Prescription for Growth
Former Pfizer Complex to Boost U-M Research, State’s Economy
June 16, 2010
Joan Keiser navigates a group of visitors through the empty labyrinths of the massive former Pfizer research complex in Ann Arbor with such ease, it seems as if she could do it blindfolded.
Keiser got to know the 30-building complex well, having spent more than a decade working there, the last five years as Pfizer’s vice-president for cardiovascular and metabolic disease research.
But her job came to an abrupt end when the pharmaceutical giant shocked Ann Arbor and the rest of the state by announcing in 2007 it was closing the 2,100-employee complex, as well as facilities in Kalamazoo and Holland, by the end of 2008.
Touring the buildings on a recent warm, sunny morning was far from a maudlin trip for Keiser, though. The vacant labs and offices are about to be re-energized in a bold move by the University of Michigan to vastly expand its research capability and help its home state make the painful transition from a manufacturing to a knowledge-based economy.
“I’d like to look back in 10 years and say this made us a hotbed of growth and economic development,” said U-M President Mary Sue Coleman, who has been pushing the university to play a bigger role in the economic health of Michigan.
U-M bought the 174-acre complex on the edge of the university’s North Campus last year for $108 million, far below the cost of building new facilities. It will increase the university’s lab space, already among the most expansive of any university in the country, by 50 percent.
Now called the North Campus Research Center, the new campus contains two million square feet of research and office space. That mirrors the size of General Motors’ sprawling, modern Lansing Grand River Assembly plant, where several Cadillac models are built.
That may be an apt comparison. U-M officials see the mostly dormant research center as potentially blossoming into the Cadillac of academic research centers.
“It brings me great joy to see this place brought back to life,” said Keiser, who until just a few days ago was U-M’s interim managing director there. “It’s putting a stake in the ground that says we’re going to grow.”
U-M announced on June 11 that David Canter, who formerly was Pfizer’s top executive at the Ann Arbor site, will take over as executive director of the North Campus Research Center on July 19. Keiser remains as managing director of the complex.
U-M officials say Canter’s decades of experience as a leader in pharmaceutical research and his history with the complex make him an ideal pick for the job.
“His expertise extends far beyond familiarity with the physical property, into understanding what it takes to achieve innovation, and to translate discoveries to products that benefit humankind,” said Dr. Ora Hirsch Pescovitz, U-M’s executive vice president for medical affairs and CEO of the university’s Health System.
The university has 300 health system employees currently working at the center, most of whom support the university’s research community in multiple functions. The university’s goal is to have 3,000 faculty and staffers working at the site over the next 10 years. Many of them will be new hires, likely many lured from other outstanding research universities and organizations.
Some of the researchers will be relocated to the complex from U-M’s main campus. Coleman said the main reason for the purchase of the complex is to expand the university’s research capabilities and replace some outdated facilities.
For instance, the university’s Kresge Complex, which houses a variety of research functions in its 400,000 square feet, is being torn down.
“We’ve been kind of crunched,” Coleman said.
In addition, the university plans to create space on the new campus for startup companies that can translate research done there into commercial applications.
And U-M isn’t the state’s only major research university taking advantage of Pfizer’s downsizing. On the opposite side of the state, in Holland, Michigan State University also is attempting to boost the economy using a former Pfizer research building.
MSU’s Bioeconomy Institute conducts research on biofuels, bio-based chemicals and biomaterials in a 138,000-square-foot lab donated by Pfizer to the university. It began operating last year.
MSU’s new center also houses several startup companies spun out of the university’s research. Among them is AFD Therapeutics, a company that creates compounds to produce drugs for infectious diseases and other health disorders.
If you were to just take a glance while driving by the Ann Arbor complex, you might think Pfizer is still there. The modern-looking buildings and grounds are well maintained, to the tune of about $11 million a year.
That’s what Keiser says it costs to operate the buildings in “safe mode,” running the water, lights and other functions at a minimum level to prevent any damage from the elements.
