Eyeing the underdog

B. KRIST/CORBIS

Nestled along the northeastern corridor between the giant hubs of US government and finance, Washington DC and New York, Philadelphia can often go overlooked. Its cultural claims to fame are modest: the cheesesteak, Rocky and the Liberty Bell. But its life-sciences industry is not so humble. Located within the city and its suburbs, which extend from Princeton, New Jersey, to Newark, Delaware, is one of the largest bio-business clusters in the country. This year, economists at the Milken Institute — an independent economic think tank in Santa Monica, California — ranked the region as runner-up for the strongest biosciences industry, second only to Boston, based on the number of people it employs, its innovation and the revenue its businesses earn. How long it will keep that distinction, however, is uncertain.

Tens of thousands of people in the region still earn their income from pharmaceutical giants such as Merck, Wyeth, AstraZeneca and GlaxoSmithKline, not to mention from dozens of biotech companies, contract-research organizations, generic-drug makers and academic institutions. For years, those big drug makers provided a refuge for researchers and others from the merciless grind of pursuing tenure in academia and from the economic uncertainty and shoestring budgets of biotech. The region's pharmaceutical firms, with their sleek suburban campuses, handsome salary-and-benefit packages and unmatched research resources, have traditionally opened their arms wide to scientists from around the world. But those halcyon days may be waning, thanks to economic forces that many contend are irretrievably changing the landscape.

"It was a lot of fun," says McHardy Smith, who for 20 years worked in the ion-channels group at Merck in Rahway, New Jersey. In October last year Smith was laid off as part of the company's restructuring. "I felt great sadness at losing what I had enjoyed as a great job." Smith's severance package was generous, but it has not been able to provide him with a seamless transition to his next job. The day after he was laid off, Smith received a call from a recruiter. "I thought, this will be easy," Smith says. But a position never materialized. "It's been nine months — and I have yet to have anyone say, 'here's your next job'."

Analysts expect thousands of Smiths — accomplished PhDs at pharmaceutical companies — to be jobless in the near future. As is the case in many other industries worldwide, outsourcing and the recession are taking their toll on domestic job opportunities. And mergers and acquisitions also could deal a severe blow to science jobs in the region, says Thomas Morr, president of Select Greater Philadelphia, an economic development group. "We're all nervous about that, I think," he adds.

Within weeks of each other this summer, shareholders of Wyeth overwhelmingly approved the company's acquisition by Pfizer, and shareholders of Merck and Schering-Plough voted with similar gusto to approve their companies' merger. With the exception of Pfizer, the companies all have a substantial presence in the Philadelphia region. The combinations are expected to infuse zest into Pfizer's and Merck's drug pipelines at a time when they face the dismal future of losing patent protection on such money-makers as the statin Lipitor (atorvastatin) for high cholesterol and Singulair (montelukast) for asthma.

Positive: Daniel Skovronsky and Barbara Schilberg.M. BRANSCOM/AVID RADIOPHARMACEUTICALSBIOADVANCE

The changes will also have less positive consequences for the region. "We expect a 15% reduction [in our workforce size] from the merger," says Trish Maxson, vice-president of human resources at Merck Research Laboratories. The company has not disclosed which jobs would be lost. Maxson says that the company currently needs scientists, but her quest to fill those positions with external applicants is limited for now. "We're looking to the Schering talent to see how we can utilize it," she says.

Pfizer and Wyeth have been less forthcoming about job cuts. Wyeth spokesman Douglas Petkus says that it is "premature to discuss any specific changes related to personnel or facilities". Industry advocates say that job losses are on the horizon. "The pharmaceutical industry is consolidating and has been laying off employees in very large numbers," says Ellen Derrico, chair of the life-sciences network of the Greater Philadelphia Senior Executive Group. Derrico cites thousands of lay-offs in the past year at GlaxoSmithKline, Wyeth, Johnson & Johnson, Merck, AstraZeneca and Teva. "I think it will be felt permanently," she says.

