Gov. Dannel P. Malloy picked the gleaming new New Haven offices and labs of Alexion Pharmaceuticals a year ago to highlight the returns Connecticut was getting on $256.6 million his administration had pledged in direct aid to 13 companies to grow or retain jobs — and acknowledge the political risk of using public dollars to leverage private investment.
On Tuesday, Malloy stood outside his office at the Capitol to answer questions about the decision of the new leadership at Alexion, a company in legal and economic turmoil, to slash jobs, close a Rhode Island production facility and relocate its headquarters to Boston while keeping a “Research Center of Excellence” in New Haven.
“First of all, what I’m happy about is it will preserve 450 Connecticut jobs, as opposed to Rhode Island, which is losing all of the jobs that Alexion had in that state,” Malloy said. “I will also say to you that there is a reason we have contract language in these agreements with employers who are using money, state money, to expand, and that’s so that if they don’t honor their agreement we can get that money back — and that’s exactly whats going to happen here.”
As part of the First Five program geared to employers of more than 200, the state offered Alexion $26 million in direct assistance and $25 million in tax credits to be earned over a decade. The direct aid was a $6 million grant and a $20 million loan, forgivable if certain job levels were met and maintained.
Alexion has earned $5 million in tax credits and most likely will forfeit the rest, given the downsizing; the $25 million in direct assistance will be repaid, according to the state Department of Economic and Community Development.
“While Alexion will maintain a significant number of employees in state, we are requiring that all of the $20 million loan and $6 million grant be repaid — with interest and penalties — to the department in accordance to the terms of our agreement,” said Commissioner Catherine Smith of DECD. “Setbacks like this, though unfortunate, do not deter the department from pursuing smart policies and ventures with growing companies in our state.”
Alexion, which then was based in Cheshire, had 368 employees in Connecticut when it made a deal with the state in 2012 to invest $77 million in a new 14-story building on College Street in New Haven that spanned a discontinued roadway.
The company Tuesday described the cuts, which included a 20 percent reduction in its overall workforce, as a restructuring that eventually will save more than $250 million annually.
“These types of changes are difficult, and we recognize that they have a personal impact on people who have been dedicated to the mission of Alexion,” said Ludwig Hantson, the chief executive officer. “We thank our employees for their contributions to the achievements of Alexion. While difficult, these changes were necessary to enable the company to deliver sustainable long-term performance to support our ability to continue to develop and deliver life-changing therapies for patients.”
Hantson came in as part of a housecleaning at Alexion. Its previous CEO and financial officers resigned last year amid reports by Bloomberg of improper sales practices. Bloomberg also recently reported Alexion’s support of charities that aid Medicare patients had prompted an investigation by the U.S. Department of Health and Human Services.
Malloy called Alexion “a dynamic company, which has faced some very serious challenges and has a hired a leadership team that’s based in Boston. I can’t change that, but what I can do is make sure that our contractural arrangements are honored.”
A year ago, Malloy acknowledged the unseemly nature of government aiding private companies, including some of the largest and most profitable in the U.S. But he also said it’s here to stay until the unlikely event of the nation’s governors agreeing to stop bidding against each other, creating an environment where General Electric, one of the world’s richest corporations, can insist that its relocation from Fairfield to Boston be financed by the taxpayers of Massachusetts.
Praised as reasonable investments and derided as corporate welfare, the administration’s First Five program is an issue in the early campaigning to succeed him in 2018. Malloy is not seeking a third term.
Malloy said such funding is used by nearly every state and is a reasonable economic-development tool as long as it is pegged to performance, as it is under the policies followed by DECD. He said returns on its aid are far greater than that provided by the U.S. Commerce Department.
“We take this stuff seriously,” he said.
And what would he say to candidates who promise to zero out such aid? Middletown Mayor Dan Drew, who could not be reached for comment, has promised to eliminate all such aid if elected governor.
Malloy paused, smiled and said, “I would say they are trying to dupe people.”