|Merck and New Jersey. For years they've been perfect together.
The giant drug maker has been a showcase of the state's worldwide preeminence in the pharmaceutical industry. Merck received the state's first big job-creation grant -- $2 million in 1974.
So state officials were stunned on April 6, 2004, when North Carolina officials announced that Merck was locating a new 166,000-square-foot vaccine plant in Durham -- enticed by a $39.4 million tax incentive package quietly approved by the North Carolina Legislature months earlier.
That experience provides a cautionary tale for New Jersey as it vies with California and other states for dominance in the emerging field of biomedical research. Incentive programs, tax subsidies, even history -- all can be overcome by the corporate balance sheet.
"The issue with companies today is there is no, as a right, state loyalty. It is very much a bottom-line loyalty," said Caren Franzini, executive director of the state Economic Development Authority. "These are international corporations that have their first loyalty to their stockholders, and they are making a financial decision."
To be sure, New Jersey has plenty going for it in the competition. It is home to the world headquarters of nine pharmaceutical companies, including Merck and Johnson & Johnson. Long called the "medicine chest to the world," New Jersey also is host to corporate names like Pfizer and Bristol Myers Squibb.
Situated in the heart of the East Coast research corridor between Baltimore and Boston, New Jersey has spawned some of the world's biggest chemical and pharmaceutical businesses and biotechnology breakthroughs since the 1940s. One company after another settled in the Garden State. The reason is simple.
Location. Location. Location.
Smaller start-up companies want to be near the big boys, hoping to license a product to them, collaborate with them on drug and product development or have their company bought out for a pile of cash. Young companies also have a need for cash, and New Jersey's proximity to the financial centers of New York and Philadelphia are quite a draw.
"New Jersey is unique in the United States. We have companies that the rest of the world is trying to recruit," said Daniel Levine, the assistant state treasurer overseeing economic development. "We have what they want."
Still, everyone from the governor to biopharmaceutical leaders acknowledges that New Jersey has yet to achieve the buzz often associated with biotechnology industries in North Carolina's Research Triangle or the Route 128 Corridor in and around Boston. Overseas locations also are becoming a factor, in such places as Israel, India and South Korea.
California, in particular, is stiff competition. Last November, voters there approved $3 billion in bonding to fund research into embryonic stem cells and other emerging medical technologies. The state also has the country's largest existing biotechnology industry.
"Almost every other state, province, and most countries in Western Europe are in an attraction mode, trying to get companies. We're in a retention mode," Levine said. During the past decade, New Jersey has lost more than 5 percent of its job base in pharmaceuticals.
As a result, New Jersey officials say incentives are becoming increasingly essential to keeping jobs here in a world gone global.
Three weeks after Merck's 2004 bombshell, state Treasurer John McCormac and eight top McGreevey administration officials met at the Madison headquarters of Wyeth, another of the state's biopharmaceutical heavyweights. Also in the room that day were other CEOs and top representatives of the state's biggest drug companies.
From that meeting, the state hatched its enhanced Business Retention and Relocation Assistance Grant program. State officials said they realized they did not have enough ways to entice large employers already here to stay and expand.
"People walked out saying, 'I feel good I made significant investments here,'" said former Republican Rep. Bob Franks, head of the Healthcare Institute of New Jersey, the state's pharmaceutical lobby. "I walked out the happiest guy in America."
Not long after, Gov. James E. McGreevey unveiled plans for the Stem Cell Institute of New Jersey and a commitment of millions of dollars more in public money to support it.
His successor, Richard J. Codey, has introduced legislation allocating $150million to build the facility in New Brunswick, and also wants to ask New Jersey voters to bond $230 million to fund research there, although he has yet to present the necessary bill to the Legislature.
"New Jersey continues to be a leader in stem-cell research, but other states and countries are catching up," Codey said. "This world-class facility will help attract the best researchers to New Jersey and will keep our state on the forefront of medical advancement."
Multimillion-dollar state tax-incentive deals with Pfizer Healthcare, Novartis and other biopharmaceutical companies have followed. New Jersey taxpayers are now paying companies to stay and keep jobs here, in addition to handing companies millions of dollars in tax breaks for relocating new jobs to New Jersey.
Late last month, on Pfizer's Morris Plains campus, Codey, McCormac, Franks and Pfizer executives broke ground on an estimated $500 million expansion that officials say will keep more than 2,000 jobs in New Jersey. Cost to taxpayers: at least $25 million.
"Pfizer has a proud history in New Jersey, and the state is critical to our future success," said Pfizer Healthcare President Marc Robinson, whose son plays basketball in the same league as Codey's son. "Our significant expansion in Morris Plains reaffirms our commitment to New Jersey and to the strong partnerships we have established with governments, community organizations and other stakeholders in the state."
