With little fanfare and no direct approval of the electorate, the state of New Jersey has spent hundreds of millions of dollars supporting the biotech industry.
Powerful forces are hard at work in Trenton, selling biotechnology as a way to simultaneously bolster the state economy and improve the health of citizens. Acting Governor Codey has been front and center, promoting a plan to spend $380 million more on research into embryonic stem cells.
Much is at stake in a state where 200,000 jobs depend on the pharmaceutical industry and its ability to develop the next generation of miracle medicines.
But New Jersey's partnership with biotech is already running into problems. It is cloaked in secrecy and riddled with the potential for conflicts. Its goals are at times nebulous.
A thorough review of the effort by The Record found:
Millions of your tax dollars have gone to companies that take valuable research, profits and jobs from New Jersey and strengthen the biotech industry elsewhere.
Millions are being spent on tax breaks and other public subsidies for small biotechs and big pharmaceutical companies, even as they provide million-dollar-plus golden-parachute payouts to their executives and continue to charge eye-popping prices for patented drugs.
Laws written to protect trade secrets shroud potential conflicts amid the web of financial interests linking biopharmaceutical companies, the state's universities and the three medical schools run by the University of Medicine and Dentistry of New Jersey.
Millions of tax dollars are in the hands of venture capitalists who invest in privately operated biopharmaceutical companies - without revealing where they are investing. The state's employee pension funds have also recently been opened to highly speculative investments in biotechnology start-ups.
Biotech proponents describe an appealing paradigm: First, a microbiologist at a public university makes an important discovery. School officials patent the breakthrough, then the technology is turned over to a local company. The company turns pure science into a moneymaking health-care product. Success requires the hiring of more workers.
The cycle can be repeated over and over, proponents predict, generating badly needed cash streams for medical research, higher education, maybe even the state's employee pension funds.
"This is the fundamental basis of a new industry," promises stem-cell researcher Wise Young, the Rutgers University neuroscientist who gained international renown when he became the personal physician to paralyzed actor Christopher Reeve. "We are facing an opportunity that will never come again."
Patient advocates and scientists such as Young say stem cells and other forms of biotechnology hold the promise of treating and possibly curing intractable ailments such as Alzheimer's and paralysis.
Codey calls public investment in biotech a "win, win, win" strategy.
"New Jersey is the natural place for stem-cell research, and we must be willing to put state dollars behind its potential," he said during a recent speech in Princeton. "A state investment will produce better health care, enhance our research and development industry and solidify New Jersey's place at the forefront of medical technology."
The acting governor has anticipated some of the concerns raised by The Record's review. He recently appointed Howard Shapiro, the former president of Princeton University, as chairman of a new Ethics Advisory Panel with the mission of ensuring that publicly funded research complies with state ethics guidelines. Shapiro, who did not respond to repeated telephone calls, is drafting the panel's policies.
A competitive game
Codey says the state must get in the game if it's going to compete with California and other states and nations developing biotech.
"Eventually, what all the scientists and physicians tell us is that the way to find a cure to so many diseases is through stem-cell research," Codey said in an interview. "It clearly is the wave of the future. It is where science is going, and I want New Jersey to be there first if it is humanly possible. As a result of that you spawn another industry. The dollars that the state will put in - down the road, not initially - we will reap the benefits of."
Codey, who is also president of the state Senate, has introduced legislation that would allocate $150 million in previously bonded funding to build the Stem Cell Institute of New Jersey on the New Brunswick campus of Rutgers. He has also said he wants to raise $230 million via a referendum to fund the research that would take place there.
Codey says he will earmark 5 percent of any patent royalties derived from research conducted at the institute for the state treasury.
Stem cells are easily the most discussed branch of biotechnology. But gene therapy, tissue engineering, targeted biomedicines - all are forms of biotech the state seeks to foster.
New Jersey law defines "biotechnology" broadly enough to encompass small research firms, large pharmaceutical houses, medical-device makers and aging chemical companies.
"Biotech is much more than stem cells," said Claudia Hirawat, a top executive at PTC Therapeutics, a small company based in South Plainfield. "Stem cells is the political aspect that makes it so interesting to everyone."
New Jersey Right to Life and others oppose embryonic stem-cell research because it necessitates the destruction of a human embryo. They are joined in that opinion by President Bush, who in 2001 severely limited federal funding of embryonic stem-cell research. Industry representatives say that private companies are hesitant to support embryonic stem-cell research for fear of being targeted by opponents.
Recently, Codey said he was frustrated that the state's major pharmaceutical companies had failed to join him in advancing the controversial research.
"If you don't want to get involved, say so," the acting governor said he told industry executives during a meeting last month. "If you want to get involved, put your money in; put it where your mouth is."
