Details on Cuomo’s first Billion To Buffalo investment

Reporting, analysis and commentary
by Jim Heaney, editor of Investigative Post

I’ve been reporting on economic development in this town for more than a decade and the way Andrew Cuomo and Co. plan on spending the first installment of the $1 billion they’ve pledged to revitalize the Buffalo area economy is like nothing I’ve ever seen.

I mean this in a good way.

Gov. Cuomo in December announced a state investment of $50 million to set up a drug research facility to attract Albany Molecular Research to the Buffalo Niagara Medical Campus. State officials have refused to discuss details since then. Until now.

Alain Kaloyeros, architect of the successful effort to build a nanotechnology sector in the Albany region, exhausted my list of questions in two interviews this past week about the Buffalo project, in which he plays a central role.

I’ll get to the details in a minute, but in a nutshell, Kaloyeros put forth a credible case for the state’s approach, which is modeled after the nanotech initiative in Albany. The vision for here would result in a research and development center for pharmaceutical drugs in Buffalo unlike any in the nation.

“There is nothing like this in the United States, or, so far, overseas,” he said.

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Video and transcript of Heaney’s in-depth interview with Kaloyeros

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To grasp the Buffalo project, it is important to first bone up on what’s happened in Albany.

The seeds for the region’s success in developing a nanotech sector were planted in 1988 under then Gov. Mario Cuomo when SUNY Albany established academic programs and public-private partnerships. That evolved into a School of Nanosciences and Nanoengineering at SUNY Albany in 2001 and later the College of Nanoscale Science and Engineering.

The center/college was built and is staffed and otherwise operated by the university in concert with companies that have signed on to use the facilities. Kaloyeros refers to it as an “innovation hub” in which the university and companies collaborate not only on the R&D front, but to then commercialize that work.

The recipe, according to Kaloyeros: “You locate the smartest people from a university and build a state-of-the-art infrastructure, and bring in the top corporations in a specific field, in our case, nanotechnology, to co-locate in the facilities and invest in joint-innovation and education.”

Why wouldn’t a company simply do this on their own? R&D in the tech and biomedical fields is too costly and complex for individual companies to undertake on their own, Kaloyeros said.

“What used to be called the Kremlin Model – where companies do things internally, on their own, and universities, on their own, it’s kind of a thing of the past,” he said. “In this new era of innovation you need physicists, chemists, biologists, computer scientists, mathematicians, all working together. And no single company can afford it.”

The beauty of the approach is that the center is held in public hands. All this did not come cheaply in Albany, mind you. The state has anted up some $1.3 billion, but private companies have invested 10 times that, so tax dollars appear to be highly leveraged.

But investments have bought results: 3,100 jobs at more than 50 companies cased at the center and another 15,000 in the Albany region and around the state. These are good paying jobs, Kaloyeros said, with an average annual wage of $87,000.

This is not an entirely good news story, as some of those 18,000 jobs have come at huge public expense, most notably the $1.4 billion – yes, billion – in state subsidies lavished on GlobalFoundries, which manufactures computer chips. (I’ll wait to discuss subsidies for another day, readers, but we’ll eventually have that talk.)

Let’s move that nanotech concept 290 miles west on the Thruway to Buffalo.

The basic concept remains the same. The state will spend $50 million to renovate space at the Center for Excellence on Ellicott Street and equip it with state-of-the-art equipment. The center will be a joint venture operated in partnership with Kaloyeros’ nanotech operation in Albany. The public partners here will include the medical campus, University at Buffalo and Jacobs Institute. Albany Molecular will be the lead partner on the private sector side.

As is the case in Albany, the equipment, facilities and central staff would remain in public hands.

Let’s talk about AMRI for a minute.

Investigative Post has reported some disquieting facts about the company. That it lost $112 million between 2009 and 2011. That its stock prices dropped 10 fold over the years and reached a point earlier this year where some analysts were advising investors to avoid the stock. That company officials told out-of-town media they intend to create only a “fraction” of the 250 jobs mentioned by Cuomo in his Dec. 4 announcement.

