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Protecting the Crown Jewel: Can New Jersey Hold on to Big Pharma?

Protecting the Crown Jewel: Can New Jersey Hold on to Big Pharma?

By: Andres F. Puerta

The pharmaceutical industry is still undoubtedly the crown jewel of New Jersey’s economy. In 2012, the industry generated over $26 billion in economic impact for New Jersey, nearly a 10 percent increase in economic activity from 2010.[1] As of 2014, New Jersey was home to 14 of the world’s largest pharmaceutical companies, including Johnson & Johnson, Merck & Co., and Novartis.[2]

Although New Jersey still considers itself the “medicine chest” of the world,[3] its grip over the industry has loosened, and the state no longer enjoys the dominance that it once did. In fact, over the past 20 years, New Jersey has gone from possessing more than 20 percent of the pharmaceutical manufacturing jobs in the country, to having less than 10 percent. From 2006 to 2011, New Jersey’s pharmaceutical sector suffered a significant hit when it lost close to 17.5 percent of the overall pharmaceutical sector employment in the state.[4] Merck, for example, closed both its Whitehouse Station and Summit locations, and laid off workers in the process, relocating operations to existing facilities in Kenilworth.[5] After acquiring Genetech, Roche moved its management from New Jersey to San Francisco, and with further employee movements, only 38 employees remained at its Nutley location as of July 2014.[6]

The threat of additional losses of Big Pharma companies is real and worrisome for New Jersey. The state is seeing increased competition from states such as California and Massachusetts, which have invested heavily in the life sciences industry. Additionally, California and Massachusetts have also invested heavily in higher education facilities and units that have made those states significantly more attractive to Big Pharma, as these facilities are important to the pharmaceutical industry in their own research.[7]

California and Massachusetts are beginning to see increased dividends for their investments. California, as previously discussed, was able to snag Roche from New Jersey, which left behind a 116-acre corporate campus in Nutley for tech-friendly San Francisco.[8] Massachusetts may be fairing even better, as many companies are turning to the state for research and development. Sanofi, which is headquartered in Bridgewater, opened a research and development site in Massachusetts after acquiring a biotechnology company called Genzyme.[9] Novartis and Pfizer followed in Sanofi’s footsteps, with both companies also opening research and development offices in Cambridge.[10] Johnson & Johnson, headquartered in New Brunswick, opened an “innovation center” in Massachusetts as well.[11]

The question, then, is how does New Jersey protect its crown jewel and prevent these pharmaceutical companies from leaving the state? The consequences of inaction are losing an enormous amount of jobs, thus negatively impacting the economic landscape in the state. To its credit, New Jersey has noticed and is addressing many of these issues. One issue that the New Jersey Legislature has yet to address, however, is New Jersey’s property taxes, which are the highest in the nation.[12] Lowering property taxes could serve as an incentive to keep Big Pharma, especially since these companies tend to own large office space campuses that span across several acres.

One initiative the New Jersey Legislature has taken – while still not addressing property taxes – is a series of tax measures that include providing tax incentives for New Jersey businesses. Grow New Jersey Assistance Program (“Grow NJ”), a program created by the New Jersey Economic Opportunity Act of 2013,[13] provides tax breaks for companies in all industries.[14] Furthermore, Grow NJ provides income tax credits to corporations for up to 10 years, with unused tax credits being transferable to the next tax year.[15] The tax credits kick in by creating as little as 10 full-time jobs or retaining 25 full-time jobs, although retained jobs are allowed only 50% of the tax credit value.[16] Additionally, New Jersey provides a Research and Development (“R&D”) Tax Credit pursuant to N.J.S.A. 54:10A-5.24.[17] That R&D tax credit provides a credit of 10% of the excess qualified research expenses over a base amount plus 10% of the basic research payments.[18] That tax credit can also be carried forward if the credit cannot be used because of tax liability limitations.[19]

Another way for New Jersey to catch up to states like California and Massachusetts is to invest in higher education facilities and graduate-level institutions. One of the reasons pharmaceutical companies look elsewhere is that innovation in biotech and related subject areas is lacking from New Jersey institutions, but present in places like Cambridge, Massachusetts. Voters in New Jersey, in a decision that should be applauded, approved a ballot measure that will allow New Jersey to raise $750 million to spend on building up the state universities’ science programs. This directive aims to retain the remaining research and development jobs here in New Jersey and looks promising in the fight to end the trend of the Big Pharma companies moving their research and development to Massachusetts and California.

