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Date: June 12, 1996

Title: Focus/ High-Tech/ A Year of Upheaval And Progress at High-Tech Companies

Author: Dan Goldblatt

New Jersey is known to many as the state on either side of the Turnpike-long and just wide enough to support the multiple lanes that pass through Elizabeth”s refinery row. That view, though, misses the state”s role in high technology. From Bergen to Cape May lies an ever-growing hotbed of technological accomplishment, companies ranging in size from health-care behemoth Johnson & Johnson to lilliputian Alfacell, a Bloomfield-based biotechnology company with 10 employees. What these firms have in common is research and development-actively broadening the boundaries of what is possible. According to the Research and Development Council of New Jersey, our state is responsible for two out of every 10 private R&D dollars spent in the U.S.

In the last year this innovation has continued, as have changes in the business environment. The Whitman Administration changed the way it supports new technology when the New Jersey Commission on Science and Technology revised its research funding. Meanwhile industry has attempted to cope with competition and changing business patterns through acquisitions, mergers and alliances. In some cases, the pattern of fusion has given way to fission, best illustrated by AT&T”s stunning breakup into three parts, a move that was followed by Bell Atlantic”s merger with NYNEX.

It is difficult to quantify what is happening at the laboratory benches, inside the computers and on the drafting tables of New Jersey. There are untold thousands of them, many running under the auspices of privately held start-up companies. The R&D Council of New Jersey tries, though, and its latest membership survey shows what the group describes as a “tempered R&D recovery.” Of the Council”s nearly 100 members, 38 organizations-employing some 33,000 people-responded to this year”s survey, indicating that they would be increasing expenditures this year to $7.6 billion from $7.2 billion in 1995. This average increase of 5% contrasts with last year”s all-time-low increase of 1.5%.

One important possible conclusion from the Council”s study is that while federal support for R&D continues to drop, New Jersey businesses may be taking up some of the slack. If so, that is a major change from last year, when it appeared that both the federal government and business would be cutting research spending.

Just as corporate R&D departments have had to deal with unsecure funding from year to year, so will the 11 advanced technology centers sponsored by the New Jersey Commission on Science and Technology. In a move that has generated acute discomfort among Center administrators, the Commission is trying, as one observer says, “to wean them away from the state and take the dollars to encourage development of new technology initiatives within New Jersey.” Late last year it was announced that the Commission would reduce the baseline funding of each center by 38%. The money saved would be put into a pool for competitive bidding, with winners being chosen based on the Commission”s judgement as to the scientific merit, economic potential and the quality of the management of the project. In this, the initial year of the new approach, Commission Executive Director Jay Brandinger says 92 responses were received to its request for white papers. From these, 11 full proposals were requested, representing 20 organizations. The proposals under review represent an eclectic range of fields, including multimedia, a study of dredging technology and so-called neutriceutical research. A final decision is expected prior to the Commission”s July board meeting.

Not all the centers will take funding hits. Some of the proposals surviving the competition”s first round were submitted by centers. In addition, Brandinger says that this year”s new uncertainty has led the centers to look further afield for funding. He expects them to make more aggressive efforts to secure dollars from federal and industrial sources.

Another effort that could make a difference in the funding landscape for New Jersey tech startups is the Commission”s proposed capital seed fund. Most financing experts agree that the hardest capital to raise is the initial batch. Venture capitalists, banks or angel backers are more interested once a company has advanced beyond the infant stage of development. The seed fund is being designed to help the very earliest stage tech firms. Previous attempts to generate interest in such a fund have foundered. Ron Hahn, who was formerly with the Edison Venture Fund, will be administering the seed fund. Attempts to procure funding are underway now.

The last year or so has seen a burgeoning development of high-tech business incubators in New Jersey. The state”s three original incubators, affiliated with Stevens Institute Of Technology, Rutgers University and New Jersey Institute of Technology, finally have some company. University Heights Science Park in Newark is midway through its construction, according to its executive director, Dennis E. Lower. Its first incubator already has 30 tenants, and another 20 will go into a building currently under construction.

Funding for another Science Park to be based on the former Johnson & Johnson research property on Route 1 in North Brunswick has also been approved. The collaboration between the New Jersey Commission on Science and Technology and New Jersey Economic Development Authority will result in a 52-acre campus providing office and laboratory space to growing technology companies. In addition, Brandinger says that there are new incubators underway at Picatinny Arsenal, in Trenton and Burlington County.

