 jobs nationwide.
  • Agricultural feedstock and chemicals: The largest increase at 27.8 percent, yet still the state’s smallest life-sci segment with 3,587 jobs. Nationally, employment shrunk by 6.1 percent during the period to 105,846 jobs.
New Jersey has the nation’s second-largest number of research-testing jobs, Walter Plosila, a senior consultant to Battelle’s technology partnership practice, told BRN.
 
Plosila said New Jersey’s growth in academic R&D exceeded the nation’s during the five-year period, aided by a 17.8-percent jump in National Institutes of Health research grants by Garden State institutions, compared with 11.2 percent nationally.
 
“Historically, New Jersey tended to export its college-aged students to Pennsylvania, Maryland, and other nearby states. So New Jersey has tried to emphasize building a stronger higher education system,” Plosila said. “Part of that is building the research stature of its universities, and some of that is paying off.”
 
Exactly how many jobs exist in the state’s life-science industry, counting private as well as public companies, was not measured in the latest survey. BioNJ and Deloitte and Touche USA last year counted 10,071 jobs as of 2006, up 29 percent from 7,800 jobs in 2003, according to New Jersey Biotechnology…A Robust State of Health, available here.
 
“In general, our growth has come from and continues to come from several angles: Pharma companies starting biotech companies; biotech companies starting biotechs; companies coming from other states, other countries, and also, our own new Jersey research universities spinning them out,” Hart said.
 
A growing factor in company growth has been merger and acquisition activity, especially by pharmaceutical companies seeking to acquire a pipeline of products quickly rather than spend years developing their own. In the past 18 months, Hart said, New Jersey has seen 10 mergers and acquisitions in the biotech industry.
 
“The fact we have big pharma with a dry pipeline, and also, available dollars, hopefully some of those companies will come to base themselves in New Jersey,” Hart said. She cited LifeCell, a Branchburg, NJ, developer of tissue-based products for reconstructive surgery, which has agreed to remain in the state following its $1.7 billion acquisition completed in May by San Antonio-based Kinetic Concepts.
 

“What it says is that New Jersey has had a harder time bringing skilled workers into the workforce recently. It still obviously has a good workforce …[b]ut it is a slip from the last time.”

Hart said another important factor in the growing number of companies was increased startup activity, especially by the University of Medicine and Dentistry of New Jersey. In June 2006, UMDNJ established a venture fund devoted exclusively to providing hard-to-find seed-stage capital for startups spun out of the university by faculty members using technologies developed there.
 
The fund, called the Foundation Venture Capital Group, launched with $5 million from the New Jersey Health Foundation, has funded two companies to date: CellXplore, a developer of biomarker-based in vitro diagnostic assays for cancer, focusing first on breast cancer; and Snowdon Pharmaceuticals, a developer of drugs for cancer, acute and chronic pain, and infectious diseases.
 
“We probably have four to five [potential VC investments] at different levels of due diligence, as we speak right now,” James Golubieski, president of Foundation Venture Capital Group, told BRN. “We’re hopeful to do another two by the end of the year.”
 
Foundation typically awards between $250,000 and $500,000, he said.
 
“Basically we wanted to create opportunities for researchers at [UMDNJ] because there really were no opportunities other than traditional venture capital, which traditionally has not been interested in early-stage stuff. There was this void out there, and we felt maybe we can help fill some of that void,” Golubieski said. “A lot of [companies seeking funding] still need work, maybe intellectual property work, or there’s some proof-of-principle work that needs to be done. Maybe our investment will get that company to hit that milestone, something that would make them attractive for a traditional venture capital group.”
 
UMDNJ typically spins out three to four startups a year, Vincent Smeraglia, director of the university’s Office of Patents and Licensing, told BRN.
 
Of 100 startups that contact Smerglia seeking funding, five are referred to Foundation for further study, Golubieski said. “We usually bring in three to four at a time, let them show their wares to us. And of those five, we may take two and do some additional due diligence,” namely hiring an outside expert to review the technologies and business plans or startup prospects, he added. 
 
By contrast, New Jersey’s largest public university — Rutgers, the State University of New Jersey — spun out no companies in the academic year ending June 30, 2006, according to figures released late last year by the Association of University Technology Managers.
 