Inside, the state-of-the-art labs have been stripped of equipment, leaving only the sinks and safety hoods.
The operating tables and overhead surgical lights in the animal research area are still in place, though. And the offices and conference rooms remain furnished with new-looking desks, chairs and computers, making it appear as if the researchers who once occupied them have just stepped out for lunch.
The only part of the complex U-M doesn’t plan on using is a highly sophisticated, 250,000-square-foot molecular manufacturing plant Pfizer used in making pharmaceuticals for drug trials. The university is considering leasing the facility, which Keiser says costs about $4 million a year in utilities to operate.
Initially, research at the facilities will be clustered around two anchors: high-tech imaging and “biointerfaces,” an interdisciplinary mix of nanotechnology, microfluidics and sensors, cell and tissue engineering, and biomaterials and drug delivery. Other research areas being considered are alternative energy, cancer and cardiovascular treatment, and health services.
It’s an opportune time to recruit new faculty, because many leading universities, including California’s entire higher-education system, are struggling financially.
U-M, which attracts nearly $1 billion a year in research funding and receives generous support from a wealthy alumni base, has fared better than other universities struggling with declining financial support from strapped state governments.
“We need a critical mass of activity to get things going here,” Keiser said. “We need to move quickly to recruit faculty” before other universities get back on their feet.
Coleman and other university officials say they envision the center conducting groundbreaking basic research. And they see researchers from multiple disciplines working with private sector entrepreneurs to develop new products and therapies that create jobs and improve human health.
“I don’t know of any other university that has this kind of research space,” said Dr. Pescovitz. “If we’re successful in what we want to accomplish, I think it will be the model.”
Pescovitz, who came to Ann Arbor last year from Indiana University after the news of the Pfizer acquisition, says she would like to see the research complex about 30 percent occupied by this time next year. She is working on raising some $200 million from alumni and private donors to hire new faculty and expand research programs.
The university’s goal is to double research spending to $2 billion annually in 10 years with the help of the new facilities.
None of this was even contemplated three years ago. But that all changed when Pfizer dealt a body blow to the state of Michigan, announcing in January 2007 that it would close the Ann Arbor research center and several other facilities in the state, eliminating about 2,500 high-paying jobs.
Coleman said she thought initially that another company would buy the complex. But the economy worsened and big pharmaceutical firms that would be the most likely purchasers were struggling financially.
And deed restrictions prevented the property from being redeveloped into a commercial center, such as a shopping mall.
The huge site had been used for pharmaceutical research and manufacturing since 1957, when the former Parke-Davis company (founded in Detroit in mid-19th century and once the largest pharmaceutical company in the world) built labs on what was then U-M land. In fact, the university once owned most of the property occupied by what eventually became the Pfizer research center.
“I was terribly disappointed when Pfizer announced the closure,” Coleman said. “But we refused to take the attitude that we were going to sit around and mope about it.”
Coleman pulled together people from throughout the university to figure out how U-M could utilize the property.
“There was an enormous amount of due diligence,” she said. “Everybody got involved. The health system made a major contribution to allow us to make the purchase.”
The entire $108-million purchase price was funded by health system reserves and university investment proceeds.
U-M, which has been pushing for more state support for higher education at a time when there’s a perception that it is financially flush, noted at the time of the purchase that no taxpayer or tuition funds were used in the acquisition.
Pfizer was Ann Arbor’s largest taxpayer. U-M, a tax-exempt organization, says its purchase of the complex will shrink the city’s tax base by 5 percent. But Ann Arbor will benefit from the taxes and spending of the thousands of new workers employed there, U-M adds. And had a private-sector buyer purchased the complex, it’s likely the state and city would have abated taxes on the property for years.
Overseeing planning for the new research complex is Pescovitz, who was recruited last year from Indiana University to head U-M’s huge health system. A nationally recognized pediatric endocrinologist, she had been the executive associate dean for research affairs at Indiana University School of Medicine, where she led basic and clinical research initiatives.