Another interesting and little-noted development in the past year has been the growth of the so-called new media industry in the state. A recent survey by the accounting giant Coopers & Lybrand looked at firms specializing in entertainment software, online and Internet services, CD-Rom title development and World Wide Web site development in the New York metropolitan area. For Coopers”s purposes, that included the northern half of New Jersey down through Princeton. It found that of the estimated 4,250 new media companies in the area, 900 of them are in New Jersey. Though generally smaller than their New York City counterparts, in 1995 Garden State bit manipulators managed to generate an estimated $440 million in gross revenues.

Finally, high-technology businesses have not simply waited for the state or federal governments to organize them. A new trade group, the New Jersey Technology Council, has sprung up to argue the industry”s cause and increase its visibility. Maxine Ballen, the group”s president, says 55 companies have joined up since its Jan. 1 startup. NJTC is setting up councils for individual industries, the first of which is the Software Association of New Jersey. One of the 25-member software group”s goals is to have New Jersey”s software industry emerge from its haze of obscurity. A health-care council is also forthcoming. The Council is sponsoring activities such as legislative briefings, a golf outing and a networking dinner for software professionals.

While New Jersey”s technology goes across the board, much of it is concentrated in the following five industries. A report on those fields:

Pharmaceuticals: New Labs New Products

The drug business continues to be a major factor in New Jersey”s economy and, despite adjustments, important research continues. There were some visible signs of its continuing presence.

Bristol-Myers Squibb dedicated an R&D building in New Brunswick. The $40 million, 37,000-sq.-ft. site is expected to speed up the company”s drug development process.

The Summit-based pharmaceuticals division of Ciba-Geigy completed a 440,000-sq.-ft., $136 million biological research building. Its facilities will be used in the development of treatments for cardiovascular disease and arthritis. Ciba, whose parent company is based in Basil, Switzerland, is probably better-known these days for its planned merger with Sandoz, another Swiss firm that has its U.S. headquarters in East Hanover.

Merck, based in Whitehouse Station, launched six new products in 1995, more than in any year of its history. Among them was Fosamax, the first non-hormonal treatment of osteoporosis, the bone thinning that affects millions of Americans, primarily women.

Hoffmann-La Roche of Nutley received approval to market Invirase, one of a new family of anti-AIDS drugs called protease inhibitors. Within 48 hours after getting that FDA clearance in December, the company had the drug in pharmacies around the country.

In addition to adding several drugs to its catalog, Madison”s Schering-Plough moved further into biotechnology. It acquired Canji, a California gene therapy firm, and opened two new biotechnology clinical production facilities, one in Union and the other in Switzerland.

One way to look at progress of pharmaceutical firms is to “think in terms of advances in the areas of greatest unmet medical needs,” says Andrew Bodnar, the president of the specialty products division of Bristol-Myers Squibb. In his opinion, the most exciting area of recent progress is AIDS research. Protease inhibitors, such as Merck”s Crixivan, which some experts think is more potent than Hoffmann-La Roche”s Invirase, are seen as an important part of treatments combining drugs of different classes. The goal is to overpower HIV”s pronounced skill at developing resistance to individual medicines.

Another important development, says Bodnar, is the finding that the cholesterol-fighting drugs known as statins have more ability to prevent heart attacks than was first anticipated. These drugs, of which Merck”s Zocor and Sandoz”s Lescol are examples, apparently can help reduce the incidence of first-time heart attacks among patients who have elevated cholesterol but no evidence of heart disease. They can also help reduce repeat attacks in patients with high cholesterol. Even more interesting: a recent study suggests that statins can save the lives of patients who have had heart attacks but don”t have elevated cholesterol.

A third area of progress has been cancer treatment. More focused therapies are being developed using monoclonal antibodies, which have the potential to deliver drugs directly to the tumor, rather than taking the shotgun approach of traditional chemotherapy. Furthermore, study into the subcellular nature of cancer may, according to Bodnar, be setting the stage for a whole new approach to the disease.

Up & Coming

Nycomed

In 1995 a new kid moved on to New Jersey”s pharmaceutical block. Nycomed is a Norwegian company specializing in the research, development, manufacture and marketing of contrast materials-substances injected or swallowed prior to x-rays to allow doctors a better view of their patient”s inner workings. Nycomed opened its Princeton headquarters, from which it runs its North and South American business, in September, relocating from New York City. The company won”t disclose employment figures for New Jersey, but it has 5,000 workers in 35 countries worldwide.

