September 13, 2017

For CT, strides and stumbles in quest to spur bioscience industry

KYLE CONSTABLE | CTMIRROR.ORG
KYLE CONSTABLE | CTMIRROR.ORG
The Jackson Laboratory for Genomic Medicine, at right, sits next to UConn Health's campus in Farmington, where the company has partnered with the university to create a new bioscience hub in the Hartford region.

When The Jackson Laboratory selected Farmington as the site of its new genomic medicine center nearly six years ago, the biomedical research giant believed it could be a catalyst for something bigger in Connecticut.

Gov. Dannel P. Malloy hoped so, too. After all, it took a lot of convincing to win legislative support for the $291 million package the state offered to lure Jackson to Connecticut after the nonprofit's plans to build the facility in Florida fell through.

In many ways, Malloy saw Jackson Labs' decision as a turning point in the state's bioscience industry. At the time, he said attracting institutions like Jackson Labs is "how we begin to reinvent Connecticut – by propelling our state into the forefront of an emerging industry."

How could any governor resist pursuing it? Bioscience is a fast-growing, high-paying industry.

The average salary for Connecticut's nearly 39,000 bioscience workers was $85,000 in 2016, according to Economic Modeling Specialists International, an Idaho-based firm that studies labor market data. In bioscience research and development specifically, the average pay in Connecticut is nearly double that amount, the firm found.

But Connecticut's bioscience industry is transforming. The state is losing more bioscience jobs than it is gaining, despite seeing a sizable jump in research and development jobs over the last three years. It also is struggling to attract venture capital to fund the start-up enterprises that drive innovation in other bioscience hubs.

The industry was dealt another blow this week: Alexion Pharmaceuticals, one of the state's largest pharmaceutical research and development companies, said it would relocate its headquarters from New Haven to Boston in mid-2018 as part of a larger restructuring that will lay off 20 percent of the company's nearly 3,000 employees worldwide. However, it plans to leave 450 employees at a New Haven-based "Research Center of Excellence."

The announcement comes less than two years after Alexion – in exchange for $51 million in state aid – moved its headquarters from suburban Cheshire to downtown New Haven and committed to the creation of 300 new jobs in Connecticut.

Alexion is required by law to return the $26 million in state aid it received in grants and loans. The remaining $25 million in the package came in the form of tax credits, about $20 million of which the company is unlikely to receive.

It is the latest in a line of pharmaceutical departures that has undercut bioscience growth in the state.

Nonetheless, many say New Haven is nearing a "critical mass" after years of effort by Yale and a new cluster is emerging in Farmington after the state pledged more than $1 billion in investment.

Differing visions

State officials, industry leaders and university researchers have yet to agree upon a clear vision to guide future bioscience development efforts in Connecticut, which many argue is hindering the state's ability to cultivate and compete for these vital jobs.

Some in the industry say the focus should be on developing an emerging "Connecticut Triangle" – a nod to North Carolina's "Research Triangle" – reaching from New Haven to Farmington and across the state to Storrs, the site of the state's flagship public university.

Others dismissed the notion of designating such a corridor and the idea of a Connecticut Triangle altogether, so as to not leave out smaller-but-critical hubs in the southeastern and southwestern corners. They think development should be encouraged statewide in a "Connecticut ecosystem." After all, they point out, Silicon Valley is larger than the entire state.

Still others say the primary focus should be on building up bioscience in New Haven – a city that state officials and industry leaders agree is the most developed hub for the industry in Connecticut. Focusing on one city, they say, would help build the critical mass needed to compete nationally.

It is a years-long debate that has yet to produce a clear direction.

When Jackson Labs first looked at Connecticut, state officials maintain they told Jackson Labs it could choose any site in the state it wanted. Catherine Smith, commissioner of the state Department of Economic and Community Development, said the Malloy administration was "agnostic" during the process.

