Michigan is looking to pharmaceuticals and biotech research to treat its ailing manufacturing economy, but boosters of the emerging industry say it needs more public and private support to continue growing.
Already a pharmaceutical hub thanks to Pfizer Inc., Michigan is one of the few states in the country that offers both cutting-edge research and the manufacturing muscle that can produce, package, sell and distribute the drugs discovered in the laboratory.
"We have the know-how to transfer research into product," said Antoon Brusselmans, site leader for Pfizer's Portage production operations. "All it takes is one of those ideas to make it."
Michigan has lost an estimated 185,000 manufacturing jobs since 1999, so state business and political leaders are pressed to find new industries to fill that void. Biotechs are viewed by state leaders and industry experts as job creators of the future.
The evolution of the state's biotech industry -- still considered by many analysts to be in its infancy -- could redefine the state's labor environment.
Biotech companies are viewed as attractive by economic developers because they typically escape cyclical moves in the national economy. Older workers are more valuable because of their intellectual experience, and the jobs are considered to be so-called gold collar positions because the average salary is $80,000 -- plus benefits.
But the question is, do the state's business and political leaders have the money, patience and commitment needed to support biotech growth?
Counting on Pfizer
Biotech includes everything from the development of medicines to merging technology with science to produce lifesaving medical devices.
Currently, the industry in Michigan is much like a shopping mall. The anchor store is New York-based Pfizer, the world's largest drugmaker with annual sales of $45 billion. Pfizer employs more people in Michigan -- about 9,500 -- than anyplace else in the world.
Pfizer's footprint stretches from its research labs on the outskirts of Ann Arbor to its testing facilities in downtown Kalamazoo and its production plants in Portage and Holland. It also operates a 2,100-acre farm in Kalamazoo County for animal health research.
Through Pfizer's offices and labs flow billions of dollars to support research and development. The company expects to spend $7.9 billion on research and development in 2004.
The drug Lipitor, which lowers cholesterol levels in millions of people, generated $9.23 billion in sales last year for Pfizer. Neosporin, Rogaine, and children's cough medicine PediaCare are among the Pfizer medicines produced and shipped from Portage.
After Pfizer, there are about 600 smaller biotech and pharmaceutical companies in Michigan employing anywhere from a dozen to a thousand people.
The standout in this group is Kalamazoo-based Stryker Corp., which employs 800 people in Michigan and sells joint replacements, orthopedic implants and various surgical instruments. Its profits have more than doubled since 2000 to $453 million in 2003.
Lansing-based Neogen Corp. develops products and services for food and animal testing.
The company has been listed in Forbes magazine as one of its 200 best small companies the last two years. Neogen posted earnings of $4.8 million on revenue of $46.5 million in 2003 -- business has doubled since 2000 and the company has been profitable for 30 straight quarters. Now 22 years old, the company employs about 300 people.
Detroit-based Caraco Pharmaceutical Laboratories Inc. produces and sells generic drugs. It has been in a rapid growth stretch for several years and employed about 128 people in 2003.
Smaller biotech companies are usually private, produce few profits and are usually started by groups of scientists specializing in certain areas of research. However, the research they conduct could lead to significant scientific breakthroughs, mountains of money and national prestige.
The Michigan Economic Development Corp. estimates that more than 23,000 workers are employed by smaller biotech companies in the state.
One such company, Ann Arbor's Esperion Therapeutics Inc., was purchased late in 2003 by Pfizer for $1.3 billion. The 5-year-old company, which employs 70 people, found promising results as it developed a drug designed to enhance the body's so-called good cholesterol. This would reduce the body's level of plaque that forms in arteries -- thus reducing the risk of heart attacks.
Other emerging companies include: Aastrom Biosciences Inc., which develops tissue repair cells; NanoBio Corp., working on treatments for genital herpes and shingles, and Handy Lab Inc., which develops nucleic acid and protein-based testing kits for home use.
"Michigan is attracting some of the greatest minds in the country," said Merrill Osheroff, executive director of Kalamazoo Worldwide Safety Services. "When we started advertising to fill jobs here in Kalamazoo, it was outstanding the number and the type of people we got trying to fill the jobs here."
Michigan universities are crucial in the biotech economic growth formula.
"Most academic professors want to teach and discover, and when they discover, they want to be able to go some place to commercialize it," said Dr. Robert Galen, a clinical professor at the University of Georgia. He cofounded a company and patented the home blood sugar test ultimately purchased by Johnson & Johnson Co.
"That's what makes discovery and science exciting when you can make a pill or diagnostic test rather than write a paper or a book."
The University of Michigan has played a role in 36 start-up companies based on discoveries made within the university. Examples include FluMist, an inhaled flu vaccine, and Intralase, a start-up company working on laser eye surgery. Investment pays off.
The nascent biotech industry says it needs more money, time and support to grow in Michigan.
"Biotech is high-risk but it is also high-reward," said Mitch Mondry, a cofounder and vice president of the venture capital firm M Group of Birmingham. Venture capital firms such as M Group often provide early investment capital for new biotech firms. "The payoffs can be significant. If you hit on a pharmaceutical or a medical device, that can mean a lifetime of sales."
Mondry, as well as other biotech leaders, said the region must get serious about providing financial support.
"In biotech, capital is critical and without it you can't go anywhere," Mondry said. "In manufacturing, if you create a new process or product, you basically make a prototype, talk to prospective buyers, get feedback and go into production. That could cost up to $2 million. In biotech, it may take $20 million because of the many clinical tests since the industry is so regulated."
Gov. Jennifer Granholm announced in January the creation of three new venture capital funds to pump more than $500 million into small businesses and high-tech industries. The new funds could improve Michigan's standing in venture capital compared with other Midwestern states.
Typically, Michigan has ranked in the middle of the pack among the states for venture capital investment in recent years -- one report ranked the state 25th while another ranked it 34th. An annual survey conducted by Ann Arbor-based EDF Ventures LLP and PricewaterhouseCoopers LLP showed that venture capital investment in the state fell to $113 million in 2002 compared with $232 million in 2000.
Figures for 2003 likely won't improve. In April 2003, Granholm cut the Michigan Life Sciences Corridor budget from $50 million to $32.5 million this fiscal year because of the state's looming budget deficit. The Life Sciences Corridor, between Grand Rapids and Detroit, uses state money to back biotech, pharmaceutical and medical products start-up companies. Next fiscal year, the funding drops to $20 million.
That could squelch new ideas looking for financing.
Take Esperion Therapeutics. Roger Newton, the company's president and CEO, said he raised $200 million to keep the company operating. Unfortunately, only a small portion of that money came from Michigan.
"I think there is a need for the state to have a greater commitment to fund what companies are working on rather than giving tax incentives," Newton said.
Newton, while working at Warner-Lambert/Parke-Davis codiscovered atorvastatin, which later became Lipitor, and became the property of Pfizer.
The biotech industry also contends that it has not been embraced seriously by the state's private sector -- particularly the auto industry.
That is ironic considering General Motors Corp. alone is the largest private user of health care.
"The feeling I have had ever since I came here 16 years ago is that the car industry is a kingdom of its own in Detroit, and all of us from Ann Arbor are a different kingdom," said Pfizer's Brusselmans.
A hypothetical joint venture between the two industries could produce a venture capital fund created by the auto industry.
"An automotive venture fund, how cool would that be?" the University of Georgia's Galen said. "You do something like that, everybody gets the vision."
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