Biotechnology: Alliances and Approvals

New Jersey”s biotechnology sector continues the slow march toward marketing the products in its pipeline. Companies with products approved for the U.S. market include Iselin”s Bio-Technology General, Liposome and Cytogen in Plainsboro, and Biomatrix of Ridgefield. Immunomedics, a Morris Plains firm developing cancer diagnostics using monoclonal antibodies, was just told by the FDA that its CEA-Scan, intended for the detection of colorectal cancer, is approvable.

Immunodmedics, like a number of other New Jersey biotechs, is using a partnership with a large, established company to get its products to market. It has an agreement with Mallinckrodt Group, a St. Louis producer of health products, under which Mallinckrodt will sell CEA-Scan on consignment while Immunomedics retains manufacturing rights. Similar partnerships have been forged by Annandale”s Medarex, which has accords with Merck and Ciba, and Enzon, based in Piscataway, which has agreements with Bristol-Myers Squibb and Rhne-Poulenc Rorer.

According to a study done by the accounting firm KPMG and the Sage Group, a Bridgewater consulting company, in 1995 the New Jersey biotech universe comprised 80 companies employing 5,000 people, with $250 million in annual payroll. In recognition of the value this industry can add to the state”s economy, a number of bills have been passed to make New Jersey a more desirable place to start and grow a biotech firm. These include laws limiting access of state and local agencies to biotech trade secrets, a prohibition on local regulation of biotechnology and the establishment of a financial assistance program through the Economic Development Authority.

Up & Coming

Phytotech

One fascinating aspect of biotechnology is that it involves harnessing organisms such as bacteria and plants to do the work of humans. Phytotech, founded in 1993 by scientists from the Rutgers-based Center for Agricultural Molecular Biology and Amgen veteran Burt Ensley, develops plants to remove toxic metals from soil and water. The Monmouth Junction firm has had two rounds of financing. The latest, in early 1996, raised $2.1 million. Phytotech has products being tested in the field, including at the site of the Chernobyl disaster.

Computer Software: Finally Some Recognition

Software has been the secret sector of New Jersey”s economy. This may change now that the industry has a trade group, the Software Association of New Jersey, which was organized in September. It also has its own legislative task force, led by state senator Robert Singer, which is looking into what the state can do to give software companies a hand.

The big news in New Jersey”s software business? Well, for one thing, it”s big. The Center for Information Age Technology at the New Jersey Institute of Technology is involved in an ongoing effort to build a database of every software company in the state. The current list includes some 2,000 firms, most of which are very small. But total employment could be as high as 20,000.

Not all these software companies are poor startups, however. According to John Martinson, managing partner in the Edison Venture Fund, “From the point of view of initial public offerings, it was a glorious year for the New Jersey software industry.” There were five initial public offerings by New Jersey software companies in 1995.

The first of these, in June, was by Dendrite, a Morristown firm that produces software that helps pharmaceutical salesforces manage, coordinate and control their activities. According to IPO Financial Network, a Springfield firm that tracks public offerings, Dendrite raised $37.7 million. Founded in 1986 in Australia by CEO John Bailye, this firm”s products are in the hands of drug sellers such as Glaxo Wellcome, Allergan of France and Pfizer.

Mahwah-based Novadigm held its IPO in July and raised $37.5 million. The company”s software products make it easier to manage large computer networks, allowing for the synchronization of changes to client/server software. Founded in 1990, the company has developed strategic partnerships with major vendors including Microsoft, IBM and Oracle.

Computron Software went public in August 1995, raising $66.5 million. Formed in 1978, this Rutherford firm designs and sells client/server financial, workflow and archival data management programs. Computron has relationships with consultants such as Price Waterhouse and hardware vendors including Hewlett-Packard and Sun Microsystems.

In October Logic Works went public and raised $35.2 million. The firm is located outside Princeton and was founded in 1985. Logic Works designs products allowing its customers to put together databases quickly on client/server systems. Its customers have included AT&T, Microsoft and the U.S. Army. It was recently ranked No. 3 in BusinessWeek”s 1996 listing of hot growth companies.

The last 1995 software IPO cited by Martinson was by a Cranbury firm named Ariel. It designs, markets and manufactures hardware and software for digital signal processing. The company raised $6 million. Ariel was founded in 1982 and numbers among its customers AT&T, Digital Equipment Corporation and Siemens.

Up & Coming

Applications Partners

When most people think of software, they think of colorful boxes on the shelves at CompUSA. But many of the important programs, those that make businesses successful, are written by small companies unheard of by the average Doom fan. Iselin-based Application Partners has created tools that make it easier and faster-read less expensive-to develop applications using Lotus Notes and databases. With a customer list that includes Johnson & Johnson and Arthur Andersen, API has grown from five to 24 employees since 1994.