Jackson Labs wanted to partner with a research-driven medical school at a university, and had a "strong interest" in both the University of Connecticut and Yale at the outset, said Mike Hyde, vice president for advancement and external relations at Jackson Labs. He said Jackson held meetings with officials at both schools.

That's not how Robert Alpern, dean of Yale's School of Medicine, remembers it, however. He says as far as he knows, there were no serious conversations between Jackson Labs and Yale. He said he would have been in the room.

The idea that UConn put forward a better proposal than Yale to win over Jackson Labs, Alpern said, is simply false. He said Yale never put forward a proposal – and was never truly in contention.

"Would we have been interested? Yes, I'm sure we would have been interested. But it was made clear right at the beginning it was going to UConn," said Alpern, who said Yale found out about JAX's interest after the state had begun exploring the possibility of placing it in Farmington. "So there was never a discussion. There was no bidding process or anything like that."

"We were good citizens of the state and we supported that," he added.

While top officials at Jackson Labs say they have "no regrets" about the decision, others say they do. They say a move to New Haven would have meant greater concentration of the state's major bioscience companies in one city.

"I think there's a lot of regret," said Susan Froshauer, president of Connecticut United for Research Excellence, or CURE, the statewide collaborative group for bioscience companies. "I actually don't look back on that. I mostly look forward."

Even Smith – who has been the top economic development official in the Malloy administration since the governor took office – conceded that from a geographical perspective, it might have been better to encourage Jackson Labs to move to New Haven.

"They really felt that the UConn site was a better one for them for all the reasons you can ask them about," Smith said. "And do I regret that they did that? In some ways, yes, because we'd love to have even more consolidation. But on the other hand, I say they brought in the whole Hartford and Farmington pieces of this to connect to Yale in a much more meaningful way than otherwise would have been possible."

Alpern said it amounts to a missed opportunity.

"Cambridge has become a research hub, and it's not spread out across Massachusetts," he said. "If you think about it that way, having Jackson Labs near Yale probably would have added to the critical mass. … That would have made it more attractive to more companies."

Despite such views, Jackson Labs – of course – will remain firmly planted in Farmington. The company says it is building partnerships with businesses and educational institutions across the state, including Yale. It also says it is deepening its partnership with UConn and, earlier this year, announced an initiative with the schools in the Connecticut State Colleges and Universities system.

A look at the numbers

Tracking changes in Connecticut's bioscience industry is not as simple or convenient as it is for other industries. The state Department of Labor does not classify "bioscience" as an industry. That means the best – and only – data available are outside estimates, which can come sporadically and leave larger trends shrouded.

The Department of Economic and Community Development typically cites the bioscience job total included in reports by the Connecticut Economic Resource Center, a nonprofit public-private partnership that provides business and economic development services in Connecticut. The center, in turn, utilizes industry numbers calculated by Economic Modeling Specialists International, known as Emsi.

The CT Mirror asked Emsi for data on Connecticut's bioscience industry going back a decade and a half. The firm's report is available here.

The report shows the total number of bioscience workers in Connecticut has been in steady decline since the early 2000s, falling from 47,000 workers in 2002 to 38,900 last year.

At the same time, however, the number of bioscience establishments in the state has continued to tick upward slowly, from about 2,000 in 2006 to 2,500 last year – an indication that new, smaller bioscience enterprises are emerging as some larger companies shrink their presence in the state.

Although the total number of workers in the field is shrinking, a transformation is taking place in Connecticut's bioscience industry. There are 24 separate fields under the umbrella of "bioscience," as CERC defines it. And while some of those fields are in decline, others are rising dramatically.

Emsi's report shows that much of the decline is tied to a sharp decrease in bioscience-related manufacturing jobs. It found the state has lost about 8,700 medicinal, botanical and pharmaceutical preparation manufacturing jobs since 2001. The trend began long before Malloy was first elected and has continued during his tenure.

