Tax breaks, college backing boost emerging tech companies on Long Island

Israeli entrepreneur Chen Levkovich had never heard of Stony Brook University until last year. Now he is moving his software company's headquarters to the campus -- because of a tax-free zone established by New York State.

Levkovich's business, Zuznow Inc. of Tel Aviv, is one of about 100 participating in START-UP NY, Gov. Andrew M. Cuomo's controversial program to create good-paying jobs by supporting mostly small technology firms that develop products from academic research.

Colleges host the businesses, which will pay no state and local taxes for up to 10 years in return for hiring. Their employees will pay no state income taxes for as long as 10 years.

Of the 93 businesses enrolled in START-UP NY in its first year, 21 are on Long Island. The Island ranked No. 2 in participants behind Buffalo among the state's 10 regions.

START-UP NY "is the reason why we are in Stony Brook," said Levkovich, chief executive of Zuznow. "We are from outside [the United States], and I didn't hear about Stony Brook University until I was part of the program. But what I have seen from the university has made me much more sure that we made the right decision to move."

Sixty-seven colleges have been awarded tax-free zones so far. Of the three local institutions, Stony Brook has 19 companies; Farmingdale State College, two; and LIU Post, none yet.

Critics worry that exempting the companies from all state and local taxes for up to 10 years will not result in significant economic growth statewide. They also said many of the businesses would have come to New York or stayed here anyway.

Some critics predict the START-UP NY zones will proliferate and unworthy businesses will win tax-free status as the selection criteria are eventually weakened by the State Legislature, as happened with the Empire Zones program of tax breaks in the 1990s.

That "program was originally limited to 10 zones in distressed areas but grew to 82" before being discontinued in 2010 after publicity about abuses, said Elizabeth Lynam, state studies director for the nonpartisan Citizens Budget Commission.

She also said that START-UP NY's cost to the state "is borne unfairly by other taxpayers." Cuomo's budget office estimates lost direct tax revenue from the program will be about $324 million over the three years ended in March 2017.

State officials and business executives insisted the program was "a valuable tool" for Long Island and other regions to create high-paying jobs.

"We need to have more small companies created so some of them will grow up to be the big employers of the future," said David L. Calone, chairman of the Suffolk County Planning Commission and founder of the Long Island Emerging Technologies Fund, which invests in startups. "This program relieves the cost burden on companies at their earliest stages when they need nurturing," he said, "and it targets that relief to those with the most potential to have a big impact."

It will take years to see whether START-UP NY has incubated such winners. Initially, its impact on employment will be small.

START-UP NY participants, as a group, are expected to create 2,805 jobs statewide over five years, including 239 in Nassau and Suffolk counties. They will invest $173 million, $16 million of it locally, according to their applications to the program.

On the Island, Saniteq LLC, which makes an ultrasonic flow meter for oil and natural gas pipelines, plans to do the most hiring: 28 jobs.

The company, which is moving from Florida to Stony Brook, is one of five with ties to other states that are opening satellite offices or relocating entirely. One of them, Guided Interventions Inc., a medical device developer, came from Ohio.

Besides Zuznow, the international contingent has C&M Robotics Co. Ltd. of South Korea, which plans to open a research center at Stony Brook.

One of START-UP NY's objectives is to build businesses whose products are derived from scientific research. Five of the program's local participants were born from research done at Stony Brook and Brookhaven National Laboratory. They include heart-valve developer Polynova Cardiovascular Inc. and vaccine maker Codagenix Inc.

"Before START-UP NY this research might have ended up in a drawer . . . now it's creating businesses and jobs," said Leslie Whatley, the state official who oversees START-UP NY.

The program is familiar to many, thanks to a $53 million advertising campaign that trumpets no taxes for 10 years. The program was Cuomo's idea, according to Whatley, and he often mentions it in his speeches.

The tax-free message gets entrepreneurs' attention, but it is access to faculty, students and office space that seals the deal. Whatley said the cash-strapped technology businesses would benefit from working on research projects with professors and from low-cost laboratories filled with sophisticated equipment.

Zuznow's Levkovich agreed. "At the beginning, it was just about the taxes," he said. "But then we realized . . . the technical knowledge at Stony Brook, the students and graduates who could work for me, the investors and potential customers that we've been introduced to by the university -- those are the real benefits of START-UP NY."

Here are profiles of three of the companies in the program on Long Island.

ZUZNOW INC.

Zuznow Inc. expects this month to begin moving its headquarters and a couple of key employees from Tel-Aviv to Stony Brook University.

The 4-year-old company has built a software program to convert websites to fully functioning mobile apps with a single mouse click.

The algorithm doesn't alter the content, appearance or underlying code of a website.

