Everyone agrees that the N.J. pharmaceutical, life sciences and even the healthcare industry sectors have taken a hit over the past few years, but not everyone agrees on what to do about it.
On Feb. 12, 2013, the New Jersey Economic Development Authority (EDA) took a step toward revitalizing those sectors. Its board voted to authorize a funding allocation and to permit the EDA to go out to the market seeking competitive solicitations for an accelerator to be partially financed by the development authority, which acts as the bank for N.J.
“Gov. Christie recognizes how important it is to nurture the growth of New Jersey’s early-stage life sciences and technology companies, and this is another opportunity for the state to partner with the private sector to fill a market need,” said EDA CEO Michele Brown.
Job creation will be an ultimate goal of the accelerator, she added.
In an interview with NJTechWeekly.com, EDA director of technology and life sciences Kathleen Coviello said the request for proposal (RFP) solicitations for the new accelerator will be “similar to what we did for TechLaunch” (Montclair), the tech accelerator also partially funded by the EDA.
Said Coviello, “We will frame out what we want and we will ask the private sector to take the lead on this. We want to be the impetus for this accelerator and then go behind the scenes,” letting private sector investors, who know the industry better, take over.
“We are looking for someone to step up and manage this,” she added.
The EDA plans to host the accelerator in its Commercialization Center for Innovative Technologies (CCIT) facility in North Brunswick, near Rutgers University, which it has purchased from Johnson & Johnson.
The complex has “done a phenomenal job of growing biotech companies that need wet lab capabilities, and this will add a new dimension to that facility for us and N.J.,” said Coviello.
The amount of dollars the EDA will spend on the accelerator will be larger than that committed to TechLaunch, because the costs of getting life sciences, pharma, healthcare and healthcare IT/big data companies up and running are often higher than those associated with general IT companies.
Coviello said the EDA would commit $500,000 in capital each year for three years, plus an estimated $35,000 in-kind real estate contribution (in forgone rent) per year over those three years. In an arrangement similar to the one with TechLaunch, the EDA will ask for a private sector match on a two-to-one basis. EDA funding will be offered in exchange for a $535,000 annual pro rata limited partnership investment, with a subordinate equity return position.
What this accelerator will ultimately look like is anyone’s guess, Coviello said, noting, “We want the market to determine what happens.” The EDA has the vague idea that the companies joining such an accelerator might be at the intersection of big data and pharma, but whoever is chosen to run it might have a different idea about what kinds of companies would work best under those circumstances. N.J. is uniquely placed to participate in the big data arena, she added, since the state has excellent broadband capabilities.
“What we really want the market to do is tell us what the model should be. Should it be broadly life sciences? Should it be healthcare IT? Should it be a portfolio approach with biologics, pharma, healthcare IT, healthcare services? The competitive solicitation will be very broad. We want the respondents to say, ‘This is my model and this is why we think it is good for New Jersey,’ ” said Coviello.
The authorization is subject to a 10-day period during which Gov. Christie could veto the decision, although that is not expected, observers say. The EDA plans to then launch the competitive solicitations. “We will ask for responses back by April 2. After that, we’ll go to the board with our recommended awardee,” explained Coviello.
The individual or group selected to run the accelerator will have to meet a number of qualifications, she said, including a good investment track record, ties to a trove of strategic partners such as hospitals and insurance companies, the ability to attract private capital and experience with mentoring emerging entrepreneurs.
Coviello noted that the EDA’s equity investment will be subordinate to that of the other investors: “We put in $500,000, and private capital comes in for $1 million. When there is an opportunity to make a return, the private investors get their $1 million back before the EDA gets its $500,000 back.
“We have to make sure that we choose someone who is looking ... to make a return, both from a financial standpoint as well as ... to the community in growing jobs, and that we are aligned in that manner.
“The other key piece we think is paramount is bringing the consumer to the table. The people selected to run this accelerator will have to bring the payers [the insurance companies], the hospitals and big pharma to the table so they can say, ‘These are our pain points and this is what we want the emerging companies in this industry to address.’ ” Coviello said the EDA would help foster that where it can, but it is exceptionally important for the accelerator to be directed at industry stakeholders’ needs.
The EDA anticipates that the accelerator will offer an estimated 10 companies the opportunity to participate in an intensive boot camp. The selected companies would receive hands-on mentorship, seed funding ranging from $20,000 to $100,000 and connections to potential partners and customers. At the end of the boot camp, the companies would demonstrate their technologies and business models to a wide variety of investors during a formal event similar to the TechLaunch Demo Day.
EDA president and chief operating officer Tim Lizura noted that the accelerator model is one that engages the community to support promising entrepreneurs. He said the EDA anticipates that life sciences mentors will include industry leaders representing three main categories: strategic partners (hospitals, pharmaceutical and health insurance companies and research institutions), investors (angel investors, venture capital firms and serial entrepreneurs) and service partners (accountants and lawyers).