For the second time in two years, Pennsylvania Gov. Edward Rendell is asking state legislators to spend $500 million to generate more biotechnology activity in the state.
But with lawmakers concerned about what they consider already to be high state spending for biotech, the prospects for Rendell’s proposed Jonas Salk Legacy Fund are uncertain at best.
Dennis (Mickey) Flynn, president of Pennsylvania Bio and the state’s top advocate for the biotech industry, said this year’s wrangling in Harrisburg could yield a less-ambitious, scaled-down bill aimed at helping commercialize biotech discoveries by academic institutions and startups — rather than the half-billion dollars worth of bricks and mortar for those institutions that the governor envisions.
“If they don’t pass Salk but they pass the commercialization piece, that will also help,” Flynn told BioRegion News after addressing the Chemical Heritage Foundation’s “Building Biotechnology” conference in Philadelphia on April 20. “Is [Salk] better? It will draw more companies. But we feel that we could get the commercialization independent of Salk. It could happen.”
During his presentation, Flynn did not mention Salk as he expressed optimism for the industry’s fate in this year’s state budget. “We firmly believe that we will have more money coming in as the state continues to recognize that it needs to continue to fuel the fire. We’re very encouraged.”
In an interview earlier that week, Flynn said his group would not join other groups pushing for the Salk proposal, but defended its commercialization portion. “It’s very, very critical that we keep ourselves in a position to compete, not only across the US but globally, and the commercialization piece of the Jonas Salk Fund will help us do that.”
According to Rendell, the fund would pay for construction of new biotech laboratories and incubator facilities statewide for institutions eligible for health research grants under the state’s Commonwealth Universal Research Enhancement program and their affiliated medical centers.
The fund could also benefit CURE recipients by helping them buy specialized equipment that would be used by faculty newly recruited to colleges and universities throughout Pennsylvania. That’s a change from the original version of Salk proposed last year, as is the commitment to use tobacco funds to pay for the fund.
Institutions receiving Salk funds would have to get matching funds from the state.
“The Salk Legacy Fund will catapult Pennsylvania to the top of the class in scientific research, with the goal of supporting groundbreaking medical and scientific research while fostering dramatic growth in the business of science as well,” Rendell said in his executive budget address Feb. 6. of science as well,” Rendell said in his executive budget address Feb. 6.
The Salk Fund’s $500 million would come from the state borrowing against 9.5 percent of its tobacco-settlement money. Pennsylvania is already considered a leader in using tobacco money to boost its biotech industry.
The fund would also require the state to direct 2 percent of the tobacco money, or $6.7 million, to a new Health Venture Investment Account to encourage venture capital investments in startup and early-stage life science companies. Another 2 percent would be directed to the state’s three regional biotechnology centers, called Life Science Greenhouses, one each in Philadelphia, Harrisburg, and Pittsburgh.
The industry received its initial tobacco-funded boost in 2001 when the state used $100 million of settlement funds to launch all three greenhouses, another $60 million toward equity investments in state-based health companies, and $8 million for loans to medical and graduate students in biomedicine and life sciences.
However, the Greenhouse funding and the loans were one-off events. And as of November 2006, the state has exhausted its $60-million equity-spending account. The account’s four venture funds invested in 30 companies, which created 1,033 jobs statewide, according to the Pennsylvania Bioscience Industry Report 2007 issued by Pennsylvania Bio.
Pennsylvania credits those investments in part with helping it remain one of the nation’s top biotech states. During the first quarter, Philadelphia closed $268.7 million in four deals, making it the fourth-highest amount of venture capital spending among 24 US sub-regions measured by Ernst & Young and Dow Jones VentureOne. The rest of Pennsylvania finished fifth with $268.2 million among three deals.
From a VC perspective, Pennsylvania is hot: Seven biopharmas in the state collected a cumulative $536.9 million during the three months ended March 31, compared with $32.5 million spread among five companies during the same quarter in 2001.
The number of biopharmaceutical companies receiving VC funding in the state excluding the Philadelphia region nearly tripled between 2001 and 2006 to 33 from two. Within Philadelphia, VC funding rose to 21 from 15 companies during that period.
