Regional Report:New Jersey

Analyzing the past, anticipating the future

By Susan Toth

It is no secret that the economy throughout New Jersey — as well as the rest of the country — is at a very low point. While there are some small signs of improvement, full recovery may still be a long way off. However, throughout all the economic turmoil, the pharmaceutical industry, particularly in the Garden State, has managed to hold its own, remaining relatively stable, according to the 2009 Economic Impact Report, entitled Tough Medicine for Tough Times, by the HealthCare Institute of New Jersey (HINJ), the trade group representing the industry.

“New Jersey’s biopharmaceutical and medical technology community has faced significant challenges over the past year — some of which are endemic solely to our industry, others of which affect the broader business community as a whole,” said HINJ president Bob Franks. “Although we remain New Jersey’s premier industry, we are working hard to prevent any negative developments which might affect our position as the state’s economic engine.

“Like so many other industry sectors, our report reflects the current climate of the state and national economy. While the biopharmaceutical and medical technology community remains New Jersey’s premier industry, this year’s report serves as a stark reminder that we are not immune to global economic downturns, or to significant changes to the business model, which has historically seen our industry develop so many new, innovative treatments and cures for the world’s most dreaded diseases.”

Overall Economic Impact

The biopharmaceutical and medical technology industry’s overall economic impact on New Jersey was $28.7 billion in 2008, up slightly from the $27.3 billion figure in 2007. This breaks down to $9.1 billion in payroll, $7.5 billion in R&D, $6.9 billion in vendor spending, $2.7 billion in capital spending, $2.1 billion in benefits, and $221 million in charitable donations.

This economic impact has grown slightly, despite net job losses in the industry from 2007 to 2008. The industry employed 59,948 in 2008, as opposed to 61,347 in 2007.

“In the midst of the global recession, this decrease demonstrates that even the most robust industrial engines are not impervious to the larger economic forces and broad policy changes that impact the business community around the world,” Mr. Franks noted. “However, the economy of NJ has long thrived on the concentration of life science businesses in the state. Despite the impact of consolidation and strategic realignments, NJ’s biopharmaceutical and medical technology industry still remains a leading economic sector within the state.”

Despite the lower number of employees in the industry in 2008, the average base salary was $112,297, an 8.9% increase over 2007 numbers. Total compensation packages for pharmaceutical employees were $141,590 in 2008, a 12.3% increase over 2007.

Some functions in the industry have gone up over the year — research positions have increased from 11% in 2007 to 14% in 2008, and clinical development jobs increased from 14% to 15% over the year. Sales and marketing functions have decreased from 20% to 19% from 2007 to 2008, while “other” functions decreased from 16% to 10%.

Much of this decrease has to do with ongoing restructurings in the industry over the past year. Meanwhile, several mega-mergers will have an effect on employment in the Garden State. The full extent of the Merck/Schering-Plough, Pfizer/Wyeth and Roche/Genentch mega-mergers remains to be seen, according to Mr. Franks.

“It is simply too early to know how these mergers will fully impact the industry in NJ at this point,” Mr. Franks said. “I would expect there will be a short-term reduction in the workforce as companies eliminate redundant functions. On the other hand, joining the pipelines of these companies will likely create positive synergy that over the long term could be expected to grow employment.

“However, these mergers put a spotlight on NJ as the state continues to witness the global consolidation of the pharmaceutical industry,” Mr. Franks continued. “These mergers will have a local effect on the footprint of the industry. In the long term it will serve to strengthen the pharmaceutical industry in our state.”

Adding to the industry’s total economic impact on NJ is the way the economy benefits from payroll. NJ residents hold 84% of industry jobs, which offer an $8.5 billion aggregate payroll, with the rest going mostly to residents of neighboring NY and PA.

Pharmaceutical workers benefit from being among the highest paid workers in the state. Workers in the pharmaceutical industry make an average $124,000 per year, second only to security and commodity brokers, who earn an average $157,000 per year.

“This average compensation figure is commensurate with the high skill and education levels of biopharmaceutical and medical technology personnel, and is largely consistent with HINJ member companies surveyed,” said Mr. Franks.

R&D

Many of the employees in the industry work in R&D, which has long been the lifeblood of this technology industry. In 2008, HINJ member companies participating in the survey invested approximately $7.5 billion in R&D activity. This amounts to a decrease of about $400 million from 2007’s survey numbers.

“This level of spending evidences the industry’s commitment to R&D, and provides the funding to support the various projects and initiatives being worked on by the 29% of NJ-based employees devoted to research and development,” Mr. Franks commented.

A total of 770 potential products currently are in development, with a breakdown as follows: 101 in preclinical, 184 in Phase I, 176 in Phase II, 148 in Phase III, and 99 in Phase IV. In addition, 62 new drug applications (NDA) have been submitted.

Besides these, there are 3,995 studies or clinical trials underway or in the planning stages. This includes 2,046 preclinical studies, 681 in Phase I, 361 in Phase II, 595 in Phase III, 258 in Phase IV, and 54 NDAs submitted. In the medical technology field, 12 new product applications (PMAs) are currently on file with the FDA by HINJ member companies. A total of 66 significant improvements to existing medical devices were approved in 2008.

“These developments in products and technologies promote the long-term sustainability of the industry,” Mr. Franks said. “The future is primed with promise.”

One thing that could affect that promise, according to Mr. Franks, is “Washington, Washington, Washington. The Obama administration and this session of Congress are beginning to conduct the first broad-scale healthcare reform effort that this country has seen in 40 years. How aggressive and extensive the program will be is hard to know, but given that New Jersey remains ‘The Medicine Chest of the World,’ clearly there will be implications for [HINJ] members, depending on policy outcomes that are determined in Washington.”

