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Feb 15, 2005 (Vol. 25, No. 4)

What it Costs fo Operate a Biotech Facility

North American and European Hubs Analyzed in New Site Selection Study

  • A new corporate location study compares the cost of doing business for the biotechnology industry in a series of 50 U.S., Canadian, and European cities. The study, prepared by the Princeton, NJ-based site selection firm, The Boyd Co., focuses on all the major cost drivers of the corporate site selection process.

    These include salaries for employees with advanced degrees in the life sciences, wages for workers in other laboratory and administrative support positions, fringe benefits, utilities, lease rates, and other geographically variable operating costs.

    Locations featured in the study include long-standing centers of the biotechnology industry such as Boston; Montgomery County, MD; San Francisco; and San Diego, as well as emerging new hubs of the biotech and biopharmaceutical industries. The latter include smaller market cities such as Charlottesville, VA; Athens, GA; Rochester, MN; and Sioux Falls, SD. European biotech centers studied by Boyd include London, Brussels, Dusseldorf, Amsterdam, and Madrid.

    Today, operating costs are the white-hot issue in the boardrooms of our life science clients, and they are tending to rule the site-selection process. With a softened economy, worldwide free trade competition, cost-containment pressures from the government, and a lean-and-mean message being sent by the post dot-com crash venture capital community, quantitative factors focusing on the cost of doing business are trumping qualitative lifestyle factors when it comes down to siting a new biotech facility.

    Many of our site-seeking clients tell us that the only way they can improve the bottom line is by reducing costs; there is little help on the revenue side of the ledger in the current economy. Even the high-profile corporate malfeasance cases, like Enron and WorldCom, have caused corporate boardrooms to focus heavily on balance sheet issues and the true cost of doing business.

    Operating cost differentials between an acceptable city and an optimum biotech site can be very substantial, running into the millions of dollars per year. In the new Boyd study, annual operating costs in the U.S. range from a high of $11.2 million in San Jose, CA, to a low of $8.4 million in Sioux Falls, SD.

    In Canada, annual operating costs range from a high of $9.2 million in Vancouver to a low of $8.5 million in Montreal. Among the European cities, annual operating costs range from a high of $13.0 million in Dusseldorf to a low of $10.1 million in Spain. All costs are expressed in U.S. dollars and are scaled to a representative 100-worker biotech facility occupying 75,000 sq ft of office and laboratory space (Table 1).

    In Europe, we see increasing corporate mobility as a result of historic business climate reforms and price transparencies brought about by the common Euro currency. With the common currency, operating cost penalties and conversely, cost savings, associated with the various European Union nations can be clearly perceived and easily quantified without the exchange rate and currency conversion vagaries of the past.

    Many of the tax initiatives, business attraction incentives, deregulation programs, and free market reforms that have been fashioned here in North America during the past 25 years are now being rolled out in the new Europe. With a number of the world's largest biopharmaceutical corporations based in Germany, France, and the U.K., biotechnology-related projects are the fastest growing corporate relocation segment in Europe.

    Here in the States, there is a growing shift of biotechnology investment from many of the larger and more costly centers of life science industry concentration in New England and California to smaller, more manageable, and less costly metropolitan areas in other regions of the country.

    A good example of this trend is HemaTech, a biotech in collaboration with Japan's Kirin Pharmaceutical in the development of polyclonal antibodies. Originally from Connecticut and Massachusetts, HemaTech has relocated research and headquarters operations to Sioux Falls, SD, (pop. 200,000).

    Sioux Falls, home of the University of South Dakota Life Science Center, is the lowest cost biotech site in the Boyd study (Table 2).

    Other small market trend examples include Yamanouchi Pharma's move from San Francisco to Norman, OK, Dupont's relocation of its nutrition division from Wilmington to Des Moines, IA, and San Diego-based Scripp's selection of Palm Beach County, FL, for its newest biomedical research lab.

    Also, states like South Dakota and Florida, which have no state personal income tax, provide additional relocation benefits to biotech transferees by enabling them to keep more of what they earn.

    A lower cost of living, especially the ability to buy more house for the money, are additional advantages of these smaller market cities. This is particularly the case when compared to the extremely high housing costs associated with traditional biotech industry hubs like Boston, San Francisco, New Jersey, and the Washington, DC suburbs of Fairfax County, VA, and Montgomery County, MD.

    It is increasingly difficult for our clients to attract young, entry-level talent to these locations, principally due to the prohibitively expensive housing markets there.

    Canada continues to offer a low-cost environment for the biotechnology industry, even with the double digit rise in the Canadian dollar versus the U.S greenback during the past year. Biotech companies can save additional labor costs in the area of fringe benefits due to Canada's nationalized healthcare system.

    Our biopharmaceutical clients in the States typically pay about 3540% of their payroll for benefits (mostly healthcare-related). The same figure in Canada is 1520%.



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