But biotech growth has been less robust: 1,751 biotechs existed in 2004, just 2 percent more than the 1,711 that existed in 2001, according to US Bureau of Labor Statistics. Nationwide the number rose 8.9 percent to 39,595 in 2004 from 36,346 in 2001. Pennsylvania Bio blames the state’s lackluster growth on the 2001 recession.
“We found that the landscape is extremely competitive among the states,” said Mike Chapaloney, a spokesman for Pennsylvania’s Department of Community and Economic Development (DCED). “At least 40 states have identified biosciences and life sciences as a targeted growth sector. Even smaller states recognize the opportunity presented in this growing sector. So we feel [the Salk fund] is needed.”
DCED boasts that seven of the state’s top 10 academic and research institutions have endorsed Salk: The Alleghany-Singer Research Institute, Carnegie Mellon University, Children’s Hospital of Philadelphia, Drexel University, Penn State University, Temple University, Thomas Jefferson University Hospital, University of Pennsylvania, University of Pittsburgh Medical Center, and the Wistar Institute.
Up in Smoke?
But two key groups whose members include life sciences businesses did not agree that Salk is the right vehicle to grow biotech in the state. In separate interviews, the heads of the technology councils for the Philadelphia and Pittsburgh regions said the state’s system for subsidizing life sciences functions well enough not to need the proverbial shot in the arm that the Salk fund represents.
“Is [Salk] better? It will draw more companies. But we feel that we could get the commercialization independent of Salk. It could happen.”
“The current mechanism by which we apply these dollars is very high-functional and it falls into the general theory of ‘if it ain’t broke, don’t fix it,’” said Donna Gentile O’Donnell, managing director of the Philadelphia office of the Eastern Technology Council, which represents 700 life sciences and high-tech businesses in eastern Pennsylvania. “So this ain’t broke, and it doesn’t require fixing.
“The Salk program really is about bricks and mortar, and in Pennsylvania we enjoy several mechanisms by which nonprofits can apply for and receive tax-exempt financing for capital projects,” she said.
O’Donnell sits on the board of CURE, which awards some funds to institutions competitively, and other funds non-competitively or based on their proportion of the state’s NIH funding.
In its most recent award in March, CURE distributed $16.8 million almost evenly among four groups of research institutions statewide. O’Donnell said CURE has two priorities for this year’s funding: Regenerative medicine and violence prevention.
“I’m not of the view by the Salk project … [that] it is really a useful model to substitute for the softer dollars that the research institutes desperately need to fill in funding gaps in places where NIH funding has receded, in places where they’re looking to stabilize and perhaps grow some aspect of a successful research program,” O’Donnell added.
How Salk funds would be distributed is also a concern to the Pittsburgh Technology Council, though it has not taken a stance on Rendell’s proposal. “It’s an issue that’s largely impacting the university community,” said Brian Kennedy, vice president of government relations.
A number of state lawmakers also remain unconvinced that Salk is needed. During a March 7 hearing on Rendell’s proposed $59.1-billion state budget for the fiscal year beginning July 1, state Sen. Mary Jo White, Republican of Franklin, expressed concerns that the tobacco-fund collateral that the state is counting on may shrink in future years if smoking decreases.
DCED Secretary Dennis Yablonsky responded by citing projections that inflation is expected to more than offset tobacco revenues lost by people who quit smoking, according to minutes of the hearing.
At that hearing, led by the state Senate Appropriations Committee, White questioned the wisdom of Pennsylvania borrowing against tobacco funds up front, and suggested the state instead fund support for life sciences research on a piecemeal, “pay-as-you-go” basis.
“Research doesn’t come fast and it doesn’t come easy. We won’t see results on this investment for many years,” White said according to the minutes. She did not respond to follow-up questions from BioRegion News.
The following month a state senator introduced Senate Bill S800, which would enact only the 2-percent set-asides of tobacco funds for VC investments and the greenhouses, with the goal of helping to commercialize biotech discoveries.