3 dozen agencies
Codey's stem-cell proposal builds on years of other moves made to protect the state's position as a world biopharmaceutical center.
No fewer than three dozen state-supported agencies, public commissions, universities and government-created non-profits provide financial and other support to the state's interdependent biopharmaceutical, biomedical and biotech industries. Most work autonomously and have missions that aren't necessarily aligned.
"We have specialties within government to provide certain services," explained Sherrie Preschie, executive director of the state Science and Technology Commission. "Organizing that all together wouldn't make sense. It is all arms of government that are trying to come together to achieve a common goal."
New Jersey is supporting biotech in other ways. The state has rewritten its laws in recent years to make it a more hospitable place to do business - shielding biotech partnerships from public disclosure laws and all but eliminating local inspections of biopharmaceutical research locations.
The track record for biotech has been mixed, so far. Most independent biotech companies make little or no profit. Since its birth in California's Silicon Valley in the mid-1970s, the industry as a whole has lost more than $45 billion, according to a recent study by consultant Ernst & Young.
Historically, fewer than one in 20 biotech companies ever become profitable. But among the winners have been some giants, companies such as Genentech, the $84 billion powerhouse based in San Francisco.
The Ernst & Young study was mostly upbeat about the future: Federal regulators approved 20 new biotech drugs last year. Some 230 biotech products are now on the market. The industry as a whole will become profitable by 2009, the report predicts.
In New Jersey, the electorate is intrigued, but guarded. A Quinnipiac University poll taken in January found that 68 percent of New Jersey's voters back research into the medical use of embryonic stem cells. Yet that same poll showed that only 47 percent support Codey's plan to use $380 million in public money for the effort; 42 percent are opposed.
Reason for skepticism
It isn't hard to find a basis for the skepticism regarding public financing. There are plenty of examples of private interests benefiting at the expense of the public.
One is the Coriell Institute for Medical Research in Camden, a cornerstone of New Jersey's biomedical research community and a rich resource for scientists around the world. In December 1998, Gov. Christie Whitman signed legislation providing the independent research center with a $5 million no-interest loan to create the New Jersey Cord Blood Resource Center - the nation's first state-supported public cord blood bank.
Today, the cord-blood bank is home to the world's largest collection of human cells used in scientific research. It is housed in Coriell's state-of-the-art $7.7 million research center on the campus of the University of Medicine and Dentistry in Camden.
In 1996, Coriell received the first license from the state Department of Health to collect the umbilical-cord blood of newborns and store it for future use by scientists and patients.
Cord blood is a rich source of stem cells, which can develop into various other sorts of cells, given the right conditions. Because cord-blood cells are not derived from embryos, work with them is relatively non-controversial.
Coriell was among the first to recognize the potential revenue in marketing cord-blood banking to mothers eager to protect their children. The banked cord blood can help protect against leukemia and other genetic diseases.
To access that market, Coriell's 40-member volunteer board voted in 1995 to allow five fellow board members to create the for-profit Corcell Inc. in Philadelphia, just across the Delaware from New Jersey's poorest city.
Under a joint-venture agreement, Corcell planned to market the cord-blood bank while Coriell would do the collecting, testing and storing of the blood. Parents were charged an up-front $1,500 collection fee and an annual storage fee.
"We did it for a really good reason, to generate revenue for the parent Coriell," said Joseph L. Mintzer, Coriell's acting executive director and longtime chief financial officer.
But the partnership didn't work out as planned.
In 2000, higher-than-expected costs and growing ethical concerns prompted Coriell to sever most of its ties with its offspring, Mintzer said.
In August, Corcell went international, when it merged and became a wholly owned U.S. subsidiary of Vita 34 International AG, a privately controlled company based in Germany.
In 2004, Vita 34's combined cord-blood processing and storage operation reported $16 million in revenues.
But Coriell will see little or any of that income. It continues to rely on public support.
Enzon, a publicly traded firm that sprang in 1983 from Rutgers University research, is one of a number of biotech companies that benefit from a $60 million state program that allows unprofitable technology companies to sell their losses to moneymaking companies. Under the popular program - instituted in 1998 after intense lobbying by the biotech industry - the biotech firm gets cash and the profitable company gets tax relief.
The downside is that the public gets the bill, in the form of higher taxes, and may not always like the way the biotechs use taxpayer money.
Between 2002 and 2004, state taxpayers granted Enzon tax subsidies that yielded $1,585,000 in cash. An equal amount wound up in the pockets of CEO Arthur J. Higgins when he resigned on May 10, 2004, to lead Bayer Healthcare, a unit of German pharmaceutical giant Bayer AG.
Documents on file with the federal Securities and Exchange Commission show that Higgins walked away with a cash bonus of $216,000 and an additional separation payment of $1.25 million - virtually every dime taxpayers invested to assist the company's biomedical research efforts during his three-year reign.
