When biotech giant Genentech pumped more than $1.6 million to defeat Proposition 24 on the November ballot, the implication was clear: Take away our tax breaks, and people will lose their jobs.
But only a few weeks after Genentech was successful in keeping those tax breaks, the company announced significant layoffs anyway. Supporters of Proposition 24 were naturally furious.
"They spent months saying, 'If these tax breaks are repealed, it's going to cost jobs,' " Richard Stapler, a consultant for the Yes on 24 campaign, told the San Francisco Chronicle. "They're keeping the tax breaks, but they're not keeping the jobs. It's absolute hypocrisy."
Genentech wasn't the only company that benefited from the tax break to lay off people immediately after the election. Philadelphia-based Comcast announced 212 people would lose their jobs in California, moving at least 150 position from Livermore to Utah. This move, along with the Genentech layoffs, prompted Bee columnist Dan Morain to write:
Politicians hope that by tweaking the tax code they can help businesses, and that businesses will hire more workers. No doubt, that's true some of the time.
But businesses hire and fire for many reasons, most of them way beyond the control of California's Assembly and Senate.
When a corporation gets a tax break one month and announces that it's moving jobs to Utah the next, California lawmakers end up looking like chumps.
Proposition 24 was supported by the California Teachers Association to repeal tax deals worth an estimated $1.3 billion million per year by 2012 for businesses. Teachers said the arrangement – approved as part of a 2009 budget deal between Gov. Arnold Schwarzenegger and the Legislature – siphoned much-needed money away from schools.
The November initiative was defeated after Genentech and other corporations organized behind the California Taxpayers' Association to spend $15.6 million against it. They argued that Proposition 24 "taxes job creation in our most promising industries (high tech, biotech and clean tech) and hits businesses with another $1.7 billion tax increase – more layoffs, more companies and jobs leaving California," according to the ballot argument.
Voters may remember four years ago when Genentech built a $400 million facility and created 300 jobs in Oregon instead of California, citing the Golden State’s high taxes as the main reason. "California’s tax structure didn’t support in-state growth," Caroline Pecquet, a Genentech spokeswoman told Sign On San Diego News at the time.
Now, Genentech is planning to lay off 840 employees in San Francisco and Vacaville. The layoffs are part of Swiss parent company Roche’s "Operational Excellence Program" in which 4,800 people will be laid off worldwide. In a statement about the California cuts, the company said:
The job reductions announced this week come in response to a challenging business environment for the biopharmaceutical industry combined with recent setbacks in the late-stage pipeline. We continue to hire and to make significant research investments in California that we hope will lead to breakthrough treatments for cancer and other serious diseases. We believe the enactment of smart tax policy by the state legislature and the rejection of Prop. 24 by the state's voters will help ensure expansion and growth for Genentech in California in the years to come.
Although the company is frequently cited as one of California's biggest success stories, Genentech's relationship with the state has been marked with controversy.
In 1999, the company agreed to pay a $200 million settlement to the University of California over accusation that a Genentech researcher had removed a bacterial clone from UC and transferred it to the fledgling biotech company, helping Genentech develop its first successful human growth hormone. Part of the settlement went to build Genentech Hall at UC San Francisco.
Critics concerned Genentech’s been making out at the expense of government and the taxpayer recently got more fuel for their fire.
The New York Times reports the drug maker has been discouraging use of an inexpensive medication used to treat muscular degeneration in the elderly. Instead, Genentech has been offering rebates to doctors who use a drug that can cost up to a hundred times more.
Avastin, a drug used to treat cancer, hasn’t been formally tested for its effects on muscular degeneration but many doctors use it because it costs $20 to $40 per injection compared to the alternative Lucentis, which costs about $2,000 per injection. This can really add up considering that patients often need a shot about once a month. According to the New York Times, this practice saves Medicare hundreds of million dollars a year.
Genentech could reappropriate some of that government savings for itself, if it convinces doctors to use the more expensive Lucentis. Because doctors charge more for drugs than they pay, a rebate program could mean a bigger profit margin for them as well.