Costly Clusters

REVIEW SUMMARY
Industry. Biotechnology
Trend. Government subsidies for biotechnology companies
Key. Some question the price for biotechnology jobs.
By the Numbers. Click here for data about subsidies awarded to the biotechnology industry.

How much is a biomedical research institute worth to a community that wants one?

That question lies at the heart of a debate raging in Collier County, an area that has long depended on tourism, agriculture and real estate for its economic wellbeing. At issue is The Jackson Laboratory, a Bar Harbor, Maine-based nonprofit genetic research center that needs $380 million to launch a Florida branch employing 244 people.

Collier's legislators appropriated $130 million in state money for Jackson and now the county must find and contribute $130 million match. Jackson plans to raise another $120 million from private sources, including the Barron Collier family on whose land the center will be situated.

It's a familiar story to Floridians, whose state and municipal governments have spent millions of dollars to attract biomedical research centers they hope will create clusters of medical centers that will diversify the state's economy.

Since 2004, the list of biotechnology research facilities has grown to include Scripps, Burnham Institute, Max Planck and Torrey Pines. Together, eight biotechnology research institutes have received nearly $1.6 billion in state and local taxpayer money. They've created 1,143 jobs at a cost of nearly $1.4 million per job.

Jackson Laboratory is a relative bargain by comparison. The organization plans to create 244 jobs at a cost to state and local government of $1.1 million per job, but $1.5 million per job if you add in the private contributions.

But the high cost of the project has rankled some local entrepreneurs, including Reinhold Schmieding, the president of Naples-based Arthrex, one of the largest medical manufacturers in the world with $800 million in revenues last year. Schmieding says Collier-based companies such as Arthrex were not given an opportunity to apply for the $260 million in taxpayer subsidies.

Schmieding, who started his company's U.S. operations in Naples with two people in 1991, has grown Arthrex to over 900 employees in Collier County. He has offered to build a nonprofit research center called the Accelerated Healing Research Institute of Southwest Florida on land at the corner of Immokalee and Goodlette-Frank roads in Naples.

“Hundreds of new career opportunities for the local community would be guaranteed, not just forecasted, at a fraction of the cost that has been proposed for Jackson Labs,” Schmieding wrote in a recent email to Collier County Commissioner Fred Coyle.

In a report to the state legislature in January, the state's accountability office said biotechnology clusters have yet to grow substantially since the targeted effort began in 2004 and it could take decades before significant cluster growth eventually happens. The report suggests the state consider using the money to fund startup biotechnology companies instead.

Research costs money

Jackson Laboratory officials say they plan to build an institute in Collier that will focus on “personalized medicine,” using genetics to determine how to treat patients with complex diseases such as cancer.

Since its founding in 1929, Jackson Laboratory has focused on using mice to figure out how genes work together. Its headquarters in Maine and another facility in Sacramento, Calif., house 1,400 employees and it reported revenues of $166 million in the fiscal year ending May 31, 2009.

Jackson funds part of its research by raising and selling mice to scientists in academia and industry. In the fiscal year 2009, its mouse services provided nearly $100 million in revenues, generating $34 million in surpluses.

Last year, Jackson Labs doubled the size of its California facility without subsidies. But Hewett says that's because the Sacramento operation has about 100 employees whose jobs are to raise and sell mice for genetic research. These jobs generate surpluses that help fund research in Maine. By contrast, Collier's operation will be focused on research, not mouse sales. “It's a totally different endeavor,” Hewett says.

The lab's remaining revenues come from government support and private gifts. In fiscal 2009, total revenues exceeded expenses by $1.4 million and Jackson Laboratory's endowment totaled $58.9 million.

The $380 million Jackson is seeking in government and philanthropic assistance exceeds the $340 million in total assets the nonprofit reported in fiscal 2009. Why the high price tag? “Research is not self-sustaining,” says Charles Hewett, the group's vice president and chief operating officer. “We're not a business,” Hewett adds. “We're a not-for-profit organization.”

Clusters, spinoffs and jobs

A center such as Jackson Laboratory is the trophy of the economic development hunt. It's the kind of project that regions can advertise in their recruitment efforts and politicians can show off to their constituents.

In the case of Jackson Labs, it's been a three-year courtship that began when Richard Woychik, the outgoing president and CEO of the organization, was asked to speak at the Naples Town Hall speaker series in 2008. Genetics researcher Craig Venter had canceled at the last minute and Woychik happened to be in town at the time. Organizers tracked him down while he was roller-blading in Naples minutes before the event.

At the time, Florida was busy recruiting other biotech research centers, including Max Planck and Burnham Institute. “I knew a little about the commitment the state was making,” says Hewett, who marvels at the mushrooming of so many research institutes in Florida in such short a time. “In five years, it's incredible,” he says.

With the potential for $260 million in taxpayer money, Jackson Labs plans to build a 165,000-square-foot facility on 50 acres donated by the Barron Collier Cos. in eastern Collier County. It plans to employ 244 people by 2020.

But except for a nascent Ave Maria University, founded by the Barron Collier family and Domino's Pizza founder Tom Monaghan, eastern Collier County is a sparsely populated rural area. At its center is Immokalee, a farm-worker town that's about 40 miles from upscale Naples on the coast.

Hewett acknowledges that biotechnology research centers can't operate alone, though he shrugs off eastern Collier's geographic remoteness. “People will come from all over the country,” he says. Hewett says he's in discussions with undisclosed universities, hospitals and medical schools about locating nearby.

What's more, creating clusters of biotechnology companies takes decades. Since the Scripps deal in 2004 launched the Florida recruitment effort, 1,143 jobs have been created, according to a state analysis. As of the last quarter of 2008, state records show 36 biotechnology companies were established since the research facilities were funded, but only 19 companies reported they paid wages or had employees.

The state's subsidies for biotechnology didn't blunt the economic downturn. For the year through May, Florida has lost more than 65,000 jobs.

The Florida legislature's government-accountability arm says the money spent on recruiting research institutes may be better spent on early stage capital for startup biotechnology companies. That's because a key factor inhibiting this cluster's growth has been Florida's lack of venture capital for young companies.

But Hewett counters that money is better spent with well-established research organizations that have a track record of good-paying jobs and benefits rather than risky startups that have a one-in-20 chance of survival. “Which has a better chance of success?” Hewett asks.

And Hewett says biotechnology companies aren't the only firms that crop up around research centers. For example, one food-processing firm in Maine manufactures special hydration packs for the lab's mice when they're shipped. “I will put a huge amount of effort to attract companies here,” Hewett says.

Jackson itself has only spun off one company, Bar Harbor BioTechnology in 2006. Hewett says Jackson prefers to retain successful research rather than spin it off into the private sector to ensure Jackson's financial health. “I'm going to keep it inside to reinforce and stabilize our institute,” he says

Certainly, research laboratories such as Jackson Labs aren't immune from the economic downturn. Jackson laid off 55 people and cut 110 positions last year when mouse sales dropped. Hewett says the lab's finances have since recovered and plans to hire 75 people this year. “We took our medicine,” Hewett says. Revenues this fiscal year ending May 31 were $200 million, up 20%.