Collaborative Group–antidote to AB demise

In the parlance of state politics, economic officials appear to have struck a “win-win” deal with a Long Island pharmaceutical company.

The recent announcement that the Collaborative Group wants to buy the former Alpha-Beta Technology plant in Smithfield has the potential to do more than drastically reduce taxpayers’ liability for the failed drug maker. It promises to fill a gap left by a company dependent on the success of an unproven product with one that’s
virtually guaranteed to create revenues and jobs for years to come.

Dr. Joseph Hammang, director of technology transfer for the Rhode Island Economic Development Corporation, described the Collaborative Group as the perfect antidote to an unpleasant episode in the state’s efforts to improve the economy.

“Besides being the highest bidder,” the company is “attractive because of the business model that they have,” Hammang said. “That is, a contract manufacturing facility is a much less risky situation than a company that’s looking for FDA approval on a single-product” as Alpha-Beta was.

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James A. Hayward, Collaborative’s president and chief executive officer, was matter-of-fact about his company’s prospects in Rhode Island.

“We already have a customer base that exceeds 300 customers, so the risk is already gone,” he said. “We’re paid regardless of clinical outcomes. We’re not subject to the vagaries of nature.”

ALPHABETA TECHNOLOGY closed its doors after an anti-infection drug it was making proved ineffective.
That’s because the subsidiary of Collaborative that would expand here – Collaborative BioAlliance, Inc. – provides research and manufacturing services to biotechnology and pharmaceutical companies that cannot or simply choose not to make capital investments in plant and equipment. Ironically, a company like Alpha-Beta – which folded after an anti-infection drug it was making proved ineffective on humans – fit that profile.

Collaborative’s other “founding” subsidiary, Collaborative Laboratories, is an independent raw material manufacturer, and a research and development company for the international personal care industry. Its customers include some major drug and cosmetics companies.

Collaborative’s overall business mix is about half consumer and half pharmaceutical, Hayward said. About a quarter of its revenues come from sources outside the United States, he said.

Collaborative BioAlliance (which works closely with the State University of New York at Stony Brook) works according to a business model that is “vertically integrated from concept to commerce,” as is the “biopharmaceutics side” of the business, Hayward said. However, that is a “new change” made possible only recently by a change in the law, he said.

It was only with the passage of the Food & Drug Administration Modernization Act of 1997 that companies involved in biologics (the use of living organisms to make substances for the diagnosis, treatment or prevention of disease) were allowed to start performing research and clinical trials on behalf of multiple clients — what Hayward called “vision to vial” – and still meet the FDA’s standards of safety and effectiveness.

“Previously biologics were treated very differently from new chemical entities,” he said.

The Collaborative Group was one of seven bidders on the assets of Alpha-Beta, winning out at $20 million. Hammang said he could not disclose the other interested parties, but described them as a “mixed bag.”

Hayward said Alpha-Beta’s “world class facility” attracted him because it can be “brought on stream with some speed.”

The company hopes to begin manufacturing at the site before the end of the year, Hayward said. It plans to hire about 50 new employees earning an average of $62,000 a year, he added.

The $20-million sale will greatly reduce – but not eliminate – taxpayers’ liability for the $30-million loan the state gave Alpha-Beta to build the plant in 1993. John Swen, the EDC’s director, estimated that the state’s indebtedness will be reduced to around $4.5 million.

The EDC will issue new bonds to finance the purchase. Details of the financing will be subject to a vote by the General Assembly.

Russell R. Marcoux, Smithfield’s town manager, is one official who’s hoping there are no snags along the way. As the host community, Smithfield stands to make about $360,000 a year in property and inventory taxes, Marcoux said.

The town is also owed about $85,000 in back taxes on Alpha-Beta for the quarter that ended in April. Marcoux said he fully expects to get that money from either the receiver or the state.

Beyond being a potential source of revenue, Collaborative is “a good company that certainly appears to be well-positioned,” Marcoux said. “They have a good customer base and they want to be a good corporate citizen.”

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