Life Sciences Cuts Run Deep

March 14, 2003
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State budget cuts would severely curtail further development of Michigan's emerging life sciences sector, says an industry organization that wants to work with state leaders to find new ways to fund the initiative designed to diversify the state's economy.

The $12.5 million cut in funding for the rest of the fiscal year was the first of two hits for the Michigan Life Sciences Corridor that stretches from Ann Arbor to Grand Rapids. The cut, which reduced funding from $45 million to $32.5 million for FY 2003, already "significantly weakens" the program.

A further major reduction in Gov. Jennifer Granholm's 2004 budget proposal would essentially bring it to a halt.

"We read that as the whole thing is gutted. There really isn't a Life Sciences Corridor after this," MichBio Chairman Fred Reinhart said.

Under Gov. Granholm's proposed FY 2004 budget, the Life Sciences Corridor would have to share $20 million in funding with the governor's Technology Tri-Corridor initiative that includes the life sciences and automotive technology sectors and homeland security.

Whatever funding life sciences may end up receiving is a "token amount," perhaps as little as $6 million, Reinhart said.

The reduced funding undermines the emerging life sciences industry in Michigan and the state's ability to compete with other states or regions in becoming a national leader in the high-paying economic sector, Reinhart said. Without the full state funding, the life sciences sector will lose the ability to leverage key federal and private funding sources at a critical time, he said.

"The life sciences industry in Michigan is at a vulnerable point. It's really just getting up momentum," he said. "The cuts really don't save that much for the state but they're very devastating for the companies and the universities that are building the life sciences sector."

A major priority in the state's economic development efforts under former Gov. John Engler to diversify the state's economy, Michigan's Life Sciences Corridor was initially supposed to receive $50 million annually for 20 years to support the research and commercialization of products and services.

The state funding, available through Michigan's share of the national tobacco settlement, helped to start or lure 18 life sciences companies to Michigan last year, according to the Michigan Economic Development Corp. Michigan now has 325 life sciences-related companies that have a collective annual sales volume of $1.6 billion and work force of 16,500 people, MEDC data shows.

The $12.5 million reduction in life sciences funding for the remainder of the fiscal year was part of $158.3 million in budget cuts Granholm made by executive order Feb. 19 to bring the $8.9 billion 2002-03 budget into balance.

Given the depth of the state's fiscal crisis, the reductions in Life Sciences Corridor funding for this year and next are understandable, said Birgit Klohs, president of The Right Place Program in Grand Rapids. That doesn't mean she's happy about it.

"Certainly the economic development community and the life sciences community are going to try to make the case this is rather shortsighted as we're trying to diversify our economic base," Klohs said. "This is only the opening of the whole negotiation."

The issue goes far beyond trying to reverse or at least stem the funding reduction proposed in the 2004 budget. With term limits bringing several new lawmakers to Lansing every two years, backers of the Life Sciences Corridor need to position themselves now to have the some or all of the $50 million in funding restored in future years when the state's finances rebound, Klohs said.

"I hope future governors and future Legislatures remember the importance of this initiative," Klohs said. "We have to fight for the money. Once something goes away, getting it back is not that easy."

Restoration of the funding in the future is a possibility, once the budget situation stabilizes and recovers, Granholm spokeswoman Elizabeth Boyd said. But there's certainly no guarantee, she said.

"That is one of the areas that, as the state budget improves, there might be additional money," Boyd said.

The MEDC will "make the best use" of what funding remains for the Life Sciences Corridor for the 2003 fiscal year, spokeswoman Jennifer Owens said. That includes continuing to put money into venture capital funds that invest in the life sciences industry, a move than will enable the MEDC to leverage its available funding, Owens said.

"It makes the best sense to put your money into a place where it can do the most good," she said.

The MEDC to date has invested $5.4 million in venture capital funds that are seeking to raise $65 million to support life sciences investments. In the current round of funding, two new venture capital funds are asking for $2.8 million to supplement the $80 million to $100 million they are trying to raise, Owens said.

While the MEDC wishes life sciences funding were higher and maintained at original levels, Owens notes that the Life Sciences Corridor is a 20-year initiative and commitment by the state. Funding should return to normal once the state's economic and budget conditions improve in the years ahead, she said.

"It's more of a marathon than a sprint to grow Michigan's life sciences industry," Owens said. "It's a long-term commitment."

As the governor and lawmakers sort out the state's finances, the Ann Arbor-based MichBio, consisting of life sciences and bio-med companies, as well as academic and research institutions, worries about that commitment. The organization contends the funding cut "sends a strong message to the nation that our state is not fully committed" to advancing the life sciences sector in Michigan.

Life Sciences Corridor funding has played a "key role" in stimulating life sciences investment in the state, the organization said in a recent position statement. The return on investment "more than offsets" the cost of the program.

Reinhart, of MichBio, says that backers of the Life Sciences Corridor are fully cognizant of the state's budget crisis and have tempered their concerns accordingly. Their goal is to work with the governor and state legislators to see if there are ways to shore up funding for the Life Sciences Corridor.

"The door is open and we want to talk. We want to be cooperative," Reinhart said. "There is only so much room on the playground to be strong in life sciences. If Michigan is to be there, it's got to invest."

Funding decisions for life sciences organizations and companies seeking funding for 2003 are due in May. A corridor steering committee invited 69 applicants of the 169 submitting inquiries to submit full applications for funding.

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