Maryland’s pension money may back biotech companies

Taking the risks works for some states, but others are more leery of making the move

‘‘It’s a relatively small percentage of the overall pension funds that are invested in local biotechnology companies,” said Richard A. Zakour, executive director of MdBio, a division of the Tech Council of Maryland. ‘‘But it’s important to those companies. It shows we are making an investment in our own businesses. We’re putting our money where our mouths are.”

BioCrossroads, an Indiana public-private entity that supports that state’s bioscience industry, started the $73 million Indiana Future Fund with money that included state pension funds in 2003. That fund has directly invested in Indiana bioscience companies since forming, said Lori LeRoy, a BioCrossroads spokeswoman.

‘‘It’s been a good vehicle for the state to grow its life sciences companies,” LeRoy said. ‘‘It has helped attract new venture funding for companies here from other funds around the country.”

In 2004, California officials unveiled a program to commit $1.5 billion in state pension money to invest in funds that award money to local bioscience and ‘‘clean technology” companies. New Jersey launched the New Jersey Directed Investment Fund last year, which started with $100 million from the state pension fund to invest in companies that include biotech and green ventures.

And in April, New York State Comptroller Thomas DiNapoli announced a program to have $500 million in state pension money over the next three years go to funds that invest in companies engaged in renewable energy and clean technology.

Franchot (D) reviewed what such states were doing before advocating that Maryland use some pension money that way, said Joseph Shapiro, a spokesman for the comptroller. Franchot found those states earn ‘‘great rates of return” for their investment, he said.

‘‘This has been proven in other states to have benefits,” Shapiro said. ‘‘We’re looking to model what is out there.”

The $1 billion would not have to be spread 50-50 between biotech and green businesses, Shapiro said. ‘‘In some cases, there is overlapping, such as in alternative fuel research,” he said.

Maryland’s $38 billion state pension system administers retirement, death and disability benefits for 300,000 active and former state employees, teachers, state police officers, judges, correctional officers and legislators.

Franchot is vice chairman of the Maryland State Retirement and Pension System’s board of trustees, which makes decisions on policies and other matters for the system. R. Dean Kenderdine, executive director of the pension system, said the system invests some $75 million in private equity firms in the health care industry, which includes biotech and pharmaceutical companies. The system did not have any investment in clean technology, he said.

‘‘We’re looking at how this is being done in other states,” Kenderdine said. ‘‘We need to see if it makes sense for us to make these investments.”

Maryland Treasurer Nancy K. Kopp (D), who leads the pension board, is encouraging Kenderdine to research the matter, but wants officials to keep in mind the main focus of getting the best investment return for the pension fund’s members, said Kopp spokesman Howard Freedlander.Ê

Not for some

Massachusetts, which a recent report ranked fifth in total bioscience-related jobs behind California, Pennsylvania, New York and Texas, and second in per-capita employment behind only Washington, D.C., so far has balked at investing state pension funds in local biotechs, said one lobbyist in that state.

The Massachusetts Biotechnology Council, a Cambridge nonprofit supporting the biotech industry, has lobbied state officials to use pension funds to invest in local life sciences firms, said Stephen Mulloney, director of policy and public affairs for that council.

‘‘Essentially, the answer has been a polite no,” Mulloney said. ‘‘Their view is that the pension fund’s first responsibility is to make sure the commonwealth has enough money for people to retire. We haven’t taken issue with that.”

Massachusetts already supports the bioscience industry through initiatives such as a recent move to spend $1 billion on the biotechnology industry over the next decade, Mulloney said. That plan includes $250 million in tax incentives to encourage expansion, $250 million in research grants and $500 million for infrastructure.

Maryland Gov. Martin O’Malley (D) has called for the state to invest $1.1 billion in its biotech industry over the next decade. The Bio 2020 Initiative would create the Maryland Biotechnology Center, expand the state’s biotech investment tax credit and technology incubator program, continue funding for stem cell research and increase investments in nanotechnology and venture programs.

In 2006, Maryland ranked third in per-capita bioscience employment in the nation behind Washington, D.C., and Massachusetts, and second in per-capita academic bioscience research and development expenditures behind Washington, D.C.

Those rankings were recently released as part of a report on state biotech initiatives by research firm Battelle and the Biotechnology Industry Organization. The latter Washington trade group hosted the nation’s largest biotech conference last week; it was attended by O’Malley, Franchot, Zakour and other Maryland officials and executives.

Other states invest public money from the general fund in local bioscience companies through creating specific funds for those investments or investing in privately managed funds that agree to invest in state companies, according to the BIO report. Thirteen states — including Delaware and Virginia — made such direct investments in bioscience firms between 2006 and 2008, the report says.

Venture capital investments in bioscience companies across the nation reached $11.6 billion in 2007, up from $10.0 billion in 2006, according to the BIO report. Maryland ranked fifth among states in total bioscience venture capital investment between 2002 and 2007, with $2 billion. California, Massachusetts, New Jersey and Pennsylvania were the only states ahead of Maryland.