December 7, 2011

JACKSON LABS - BUILDING ON THE UCONN HOSPITAL INVESTMENT

In October the legislature approved a general jobs bill and also state bond funding for Jackson Labs. There was a fair amount of controversy around this proposal, even though legislators uniformly supported the notion of attracting the lab here with state funds. As always, the devil was in the details. In the end, I supported the proposal. I agreed that the contract provisions with Jackson could certainly have been better. However, the opportunity for Connecticut was worth the risks in my opinion, and other states were lined up to court Jackson Labs, had we rejected the proposal.

Jackson Labs is a successful, non-profit genetics research company, founded in 1929. They’re located in Maine, and have an impressive track record of growth and success, including a Nobel Prize and numerous breakthrough discoveries related to cancer and other diseases.

Jackson Labs was looking to expand in a new location where there was more of an infrastructure conducive to the kind of cutting edge work they want to do in bioscience. Connecticut has the medical schools, teaching hospitals, scientific labor pool, stem cell lines, university research programs, and access to capital that fit their needs. In addition, and critical to their decision, was the governor’s willingness to invest state funds in their venture.

The company will be investing over $800 million to operate a new facility on the campus of UConn hospital in Farmington, where the state has already committed to build incubator space for private research. Under the governor’s proposal the state will kick in an additional $291 million in construction loans and research grants, which will be released as Jackson Labs meets performance targets over ten years. The money will not be released all at once up front.

The Department of Economic and Community Development projects that the state will be fully re-paid by 2021 and they built in a “claw-back” to the deal—meaning if the company does not deliver the jobs and funding it promised, then the state can recoup its funding. In other states that invested in research incubators (such as North Carolina’s Research Triangle), the number of jobs actually created far exceeded the conservative projections for this project. In fact, Florida—although they ultimately failed to finalize a deal with Jackson Labs—projected far more jobs would be created than Connecticut projected using a more conservative modeling approach.

Connecticut has an emerging strength in the field of bioscience—a field projected to grow at 11% per year for the foreseeable future, according to PriceWaterhouseCoopers. Indeed, our investment of several years ago into stem cell research is what has positioned us so well in this field. That investment, which was also very controversial, has proven to be successful in attracting start-up companies and new jobs.

By attracting a company like Jackson Labs, Connecticut will begin to dominate this important and growing field of business. Indeed, if Jackson hires according to projections, we will have the largest concentration of genomic research scientists in the world. Once an area is established as a key center of expertise and infrastructure for any complex industry cluster, other related industries inevitably migrate to the same location, bringing even more jobs and economic development. This is good news for Connecticut and especially good news for the Farmington Valley—where well paid-scientists and support staff will be looking for homes and services.

I had lunch recently with the new president of UConn, Susan Herbst, who mentioned that she is already seeing a larger pool of nationally reputed physicians and scientists who can attract more federal & philanthropic grant money applying for jobs at UConn Hospital, because of the bioscience center and Jackson Labs.

The research they will be doing here is also exciting and has the potential to substantially change the practice of medicine. By using their expertise in genetics research, they will work to identify the genetic bases of various diseases. They will be helping health care companies to develop drugs and preventive strategies that address the genetic precursors of many chronic illnesses. In addition, they will develop ways to test an individual’s DNA to identify which medicines and treatments will work best for which individuals.

Contrary to some media reports, Connecticut will have the opportunity for an equity stake and a share of the financial rewards from new patents and products that may result from the research at Jackson Labs. The $99 million in grants that Connecticut has included in the package deal will be doled out in chunks over the coming years. Each will be overseen by CT Innovations, which is essentially a state-managed venture capital group. They will structure each grant to include appropriate rewards for Connecticut.

The Commissioner of the Department of Economic and Community Development, Catherine Smith, is a woman whose intelligence and business acumen is respected enormously. She has structured numerous business deals, mergers and acquisitions in her many years in the private sector, including as CEO of ING U.S. Retirement Services and as chief financial officer for Aetna Financial Services. Quite simply, I know she thoroughly vetted this proposal, using sound financial modeling techniques, and I trust her analysis and business sense.

I see this opportunity as an inflexion point for economic growth in the field of bioscience in Connecticut. While there are never any guarantees in life, I sized-up this proposal as one where the potential upside exceeds the potential downside.

As always, if you would like to discuss Jackson Labs or any other topic please email me at Linda.Schofield@cga.ct.gov or call me at 860-240-8585.