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This article by Barbara Fox was prepared for the February 19, 2003 edition of U.S. 1 Newspaper. All rights reserved.

Life in the Fast Lane

In the doom and gloom of New Jersey’s budget woes,

one of the few bright spots seemed to be the concentration of pharmaceutical

and biotech companies in the state. Now that industry’s long-term

viability is being questioned.

"New Jersey’s life science innovation cluster is one of the brightest

stars in our state’s economy," says Governor James E. McGreevey.

"But other states are catching up, and the time has come for us

to shift the cluster into high gear for the new century."

He points to Prosperity New Jersey’s new Life Science Cluster Initiative,

which commissioned a study by Michael E. Porter, a Harvard University

expert on strategy and competitiveness. Porter presented the results

of the $250,000 study on Friday, February 14, at a public meeting

of Prosperity new Jersey, the public/private partnership headed by

Adam Pechter. Nearly 100 public officials and industry representatives

gathered in Princeton University’s Whig Hall to hear the results of

the study that was supported by the Biotechnology Council of New Jersey

(www.newjerseybiotech.org) and the Healthcare Institute of New Jersey

(www.hinj.org), which represents the state’s large pharmaceutical

companies.

Porter, who graduated from Princeton University’s engineering school

in 1969, guided the Massachusetts-based Monitor Group in this study,

which included statistical analysis and indepth interviews with more

than 130 people last fall. Porter contributed his services pro bono.

The study is available online (www.state.nj.us/prosperity).

Life science jobs are important to New Jersey. Of the one third of

"tradable" jobs (jobs that aren’t based on geographical location,

jobs that could be snatched away by other states) life science has

the fifth largest number here — 71,873 workers in 2000. They represent

6.5 percent of total "traded" employment, a percent that is

almost three times the national average. The only industries with

larger percentages are business services (190,814 jobs), financial

services (135,882), distribution (109,772), and hospitality and tourism

(95,076). Information technology, for instance, has 17,887 jobs and

is in 15th place.

Citing Germany’s cluster of high performance auto companies and Boston’s

hotbed of mutual fund firms, Porter says that clusters of companies

in a particular industry generate energy, vitality, and competition.

In this way, New Jersey’s critical mass of pharmaceutical and biotech

firms has contributed to the state’s economic health.

But Porter sounds the alarm. "Life sciences is a strong cluster,

but it is not growing," says Porter. He shows that this category

ranks ninth in jobs gained from 1990 to 2000 (5,403 jobs) compared

with information technology (which is fifth in growth). "Jobs

have been created on the research side, but we are losing jobs on

the manufacturing side," says Porter.

When two major pharmaceuticals — Merck and Novartis — chose

Massachusetts over New Jersey to establish big facilities, officials

began to think of them as the canaries in the coal mine. "We’re

not in crisis mode," Porter emphasizes, "but the life sciences

economy that is good today lacks dynamism to shape the future. We

have significant challenges."

Cost of living. New Jersey is a notoriously expensive

place to do business, says Porter. "If somebody outside the state

can make something, they can make it cheaper. That’s why our capacity

for innovation is so important to our prosperity."

New Jersey should base future success on productivity, he believes.

"California is a high cost place to make wine, but it has the

highest productivity per acre of land. Our path to success is not

to cut costs but to raise value with more innovative methods —

and be a moving target for Thailand and Korea."

Low patent growth . The state has always been strong in

the number of new patents it turns out, but from 1998 to 2001 it showed

a startling slow-down. Now it is last in the nation in the growth

in number of life science patents compared to life science jobs.

<d>Insufficient university research This ties in

both with what Porter perceives to be a patent deficit and Merck’s

move to Massachusetts. There, three of the top four life science patentors

are institutions — Massachusetts General Hospital, MIT, and Harvard.

But here, the top four patentors are corporations. "We must take

this seriously," says Porter, "because Merck and Novartis

want to be part of the new model."

