Biotech and Pharmaceuticals Rent Labs To Cut Costs
Biotech and pharmaceutical companies are saving money by renting laboratory facilities instead of constructing expensive, new research sites.
John K. Borchardt (June/July 10)

The high cost of building a laboratory presents a major financial challenge to small- and mid-sized companies. Renting space offers a low-cost alternative to constructing a laboratory. Lab buildings are much more expensive than office buildings of the same size. A report from the Oregon-based Portland Development Commission estimated the cost of constructing a new laboratory there to range from $250 to more than $1,000 per square foot, depending on the type of lab. A Class A office building in Portland costs $120 to $150 per square foot. (Actual costs vary around the country.)

Rather than spending large sums to purchase or build a lab, firms can rent facilities in large laboratories that have closed. Some have reopened as rental facilities. These spaces allow small- and mid-sized companies to rent first-class laboratory space at a savings, and may also include offices, small production plants, and warehouse space.

Recent mergers and acquisitions have resulted in the closure of laboratories employing 1,000 or more people. In the past two years, Pfizer's research headquarters lab in New London, Connecticut and its lab in Research Triangle Park, North Carolina have closed. After its acquisition by Pfizer, Wyeth's Princeton, New Jersey laboratory also closed. But history indicates that some of these shuttered labs will reopen as multi-user facilities.

Closure of big labs is not a new trend. It has occurred periodically when waves of mergers and acquisitions swept various industries, or when poor economic conditions forced the closure of large labs. Results of previous mega-lab closures show how shuttered labs can evolve.

In 1985 Gulf Oil's corporate research center near Pittsburgh closed when Chevron bought the firm and consolidated research operations in California. The Pittsburgh research center has 53 buildings with a total of one million square feet of laboratory, office, manufacturing, and warehouse space on 85 acres of land. The facility was donated to the University of Pittsburgh, 12 miles away, the following year. The university renamed it the University of Pittsburgh Applied Research Center (U-PARC) and began seeking tenants. In three years employment at U-PARC increased from 250 to over 1,000 people as companies moved into the site.

The complex features an on-site cafeteria, catering service, meeting and conference spaces, a post office, credit union, picnic areas, locker rooms, and showers. Besides laboratory, office, and storage space, there are 32 small-scale manufacturing plants. Advanced manufacturing and testing capabilities include environmental, synthetic fuels, biotechnology, and other emerging technologies.

"While the University of Pittsburgh and its affiliated Manufacturing Assistance Center occupy some of U-PARC, about 66 percent of the leasable space is leased by third parties," says Jeffrey Latcheran, facility manager for the U-PARC site and at the Oxford Development Company. "Intertek PARC Technical Services is the largest tenant, occupying 11 percent of the leasable space, including oil refinery pilot plants and automotive testing facilities." The firm has 400 employees who provide analysis and testing services to other companies, including U-PARC tenants.

While most of the approximately 120 U-PARC tenants are small- and mid-sized firms, several Fortune 500 firms also rent space. Plextronics, with 58 employees, has laboratory, manufacturing, and headquarters facilities occupying over 20,000 square feet in two buildings. The firm develops and manufactures conductive polymers for solar cells and other advanced electronics devices.

"U-PARC is a good fit for start-up companies," Latcheran says. "Quite a few start-up companies are tenants. Leases tend to last five to 10 years. The site offers a lot of flexibility for growth, and tenants often rent additional space as their operations grow. Some tenants have been renting since 1987 to 1989." One of them, Koppers, rents space at U-PARC for its corporate research center. It employs 1,616 people worldwide.

Restructuring and Renting
Other companies with declining laboratory needs stayed open but rented parts of their spaces to other firms. Eastman Kodak did just that at its Eastman Business Park (EBP), the former Kodak Park. The 1,200-acre site contains three million square feet of laboratories, warehouses, and manufacturing buildings in Rochester, New York. From 2003 to 2007, Kodak spent $230 million redeveloping the site. In addition to laboratories, manufacturing facilities, and offices, the site also houses a 2,000-seat auditorium, cafeteria, fitness center, and gymnasium. Emergency medical services, a credit union, and a shop selling lab safety glasses and shoes are available on-site.

