Another Buffalo Billion project is struggling

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There were supposed to be almost 500 jobs created by now.

Instead, there are just 51.

An ambitious economic development project at the University of Buffalo, intended to bolster the region’s biotech sector and create high-tech jobs, is years behind its original schedule and coming up short on its hiring goals.

The Buffalo Institute for Genomics and Data Analytics, funded with almost $50 million in state grants as part of the Buffalo Billion initiative, was launched five years ago and remains a work in progress.

The project was originally supposed to create 490 jobs by January of this year. That hasn’t happened because three of the four agreements UB signed with companies – including one to create 300 jobs – fell through.

UB still doesn’t have commitments for all 490 jobs. The university now has agreements with six companies, but those only account for roughly half the jobs anticipated. Officials are counting on another 230 jobs from unidentified companies that they hope to sign up in the next few years.

“It is going to take longer than planned because of an unfortunate turn of events with the original partners,” said Christina Orsi, the University at Buffalo’s Associate Vice President for Economic Development, who oversees the project.

“We’ll continue to add partners that will get us to the 490 jobs.”

Executives at several participating companies – mostly startups – said it’s tricky to predict exactly how many jobs they’ll be able to create, even though their agreements with UB lay out year-by-year hiring targets.

Biotech startups face a particularly thorny path to success, as they have to navigate regulatory challenges like gaining approval from the U.S. Food and Drug Administration for new medical treatments – a process that can take years.

Despite the risks, experts agree that encouraging startups tends to be a better use of public money than giving subsidies to established companies. Research shows that almost all net U.S. job creation comes from startups. Most fail, but the ones that succeed grow quickly.

“With startups, we know the failure rate is high,” said Greg LeRoy, executive director of Good Jobs First, a national subsidy watchdog. “If you subsidize 10, eight or nine don’t make it, but the one or two that do will grow to the point where the overall return on investment is good.”

Original partners dropped

The creation of the Buffalo Institute for Genomics and Data Analytics was first announced in 2014, with a plan of building on Western New York’s existing strengths in life sciences and advanced manufacturing.

That year, Gov. Andrew Cuomo praised the project in his State of the State address.

“Genomic medicine is the next frontier in modern medicine and we believe we can lead the way,” he said. “It is creating hundreds of jobs and an entirely new industry for Western New York, so let’s get at it.”

The Empire State Development Corp., the state’s primary economic development agency, approved grants worth $47.5 million for UB, which took the lead on the project. UB, through the SUNY Research Foundation, already had agreements with four companies who – between them – had agreed to create 440 of the 490 jobs anticipated. Another 35 would be added at UB.

Computer Task Group (CTG), an information technology company headquartered in Buffalo, was supposed to anchor the project, with the largest hiring commitment – 300 jobs over five years.

A local biotech company, Empire Genomics, agreed to create 80 jobs; Aesku NY, an offshoot of a larger German company, committed 50; and Lineagen, a Utah startup planning to relocate to Buffalo, pledged 10.

Three of those four agreements ultimately fell through.

After CTG’s CEO died unexpectedly in late 2014, the company faced financial challenges, said Orsi. The university eventually made the decision to end the agreement after losing confidence in the company’s ability to meet its job goals. By then, UB had already paid CTG more than $5 million for work on a set of data analytics tools – work that proved largely useless once the company was no longer part of the Buffalo Institute for Genomics project.

The agreement with Empire Genomics didn’t go anywhere.

Lineagen, Orsi said, ultimately decided not to come to Buffalo.

Lineagen and CTG did not respond to requests for comment; a spokesperson for Empire Genomics declined to comment.

Of the original companies, only Aesku NY is still part of the project, after scaling back its job commitment from 50 to 36.

“We decided the foundation of the project was still valid, but we needed to find new partners,” Orsi said.

Finding new partners

Roughly half of the $47.5 million set aside for the project has been spent, mostly on university-owned software and equipment. Participating companies get access to university resources – like research expertise and specialized laboratories – that few would be able to afford by themselves.

“It’s a highly sophisticated suite of facilities and BIG [the Buffalo Institute for Genomics and Data Analytics] acts as the concierge,” explained Alan Belicha, UB’s Director of Business Development and Industry Engagement.

The companies also receive smaller amounts of direct funding for their own research, operating expenses, or as forgivable loans. Some of the agreements include “success fees”: if the companies grow to a certain size, they have to pay the money back with interest.

