One of the state’s most powerful economic engines, the biopharmaceutical industry, is sputtering and in desperate need of a revival, according to industry trade group BioNJ.One of the state’s most powerful economic engines, the biopharmaceutical industry, is sputtering and in desperate need of a revival, according to industry trade group BioNJ.
The group has introduced a white paper, “The New Jersey Biopharma Industry: A Prescription for Growth,” that it plans to give to Gov.-elect Phil Murphy. It emphasizes the importance of drug manufacturers in the state, and what the government can do to support and strengthen them.
The paper makes four broad recommendations to Murphy on what the state should do to encourage growth in the biopharma industry:
- Direct state government support of the industry, including targeted financial incentives, tax credits, and funding private-public and academic-commercial partnerships;
- Promote life science innovations and investment in the state, including creating a new “BioPharma Super Cluster” as a hub of life science activity, most likely in North-Central New Jersey;
- Make New Jersey the world leader in postgraduate and midcareer biopharma educational and training programs that focus on retraining for manufacturing and research and development jobs that will be critical for the next decade, and are in critical short supply, e.g., advanced drug analytics; translational research and commercialization; and
- Strengthening New Jersey’s brand, including increased promotion and marketing of the advantages of founding or moving a company to the state.
“We are excited at the new opportunities that the new administration will present,” said BioNJ President Debbie Hart told NJBIZ. “Our optimism about the new governor closely parallels our optimism about the industry and what the report shows, and the chance we have with this paper to make a positive impact on the state’s economy and on the biopharma industry.”
The industry’s importance to New Jersey is clear: roughly 1,000 pharmaceutical and biotechnology companies are headquartered here, and more than half of the world’s 40 largest biopharma companies, including Merck, Johnson & Johnson and GlaxoSmithKline, are well established in the state.
These companies contribute more than $100 billion per year to the state’s economy, equivalent to about 3.7 percent of the GDP, and directly employ approximately 65,000 people and indirectly more than 300,000, according to the paper.
In recent years, however, layoffs at New Jersey biopharma companies such as Glenmark Pharmaceuticals, Novartis and Merck, as well as strong competition from other states such as Massachusetts and California in attracting both established and startup biopharma companies, have caused the industry here to stagnate.
From 1977 to 2015, the state’s biopharma industry’s GDP has grown by only 1.1 percent per year, compared with 4.2 percent of biopharma companies in the U.S. Employment growth has also declined by about 0.4 percent per year since 1977, while employment in the industry nationally has grown 1.3 percent. Since the great recession ended in 2010, employment in the state’s biopharma sector declined by 2.7 per cent per year through 2015, while U.S. employment grew 0.8 percent annually. Notably, New Jersey’s biopharma employment decline occurred primarily in the pharmaceutical subsector, whereas biotechnology employment grew 1 percent per year.
Specifically, the decline in New Jersey’s biopharma jobs has mainly been on the manufacturing side, as employment declined 3.6 percent annually between 2005 and 2015.
“We have lost some Big Pharma jobs in the manufacturing sector over the last few years, and we don’t have the early stage company creation at the same level as our competing states, such as Massachusetts and California,” said Hart. “Much of job creation and job growth comes from early stage companies. If we can increase early stage company creation we can make a big difference in terms of the growth of the industry and the future of the industry as part of the economy of New Jersey.”
The lack of venture capital funding for biopharma startups is one of the major problem areas in the state, Hart said, and has led to New Jersey lagging badly behind other states in terms of the year-over-year percentage increase of new biopharma companies. According to the paper, between 2012 and 2015, Massachusetts and California have been eating New Jersey’s lunch in terms of the rate at which startups were founded and funded. In New Jersey, that was just 2.1 percent, while in Massachusetts it was 7.9 percent, and in California, 3.9 percent.
Hart said it is imperative that the state promote venture capital funding in biopharma, as well increase its incubator programs, in order to avoid stagnation or even a decline in the industry in New Jersey. The white paper notes that Massachusetts and California lead in biopharma incubators with 29 and 25 respectively, while New York has eight. New Jersey currently only has four, but expects to have seven in the near-term.
Most of the funding for academic biological research around the country is provided by grants from the National Institutes of Health. New Jersey institutions received $240 million in funding in 2016, making it the 23rd ranked state. The state received less funding than 24 different individual academic institutions. Meanwhile, institutions in New York City and Philadelphia received almost $2.5 billion in biomedical grants in 2016.
“Incubators can make a big difference,” Hart said. “Most importantly, we have to be able to attract early stage funding and certainly the state can do it some specific actions such as making some tweaks to the angel investor tax credit, making tweaks to the net operating loss program, and supporting collaboration between academia and the industry. That’s the way to create early stage companies. We also need to do everything we can to market New Jersey as a great place to do business and to grow a company.”
According to the paper, other states are doing more than New Jersey to support biopharma. Currently, 16 offer small business innovation research matching grants, and 25 offer tax credits to angel investors who invest in technology companies, including the biosciences.
Some states, such as Massachusetts, invest directly in private venture capital firms that fund small biopharma companies. Massachusetts provides matching grants for Small Business Innovation research grants and a sales tax exemption for R&D and biopharma manufacturing equipment. The state also invests in biopharma companies directly through the MassVentures VC firm.
New Jersey also spends significantly on incentives, much of which is done through the Grow NJ program, “but these tend to be less biopharma focused and broader in nature. Moreover, they are frequently used to preserve existing jobs in a variety of sectors, rather than create or attract new ones,” according to the paper.
Despite the challenges, however, the state is still in a good position to attract new biopharma companies and lure existing ones. In addition to being wedged between New York City and Philadelphia, the Port of New York/New Jersey is the largest in the country as measured by the value of goods flowing in and out, and three of the nation’s busiest airports are easily accessible.