Yet, as manufacturing shrinks, research and development jobs are springing up. The report found that bioscience research and development jobs in three categories – physical, engineering and life science – are up 133 percent since 2001.

Not all research and development is growing, however. The number of biotechnology research and development jobs has been relatively stagnant in recent years, and has fallen 31 percent over the past decade and a half.

Also within the research and development sector, Connecticut continues to lose ground as some major pharmaceutical companies downsize their presence or leave altogether.

In 2006, Bayer closed its West Haven research facility, which employed about 1,000 people. Pfizer began relocating hundreds of research and development jobs from Groton – its world research headquarters – to Cambridge, Massachusetts in 2009. Boehringer Ingelheim has curtailed its U.S. presence in recent years as it returns its focus to its native Germany, eliminating nearly 1,000 jobs at its Ridgefield campus. Bristol Myers-Squibb is closing its research and development facility in Wallingford next year, which will cost another 900 jobs.

Even Alexion had struggled to maintain its job numbers despite the state aid.

Malloy, standing outside the company's new headquarters in downtown New Haven last year, announced Alexion had created 510 jobs since receiving state assistance – well above the 300-job threshold it was required to meet for the state to forgive its loan. But in March, the company announced it would lay off 210 workers amid greater financial instability that led to the departure of several top executives at the company.

'Critical mass' in New Haven?

Alexion had been a part of the state's solution for bolstering bioscience in New Haven.

As part of the financial assistance package from the state, the company was required to move its headquarters from suburban Cheshire back to downtown New Haven, where it was founded in 1992. But even state dollars proved too little to keep Alexion in a city where many say the talent and venture capital base remains insufficient.

Smith said New Haven is "as close as we come" to having a bioscience hub in Connecticut like Cambridge in Massachusetts or San Diego in California.

New Haven often finds itself compared to Cambridge, perhaps not so coincidentally given that the two are home to Ivy League rivals Yale and Harvard.

But no one questions whether Cambridge has reached a critical mass in bioscience. As the home of two of the world's premiere research institutions – Harvard and MIT – and several major hospitals, it attracts and retains some of the leading entrepreneurs and innovators in the field.

New Haven offers one world-class research institution in Yale and one leading hospital, Yale-New Haven.

These institutions alone, however, do not define a bioscience hub. Companies can prove equally as important. State officials, industry leaders and university officials all say a city can reach a critical mass if it has enough companies based there to make entrepreneurs feel they have something to fall back on if their start-ups fail.

So how close is New Haven? Many say it is near a tipping point.

"I think New Haven is nearing critical mass," said Paul Pescatello, executive director of the Connecticut Business and Industry Association's Bioscience Growth Council. "Given what we do have, I think we've leveraged it pretty well – and increasingly so – to build up companies near and around Yale."

It's no coincidence New Haven has emerged as a force in the bioscience industry. Those in government, the private sector and higher education say Yale deserves the credit. Many of the city's largest bioscience companies were founded by Yale graduates or faculty, while new start-ups receive support from the university every year.

One of Yale's most notable efforts has been to create space for start-ups near its campus. Two projects – 300 George Street and Science Park – were devised to meet that goal a little more than a decade and a half ago. Now, 300 George Street is full, and Science Park has little room remaining.

Jon Soderstrom, managing director of Yale's Office of Cooperative Research, said Yale is increasingly supporting start-ups. Last year, the university founded 11 venture-backed companies that raised $70 million in financing, he said. That is an increase from eight companies in 2015 and six in 2014.

"Right now, the funny thing is, we actually have a space problem, because we've been so successful," Soderstrom said. "We don't have as much space to launch things in as we used to have. … We actually have to start thinking about, 'Well, where's the next thing?'"

Even so, Soderstrom said, New Haven still lacks enough entrepreneurial talent to compete with the biggest bioscience hubs, which continue to draw companies away from places like New Haven. Pescatello said while New Haven is better positioned than most cities in the state, it still suffers from a shortage of venture capital that keeps entrepreneurs from seeing Connecticut as a viable place to finance the launch of a business.