Inhospitable?
 
New Jersey’s slower pace of technology spinouts compared with other states was a factor, but not the only one, in the state’s disappointing showing in another national study. The Milken Institute dropped New Jersey’s ranking as a hospitable site for life sciences and other tech businesses from fourth to seventh place, citing a variety of workforce and state spending criteria.
 
Kevin Klowden, managing economist at the Milken Institute, acknowledged in an interview that Milken’s overall ranking for New Jersey and every other state combines life sciences with software, IT, and other tech sectors.
 
Klowden told BRN, however, that the institute can glean some insight into the state’s life-sciences sector. He cited in part the survey’s breakdown of R&D spending into separate biomedical and general life-sciences sub-categories, as well as agricultural sciences, environmental sciences, engineering, math and computer sciences, and the physical sciences.
 
While New Jersey’s spending in life sciences R&D has increased, as Battelle found, Milken concluded that the state’s gap with other states has widened significantly.
 
As a result, New Jersey placed 34th on per-capita R&D expenditures on biomedical sciences for 2005 with a figure of $43.78, a category whose leader, Maryland, generated $189.81. New Jersey topped its 35th place ranking and $29.63 per-capita figure in the previous Milken study, which came out in 2004 and also had Maryland leading in 2001 R&D per-capital expenditures, with $128.51.
 
A complete ranking of states’ per-capital R&D expenditures on biomedical sciences, with statistics and scores, is available here.
 
New Jersey fared worse on per-capita R&D expenditures for general life sciences, finishing just 42nd, with $50.49, below the 41st ranking it had in 2004 and 2002 studies — even as the state’s per-capita life-sci R&D spending jumped to $34.80 in 2001 from $29.91 in 1999. Maryland finished first in all years, as its per-capita spending jumped from $113.03 in 1999, to $144.01 in 2001, to $210.98 in 2005.
 
“Life sciences are absolutely a large component of it. As a matter of fact, they’re sort of essential to the rankings of a few different states,” namely life-science powerhouses such as Maryland and Massachusetts, Klowden said.
 
Milken placed New Jersey high on the per-capita R&D spending of its life-science industry, $1.3 billion or seventh place; second place nationwide on the number of state-based technology companies on the ‘fast 50’ list of fastest-growing businesses; sixth place nationwide among states based on the number of microbiologists per 100,000 civilian workers; seventh place in venture capital investment as a percentage of gross state product; and eighth place among states based on the number of medical scientists per 100,000 civilian workers.
 
But the state’s number of bachelors’ degrees in science and math per 1,000 civilian workers in 2005 fell from 27th to 42nd place nationally. And though New Jersey fared comparatively better in those years in masters degrees per 1,000 (32nd place) and PhD degrees per 1,000 (29th), the state’s rankings for those degree programs have fallen from 10th and seventh, respectively, in 2001; and from ninth and eighth in 1999.
 
Another measure, the percentage of per-capita state appropriations for higher education in 2006-07, plummeted to a dead-last 50th position, from 18th in 2002-03 and eighth in 2000-01.
 
New Jersey’s new $32.9 billion budget, signed by Gov. Jon Corzine late last month, won’t likely improve those numbers. Corzine and legislative leaders agreed to restore $2 million to a planned cut in funding in grants awarded by the New Jersey Commission on Cancer Research, resulting in $17 million being available. And as Hart noted last week, most life science-relevant state funding remained flat compared with last year, rather than being reduced.
 
The most widely used state program for life sci companies is the Technology Business Tax Certificate Transfer program, which allows companies to sell their unused net operating loss carryover and unused R&D tax credits to unaffiliated, profitable New Jersey-based companies for at least 75 percent of the value of the tax benefits.
 
According to BioNJ, New Jersey biotech companies last year sold $27.3 million in losses under the program, representing an average $781,000 per company and 45.5 percent of the total approved by the state for that year. Over the past five years, state biotechs have sold more than $120 million in losses.
 
But the governor’s new budget cuts spending on state universities by an average 10.2 percent, or $30 million, leaving $262.7 million for New Jersey’s 12 public colleges and universities.
 
