NC Biotechnology Center: You Got To Know When To Fold 'Em

Updated January 13, 2009

Mission
North Carolina Biotechnology Center states that its mission is to provide long-term economic and societal benefits to North Carolina through support of biotechnology research, business and education.

History
The NC Biotech Center is a 501 C-3 tax-exempt organization which began in 1984 as a result of a legislative commission and it boasts of being the first government funded biotech organization in the nation. More than two decades later, the Center has been the recipient of more than $200 million from North Carolina taxpayers, and according to the Raleigh News & Observer, the state has poured $1 billion into the biotechnology industry.

Background
Most members of the Board of Directors of the NC Biotech Center tend to lean toward the Democratic Party, though there are some exceptions:

• John Atkins – Architect – contributed $59,000 to Democrats, $1000 to Republicans
• Erskine Bowles – UNC President and former Democratic US Senate candidate
• John Cecil – Biltmore Biltmore Farms – gave $17,000 to Republicans
• Sue Cole – Money Manager – contributed $14,000 to Democrats, $1250 to Republicans
• Patricia Morton – Franklin Street Partners – contributed $12,000 to Democrats like Jack Murtha
• Arthur Pappas – Venture Capitalist – gave $13,000 to Democrats, $3500 to Republicans
• Gerald Roach – Lawyer – contributed $1500 to Democrats, $3000 to Republicans
• Jean Spaulding – Physician, Duke Medical – gave $5400 to Democrats like Barack Obama

Most of the thirty-nine members of the Board of Directors have close ties to the biotechnology industry, investment banking, economic development, or state government.

The Center lists ownership of two subsidiaries, NC BioScience Ventures, LLC, an economic development investment firm; and NC Genomics, a research organization.

Losing Money Like A Wall Street Bank
The NC Biotechnology Center lists its financial statements going back to 2000 on its website. Since 1999, the Center has been awarded over $88 million in taxpayer funding by the legislature for grants and loans to biotech companies, equity investments and other expenses, all “to create jobs.”

So how did those investments fare?  According to a report in the Triangle Business Journal, the Center netted a 41-percent loss on investments in just two years, and total losses from 2000-07 have exceeded $11 million.  In fact, just this past year, TBJ reported that a $10 million dollar NC Biotechnology Center investment in an Eno River Venture Capital Fund had lost $9 million, causing Senate Finance Committee Chairman David Hoyle (D-Gaston) to remark, “If we gave them $10 million and got $1 million in return, then I'd say that's a pretty sorry job. I wouldn't be willing to give them any more venture capital money. I could throw darts that would be better than that.”

All of this tough talk didn’t stop lawmakers from allocating another $30 million for the NC Biotechnology Center in its budget for the 2007-08 fiscal year.

What About Jobs?
Proponents of funding to the Center claim that it's all about new job creation.  On that score, in 2000, 18,200 North Carolinians worked in pharmaceutical and medicine manufacturing and 10,400 more were employed in scientific research and development (though not necessarily in the biotechnology sector). According to the Employment Security Commission, that’s equal to six-tenths of one-percent of North Carolina's workforce. By 2007, that figure had increased to 19,200 in pharmaceutical manufacturing and 17,200 in scientific research and development – or eight-tenths of one-percent of our workforce.

If two-tenths of one-percent of North Carolina's total employment is worth $88 million, then maybe there is some swampland worth “investing in” with taxpayer dollars.

The NC Biotech Center website claims 56,000 people work in biotechnology, although other sources say the figure is closer to 180,000 workers. Whatever that accurate number, employment figures don’t distinguish between government and private jobs.

Additionally, while politicians pour millions into biotechnology job training programs, a new study by Forsyth Tech and Alamance County Community College concludes that the state is producing an oversupply of biotech industry graduates. After nine months, 18-percent of graduates in biotechnology still hadn’t found employment.  Starting salaries averaged $24,900 for Forsyth Tech graduates and $31,000 for those who graduated from Alamance County Community College – compared to $37,000 nationally for Associates’ Degree holders over 25 years of age.

