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.