Some of the preliminary actions under the administration’s healthcare reform plan that may affect pharmaceutical companies include: supporting more research for comparing treatments so doctors and patients may learn what treatments will work best; increasing research for cancer treatment, including money to be given to the National Institutes of Health; strengthening the quality and efficiency of the Medicare program for seniors; and investing money into the Food and Drug Administration for inspections, labs, and surveillance. Insurance overhauls are also part of the Obama administration’s preliminary plan.

Active Consumers

R&D workers, along with others employed in the industry, are also active consumers, according to the HINJ survey. They receive pre-tax payroll of $7.1 billion, and contribute an additional $2.0 billion of income to the state’s economy.

The pharmaceutical industry further contributed to NJ’s economy in 2008 in the form of spin-off jobs, which were supported as a result of industry activity. This means that the disposable income of those employed in the biopharmaceutical and medical technology industries supported more than 40,000 additional jobs in 2008. Investment in capital projects supported 19,000 jobs, and purchase of goods and services supported close to 29,000 jobs across many business sectors. In addition, in 2008, expenditures of disposable income by direct employees resulting from the $7.1 billion in income generated $2.0 billion in income for other state residents who provided consumer goods and services. And HINJ member companies’ economic impact generated $17.2 billion in NJ business sales.

Vendor-related spending originating from NJ-based facilities came in at more than $28.9 billion in 2008, and an estimated $3.8 billion was spend on vendors that are located within the state. That money resulted in an estimated $3.1 billion of additional NJ sales, resulting in a total impact on the state of about $6.9 billion. “This represents a tremendous impact on local communities, privately-owned business, and public corporations,” said Mr. Franks.

According to the HINJ survey, the industry has again shown itself to be a leader in capital construction investment. During the next two years, the industry is expected to have aggregate capital construction figures of $3.2 billion, which will generate even more jobs and facilities in the state. Capital expenditures in 2008 were $1.6 billion, resulting in an estimated $1.2 billion of additional New Jersey sales, for a total impact to the state of $2.8 billion. These expenditures included 51% on construction of new facilities, as well as 49% on the renovation and maintenance of existing facilities.

Good Corporate Citizens

The companies surveyed for the Economic Impact Report are also good corporate citizens. They care about the communities in which they reside, and make efforts to improve access to healthcare, fund education programs, and partner with the arts community.

Estimated worldwide giving by HINJ member companies was approximately $4.5 billion in 2008, with $221 million directly benefitting New Jersey causes. The most significant category in 2008 was product contributions, which totaled $3.7 billion worldwide.

The allocation of the industry’s philanthropic efforts directly benefitting NJ is as follows: 58% ($129 million) on product contributions, health related issues at 22%, ($48 million), 6% ($13 million) on education related issues; community/civic involvement at 5% ($10 million); $7 million (3%) on corporate matching contributions; employee contributions at 2% ($5 million), and the arts at 1% ($3 million).

“The vast majority of [the $4.5 billion in philanthropic programs] came in the form of product donations, illustrating how uninsured patients continue to rely on the industry’s patient assistance programs like the national Partnership for Prescription Assistance (PPA) and its New Jersey chapter Rx4NJ,” Mr. Franks said. “These companies’ commitment to being exemplary corporate citizens is reflected in their extensive efforts to support both local and global initiatives.”

Pharmaceutical companies contributed significantly to the tax coffers in the state as well, according to the study. In 2008, sales and use tax took the biggest jump, from $54 million in 2007 to $113.5 in 2008. In addition, companies paid $411.8 million in New Jersey withholding taxes, up from $348.8 in 2007 and $117 million in income and franchises taxes, up from $114.8 million in 2007. However, disability and unemployment tax went down from $52 million in 2007 to $28.5 in 2008. In addition, corporate business tax went down from $83.2 million in 2007 to $67 million in 2008. Finally, pharmaceutical industries paid $129.2 million in property taxes to New Jersey, up from $125.8 million in 2008.

Finally, HINJ member companies paid $178.7 million in rebates to the state in 2008, up from $148.3 million in 2007. This represents a $30.4 million increase. The allocation of these rebates is as follows: $162,114,918 to Medicaid; $15,219,969 to Pharmaceutical Assistance to the Aged and Disabled (PAAD) and $1,388,326 to the Senior Gold program.

Of the study overall, Mr. Franks said, “Consolidation is the greatest trend right now. We’ve seen the two mega-mergers, and there is speculation that there may be additional mergers ahead. All this could have a significant impact on NJ, considering the changes to the business models that are imposed through healthcare reform at the federal level. However, it is too early yet to specify what trends that may set.”

However, he notes that all is not lost in the industry, and there is much reason to be optimistic about the future.

“There seems to be significant optimism over company pipelines,” Mr. Franks said. “Researchers are discovering and developing a wide array of new medications that can contribute significantly to improving the condition of human health around the world. Changes are afoot in the external environment as well. I am convinced that this industry has shown extraordinary leadership and insight in confronting these challenges.”

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For more information on HINJ, visit http://www.hinj.org. The annual report, Tough Medicine in Tough Times: NJ’s Biopharmaceutical and Medical Technology Community, can be downloaded at http://hinj.org/UploadedFiles/FINAL%20513998_HINJAnnualReport.pdf

Susan Toth is a freelance contributor to Contract Pharma.