At the same time, overcrowding in the existing space has become so much of a concern that some bioscience enterprises are choosing to establish themselves in the surrounding communities rather than downtown. Even Yale has branched out, purchasing the vacant Bayer campus in Orange. That now serves as the school's West Campus, home to some of its life science programs.

Numerous bioscience companies have chosen to move to Branford as well, because it gives them more space while keeping them in proximity to the city. That includes the Icahn School of Medicine at Mount Sinai, which opened its genomics research center in Branford in 2014.

In each case, these companies have tended to cluster together. Soderstrom said that is because proximity is critical in the industry.

"You don't have to spread out biotech across the state, just like you don't have to spread IT across the state," Soderstrom said. "It's going to naturally cluster around certain areas because that's where the talent already physically lives."

A new cluster in Farmington

One cluster of talent that remained relatively untapped was at UConn Health's campus in Farmington. Before the arrival of Jackson Labs, there was little bioscience activity in the surrounding area.

But that has changed.

Between the $291 million package for Jackson Labs and the $864 million Bioscience Connecticut initiative – introduced by Malloy and approved by the General Assembly in 2011 – the state effectively built its own bioscience cluster in Farmington.

More than half of the Bioscience Connecticut funding has gone to two projects at UConn Health's campus: $318 million for a new hospital tower and $203 million for a new outpatient pavilion.

Much of the remainder is funding other renovations that will allow the university to increase the number students at the campus as well as researchers and faculty, who often conduct their own research.

More significantly to the cluster's development, a portion of the funding went toward doubling the size of the university's incubator space at 400 Farmington Avenue to 28,000 square feet.

The incubator now houses 24 start-up companies. UConn School of Medicine Dean Bruce Liang said it is about 70 percent full.

As part of UConn Health's partnership with Jackson Labs, the university has hired five new faculty members who also work at JAX Genomic Medicine. Liang says the school is slated to bring on five more faculty members who will do the same.

The university has slowly begun to expand its class sizes in the medical and dental schools, which Liang says will increase the amount of talent available to bioscience companies in the state.

"They tend to stay because their families are here," said Liang, who pointed out that 85 percent of the medical school's students are from Connecticut. "They may go elsewhere to get their residency and fellowship training, but they come back to serve the residents in Connecticut. So that's an important goal in Bioscience Connecticut."

"And the history tells us – more than other medical school graduates – UConn graduates, by percentages, are much larger than the percentage of Yale graduates who stay here and practice," he said, adding that some go on to pursue careers in research and development after graduation, which increases the talent pool available to bioscience companies in the state.

This investment is one of the major reasons Jackson Labs said it wanted to build its new genomic research center in Farmington. Hyde said the company saw an opportunity to build a hub where it could stand at the forefront, drawing from the state's talent pool while capitalizing on its location between New York and Boston.

Hyde said Jackson Labs already has exceeded the 10-year, 300-job benchmark the state set, which would prompt the state to forgive the $192 million in loans offered as part of the larger financial assistance package.

The new facility has more than 330 employees, and continues to grow, Hyde said.

"Connecticut has assembled a first-rate biomedical research institution," Hyde said. "I believe that as time goes by, you'll see more and more economic activity built around that."

Kevin Kelly may be the poster child for what Jackson Labs and UConn are hoping to accomplish with the partnership.

Kelly, a 24-year-old researcher at Jackson Labs, grew up in Connecticut. He attended UConn, where he received his undergraduate degree in 2013 and a master's degree in 2014. After graduation, he worked at Genomas – a small medical research company in Hartford – for a year before landing a job as a researcher at Jackson Labs in 2015.

In May, Kelly was promoted and now supervises a lab team conducting clinical genomic testing.

"Yes, I can go to Boston; I can go to New York," Kelly said. "But I feel like Connecticut is more in the up-and-coming. I feel like more companies are flocking here."

