21 Feb Midwest is cost-effective for startup biotech companies
In May 2003, I wrote a column about the cost of doing business (CODB) for biotech companies in different parts of the United States. The point of the column was that one of the advantages of doing business in the Midwest is a significant cost advantage versus setting up shop in other parts of the country (or even the world).
We know that the cost of wet lab space in the San Francisco Bay area and Boston is so high that costs per square feet are quoted by month versus by year (like in the Midwest). What about other costs of doing business? Juxtaposed against this CODB is the ease of raising capital.
We know for a fact that it’s easier to raise money for biotech companies on both coasts than it is in the Midwest.
A more recent analysis of CODB for biotech companies was featured in an article in the Feb. 15 edition of Genetic Engineering News, which looks at what it costs to operate a biotech facility in 50 cities around the world. The study was done by a group in Princeton, N.J. called The Boyd Company.
So we’re comparing apples to apples here, the study looked at facilities that were 75,000 square feet of combined office and wet labs for 100 employees. Included in the company’s factors for this study were:
- Total annual labor costs (weighted average yearly earnings, annual base payroll costs and fringe benefits)
- Electric power costs
- Facility lease costs
- Equipment amortization costs
- Heating and air conditioning costs
- Corporate travel costs
The total of the above is summarized as the “total annual geographically variable operating costs,” which is the basis for the comparison you are about to see.
When we looked at this kind of cost comparison almost two years ago, only U.S. cities were taken into account (with the exception of Canadian biotech cluster Montreal). This year’s analysis includes lots of international cities. This demonstrates the globalization of the biotech industry.
I will warn you in advance that I’m not going to include all 50 cities. Instead, I’m giving you a sampling of cities.
In all fairness to the European cities listed here, part of their high cost is the increased valuation of the Euro against the U.S. dollar. The U.S. dollar is currently worth about 80 percent of one Euro. The value of the Euro has increased against the dollar significantly during the last 18 months. On the other hand, a Canadian dollar is worth about 85 percent of a U.S. dollar.
Wow! What a difference. We see $4.5 million from the most expensive to the least expensive. That difference can really eat into a company’s annual burn rate and cash horde.
While I would have expected the European sites to be among the most expensive and the Canadian ones to be among the cheapest, what surprised me is that the CODB for Chicago and San Diego is about the same. It also surprised me to see Chicago more expensive than Seattle and Raleigh/Durham (the Research Triangle).
Another anomaly is Madison, Wisconsin. While certainly cheaper than Chicago by about $800,000 per year, Madison is almost as expensive as Cleveland.
On the other hand, Minneapolis pops out as a real bargain among major cities. It’s $1.2 million per year cheaper than Chicago. Sioux Falls, S.D. is practically in the Midwest and is almost $2 million per year cheaper than Chicago. The issue there is attracting good talent to live in South Dakota.
I should know about this issue as I had to commute to Fargo, N.D. for two years to work at a biotech company there before I could raise sufficient money to bring it down to Chicago. I can tell you that it was difficult to get good scientific talent to go there (and this was even before the movie “Fargo” came out.
When we add the “ease of raising money” factor, obviously the San Francisco Bay area together with Boston’s ability to raise more money may outweigh the higher CODB. San Diego is probably the most cost-effective place as the CODB is about the same as Chicago but with a greater ability to raise VC funds. In the Midwest, Minneapolis is clearly king when you factor in CODB and ability to raise VC money.
When I started this column back in February 2003, I did so under the firm belief that no individual was covering the life science sector in the Midwest on a regular basis. I also thought no one was covering worldwide trends that might impact the development of the Midwest’s own unique blend of life science industries (ag biotech, diagnostics, medical devices, orthopedic and surgical devices and human therapeutics).
More to the point, I would like to take a moment to thank you – my audience and editor – for all your comments and feedback over the last two years. Keep those e-mails coming as your comments are always appreciated! I also hope you have enjoyed the musical insights along the way. See you next week!
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