To this I will add that the memorandum of understanding between the company and state, which Investigative Post recently obtained under the Freedom of Information Act, does not commit AMRI to the Buffalo project. Instead, the MOU commits the parties only to “discuss” investment and job creation opportunities and to “engage in good faith negotiations in contemplation of a closer collaboration.”

Not exactly signed, sealed and delivered as Cuomo lead everyone to believe back in December.

Kaloyeros addressed the concerns raised by our reporting.

First, he said, MOUs are the norm at this stage of these kind of deals.

“This project is going to move forward,” he said. “They (AMRI) are not going to walk away unless a meteor hits Buffalo and the capital.”

Second, Kaloyeros said AMRI is a New York-based company that enjoys a reputation for innovation within the pharmaceutical drug industry.

“They know how to develop drugs,” he said.

Finally, Kaloyeros said, AMRI has stopped losing money.

Indeed, the company earlier this week released its financials that showed it posted a razor thin profit last year. Its pre-tax losses in 2011 were $36 million; that flipped to a profit of about $700,000 in 2012. Company officials are projecting a $21.5 million profit for this year.

“We’re on a new trajectory in terms of profitability,” said Michael Nolan, AMRI’s chief fiscal officer.

If the MOU is, in fact, acted on, Kaloyeros said AMRI will be one of three companies to set up shop in Buffalo during the first phase of the project. They’ll initially set up shop in renovated space, but a new, stand-alone building will likely be constructed to accommodate growth.

Albany Molecular is bringing 75 jobs to Buffalo during the first phase of the project, some relocating from a shuttered operation in Washington State.

Two other undisclosed equipment companies are also expanding their operations into Buffalo, bringing another 175 jobs. Add that to the 25 core jobs required to run the R&D center and officials said at least 275 jobs are assured at the outset, with the first employees reporting for work by the end of this summer.

Most of the jobs will pay, depending on the positions, between $60,000 and $100,000 annually.

Kaloyeros said those jobs could only be the beginning if Albany’s nanotech experience is repeated here. There would be advantages for pharmaceutical companies engaged in R&D here to set up manufacturing operations here to take advantage of the proximity.

“They want manufacturing near where the R&D is,” he said. “If you take the model in Albany and be conservative, I would say for every R&D job, you’ll see anywhere from five to 10 manufacturing jobs.”

By his estimates, that means a total of 2,500 to 3,000 jobs within five years.

“The sky’s the limit,” he said.

Matt Enstice, CEO of the medical campus, agreed that manufacturing is the key to job growth.

“That’s where the real opportunity is,” he said.

The medical campus is home to some 12,000 employees, but only about 2,000 represent new jobs, more than half of them at public institutions including Roswell Park Cancer Institute. There’s a growing recognition that the medical campus needs to start pumping out more private sector jobs and Enstice said the new drug R&D center should be the ticket.

“This is a real opportunity to grow private sector jobs here,” he said.

Now, the devil will be in the details, and this initiative could fall flat. Remember the buzz around bioinformatics? But a couple of things strike me as different than economic development as we have come to know it in Western New York.

First, the manner of the government investment is a departure from the standard operating procedure of throwing globs of money at a company with no real strings attached in the hopes that it pans out.

Second, drug R&D holds real potential for spin-off development in terms of both new businesses and good-paying jobs.

In this a silver bullet? No. But this initiative does represent a genuine opportunity.

Thomas D’Ambra, AMRI’s president and CEO, described the initiative as “a medium deal that could turn out to be a big deal.”

Given what passes for economic development in this town – handouts to hotels, liquor stores and suburban office parks – the downtown R&D center might already be a big deal.

It’s also apparent that Kaloyeros will play a significant role, and that harbors well, given his track record in Albany. He appears to be a straight shooter who knows what he is doing.

Hey, what a concept, especially in these parts.