The arrival of Jackson Labs also has opened the door to more direct collaboration between UConn and Yale, something Froshauer – who has worked at both universities – said was not taking place before.

Perhaps more importantly, Froshauer said, Jackson Labs also has UConn thinking about how to commercialize its research.

"UConn has really embraced educating their faculty about commercialization of technology," she said. "That helps guide faculty to research questions that create the kind of value you need to build the ecosystem. That, coupled with the energy and the ideas and the collaboration with Jackson Labs, I think we are going to have a strong hub."

Short on venture capital

Most figures in Connecticut's bioscience industry point out two major challenges the state faces if it wants to become a hub for the industry. The first is a shortage of venture capital – the lifeblood of research.

Entrepreneurs looking to launch a bioscience venture in Connecticut quickly find there are few local options to receive financing for their endeavors. That is not necessarily surprising given the risk in the industry, Pescatello said.

Often, he said, bioscience start-ups last for two or three years before fizzling out, not necessarily creating anything that can be monetized in the process. Usually, however, the research conducted becomes a building block for another company's creation of a new drug or technology.

So what venture capital resources do bioscience entrepreneurs have in Connecticut?

One of the most significant investors is the state itself. Connecticut Innovations, the state's business financing arm, has provided $75 million in loans over the past five years to 76 companies and five nonprofits in bioscience, health care IT or other related fields.

Connecticut Innovations launched a 10-year, $200-million Connecticut Bioscience Innovation Fund three years ago to back bioscience start-ups specifically. Nineteen companies have received financing over the past year through the program.

"All early-stage companies need help to succeed, but because of the lifecycle of a bioscience company, we come in where others may not," said Lauren Carmody, a spokeswoman for Connecticut Innovations. "Our investments help to de-risk companies and make them more attractive in future rounds for other investors."

There are a few private investors who also provide financing. The most prominent is Tim Shannon at Canaan Partners, a national venture capital firm that maintains a presence in Westport. His most prominent client in Connecticut is Arvinas, a growing biotech company based in Yale's Science Park.

Two other prominent firms – Elm Street Partners and Launch Capital – provide start-up funding as well.

Outside of these firms, bioscience start-ups have few places to turn in state. And the venture capital in New York and Boston is more often than not directed to companies in those cities or other major hubs. Pescatello said the scarcity of venture capital gives entrepreneurs little incentive to leave the more established hubs for Connecticut.

His solution – one the Connecticut Business and Industry Association is pushing – would make Connecticut more attractive to private investors by exempting venture capital income from the state income tax.

"We have so few venture capitalists in Connecticut, it's not statistically significant," he said. "It's not like we're going to lose revenue by suddenly exempting them – because there are so few."

But in acknowledging the benefits of the proposal, Pescatello also conceded it essentially amounts to a tax break almost exclusively for some of the wealthiest people in the United States.

Transit troubles

The second challenge – which some contend should not be a challenge – is a geographical one since bioscience companies are spread across the state.

"It's not ideal from a geographic perspective, but we just have to tie people together in a good way," Smith said.

Outside companies like Jackson Labs say, at first glance, they see Connecticut as an almost-too-good-to-be-true location between New York and Boston. But after arriving, they quickly realized the existing transportation infrastructure makes it difficult to get quickly to either, except from a select few locations.

That's why industry figures are increasingly pushing the state to improve its transportation infrastructure, both in the form of increased rail service and greater highway capacity.

"We're not a very big state," said Aimee Monroy Smith, JAX's director of government relationship. "But when you do think about the issue confronting the state as a whole, improvements with infrastructure – improvements with the train – would help."

"Our highways are clogged, the Merritt (Parkway) and I-95, and I think they need to be expanded, in addition to rail," Pescatello said.

"We are connecting New Haven and Hartford," he added. "But connecting those two Connecticut cities to Manhattan and to Boston, for bioscience, is the No. 1 thing."

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