Industry officials, too, say that while New Jersey and the biopharmaceutical industry still need each other, the state must invest public dollars if it wants to compete.
The state needs to be willing to collaborate with the industry "in a variety of forms and settings," Franks said.
"The state and the education system need to train New Jerseyans to be the workers of tomorrow in the life sciences industry," he added. "In addition, the state of New Jersey needs to realize they are engaged in an intense competition for investment in these companies."
"New Jersey has done a lot. Other states are doing more," said Kenneth Moch, president of a Parsippany-based biotech firm and chairman of the Biotechnology Council of New Jersey, an industry lobby. "If we were to take the extreme case and stop investing in attracting and retaining biotech companies, 20 years from now the industry will be in different locations."
National critics argue, however, that taxpayer-financed subsidy/incentive programs are giveaways that encourage companies to merely move existing jobs from one state to another, rather than create new jobs.
"Over time there has been this economic development infrastructure of people who make money from playing one state against another," said Robert Orr, who recently left the North Carolina Supreme Court and formed the conservative North Carolina Institute for Constitutional Law. "To a large extent, not only is the system wrong, it is being gamed.
"We feel like you should just have free-market capitalism," added Orr, a Republican who has challenged the more than $230 million in corporate incentive packages North Carolina has awarded companies like Merck and computer giant Dell since late 2003.
Orr said he believes the economic-development wars for jobs and companies is a national issue that must be addressed. Orr and other critics hope the U.S. Supreme Court or Congress will intercede and decide that states are violating the commerce clause of the Constitution by enticing companies to relocate or stay put.
A federal lawsuit filed by Ralph Nader challenging subsidies Ohio awarded to DaimlerChrysler may be considered by the U.S. Supreme Court this fall. Corporations and business-interest groups have continued to vigorously lobby Congress to protect states rights to offer corporate tax subsidies/incentives.
Medical-research advocates have used the competition between the states to their advantage.
Days after California voters authorized $3 billion to support stem cell research, Rutgers University biomedical researcher and advocate Wise Young, widely recognized as the doctor of actor Christopher Reeve, posted the following to readers of the blog he hosts for patients and their families faced with currently incurable conditions:
"One of the arguments that work well at the state level is that the investment in research not only benefits the state by attracting the right kind of people and money to the state (i.e. companies and federal grants) but it directly supports state institutions (such as its universities) and relieves human suffering of its citizens. Maybe we have started a national trend that will one day be commented on in the histories of the United States."
Some blame President Bush for fueling the competition among states by severely limiting federal funding of embryonic stem-cell research.
"This is all a response to an artificially created problem," Moch said of New Jersey's biotechnology lobby. "The artificially created problem was the federal decision not to allow federal funding of stem-cell research."
"Everyone who is involved in biomedical research has focused their energy on the states," said economist Joseph Cortright, a private consultant who co-wrote a 2002 report for The Brookings Institute on various state efforts to develop biotechnology clusters. "Stem-cell research can't be the best biotech investment for every state."
Cortright said a national "group think" has developed among state and localofficials nationwide who believe that, if their communities invest in becoming a hub of biotechnology research, lots of high-paying jobs and much needed tax revenue will follow.
"Mayors and governors assume this is the next big thing and they need to go after it," said Cortright, a former staff adviser to the Oregon Legislature on economic development. "There is a huge misconception that people have that if you do research in your communities, jobs generated by that research will accumulate to your community. It's very naove to suggest that the commercial benefits of this will accrue to where the research occurs. It can be easily moved and often is."
Even those directing biotech strategy for New Jersey are not immune to the temptations offered by other states.
In February, Celldex Therapeutics, a tiny biotech start-up, received unanimous approval from the board of the state Economic Development Authority for limited subsidies over 10 years through the state's Business Employment Incentive Program (BEIP) to locate in Hunterdon County rather than Easton, Pa.
Companies must show that they have a serious incentive package offer from another state to qualify for subsidies from the BEIP program.
Donald Drakeman is CEO of Medarex, the Princeton-based biopharmaceutical company that controls the start-up. As chairman of the state Commission on Science and Technology -- a job handed out by the governor -- he leads an agency that has this mission: "to encourage economic development and job growth in New Jersey."
Asked why he would even consider relocating jobs to another state, Drakemanreplied, "I actually said I'd like to stay in New Jersey all along."
But Drakeman also said it's part of a CEO's job to find the best deal for shareholders. In the end, Pennsylvania officials did not provide a large enough financial incentive. The company likely would have gone to Pennsylvania if the price was right, Drakeman acknowledged.
"It would be hard to tell our shareholders that we aren't taking $20 million," he said. "We require an ungodly amount of capital to do what we do."