Porter advocates basic structural change. "We will have

to change the way various parts of the life sciences community work

together." In the old economy, government took care of roads and

schools, universities devoted themselves to basic knowledge, and businesses

did business. "Now we need new institutions for collaboration

to help connect the dots," says Porter.

Long established pharmas such as Johnson & Johnson, Squibb, Pfizer,

and Merck pioneered in New Jersey, but now this early history could

be a disadvantage. "Under the new model, companies collaborate

with universities and medical schools."

A prominent subtext to Porter’s report was its support for McGreevey’s

controversial initiative to revamp the state university system as

proposed by P. Roy Vagilos, former CEO of Merck. Vagilos was prominently

seated in the front row next to Richard McCormick, the new president

of Rutgers University, and former governor Brendon Byrne. When Princeton

University President Shirley Tilghman opened the meeting and acknowledged

the guests, she pointed out that she had known Vagilos when he was

still in academe, and she endorsed his ideas. McCormick chimed in

his approval as well.

Insufficient technology transfer , which impedes the flow

of technology from academic institutions to industry. "We will

have to change the way various parts of the life sciences community

work together," says Porter.

Low growth in start-up establishment . Porter said he heard

repeated complaints from entrepreneurs that they did not get enough

help from government, that they did not think government was on their

side.

Insufficient funding . Most of the venture capital firms

in this state invest out of state. Porter thinks the state should

offer incentives for investments in life science start-ups.

Another subtext of Porter’s report — that investments from the

state’s pension fund could help New Jersey-based companies prosper

— received little support from the head table. Nevertheless, the

trade group representatives used the meeting as a lobbying opportunity,

pointing out that the pension funds had done poorly with portfolios

based on out of state companies, and that this is one of very few

states that does not invest even a fraction of its pension monies

at home. Donald Drakeman, CEO of Medarex, advocates putting some of

New Jersey’s pension funds into state-based venture capital funds

that could funnel the money into start-ups.

The irony of the report’s timing was that the governor had just

released a bare bones budget eliminating virtually all the incentives

for encouraging innovation (research grants through the New Jersey

Commission on Science and Technology) and attracting business (Business

Employment Incentive Programs and tax transfer programs).

"We have to cut back on the very programs that were actually valued,

but we can and must have long-term plans," says Porter, and he

points out that some remedies can be accomplished inexpensively.

Put pressure on Washington so that New Jersey labs get

a better share of grants from the National Institutes of Health.

Get existing organizations to do a better job at linking

R&D efforts between universities, industry, and government.

Get the private sector to sponsor university internships

and externships.

Encourage startups by coordinate the help available. "there

is not a good set of institutions for helping start-ups here in New

Jersey," says Porter. "Start-ups feel lowly and left out."

Encourage manufacturing by easing red tape and making

it easier to move here and expand here. "We have high regulatory

hurdlers for real estate, compared to North Carolina, and time is

money," says Porter.

Create incentives that aren’t delivered until a business

is self sufficient.

Create confidence. "Industry needs to be confident

enough about the future so that it will make an investment here."

At the February 14 meeting, the governor focused on a program

that did escape his budget cuts. He decried the fact that most New

Jersey cancer patients go to New York or Philadelphia for what they

perceive to be the best treatment, and he wants to recoup more of

those healthcare dollars by emphasizing cancer research. "Despite

a $5 billion deficit, says McGreevey, "we will continue our investment

in cancer research to create a critical mass of research and to attract

clinical trials."

"New Jersey has strategic resources that are the envy of other

states," says McGreevey, "but this report demonstrates we

are not exploiting our healthcare resources. "Although we cannot

invest all the dollars now is the time to plan for when the dollars

become available."

— Barbara Fox

Prosperity New Jersey, 20 West State Street, Box

820, Trenton 08625-0828. Adam Pechter, president and CEO. 609-292-3685;

fax, 609-984-4920. Home page: www.state.nj.us/prosperity.


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