Five Keys to Revitalizing the New Jersey Biotech Industry

While it Remains the Largest in the Country, the New Jersey Biotech Industry no Longer Holds the Top Spot When it Comes to Fostering Innovation…

New Jersey’s biotech industry is still one of the largest in the country. However, the state no longer holds the top spot when it comes to fostering innovation. In 2017, New Jersey commissioned a report to find out why.

Last year, the New Jersey Biotechnology Task Force published its report. It concludes that the economic recession, corporate mergers, and patent expirations have all slowed innovation in New Jersey. The task force also notes that the state’s business climate has also played a role. “New Jersey lags its competitor states in several key areas, including funding for early-stage companies and non-monetary support, such as technical and professional business assistance for academic spin-offs,” the report concludes.

NJ Biotech Industry Lagging

New Jersey is well-known for its strength in the biopharmaceutical and medical device industry sectors, with 13 of the world’s 20 largest pharmaceutical companies calling the state home. However, the state’s biotech industry has failed to keep pace in recent years. Specifically, employment, investment, and growth have declined in recent years relative to peer states.

To reverse the trend, the Biotechnology Task Force maintains that New Jersey needs to take a comprehensive approach to fostering innovation. “Strengthening the biotechnology/pharmaceutical industry sectors and attracting new startups and spin-outs needs to be part of a comprehensive economic strategy that includes workforce development, and ways to attract millennials to locate and stay in the state,” the report states.

New Jersey Biotechnology Task Force Recommendations

In its report, the New Jersey Biotechnology Task Force makes numerous recommendations for reenergizing the state’s innovation sector. They are largely grouped in the following five areas:

(1) Translational Research Culture

The report highlights that academic institutions with faculty and students who are actively engaged in translational research, which aims to facilitate the practical application of scientific discoveries to the development and implementation of new ways to prevent, diagnose, and treat disease, are key providers of next generation entrepreneurs and the talent needed to grow young companies. Accordingly, it recommends restoring the Commission on Science and Technology, which promoted industry-university collaborations with the goal of accelerating commercialization of new technologies and supporting the emergence of science and technology-based businesses. It also calls on the state to provide support to help startups better compete for the Small Business Innovation Research (SBIR) and the Small Business Technology Transfer Program (STTR), which are highly competitive three-phase award programs that provide qualified small businesses with opportunities to propose innovative ideas that meet the specific research and development needs of the Federal Government. The task force also suggests establishing a tax credit to private investors who invest in technology advancement funds and a State match of an advancement fund’s investment into intellectual property.

(2) Entrepreneurial Culture and Capital

To strengthen New Jersey’s entrepreneurial culture, the task force recommends that the state increase the availability of technical assistance by scaling existing programs across the state’s incubator/accelerator network.  It also advocates supporting executives or researchers that seek to commercialize a technology or innovation through “spin-out” companies. Another recommendation is to expand the Technology Business Tax Certificate Transfer Program (NOL) by increasing the lifetime cap for life sciences companies to $20 million.

To incentivize investment into New Jersey-based venture funds, the task force proposes a tax credit for investments made by both private and corporate investors, with eligible venture funds based on criteria NJEDA uses in its own venture fund investment policy, including, among other things: strategic focus, geographic focus, performance strategy, and history of investing in New Jersey businesses. The report also calls for enhancing the Angel Investor Tax Credit Program by increasing the tax credit from its current level of 10% to a proposed level of 25% of the qualified investment, a portion of which (15% of qualified investment) would go to the angel investor as a tax credit and the remainder of which (10% of qualified investment) would go to the business as a refundable tax credit. In addition, the task force recommends increasing funding for the Edison Innovation Fund and NJ CoVest Fund, which provide funding to early-stage New Jersey life sciences and technology companies.

(3) Workforce

Upon graduation, many New Jersey students with science and technology degrees seek jobs elsewhere. To grow and maintain a robust offering of biotech internships within the State, the task force recommends providing a financial incentive for New Jersey companies to host New Jersey residents for in-state internships. The report also calls for restoring the Technology Fellowship Program, which paid the first two years of salary for recent doctoral graduates to work in small New Jersey biotechnology companies. According to the task force, the State should also provide matching funds to any projects receiving grant funding through non-profit organizations to further the impact of the funding, which generally goes to early-stage companies.

(4) Infrastructure

To achieve a vibrant biotech community, the task force supports the creation of a biomanufacturing facility to be used by multiple companies doing pilot manufacturing of their product, as well as the creation of a biobank where patient samples and related clinical data would be preserved, stripped of patient health information, and made available to biotech and pharma companies for their research. The report also includes several tax incentives targeting the bio tech industry. They include: establishing a matching tax credit of up to 25% of qualified clinical testing expenses to New Jersey-based companies claiming the federal Orphan Drug Tax Credit, which would help to offset the reduction of federal resources to this area; enhancing the New Jersey Research & Development Tax Credit, such as making the tax credit a rebate against payroll taxes; adopting a state version of Section 1202 of the Internal Revenue Code, which provides an incentive for non-corporate taxpayers to invest in small businesses by allowing for small business stock that has been held for at least five years before it is sold to have a portion, or all of its realized gains excluded from federal tax; and developing an incentive program that would target founders and employees of biotech companies that have a presence in the state through a significant capital gains reduction.

(5) Ecosystem

Citing a lack of awareness regarding the advantages and resources that New Jersey has available to biotechnology companies, the task force recommends coordination of all marketing efforts surrounding existing resources. The report also calls for establishing and supporting New Jersey Centers for Excellence, which would operate as a shared facility that provides leadership, best practices, research, support, talent development and workforce training for the biotechnology industry. With respect to bio pharma, the task force suggests creating a State-supported forum to bring physicians together to share information about New Jersey-based clinical trial activity.

What’s Next?

Many of the above recommendations require approval by state lawmakers and Gov. Phil Murphy. The good news is that the New Jersey Legislature is already considering bills that include several of the task force’s recommendations. Last year, the state Assembly also created a new Science, Innovation and Technology Committee, with the goal of focusing on the state’s science and innovation ecosystem as a source of jobs and economic development.

Gov. Murphy has also placed an emphasis on supporting the state’s “innovation” industries. The Economic Development Authority (NJEDA) has created a new Office of Economic Transformation, which is tasked with developing and implementing initiatives that will enhance the state’s long-term economic competitiveness within key strategic sectors, including life sciences, technology, clean energy, and advanced manufacturing. In collaboration with the Office of the Secretary of Higher Education (OSHE), the NJEDA also launched Research with New Jersey, a free database designed to help businesses and entrepreneurs identify and collaborate with local universities and top experts.

If implemented, many of the recommendations made by the New Jersey Biotechnology Task Force, such as increasing funding for early-stage companies, will benefit startups in other industries. “By addressing the issues that are most severely hampering our innovation capacity, New Jersey can become a state where a high volume of new companies start, grow and thrive, and where mature companies that rely on innovation want to have a significant presence,” the report highlights.

If you have any questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Jeff Cassin, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.