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Biotech Location Guide: Strategic Site Selection Practices for Biotech Companies

William N. Hearn, Senior Vice President, Strategic Consulting, CBRE (Biotech Location Guide 2006)
(page 2 of 2)
The Site Selection Process
Firms in this industry will approach site selection in highly customized ways, depending on timing requirements, internal ability to develop a process (capacity), and internal decision-making styles. The process followed will depend on whether this is a new facility, a need for additional capacity, a consolidation event, or some other driving factor. Given the nature of biotech and the number of small emerging companies, we tend to see divergent trends categorized by large companies utilizing traditional approaches for site selection, and smaller companies using more informal approaches to the process (i.e., local market searches to meet demand or simply seeking real estate solutions). We see several general trends in biotech-related site selection.

• Risk aversion: Biotech companies tend to cluster to take advantage of known areas where there is a proven record of biotech activity. The benefits of this often have to do with access to capital and the requirements of investors, access and proximity to key scientific talent and technology, and the need to be close to other companies in the industry in order to develop business relationships. There is often a reluctance to be the first to enter a new market, though notable exceptions exist for this - for example, when companies are in a more advanced stage of the product life cycle, or where labor requirements do not prevent biotech companies in a specific location.

• Emphasis on incentives: Firms are aware of the economic development emphasis placed on biotech. States and communities are continuing to evolve in the way they try to support the development of this industry, and, given the fact that many of these firms are not yet turning profits, the incentives package can be an important component of the site selection process. There are many examples of meaningful incentive packages that have been offered in this industry, including: cash payments of annualized tax payments over time; grants for specialized machinery and equipment; loans and grant programs to facilitate build-out; and a wide diversity of tax rebates, credits and other traditional incentives. The innovative emphasis on this industry is away from tax credits, as many emerging biotech companies experience net operating losses. In most cases, this industry will be in a strong negotiating position, given the right location and a fully developed negotiation progress.

• Work force: Work force is an important issue for many biotech companies. This relates to both the available local work force and the ability to recruit talent nationally. It will be a primary driver in site search, especially when there are specific technical skill sets required and when a firm assumes it will compete on a national level for talent - experienced biotech managers, for example. Labor cost will come into play more on the production side, where skill requirements are not as significant, or in cases where skill sets are easily replicated. If the facility has an R&D component, then in site selection the firm will seek to balance the need for semi-skilled workers and scientific talent. Many areas have specialized biotech initiatives that seek to fill the entire food chain of required skills. BIOWORK in North Carolina is an example of such an initiative.

• Regulatory agencies: In many site searches, access to FDA and other regulatory bodies will be very important. This is to ensure regulatory compliance and access to agencies and experts on matters of importance to the regulatory environment.

• Critical infrastructure: This includes the availability of specialized facilities to handle diverse inputs, air and water quality needs, and security needs. If these are in short supply in a region, this could be a competitive disadvantage to developing a critical mass.

As is true with all site selection projects, the process will reflect all criteria perceived to be important to the biotech firm. The priorities established through feasibility analysis will be translated into criteria for what is typically a multistep site selection process. Each firm will likely have its own unique issues that will drive the process to a set of finalist communities, negotiation, and selection.   
  
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