In Pfizer's Wake

This is only one of several new ventures percolating after Pfizer, Inc.'s unexpected announcement in January to close its R&D operations in Ann Arbor by mid-2008. Luckily, these new firms are exactly in the right place; Fast Company magazine recently cited Ann Arbor as one of the nation's top start-up hubs. Scott Olson of Ann Arbor SPARK's coaching and start-up services program certainly agrees. He boasts that the high-tech business accelerator is currently assisting Pfizer colleagues in 24 active projects, involving the formation of new life sciences companies based on either intellectual property or laboratory research services and consulting for the pharmaceutical industry.

Baron's anticipated fall 2007 launch is contingent on the company receiving roughly $600,000 in start-up funding, but he has done his homework. "The CRO market is a $16 billion a year industry and it's growing," explains Baron, who was recently interviewed by the prestigious life sciences journal Nature Biotechnology. "We've done the studies with other classes of drugs that are effective [in treating anxiety, panic and cognitive disruption] and may not have the same liabilities, so we're fully expecting the pharmaceutical industry to pursue those and we can play an important part in it."

Antibiotics drug discovery is another high-demand field because bacteria constantly develop new resistances to established drugs, says Dr. Cheryl Quinn, holder of a PhD in biochemistry and former director of antibacterial biology at Pfizer. Quinn is the co-founder, president, and CEO of TransPharm Preclinical Solutions, LLC, a human antibiotic drug-testing CRO. By year-end, she hopes to open for business – which requires about $250,000 to $500,000 for equipment and laboratory space. "There are people with a drive to make something like this succeed here. North Carolina's research triangle has turned into a technology savvy area, so why can’t we do that here? It's the idea of living in the state people are fond of."

Quinn cites the success of the many Kalamazoo-area CROs founded by former Pfizer scientists in the wake of Pfizer's job cuts there in 2003 as the impetus for her own decision to launch. "In another five years, the large [pharmaceutical] companies won't have as many employees because they'll be doing less drug discovery research, instead choosing to buy the compounds from smaller companies," she explains. "A lot of the discovery work will be done by smaller biotech companies or they'll hire out research to companies like mine. It's been good to see how the people in Kalamazoo have been able to build their businesses in Michigan, bringing money in from outside companies and making a go of this. The Kalamazoo model is a very good model for what could happen here in Ann Arbor."

Turning the tide

At last count, 21 companies opened after the Kalamazoo-area Pfizer job cuts in 2003, says Ron Kitchens, CEO of Southwest Michigan First, the region's economic development organization. Of those, 20 have created about 400 new jobs.  The last one, MPI Research, has ridden the boom in CROs and leveraged Pfizer talent to grow from a couple of dozen employees to over 1,400 during the last five years, he says. Many of the start-ups reside in Kalamazoo's Southwest Michigan Innovation Center, a life sciences incubator that opened in 2003. Kitchens is proud of the fact that none have failed, and four have recently announced graduation from the incubator. One of those firms, PharmOptima, LLC, a provider of laboratory and consulting services, made the 2007 list of Michigan's 50 Companies to Watch.

Like Kalamazoo, Ann Arbor now has its own new wet lab incubator. Tenants of the 12,000 square foot space enjoy full use of Business Accelerator services and below-market rent, says SPARK president and CEO Michael Finney. Although the incubator has a waiting list, SPARK is assisting companies in their search for other suitable lab sites. Finney also recommends that hopeful entrepreneurs use SPARK's Business Accelerator as the first point of contact.  The program provides up to $50,000 worth of business start-up services, sometimes as a grant but usually in the form of an unsecured loan, he says. "We really are banking on the success of these companies to be repaid, as opposed to requiring folks to make personal guarantees or pledge assets."

Additionally, the support services provided by Ann Arbor organizations such as SPARK and Biotechnology Business Consultants – a consulting firm for biotech start-ups – were invaluable, Baron says. To illustrate that point, nearly120 people attended the recent inaugural meeting of BioArbor, a new networking group for the local life sciences industry. "Looking around the room, we had attorneys specializing in life science patents, founders of small companies in the works, people interested in joining start-ups or trying to fund their own firms, academic scientists, consultants and advisors. Many of my clients were there," says Olson.

And as the monoliths continue to be replaced by promising contract research and other drug discovery companies here, opportunities to further diversify should be visible down the road. "You have to go in with your eyes wide open," stresses Kitchens, adding that it takes about $800 million and eight years to develop a promising new drug. "If you say 'We're just going to be in drug discovery, because that's sexy and it's slick and that's where all the big money is', you have to understand that big pharma is going to come in and if that drug is successful it will buy it and move it out of your community. What that will leave is wealthy entrepreneurs and investors who will then reinvest in deals in the community, and it really becomes a self-fulfilling prophecy."

In addition to diverse job creation, another benefit of encouraging life sciences companies is their global customer base – after all, anyone can get sick. "We'll be getting customers from all around the USA and internationally, so we're not dependent on the local economy directly, but we bring customers to Michigan," says Baron, and "we hope to hire local people with expertise in this area if they've been let go from Pfizer or if they’re state residents looking for those high-tech jobs. That's why we're staying here. We like Ann Arbor, the environment is very supportive and being part of the change in atmosphere and the economy of Michigan is really an interesting and intriguing challenge, and that's what we want to do."