The plunges in state spending and recent graduates were key reasons why New Jersey fell nine positions on Milken’s “human capital investment” composite index of criteria, from 12th to 21st place.
 
“It’s a case where comparatively speaking, New Jersey isn’t doing as well as some of the other states,” Klowden said. “What it says is that New Jersey has had a harder time bringing skilled workers into the workforce recently. It still obviously has a good workforce — there’s no question about that. But it is a slip from the last time.”
 
Future erosion in NJ’s tech and science workforce composite index, now in 10th position, can be expected based on the dwindling number of degree candidates, he added. “It might slip even more than that, simply because not enough science and engineering people are either being produced in the state for hiring, or coming in from out of the state.”
 
New Jersey was just 48th in number of business incubators per 10,000 business establishments. However, the state’s largest high-tech incubator recently made itself better able to accommodate life-science startups. The Enterprise Development Center at New Jersey Institute of Technology in Newark, NJ, late in June completed retrofitting four spaces totaling about 2,000 square feet with lab equipment, allowing biopharma companies to carry out lab as well as office functions, said Judith Sheft, NJIT’s associate vice president for technology development in its Office of research and Development.
 
EDC is home to about 70 companies and has graduated about another 70 since it was established in 1988. The center sits in Newark’s Innovation Zone, bordered to the north by Route 280, to the east by McCarter Highway, to the south by Market Street/South Orange Avenue, and to the west by Bergen Street/First Street.
 
One glimmer of hope for the state’s life-science workforce and business-development activity in the near future could come from an uptick of stem cell research seen in recent years. Some of that, however, was tied to the expectation that New Jersey would commit to borrowing $450 million for such projects — a plan that died on the vine after state voters turned down such a referendum last November [BRN, Nov. 12, 2007].
 
“We will lose potential growth in that particular area. But please keep in mind that stem cells are one very limited area of biomedical research,” Hart of BioNJ said. “Most of our companies are focused in different areas anyway, and continue to be.”
 
She cited her group’s report, which placed oncology as the area of greatest therapeutic focus among New Jersey biotechs with 41 percent in a survey allowing multiple answers, followed by infectious diseases (22 percent) and autoimmune diseases (19 percent).
 
Among NJ’s oncology-focused biotechs are Advaxis, a North Brunswick, NJ-based developer of drugs that uses a modified infectious microorganism to activate the immune system against cancer and other diseases; and Vicus Therapeutics of Morristown, NJ, whose lead product is Phase 2 clinical trials for the weight loss and other physical wasting effects of cancer.
 
But the setback to New Jersey’s stem-cell effort will likely hinder the sort of broader growth in life sciences sought by BioNJ and industry leaders, one of the state’s top stem cell researchers told BRN.
 
“Proteomics is now very much oriented toward regulation of cancer stem cells, as well as cellular regulation and differentiation,” said Wise Young, Richard H. Shendell chair in neuroscience at Rutgers. “Even a lot of pharmacology will be affected, all the natural products, the hormone industry. The stem cell has very broad reach. I believe all these technologies are affected when there is investment put into stem cells.”
 
Young is developing a spinal cord-injury therapy for which a research and licensing agreement has been entered into by California-based StemCyte, which in May announced plans to open a new East Coast office in Ewing Township, NJ. The office will enable StemCyte to coordinate future clinical trials for a research project involving Young’s therapy [BRN, May 5].
 
StemCyte has agreed to provide an undisclosed amount of financial sponsorship in return for exclusive commercialization rights to the therapy, which uses StemCyte’s proprietary human umbilical cord blood stem cells in conjunction with lithium. The therapy is now undergoing a double-blind randomized trial in Beijing to study the effects of lithium versus placebo in 40 patients with spinal cord injury.
 
That project, and others, leaves Young both hopeful about the future of the state’s life sciences industry — and concerned it missed an opportunity with the referendum defeat that California and other states will exploit in coming years.
 

“There is a lot of very good stem cell research going on in New Jersey. And many of the top players in the region are in New Jersey. And many big pharma companies are now investing in stem cell research. They’re looking in terms of mergers and acquisitions. They’re looking in terms of acquiring technologies. There’s a lot of good activity going on,” Young said. “But I think we would have had much more if we actually got the stem cell bond passed.”

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