Vijay Kumar, vice president of Aesku NY, said the company would not have been sustainable without the UB partnership. Equally valuable, he said, are the less tangible benefits that BIG offers: networking, the ease of working in a facility that’s ready to use, and the ability to bounce ideas off like-minded researchers. Executives at other participating companies said their relationships with UB had acted as a vote of confidence, reassuring investors and helping them to raise money.

UB has made progress in signing up new partners, adding five in the past three years. But the university still doesn’t have firm commitments for all 490 of the jobs. Between them, the six companies currently participating have agreed to hire 264 people over five years.

Another roughly 230 jobs, officials say, will come from companies that don’t have agreements with the university. UB officials say they’re in “active conversations” with a range of companies and anticipate announcing additional job creation commitments of “between 200 and 300” in the coming year.

And they point out that only about half of the money set aside for the project has actually been spent.

“We will spend as we gain partners,” Orsi said.

New timeline

After the change in partner companies, the project’s job creation clock was reset, starting afresh in 2017. But the project is falling behind even under this new schedule.

Empire State Development documents from last year put the project’s goal for 2019 – due on February 1 – at 70 jobs. At the end of 2018, the most recent figures the university could provide, there were only 51 jobs. So, ESD lowered this year’s goal to 45.

For now, the biggest job commitment comes from Circuit Clinical, which makes it easier for patients to take part in clinical trials for new treatments. Last year, it launched a website called “TrialScout”, which CEO Dr. Irfan Khan describes as “Yelp for clinical trials.”

Circuit Clinical agreed to create 104 jobs by 2021, in exchange for $1.1 million in direct funding, paid out gradually as the company meets certain hiring milestones. Khan said taking part in the project gives the company access to technology that it might have taken years for it to obtain on its own.

Even so, Circuit Clinical is coming up short on its job goals. Under its agreement with UB, the company should have created 46 jobs by this June. Khan said they currently have around 25. He acknowledged the goal is “going to be a stretch right on that date” but said he’s confident the company can meet its overall hiring target in the long run.

The experience of another participating company, Garwood Medical Devices, underscores the challenge startups face in predicting their job growth.

Garwood, which is developing a new treatment for orthopedic implant infections, agreed in 2016 to create 40 jobs over five years, in exchange for $1.3 million in research funding. But, 18 months later, the company revised the agreement, cutting its job commitment to 11, with a similar reduction in funding.

The company originally planned to open a production facility in Buffalo, said Wayne Bacon, Garwood’s CEO. But after deciding to instead contract the manufacturing out to another company, Bacon wasn’t sure Garwood would hire as many people as anticipated. He lowered the job commitment, wary of falling short. Now, in another reversal, the company is again planning to start making its products in Buffalo, beginning next year.

“I’d much rather undercommit,” Bacon said. “We may well exceed the original projections, but I’m pretty cautious and I feared that if we didn’t, then it isn’t fair to take the university’s money.”

A more recent addition to the project, Tactiva Therapeutics, raised $35 million of private investment last November and is poised to grow rapidly – if all goes to plan.

Founded by researchers at Roswell Park Cancer Institute, the company is working to develop personalized cancer treatments where a patient’s white blood cells are removed, genetically engineered, and re-injected.

“Our job creation goals are a joke,” said CEO Matthew Colpoys. “If we’re here next year, we’ll blow through them.”

Like the other companies, Tactiva’s agreement with the university comes with clawback provisions. If it doesn’t come within 85 percent of its hiring targets, the company could have to pay back some of its otherwise forgivable loan. But, Colpoys conceded: “if things go really badly, they’re probably not going to get their money back.”

Risks of strategy

Another company taking part in the project went out of business in April, despite early success. HarkerBIO, a contract research company spun off from the Hauptman-Woodward Medical Research Institute, had agreed to create 36 jobs.

“The initial results the company was able to achieve have not been sustained, and are not sufficient to support operations,” the company said in a statement on its website announcing the news.

Orsi said this is an inevitable risk of investing in startups.

“In every other community where you see successful innovation economies, there’s companies that go out of business everyday,” she said.

Because of the uncertainty of investing in early-stage companies, Orsi said UB is trying to secure commitments for more than 490 jobs, understanding that some of the companies will fail.

Boosting entrepreneurship in Western New York has long been a goal of regional economic development plans, resulting in initiatives like the 43North business plan competition. Several BIG participants have been semi-finalists in recent years.

Four of the six companies participating are also enrolled in StartUp-NY, which exempts them from paying state taxes for 10 years and includes job creation requirements. The companies can count the same jobs towards the commitments for both programs.

“Startups are risky. Most fail,” said Bacon, Garwood’s CEO. “But if you want to bring new products to market that are important to humanity, it’s kind of nice to get some support.”