"The biggest challenge is to not let these people move out of the area," says Barbara Schilberg, chief executive of BioAdvance. Her organization is one of several life-science investment groups formed by the Commonwealth of Pennsylvania several years ago using money that states had received as part of a massive settlement with tobacco companies. To date, BioAdvance has injected $16 million into 26 start-up companies and 17 pilot investments. Schilberg proudly says that most of those companies have survived and raised more than $300 million in venture capital, and six firms were acquired for a total of $650 million. Schilberg would like to see that new biotech base absorb whatever job losses result from the big pharmaceutical mergers. "In my ideal world, we would rearrange the pieces of the jigsaw puzzle," she says.

Philadelphia's University City Science Center is home to more than 100 companies.UNIVERSITY CITY SCIENCE CENTER

Daniel Skovronsky, chief executive of Avid Radiopharmaceuticals, a recipient of BioAdvance's seed money and one of the first tenants of the University City Science Center's new building, leads a visitor on a tour of his new space: brightly painted walls of orange and gold, a bank of cubicles, a chemistry lab and a vacant clean room. "It's just an empty room," Skovronsky says, "but in my imagination it will be bustling with activity." That's because Avid is expanding. The company's current facility is the third upgrade in Avid's four-year life.

The firm produces imaging agents that tag amyloid plaques in the brain and could be used to diagnose Alzheimer's disease. Skovronsky says that the company's late-stage clinical trials are going well, and he would like to apply the technology to other diseases such as Parkinson's. For him, it's been a good hiring season. "The industry is not as healthy as it once was, so that means there's a better pool of talent," he says. It also means that people may be more willing to grab a lower-paying, less-stable job at a small biotech company than to hold out for one at a large pharmaceutical firm.

Schilberg says that flexibility is the key to landing a job in the current competitive job market. "People need to think outside the box. A full-time job may be the wrong box to squeeze into," she says. Scientists who are willing to consult for multiple companies and gain management or business skills will have a better chance of finding work. It is also often unlikely that they will find a job in a large pharmaceutical firm to simply continue the research they did as a doctoral student.

Smith agrees. He says that he is casting a wide net for his job search that includes contract-research organizations and non-profit advocacy groups. "I'm going to focus on the smaller biotechs because I don't believe that big pharma is going to do a majority of their basic research in-house," Smith says. Indeed, Merck has said it plans to derive 25% of its basic research through external collaborations. "We think the downsizing of research and development at some of these firms will lead to the creation of some start-up companies," says Morr. The only problem is access to funding — be it venture capital, independent investors, state funds, federal funds or any variation thereof.

Skovronsky opens his laptop and pulls up a bar graph of Avid's employment history. "You can see here we started in July 2005, just four years ago, with, well, one employee," he says, pointing to the screen. Every few months the upward trend levels off, then shoots upwards again for a few months. The growth phases occur right after Skovronsky has secured another round of financing for the company. "When the outlook for funding looks uncertain," he says, "the first thing to do is stop hiring."

Venture-capital groups and other investors hold the key to biotech growth. And one of the drawbacks to being in Philadelphia — unlike being in investor hubs such as New York, Boston, and San Francisco — is less proximity to that capital. With venture-capital investments down nationwide, companies are being forced to wait longer to renew or initiate funding. Although the University City Science Center is home to more than 100 companies and comprises 15 buildings at 97% occupancy, the newest structure that opened last year is just 40% full. "In a more favourable economic environment, we'd be leased out already," says Stephen Tang, the centre's president.

But unlike the changes in the pharmaceutical industry, the scarcity of venture capital is considered a temporary phenomenon, and analysts expect it to recover along with the general economy. Mickey Flynn, the president of Pennsylvania BIO — the state's trade association for the biosciences — is not discouraged. He is pursuing the development of an incubator science centre in Chester County, southwest of Philadelphia. "We hope to generate a lot more innovation and bring some innovation that is in the larger companies out much more quickly," Flynn says.

Schilberg agrees that it is not an easy time for small companies, but she is confident that the number of innovative minds in the region will help to secure their survival. "Chaos always created solutions and creativity," Schilberg says, "and that's what we're doing."