The New Jersey Legislature, in conjunction with the New Jersey Judiciary, could also push to make the New Jersey courts more “pharma friendly.” First, the Legislature could amend the New Jersey Products Liability Act (“NJPLA”),[20] which provides for only a rebuttable presumption of adequate warning with respect to a drug label where the drug is approved by the FDA,[21] to provide an absolute defense against failure to warn lawsuits if the warning on the label was approved by the Food and Drug Administration (“FDA”).[22] Second, the Legislature could expand the Affidavit of Merit Statute[23] to cover pharmaceutical personal injury claims, therefore requiring plaintiffs to provide an affidavit from an industry professional stating that a reasonable probability exists that the company’s conduct fell outside of acceptable industry practices.[24] Third, the New Jersey Courts have traditionally had a lax standard for admitting expert evidence in pharmaceutical personal injury lawsuits with regard to novel theories of liability.[25] A more careful assessment of the reliability of expert testimony, much like the one done at the federal court level, could lead to the dismissal of meritless lawsuits.[26] Additionally, proper application of certain defense doctrines used by pharmaceutical companies, like the “learned intermediary” principle,[27] would help alleviate New Jersey’s massive mass tort docket, which as of July 2015, included more than 23,000 pending cases, primarily composed of lawsuits against pharmaceutical companies.[28]

Big Pharma receives a significant amount of negative media coverage due to, among other reasons, increasing prescription drug prices and products liability lawsuits. But one thing is certain – Big Pharma in New Jersey provides a significant boost to the state’s economy and is a top job provider for New Jersey residents. New Jersey has correctly taken steps to maintain its reputation as the “medicine chest” of the world and may have more steps to take. Big Pharma is New Jersey’s crown jewel, and the state should continue to do what it can to ensure that this remains the case.

[1] Lauren Wanko, NJ Trying to Keep Hold on Pharmaceutical Industry, NJTV News (Nov. 29, 2013), http://www.njtvonline.org/news/video/nj-trying-to-keep-hold-on-pharmaceutical-industry/.

[2] Business Portal, Pharmaceuticals, State of New Jersey (last visited Oct. 30, 2016), http://www.nj.gov/njbusiness/industry/pharmaceutical/.

[3] Wanko, supra note 1.

[4] Id.

[5] Id.

[6] Daniel Tucker, As Pharma Jobs Leave N.J., Office Space Ghost Towns Remain, NPR (July 30, 2014, 4:59 AM), http://www.npr.org/2014/07/30/336337115/as-pharma-jobs-leave-n-j-office-space-ghost-towns-remain.

[7] Wanko, supra note 1.

[8] Tucker, supra note 6.

[9] Michael L. Diamond, NJ’s Drug Companies Flock to Massachusetts, Asbury Park Press (Jan. 23, 2015, 11:09 AM), http://www.app.com/story/news/investigations/watchdog/government/2014/10/17/nj-comeback-failing/17438519/.

[10] Id.

[11] Id.

[12] Tonya Moreno, Best and Worst States for Property Taxes, The Balance (Sept. 8, 2016), https://www.thebalance.com/best-and-worst-states-for-property-taxes-3193328

[13] N.J. Stat. Ann. § 52:27D-489p et seq. (West 2013).

[14] Business Tax Incentives to Help Companies Grow, Choose: New Jersey (last visited Oct. 30, 2016), http://www.choosenj.com/business-assistance/business-tax-incentives.

[15] Id.

[16] Id.

[17] N.J. Stat. Ann. § 54:10A-5.24(a)(1)-(2) (West 2011).

[18] Id.; Department of the Treasury, Corporation Business Tax Credits and Incentives, State of New Jersey (last visited Oct. 30, 2016), http://www.state.nj.us/treasury/taxation/cbt-creditlist.shtml#Research

[19] Department of the Treasury, supra note 18.

[20] N.J. Stat. Ann. § 2A:58C-1 et seq. (West 1987).

[21] N.J. Stat. Ann. § 2A:58C-4 (West 1987).

[22] Michelle M. Bufano, Natalie H. Mantell and Jason J. Redd, Legislative Fixes to Keep Pharmaceutical Companies in NJ, Gibbons Gov’t Affairs Alert (June 24, 2016), http://www.governmentaffairsalert.com/2016/06/24/legislative-fixes-to-keep-pharmaceutical-companies-in-nj/.

[23] N.J. Stat. Ann. § 2A:53A-27 (West 2004).

[24] Id.; Bufano, supra note 23.

[25] Judicial Hellholes 2015-2016, American Tort Reform Foundation (last visited Oct. 29, 2016), http://www.judicialhellholes.org/wp-content/uploads/2015/12/JudicialHellholes-2015.pdf.

[26] Id.

[27] Summary Judgment Granted in 31 New Jersey Accutane Cases on Learned Intermediary, Lexis Legal News (Feb. 1, 2016, 1:30 PM), http://www.lexislegalnews.com/articles/5663/summary-judgment-granted-in-31-new-jersey-accutane-cases-on-learned-intermediary.

[28] American Tort Reform Foundation, supra note 26.