Chen Levkovich, who started the business with his wife, Rachel Batish, said it would help banks, publishers, insurers and others who are responding to customer demand for information on the go. He said his platform is cheaper and quicker for clients than hiring Web developers to create and update their mobile apps.

Zuznow, which takes its name from the Hebrew word "zuz" or move, had 2014 sales of $350,000 from about 100 customers, Levkovich told Stony Brook. In October the influential tech research firm Gartner Inc. of Stamford, Connecticut, named Zuznow one of 10 leading mobile-Web-adaptation platforms.

The company has eight workers in Israel and expects in Stony Brook to have seven in five years and 40 in 10 years, in areas such as customer support, marketing and administration. Levkovich first learned of START-UP NY at an event for exporters in Israel.

He said Zuznow is breaking even but doesn't expect to turn a profit soon because of planned software improvements with the help of Stony Brook professors and students. He has promised to invest $29,300 in equipment by 2020.

Levkovich said, "I'm really optimistic about the U.S. market."

ZUZNOW LTD.

Plan: Israeli software company moves headquarters to Stony Brook University

Jobs: 7 by 2020

Investment: $29,300 over five years

GUIDED INTERVENTIONS INC.

Reinhard J. Warnking's company is developing a wire-based medical device that could reduce the use of stents to open blocked arteries and the painful, sometimes dangerous, side effects of heart surgery.

A tiny sensor in ultrathin wire measures the flow of blood in a blocked artery and transmits the information to a monitor. The process, called "fractional flow reserve measurement," is much more precise than an angiogram, which uses dye and a camera to take pictures of blood flowing in an artery, Warnking said.

Physicians' dislike of the bulky devices now available has meant fractional flow reserve measurement is rarely used to diagnose the severity of a blockage. Warnking said his patented device is easier to maneuver inside the coronary arteries.

"Better measurements will help a doctor to determine whether the patient really needs a stent," said Warnking, who started Guided Interventions Inc. three years ago with Dr. Matthew Pollman of the Cleveland Clinic. Previously, Warnking led five ultrasound businesses.

START-UP NY spurred Guided's move from Ohio to Stony Brook University, where Warnking has been an adviser at the Center for Biotechnology since 2013.

Once the sensor has been perfected and approved by federal regulators, he predicted Guided would grow rapidly with its first profits and five employees by 2020.

Guided also is working on an ultrasound device that Warnking said could treat asthma and lung cancer.

Companies such as Guided that want to create multiple products are of keen interest to Stony Brook.

"We're not interested in one-trick ponies," said Ann-Marie Scheidt, the university's economic development director. "We want companies that plan to continue to develop their technology. . . . That benefits the company, our faculty and students, and Long Island's economy."

GUIDED INTERVENTIONS INC.

Plan: Medical device company moves from Ohio to Stony Brook University

Jobs: 5 by 2020

Investment: $300,000 over five years

CODAGENIX INC.

Fewer people could get the flu, and those who do might have a milder case, if this vaccine developer's work succeeds after it moves to Farmingdale State College.

Researchers Eckard Wimmer, Steffen Mueller and J. Robert Coleman are working on a vaccine that provokes a stronger response from the immune system because it contains live flu cells rather than dead ones. The more robust response means better protection, they said.

Mueller, president of Codagenix, said the company's approach is to weaken the virus' impact by changing its DNA, guided by a software algorithm. The weakened virus is then injected into cells, where it multiplies, and eventually becomes the vaccine that is administered through nose drops.

"The live cells produce an arms race in your body, and the immune system shoots down the virus," he said.

Coleman, the chief operating officer, said Codagenix's technology produces a vaccine that covers more flu strains than what is now being used. It also allows for changes in vaccine manufacturing to meet unexpected demand or a new strain.

Codagenix is preparing to test its vaccine on humans and has outgrown its Stony Brook University lab. It plans to move into larger space at Farmingdale State's Broad Hollow Bioscience Park later this year.

The four-year-old company has a workforce of five and hopes to double it by 2020. However, the vaccine won't generate sales for another five to six years. The business has been sustained by federal grants and venture capital.

START-UP NY brought Codagenix and another business, Mitogenetics LLC, to the dormant bioscience park, helping to revive it, said the park's executive director, Greg Blyskal.

"There's really great research being done on Long Island," he said, "and our goal is to keep the companies here and to give them the best opportunity to grow."

CODAGENIX INC.

Plan: Maker of vaccines based on Stony Brook University research relocates to larger space at Farmingdale State College

Jobs: 5 by 2020

Investment: $135,000 over five years

START-UP NY BY THE NUMBERS

93 companies enrolled; 21 on LI

2805 jobs to be created by 2020; 239 on LI

$173 million in investment over 5 years; $16 million on LI