Roche’s plan to head west points to bigger issuesRoche’s plan to move its U.S. headquarters from Nutley to San Francisco is a wake up call that New Jersey may no longer be the best home for pharmaceutical companies as they increasingly move into the lucrative field of biologics, warn analysts and others.

“New Jersey had a chance to be a front-runner in the race to capture biotech companies, but the state fumbled the opportunity,” says Annette Kreuger, vice president of the pharmaceutical biotech research group at Texas-based Industrial Info Resources Inc. “Now states like California and Massachusetts are way ahead when it comes to biological medicine. They are likely to attract the big deals in the future.”

Roche announced last week it will move its U.S. headquarters to San Francisco, where Genentech Inc. is based. The relocation is part of a plan by Roche’s Swiss parent, Hoffmann-La Roche Ltd., to strengthen its biotech pipeline by paying at least $43.7 billion to buy out the 44 percent of Genentech stock it does not already own. The deal still needs shareholder and regulatory approval, but Roche executives said last week they are confident of getting both.

It’s one of the latest examples of a shift to biotech that is already making waves in the marketplace. As the pipeline of traditional pharmaceuticals dries up, more drug companies are purchasing biotechs that show promise or have already produced blockbusters like Genentech’s Avastin cancer drug.

“In general, biotechs may have genetic and other drugs with a lot of promise,” says Marvin Artis, a law partner who works on pharmaceutical mergers and acquisitions at Reed Smith LLP’s New York City office. “As existing drugs lose their patent protection, biotechs are becoming more attractive to pharmaceutical companies.”

Sales figures back that up.

“Global prescription sales of biotech drugs increased 12.5 percent in 2007 to more than $75 billion,” according to a June report by IMS Health, a Norwalk, Conn., company that provides information to the pharmaceutical and health care industries. “The global biotech market grew at nearly double the rate of

the global pharmaceutical market, which increased 6.4 percent in 2007.”

Market conditions are likely to keep biotechs attractive, according to a 2008 report by PricewaterhouseCoopers.

“The patents on many of the medicines the industry launched in the glory days of the 1990s will expire over the next few years, leaving Big Pharma very exposed,” according to the PwC study titled “Pharma 2020: Virtual R&D—Which Path will You Take?”

Biological-based medical companies are the growth engines in the pharmaceutical industry, and New Jersey should take a keen interest in them, says Kreuger. To retain these companies, the state needs to create an environment that attracts the kind of researchers and other professionals that biotechs need.

“New Jersey has long been the center of the pharmaceutical industry, but that developed under a chemical-based model,” says Kreuger, referring to the traditional practice of using chemicals to treat diseases like congestive heart failure. In contrast, biologic drugs use proteins and other genetic-based material to address a host of medical conditions, from cancer to psoriasis.

The problem is New Jersey’s reputation for attracting biotech companies does not stack up well against places like California, according to Kreuger and other analysts and academics. And the solution involves more than just economic incentives from the government.

Roche’s decision to move was not a vote against New Jersey’s business environment, says James Hughes, dean of Rutgers University’s Edward Bloustein School of Planning and Public Policy in New Brunswick. But other companies may consider issues like taxes and regulations in their decision to enter New Jersey or to expand here, he says.

The state needs to work more on attracting new investments, says Hughes. He sees the state’s business and regulatory environment, which is often viewed as overly burdensome, as the reason that Merck and Bristol-Myers Squibb chose Durham, N.C., and Fort Devens, Mass., respectively, for their new vaccine plants.

Despite the move to biotechs, Kreuger does not expect to see a mass stampede of drug companies from New Jersey because there’s still some money to be made on chemical-based drugs.

“[Drug companies’] legacy, or existing products, may still be reformulated and positioned for new applications or new ways of being delivered to patients, such as by patch instead of orally,” she says. “So they’re not likely to simply abandon all of their existing facilities.”

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