By Dennis Yablonsky
June 14, 2005 | The Commonwealth of Pennsylvania is home to the entire continuum of the biosciences: world-class research; emerging biotechnology, medical device, and diagnostic companies; global pharmaceuticals; supportive state government; and organizations that help transition companies through the growth stages. With approximately 2,000 bioscience and related companies and nearly 84,000 Pennsylvanians employed by the industry, it is a vibrant community.
Pennsylvania has a unique combination of strengths: strong industry base, academic research, history of innovation, deep talent pool, strong network of allied skills and service providers, and supportive state government policies. These assets combine in a location that offers a high quality of life and competitive cost of doing business, stable real estate costs, easy access to European markets, and close proximity to New York and Washington, DC. Pennsylvania’s strong allied skills and ancillary industries make for a robust service provider network that supports the growth of the industry.
Underpinning these assets is a strong heritage of innovation that was started by and continues with a strong presence of global pharmaceuticals. The University of the Sciences in Philadelphia graduated the founders of several pharmaceutical giants, including John Wyeth, Eli and Josiah Lilly, William R. Warner, Robert McNeil and Robert McNeil, Jr., and Silas M. Burroughs. Today, eight of the world’s largest pharmaceutical companies, including GlaxoSmithKline, Merck, and Johnson & Johnson, are located within a 50-mile radius of Philadelphia.
The Commonwealth did not become a biosciences leader overnight. Decades of innovative thinking, overlaid by a collaborative spirit between industry and government, have made Pennsylvania the biosciences hub it is today. Two biotech leaders — Cephalon and Centocor — have their roots and continue to grow in this collaborative environment. Pennsylvania companies are now developing, manufacturing, and distributing drugs, vaccines, medical devices, and diagnostics around the world.
Fueling innovation and transferring the technology are Pennsylvania’s research institutions, which in 2003 garnered $1.3 billion in NIH funding. The University of Pennsylvania and the University of Pittsburgh consistently rank in the nation’s top 10.
In addition, public/private partnerships, coupled with early-stage investments and university R&D, have created a successful environment for venture capital investments. In 2004, Pennsylvania biosciences companies attracted some $309 million in venture capital funding, which is being used for continued development of a new therapy for liver cancer, treatments for heart failure and related cardiovascular indications, a new platform for drug design, and more.
All of these assets are being enhanced by the Governor Edward G. Rendell administration and the Pennsylvania legislature, who are making strategic policy decisions and direct investments to enhance strengths and address gaps and weaknesses. These visionaries are creating programs and incentives to benefit the biotech and biopharma industries.
Greenhouses and Tobacco
A national model for success, the Commonwealth’s $2-billion Life Sciences Enterprise commitment, including the use of state tobacco settlement funds for both state-level and regional health-related programs and investments, is a stellar example of sound policy and investment. The Life Sciences Greenhouse initiative, as part of that $2-billion commitment, provides a flexible mechanism for the commercialization of biotechnology and other biosciences business opportunities by accelerating technology transfer, enhancing collaboration, and attracting new business.
The Commonwealth Universal Research Enhancement (CURE) program, a critical piece of Pennsylvania’s Biosciences Enterprise commitment, awards research grants to healthcare institutions, colleges, universities, and nonprofit health organizations. In fiscal year 2003-04, the CURE program supported 39 Pennsylvania organizations by awarding more than $80 million in grants for biomedical, clinical, and health services research. The focus of these projects ranged from pregnancy outcomes, to imaging protein-protein interactions in living cells, to pediatric leukemia.
The state’s rich research environment is fueling investment opportunities. Three private venture firms have been selected by the Pennsylvania Tobacco Settlement Board (TSIB) to manage and leverage more than $60 million. The TSIB committed $20 million to PA Early Stage Partners and $30 million to Quaker BioVentures, and together the two funds closed on more than $300 million, more than double the 3:1 match required. The third fund, Birchmere Ventures III, closed in early 2005, with investments being imminent. These firms are investing in Pennsylvania-based biosciences companies, with investment already under way in companies such as the Eximias Pharmaceutical Corporation, Gentara Corporation, and BioRexis Pharmaceuticals Group. The Commonwealth’s initial investment has created substantial privately managed venture funds that will serve as the seeds of growth.
