North Carolina: Lawmakers Weigh Budget Cuts, New Fund
For years the North Carolina Biotechnology Center has served as an engine for life science industry growth within the Tar Heel state. With a $3.4 billion budget hole to plug, though, Gov. Beverly Perdue (D) has proposed a 10% cut to the biotech center’s $19.5 million state subsidy. The center would receive just over $17.5 million from the state.
That could change depending on how the proposed $19.9 billion budget for 2011–13 winds its way through the state General Assembly. The biotech center could have fared worse, but it also could have fared better considering Perdue cut funding for existing state programs between 7% and 15%. “We have very positive feedback from our elected officials on the value that life science is providing to North Carolina, and there’s still a good commitment to that ongoing funding,” Robin Deacle, a spokeswoman for North Carolina Biotechnology Center, told GEN.
That commitment has not always been matched with dollars. Last year the state held back part of its budgeted subsidy. To avoid a second straight year of reduced budgets, the center’s strongest argument with lawmakers may well be the growth of the industry it has done much to support. While overall North Carolina employment fell by 3.9% from 2008 to 2010, biotechnology employment rose by 4.1%, to 58,495 jobs. That’s up 9% from the 2008 figure of 53,615 jobs, furnished by Battelle and the Biotechnology Industry Organization (BIO) last summer.
Biotech and pharma companies continue to expand in the state. Last month Biogen Idec disclosed plans for a new 180,000 square foot building at Research Triangle Park (RTP), where it employs about 850 people, to consolidate all its administrative and patient services in the state.
Medicago is constructing a $42 million RTP facility where an initial 85 people will manufacture vaccines using tobacco leaves. Merck plans to add 310 jobs—250 of them before year’s end—to the 440 it promised over the next two years at its new Durham vaccine manufacturing plant.
Novartis expects to begin operations in 2013 at the $1 billion, 300,000 square foot vaccine manufacturing plant it completed in Holly Springs in 2009, with a planned workforce of 350. In December the company promised to add 100 more jobs in return for two state grants totaling $3.7 million. United Therapeutics plans to triple to 350 its workforce at RTP, where it wants to expand its site by 177,000 square feet. The space would allow expanded drug manufacturing, packaging, labeling, and warehouse operations.
North Carolina’s 538 biotech companies and other businesses serving them account for 226,823 jobs and generate a total of $64.6 billion in direct and indirect economic impact statewide, according to a report called Bridging the Gaps issued by the North Carolina Biotechnology Center in January.
The report named three shortcomings that hamper commercialization: gaps in early-stage and later-stage funding, both aggravated by a tightening venture capital market, and a shortage of executives with commercial life science experience. All three will require attention if biotech is to continue growing in North Carolina.
Last year, according to the MoneyTree’s quarterly report, the number of VC deals in North Carolina dropped to 10 from 14 in 2009. Yet, the amount of financing rose year-over-year to $112.6 million in 2010 from $110.35 million. MoneyTree recorded no North Carolina biotech deals during the fourth quarter of 2010, only one deal worth $6 million in the same quarter of 2009, and three deals totaling $81 million in Q4 ’08. 2008 saw the state attract $188.2 million in VC funding.
The center says one answer to the VC funding slide could be the Life Science Development Corp. championed by the life science industry group North Carolina Biosciences Organization (NCBIO). Sam Taylor, NCBIO president, told GEN the fund would finance life science companies using $100 million in a 15-year private investment from banks and institutions. He expected this would generate a return comparable to municipal bonds plus two to three points.
Investors would be guaranteed up to $100 million in state tax credits payable in case of a default, which Taylor said would be “very, very unlikely in the next five years, and very unlikely after that.” The fund is expected to make up to $70 million in loans capped at a maximum $20 million—down from $30 million when such a fund was considered in 2009—“and would probably have an effective minimum of around $2 million,” Taylor noted.
But prospects for the fund are uncertain, Taylor acknowledged. The 2009 measure passed the state Senate but died in the House of Representatives. Since then several lawmakers opposed to stoking economic development through state incentives have emerged as legislative leaders.
As for the shortage of executives with commercial experience, the biotech center says it has begun developing solutions with academic institutions, life science business leaders, and nonprofits. “Hopefully within six months to a year, we’ll have a program or two,” Peter Ginsberg, the biotech center’s vp of business and technology development, said to GEN. “We do have a very strong core of executives, but we need more.”
North Carolina will also need more workers as its biomanufacturing segment continues growing. The state has filled this need in recent years through its network of 58 community colleges and seven specialized centers. President Barack Obama recognized the effort in his State of the Union address this year, singling out Kathy Proctor, a biotech major at Forsyth Tech Community College in Winston-Salem. But Perdue wants the community college system to cut overall expenses by $32 million, or 2.3% of 2011–12 requirements. An expansion of training efforts is thus unlikely.