The chance to craft the new facilities’ research plan was “the tipping point” in Pescovitz’s decision to come to U-M, she said.
“There’s the potential to have a transformational experience that no other university in America would have the opportunity to do,” said Pescovitz, a petite woman with an infectious laugh. “The research opportunity here is simply extraordinary.”
Pescovitz raised eyebrows recently, though, by saying at a venture capital conference that U-M trailed Indiana in enthusiasm for turning research into entrepreneurial activity.
“I just assumed that, coming to a ‘bluer’ state, faculty in the university would be more liberal in their views on entrepreneurship,” she said in comments reported by annarbor.com. “When people ask me, ‘What’s the biggest surprise coming to the University of Michigan,’ it was that they were not more entrepreneurial in their thinking than they were in a ‘redder’ state.”
When asked about those comments in an interview for this story, Pescovitz demurs, saying the university is making progress.
“I think we’re becoming more entrepreneurial,” she said. “But I think it would be great for us to have more technology transfer activity.”
That’s something U-M and other universities have been working on for years. They’ve eased bureaucratic and legal barriers to turning research into commercial applications. And they’ve beefed up technology transfer offices to identify research that can be developed into a new product or medical treatment.
In 2008 U-M licensed 13 new startup companies, disclosed 306 new inventions, applied for 144 patents and reported a record $25 million in revenue from technology transfer activity. Pescovitz sees the opportunity to greatly grow those figures through the new research center.
Researchers typically work within their own disciplines, but the complex will take a multidisciplinary approach that could result in breakthroughs and technology transfers that might not be possible in traditional research silos, she said. A health researcher and a materials engineer, for example, might be able to develop a new medical device that neither of them could have built working separately.
The former Pfizer complex lends itself to that approach, Keiser said, in that its labs are connected to business offices that could allow researchers and, possibly, entrepreneurs to work together more closely. A huge cafeteria serving the complex will serve as an informal meeting place for researchers, engineers and other faculty from various disciplines to discuss ideas that could lead to technical and medical breakthroughs.
The spacious cafeteria, featuring floor-to-ceiling windows, is so large that it was used to film an airport terminal scene in a yet-to-be released “Hollywood” movie.
Coleman and Pescovitz say it also is important for the research center to engage in partnerships with Wayne State University’s Tech Town research and business incubator, research entities in Grand Rapids and East Lansing, and economic development agencies, such as Ann Arbor Spark.
Ann Arbor has long been Michigan’s high-tech capital. But those outside the region often see it as an isolated island of academia and research. It’s hard to explain how what happens in a lab on U-M’s campus helps the economy of, say, Bay City or Muskegon.
The new complex could change that. Ron Kitchens, president of Southwest Michigan First, a local economic development agency in Kalamazoo, said entrepreneurs around the state could develop businesses from U-M’s expanded research function.
“They really have the capacity to build a university that can compete on basic original research with anybody globally,” Kitchens said. “We’re the guys that take it to the next level and build companies from it.”
Pfizer already has given Kalamazoo some experience in doing that. When the company axed hundreds of jobs there in 2008, Southwest Michigan First, Western Michigan University and others helped displaced Pfizer scientists start their own companies.
Coleman says she hopes that going beyond its contribution to research and the economy, the center will aid in recasting the image of the state.
Michigan largely is viewed as a state where the auto industry is in decline and Detroit, its largest city, is wracked by corruption, poverty and a variety of social ills, say Coleman and others.
That image must be changed to highlight a new economy where low-skilled manufacturing production jobs are being replaced by knowledge jobs in which universities play a crucial role. It won’t be quick and easy, though.
“The leadership of the state has to be completely dedicated to moving along this path,” she said. “But there is no silver bullet. We’re breaking new ground.”
Rick Haglund is a former business writer and columnist for Booth Newspapers who has covered state economic development policy for three decades.