Higgins is a former chairman of the Biotechnology Council of New Jersey, a trade group that lobbied for the tax-relief program. During his turn at the helm of Enzon, the Bridgewater firm's stock price went from a high of $70 in May 2001 to a low of $10.80 in November 2003. The company's stock price now stands at less than $6 a share.
The story of Pharmos Corp. raises questions about the value of state subsidies for biotech. Pharmos, headquartered in the Iselin section of Woodbridge, is one of about 40 Israeli-dominated companies based in New Jersey. Combined, they employ roughly 1,000 individuals in the state.
Between 2002 and 2004 state taxpayers allowed Pharmos to collect $887,795 from the sale of some of its state tax losses.
The justification for the tax-relief program is that technology companies create taxpaying jobs and produce innovations that might one day benefit the public. The subsidies are available to biotech companies that employ 10 or more people - a level that was lowered from 25 under the administration of Gov. James E. McGreevey.
As of January, Pharmos employed 11 full-time workers and one part-time employee in New Jersey, and 54 full-time and eight part-time workers in Israel, according to SEC documents.
New Jersey officials have actively encouraged such arrangements with Israeli biotech companies. In late October 2003, McGreevey signed a trade pact officially known as the "Declaration of Collaboration in the Life Sciences between the State of Israel and the state of New Jersey."
"In New Jersey, we're actively cultivating an environment that is conducive to the growth of emerging technologies," McGreevey said that day, a senior Israeli official at his side. "We are leveraging our natural strengths in biotech and pharmaceuticals, as well as creating the necessary tools to encourage these vital industry clusters to relocate or expand here."
Federal securities records show Pharmos had received more than $13 million in drug and medical-diagnostic research grants from the Israeli government through the end of last year. One binding condition of the grants is that "this prohibits the transfer or license of know-how and the manufacture of resulting products outside Israel without the permission of the [Israeli] Chief Scientist," the filings state.
There is no similar language prohibiting the transfer of technology from subsidized research in New Jersey. So any discoveries Pharmos makes here may well be of greater benefit elsewhere.
Job creation in doubt
History shows that promises of job creation from public biotech investment may be illusory.
During the 1980s, there were a dozen scientific "centers for excellence" built in New Jersey, at public universities around the state. Voters had approved a combined $440 million through the "Jobs, Science and Technology Bond Act of 1984" and the "Jobs, Education and Competitiveness Bond Issue of 1988."
"We're running for the gold and to make New Jersey number one," then-Gov. Thomas H. Kean was quoted as saying shortly after launching the effort.
Among the "Centers for Excellence" were a world-class Center for Advanced Biotechnology and Medicine, run jointly by Rutgers University and the University of Medicine and Dentistry of New Jersey, and the Center for Agricultural Molecular Biology (AgBio-Tech) at Rutgers' Cook College. Both are highly regarded in the scientific community for their innovation.
Dr. Roger E. Wyse, an internationally recognized plant scientist, was recruited to run AgBio-Tech at Rutgers before it was even built.
From the day the center opened, Wyse disagreed with state officials about how to measure success.
"After we spent the time raising the money and recruiting the people for the center," Wyse said, "the first question I got from the state Science and Technology Commission was, 'How many jobs have you created?'
"I replied, 'Three. Me and two assistants.'_"
Wyse eventually left Rutgers to become dean of the College of Agricultural and Life Sciences at the University of Wisconsin, Madison. Today, Wyse is a managing director at Burrill and Co., one of the world's largest biotech investment firms, based in California.
Wyse sees a lesson for the future in his New Jersey experience.
"There isn't enough patience," he said. "The state and the state Legislature only looks at: Has the science created jobs? In the longer term, you are investing in health and medicine."
* * *
The state of New Jersey is front and center in Philadelphia today as a co-sponsor of BIO2005, the annual convention of the biotech industry.
New Jersey has spent more than $500,000 on the effort to convince an estimated 18,000 researchers, executives and government officials from as far away as Singapore and New Zealand that the Garden State is "where life science lives."
Acting Governor Codey and other state officials will tout New Jersey as the epicenter of the global pharmaceutical industry, as home to 130 emerging biotechnology companies and as a business location offering a wide range of government financial and tax incentives. New Jersey has also teamed with Pennsylvania and Delaware to sell the three states as an important research corridor.
They face stiff competition from dozens of other states, such as California, Massachusetts, Maryland and North Carolina, and countries, such as Ireland, India and Singapore, which also will be represented at BIO2005.
During the four-day conference attendees will hear from international biotech experts on topics such as the policy implications of advances in stem-cell research.
BIO2005 runs through Wednesday at the Pennsylvania Convention Center.
- Clint Riley
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