Three of the world's pharmaceutical giants – Pfizer, Bristol-Myers Squibb, and Forest Laboratories – are located within one square mile of each other in midtown Manhattan. Pfizer, in fact, recently announced expansion plans. The company has promised to spend about $1 billion to renovate its Manhattan headquarters, buy additional office space, and add staff over the next 15 years, including 2,000 jobs to be added by 2009.
The announcement, considering the high average price of office real estate in that neighborhood, suggests there must be some reason why big companies choose to have their headquarters in New York City. The marquee of a midtown Manhattan area code can only go so far, however. Why companies stay, and, even when they do, what parts of their operations move elsewhere, can say a lot about the strengths and weaknesses of New York City as a life sciences hub.
TAX INCENTIVES – OR NOT?
Industry analysts say the large tax incentives Pfizer was offered were probably also a factor in their decision to expand, although most of those incentives are contingent on Pfizer's meeting hiring targets. New York state has promised Pfizer will be eligible to apply for up to $1.4 million in grants, while the city has offered incentives worth up to $45.8 million if Pfizer creates 4,300 new jobs within 15 years. Many of those jobs would be transfers from other locations.
But few other companies cite tax incentives as a reason for staying in New York (see p. 20). Some complain that unless a company is the size of Pfizer, city-wide and state-wide tax incentives are hard to come by. Eyetech Pharmaceuticals chief financial officer Glenn Sblendorio says the city offered his company few incentives to expand. "There were some minimal tax breaks here to encourage growth in Times Square," he says. Although larger tax incentive programs are available, they are often too laden with red tape to be useful, he adds. "For small companies like ourselves, the complexity is very difficult for us because we don't have large staffs and legal departments."
Nevertheless, government officials say Eyetech and companies like it are eligible to apply for a $300,000 state grant and $220,000 city grant. Some industry executives point out that these types of figures don't necessarily amount to much in the biotech world. "Even $300,000 is not likely to turn a lot of heads in an industry that requires tens and even hundreds of millions of dollars of investment per company," says Ron Cohen, chairman of the New York Biotechnology Association and chief executive of Acorda Therapeutics, Hawthorne, NY.
THE DRAW OF WALL STREET
Downtown Manhattan, however, has the appeal of being metaphorically paved with gold. "New York is the center of the financial world," says Bob Zito, senior vice president for corporate affairs at Bristol-Myers Squibb. Some of the best corporate talent is also in New York, he adds. Imclone Systems chief financial officer Michael Howerton agrees that proximity of Wall Street venture capital gives New York a boost. Eyetech's Sblendorio adds that "many of the key venture investors are based here in New York." That smoothes the way for funding, he says; "the company has raised about $333 million in equity, net of expenses." This included $143 million in the initial public offering in January, and a $35 million investment from Pfizer.
Unsurprisingly, perhaps, given that neither Bristol-Myers nor Pfizer has major research operations in the city, neither company cites the city's scientific strengths as a reason to stay. Bristol-Myers attracts scientific talent "because of what we're working on – I think location is less vital," Zito says.
Some other biotech or pharmaceutical companies have only office space in New York City, not laboratory space. In some cases that office presence is growing. Early this year, Eyetech moved from a 16,000-square foot office space in the garment district to a 60,000-square foot space in the Reuters Building in Times Square.
OFFICE vs. LAB SPACE
The ratio of corporate offices to lab space may be changing for some companies. Following the FDA's approval last February of its head and neck cancer drug Erbitux, ImClone plans to spend between $25 million and $75 million to convert a building in the Soho neighborhood into 100,000 square feet of laboratory space, says Howerton. The expansion will add up to about 75 jobs to the company, which now employs about 150.
And even if labs themselves aren't in the city, they're close. Pfizer chairman and chief executive Hank McKinnell has said in public remarks that one of the reasons Pfizer stays in New York is that the city is central to many other Pfizer facilities. These include research and development headquarters in Connecticut, consumer healthcare headquarters in New Jersey, and manufacturing facilities in Brooklyn, New Jersey, and Pennsylvania. Bristol-Myers Squibb's Zito notes that New York is "also proximate to our offices and operations in New Jersey and Connecticut."
KNOW YOUR NEIGHBORS
Those partners closer by may be even more important, however, than those one state away. "Collaborations with various institutions here are one of the key reasons we made our decision" to expand in New York, says Pfizer's McKinnell. For ImClone, an important collaboration has been with Sloan-Kettering Memorial Cancer Center, where several oncologists have worked on clinical trials for it's drug Erbitux. Moreover, Witte notes that most of the company's scientists live in the city and have said they would rather stay there.
"Ultimately, the company is located where the CEO wants to be," says Karin Duncker, executive director of the New York Biotechnology Association. ImClone officials count their company as an example. Sam Waksal, the company's founder and former CEO who was recently implicated along with Martha Stewart in an insider-trading scandal, "used to walk to work," says Howerton. "That had as much to do with us locating here as anything else."
And it's no accident that Eyetech's new headquarters is a 15-20 minute walk or brief subway ride away from Pfizer, their collaborator on the development of the drug Macugen, designed to fight macular degeneration. (Macugen has yet to receive approval from the Food & Drug Administration, but an FDA committee offered supportive comments on it while requesting further information last August.) For Eyetech, the Macugen collaboration gave the company an incentive to be on West 42nd Street since Pfizer is on East 42nd Street. "The fact that Pfizer is across town make the logistics very easy," says Eyetech's Sblendorio.
SHOULD I STAY OR SHOULD I GO?
Of course, some companies decide not to stay long enough to become pharmaceutical giants. New York's major academic institutions spin out an average of 30 biotech companies yearly, according to the New York City Economic Development Corporation. NYCEDC agency officials count about 51 biotechs presently based in the city. When Joseph Schlessinger founded two biotechnology companies in 1991 and 2000, they opened their doors for business in California, even though Schlessinger was teaching at New York University on the opposite side of the country. "New York did not have much biotechnology activity, and of course real estate in New York is expensive," says Schlessinger, explaining why the companies – Sugen and Plexxicon – did not stay in the city.
Ron Cohen's own company is another of those that left New York City – but in his case, it didn't go far. Acorda Therapeutics is based about 25 miles north of Manhattan in neighboring Westchester County. "I tried to stay in Manhattan. I was living in Manhattan," he says, when in 1998 he decided to move his company. "There really was not enough affordable lab space" in the city, he says. "Westchester is extremely convenient, close to the city, and there's already a biotech cluster here."