As if all this wasn't bad enough, the Triangle Business Journal reports that some NC Biotech Center grants have gone to biotechnology companies overseas, creating no jobs in North Carolina.  And while the latest round of grant offerings claim to be going to North Carolina start-ups, at least one grantee, FirstString Research, is a South Carolina-based company with an office in RTP.

Potential Conflicts
Of course, whenever political appointees handle millions of taxpayer dollars, potential conflicts may arise. Board member Sue Cole is a major investment manager whose clients could benefit from Biotech Center investments in companies they own.  Board member Robert Bell’s Intersouth Partners has managed money for the Biotech Center.

Vipin Garg is a Biotech Center Board member, and Tranzyme, for which Garg serves as CEO, received a $150,000 investment from the Center (Business Wire 9/23/03). Board Vice chair Patricia Morton’s Franklin Street Partners helps finance companies backed by the Biotech Center, raising the possibility of soliciting business based on support from the Biotech Center. And Chairman Arthur Pappas also helps finance biotech businesses.

Attorney and Democratic activist Robert Spearman of Parker, Poe, Adams and Bernstein serves on the NC Biotech Center's Board while his firm receives $150,000 annually from the Center. His law firm also touts its biotech expertise, raising conflicts about grants and investments in companies for which the firm might be soliciting.  One of those conflicts involves Spearman law partner Bruce Thompson, listed on the Secretary of State’s website as the lobbyist for billionaire David Murdoch’s land development firm, Castle and Cooke. The Biotech Center gave $37,000 to promote Murdoch’s taxpayer-funded biotech research center in Kannapolis. In fact, Lynne Safrit, an executive of Murdoch's Castle & Cooke development firm which is handling the Kannapolis project, is also on the Center’s Board of Directors.

More conflicts seem apparent with Board member Gerald Roach of Smith Anderson, which represents pharmaceutical & biotech corporations, according to his law firm’s website.

The NC Biotech Center uses studies by Ernst & Young to promote biotechnology’s economic impact (Ernst & Young has also advised the NC Dept. of Commerce on economic development "investments"). Michael Constantino, a partner at Ernst & Young, serves on the Center's Board.

While conflicts aren’t proof of dishonesty, private interests and public money are not a healthy combination.

Musical Chairs
The NC Biotechnology Center has had six executive directors over the years. In 2007, Leslie Alexandre quit the post, stating that "I have been going 24/7 for five years" (she subsequently snared a position NCSU). During Alexandre's tenure, the state funding for the Biotech Center more than doubled, causing Board member Sue Cole to gush, "She’s going out on top, isn’t she?" Apparently, the loss of huge amounts of taxpayer dollars on speculation isn't a serious issuefor the Center's leadership.

The Center landed on its feet with the entrance of Norris Tolson, a former Democratic legislator who, with great fanfare, resigned as Gov. Mike Easley’s Secretary of Revenue in 2007 to take over as executive director. While Tolson holds no known biotechnology expertise, does the Center believe that Tolson will provide at least enough leadership to stop the Biotech Center from hemorrhaging the taxpayers’ money?

Other staff members are well compensated, with the top five staffers alone earning a total of $750,000 per year.

Summary
Despite a wealth of expertise among the Board and staff, the North Carolina Biotechnology Center appears to have a dismal record when it comes to job creation and financial return on investment.  Nevertheless, the Center is going full steam ahead with plans for a 25,000 square foot addition to its headquarters in RTP.  And on January 12, 2009, the Center announced that it plans to offer training in grantwriting skills to other non-profits with an interest in obtaining grants in the life sciences or economic development fields.  Clearly, the failure to spend money wisely won't stop the Center from encouraging others to seek funding as well.  After all, that's something they're good at.

Governor Perdue will have to decide if a targeted corporate welfare system, in which state government picks winners and losers, is the right prescription for economic growth -- and if so, whether biotechnology is truly going to end up being a winner in new job growth. But with millions of dollars in taxpayer funds being lost for limited jobs, perhaps the Governor and legislature should take a lesson from Kenny Rogers and learn when to fold ‘em.

Contact
NC Biotechnology Center
PO Box 13547
Research Triangle Park, NC 27709
(919) 541-9366
www.ncbiotech.org