Electronics: Business Is Buzzing

Two companies provide examples of the type of activity going on in New Jersey”s electronics sector. Anadigics, a Warren-based manufacturer of radio and microwave frequency integrated circuits, went public in April 1995 and raised $25.5 million. Says CFO John Lyons: “The company was thinly capitalized. We needed capital for expansion.” And expand it has, having just signed a lease for 131,000 sq. ft. of space, which will be rebuilt and used for offices and production (see Real Estate).

Anadigics started out in 1984, aiming at the market in gallium arsenide semiconductors. At that point it looked like GA would “move in and take over a big chunk of what silicon was doing,” Lyons says. This didn”t happen; the performance of silicon products improved and sales to the defense market-Anadigics” target-failed to grow. In the late 1980s, the company decided to retool, and moved into commercial applications.

It was a wise decision. The company in recent years has been propelled by the boom in wireless communications. It sells devices used in cellular phones, chipsets for cable television transmission and devices to boost the signals racing along fiber optic cables.

Checkpoint, a company based in Thorofare, is trying to make stores thievery-free. Its business is the production and sale of security devices for retailers, such as tags that are placed on items and closed circuit television systems. Anyone who has walked through those things that look like airport metal detectors on the way out of a clothing store is familiar with Checkpoint”s work. If the security device has not been removed, an alarm is set off and the shopper is invited to “complete the purchase.”

Founded in 1969, Checkpoint is not a new high-technology story. The story now is its rapid growth. The company made two large acquisitions in 1995, one of which was a major competitor in Europe. The company claims that nearly 90% of the top 25 drug stores in the U.S. install its electronic article surveillance systems chainwide. Checkpoint has plans to move into the huge, but still largely untapped, supermarket sector. In 1995 it had earnings of $11 million on sales of $205 million.

Up & Coming

C&G Technologies

Sometimes it takes more than mere technology to compete in the high-technology marketplace. It also requires chutzpah. C&G Technologies, a Manalapan start-up, plans to take on the Hewlett-Packards, Canons and other big guns in laser printing with its own line of products. C&G plans to target the single and small office market with products that meld printing and faxing. It has designed a laser printer with its own on-board computer which, in combination with C&G”s enhanced software, can produce high-speed, high-quality results and still sell at a significantly lower price than comparable printers currently on the market.

Telecommunications: Telecom is All Shook Up

Deregulation dominated the telecommunications industry last year. The telecommunications bill became law on Feb. 8 and broke down barriers between local phone companies like the regional Bells and long-distance phone service providers like AT&T.

The most dramatic move so far in the ensuing scramble is AT&T”s three-way split announced last September. It is breaking into a long-distance company that still bears the AT&T name; an equipment-making company now known as Lucent Technologies; and a computer operation named NCR. Another major development has been the proposed Bell Atlantic-Nynex mega-merger. Companies are trying to gain an edge over rivals by bundling together services like local and long-distance phone services, video, and especially Internet access.

As AT&T and its rivals work through their competitive maneuvers, Lucent Technologies in Murray Hill is adjusting to life after AT&T. The company, which went public in April with the largest initial public offering in U.S. history, last month introduced its first major post-AT&T product: a networking software program called inferno that can potentially link computers, telephones and television sets.

The coming free-for-all in the telecommunications market will also help smaller companies like Parsippany”s Dialogic. The firm, which makes computer telephony components, began in March to offer free licenses for an entry-level version of its computer telephony software for small companies that want to test the technology. Other computer telephony software developers like Skillman”s Voxware (see box) have invited interest-and money-from giants like Netscape. In short, the big shift in telecommunications over the coming years will be a creative, rather than a destructive force for both big and small companies.

Up & Coming

Voxware

The distance between computers and telephones is narrowing. Voxware, a Skillman-based developer of digital speech processing products, is working to make sure of that. Voxware develops products that speed up and improve the quality of voice transmission via computers. Some big players in communications have gotten interested in what Voxware is doing. The company has licensed technology to Microsoft for use in its CD-Roms. In addition, Netscape, the World Wide Web browser company, has acquired an equity stake in the firm.

This is but the shallowest dip into some of the businesses which contribute to the high-tech ferment brewing within New Jersey”s borders. A combination of conditions are heating up the creative broth: economic factors that change the way research and development is conducted and funded; a maturing development cycle in the biotech sector that promises to produce marketable products soon; and changes in the way people communicate, which open new opportunities for software and hardware designers to commercialize exciting technologies. New Jersey”s high-tech sector will be part of it.