EBP currently hosts 20 external businesses in addition to Kodak's remaining research unit. Besides large firms such as Johnson & Johnson's Ortho Clinical Diagnostics division and International Paper, mid-sized firms such as Arnprior Rapid Manufacturing Solutions, with 160 employees, conduct research at EBP. Arnprior occupies 170,000 square feet and offers services to other EBP tenants and outside firms. Small start-up firms - such as Transparent Materials, LLC, which was established in 2008 and has five employees - also occupy labs at EBP.

Tenants also have access to Kodak services including project, construction, and management services. Rather than building its own production plant, start-up firm Novomer, which has 23 employees, will use an idle facility at EBP to produce sustainable materials for computer casings made partly from carbon dioxide, a greenhouse gas.

"We'll be able to use their reactors to make larger quantities of material," than at Novomer's Ithaca, New York research and development facility, says Mike Slowik, the company's manager of strategic planning and analysis. "They also have great equipment for testing the material's properties." That will help Novomer quickly get their products to prospective large-scale customers for testing quickly.

From 1990 to 2002, Shell Oil sold some of its chemical businesses. Most of the buyers rented space the chemical companies had used in Shell's Westhollow Technology Center in Houston. Tenants included large firms such as Dow Chemical and mid-sized firms such as Resolution Performance Polymers (now part of Hexion Specialty Chemicals) with 900 employees, Kraton Polymers with 800 employees, and Tomah Products with 94 employees. Since 2008 these tenants have moved to their own facilities as their leases expired. Shell is moving employees from other research locations into the site.

Rebirth of Closed Labs
In 2003 Pharmacia closed its Kalamazoo, Michigan laboratory after it was acquired by Pfizer. By gaining local financial backing, readily available facilities, a deep pool of scientific talent, and affordable housing and education, Kalamazoo is attempting to reinvent itself as a biotech hub. Life sciences service companies first leased space in the lab. Now a growing number of drug and medical device firms are relocating or starting up in the Kalamazoo laboratory. Five years after the Pfizer closure, 21 companies had opened facilities, according to Ron Kitchens, CEO of Southwest Michigan First, a life science-focused economic development organization. These firms have created more than 400 new jobs.

In 2008 Pfizer sold two of its empty downtown Kalamazoo laboratory buildings to MPI Research, which employs 441 people. MPI is a privately-owned Midwest company that provides research services to biotech, pharmaceutical, medical device, animal health, and agrichemical companies. Pfizer sold the two buildings, totaling 510,000 square feet, to MPI for $1 each to house customized, state-of-the-art laboratories. MPI had planned to move into the buildings in 2009 and hire approximately 400 people over the next few years. But due to the recession, the move has been delayed until later this year.

Kalamazoo's growth as a research services and biotechnology hub has persuaded Pfizer to return to its laboratory. In 2009 Pfizer Animal Health completed $75 million in renovations to Building 300 for its global veterinary medicine research and development center. This consolidated most laboratory and office functions from other locations as far away as Louisiana and England.

Ann Arbor, Michigan
In 2008 Pfizer closed its Ann Arbor, Michigan laboratory, which employed more than 2,700 people. (The blockbuster heart medication Lipitor was invented there.) The University of Michigan (UM) soon purchased the laboratory for the bargain price of $108 million.

Renamed the North Campus Research Complex (NCRC), the facility's 30 buildings on 174 acres contain more than two million square feet of space. It consists of 33 percent laboratory units; 17 percent laboratory support space for machine, electrical shops, and other support facilities; 14 percent for manufacturing facilities, including a plant that produces experimental drugs for clinical trials; and 8 percent for amenities.

Research will comprise part of the facility, and 300 researchers are moving in during early 2010. "They are the first of thousands who will help refine research at Michigan in the years to come," says university president Mary Sue Coleman. The university will continue to recruit tenants. "Our initial effort is to develop a critical mass of researchers at NCRC that will serve as the linchpin for an increased level of public and private partnerships, but with the first emphasis on critical mass," says Mary Masson, of the university's service group for the site. "We do expect to attract public-private partnerships, provide business incubator space, and also rent some of the space to outside companies."

The university is anticipating a new, collaborative research environment. "We're entering a period when university researchers will be working hand-in-glove with government and industry partners so that all aspects of a problem, from the fundamental to the applied, will be addressed simultaneously," says UM vice president for research Stephen Forrest. The attractiveness of space at NCRC is provided by the cadre of interdisciplinary academic researchers who are committed to translating their research into real world business.

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