Pennsylvania’s Biosciences Enterprise Commitment is being spearheaded by a leader who understands the potential that the biosciences industry holds, including job creation, company attraction and retention, and, most importantly, hope for those affected by illness. Governor Rendell, helped by a bipartisan legislature, enacted a $2-billion Economic Stimulus Package that, among other benefits, significantly bolsters the capital available to biosciences companies in Pennsylvania. These programs are creating the capital and financing that are critical to biosciences companies, especially early-stage companies.
A recent study conducted by Stadtmauer Bailkin Biggins, LLC, found Pennsylvania’s Economic Stimulus Package to offer the “most comprehensive and flexible package of financing programs” compared to its 10 largest economic development competitors: Florida, Georgia, Illinois, Michigan, New Jersey, New York, North Carolina, Ohio, Texas, and Virginia.
In the Zone
Keystone Innovation Zones, a crucial component of the Economic Stimulus Package, are geographically designated zones of opportunity and innovation designed to harness resources made available through partnerships. The partnerships are typically formed by a combination of institutions of higher education, private businesses, commercial lending institutions, and venture capital networks, including angel investors and foundations. Thirteen Keystone Innovation Zones have been established in Pennsylvania to date, with all but one of them having a biosciences component.
Another key component of the Economic Stimulus Package is the R&D Tax Credit with Tradability program, which doubles the R&D tax credit to $30 million and includes a provision allowing for the sale of the tax credits. This tradability component allows research-heavy startup companies to sell their unused credit for cash to qualified businesses in the state, affording them the cash flow they need to increase their research. This tax credit program is creating a win-win situation for companies, with small companies infusing dollars back into their operations and large companies receiving substantial tax credits.
Under the New Pennsylvania Venture Guarantee program, Pennsylvania is providing investment guarantees to qualified top-tier venture capital companies. A highly innovative approach to spurring investment, this venture program is allowing the Commonwealth to more actively partner with the investment community by guaranteeing up to a total of $250 million on the first losses of equity investments made in Pennsylvania companies by qualified venture capital firms. In return, these investment guarantees will provide an additional $250 million in syndicated investments, leveraging a total pool of $500 million in new capital available for Pennsylvania enterprises.
In addition, the New PA Venture Capital Investment program will soon provide $60 million to Pennsylvania-focused venture capital companies seeking to invest in Commonwealth companies. By requiring a three-to-one match, $240 million in additional investment capital will soon be available for Pennsylvania companies.
In 2004 alone, the Commonwealth directly and through its partner organizations awarded approximately $70 million to nearly 70 biosciences companies in the form of state loans, grants, and tax credits. These awards are expected to leverage approximately $280 million in private-sector funds and are helping not only to grow existing Pennsylvania biosciences companies but also to relocate others into the Commonwealth. In addition, Pennsylvania in 2004 awarded an additional $70 million to develop infrastructure at 12 biosciences R&D facilities across the state. Since 1998, the number of Pennsylvania biosciences establishments has increased 85 percent, with a similar increase in total wage growth. In just the past year, Pennsylvania attracted biosciences companies such as Shire Pharmaceuticals, Novavax, Isolagen, Olympus, Gentara, Saladax, and Chiron. In addition, major corporate expansions took place in Pennsylvania over the last year, including Sanofi Pasteur, Merck, Cephalon, Bayer, and Medmark. These companies have helped Pennsylvania to achieve the “critical mass” of biosciences activity that attracts further investment and development.
Pennsylvania’s uniqueness comes from its philosophy of multiyear, open-ended funding at the very early stage of research and development. The Commonwealth has made a long-term commitment to creating a pipeline and launchpad through its Life Sciences Greenhouse Initiative and other technology-based economic development partners such as the Ben Franklin Technology Partners.
The biosciences industry has emerged as one of Pennsylvania’s key economic drivers, aided by the state’s innovative programs and collaborative approach. Through the involvement of industry, government, academia, financial institutions, medical providers, and a host of ancillary support organizations, Pennsylvania has become the only state that offers support along the entire biosciences continuum.
Visit www.pennsylvaniabio.org and www.newPA.com for more information on Pennsylvania’s biosciences industry.
Dennis Yablonsky is Secretary of the Department of Community and Economic Development, Commonwealth of Pennsylvania. E-mail: ReadySetSucceed@newPA.com