Stiff competition for biotechs
The Twin Cities and
Minnesota aren’t wrong to target new development among nascent
biotechnology companies, but at least one seasoned observer cautions
that competition for those jobs is going to be heated, and it’s
going to come from several new directions.
“One of the messages for
Minnesota should be, Be realistic,” said John Boyd, founder of The
Boyd Co., a Princeton, N.J.-based corporate locations consultant.
will indeed become a lucrative industry, Boyd warned that its wealth
will also be finite. The biotech capitals — Boston, San Francisco
and metropolitan Washington, D.C. (home of the National Institute of
Health) — will continue to capture much of the growing industry,
while Minnesota joins a queue of cities and states writing up
incentive packages to lure the remainder of the firms.
But public interventions
— in the form of tax or land incentives — will probably have limited
influence over where startups decide to locate their new labs and
plants, Boyd said.
companies to look beyond the short term. Most of these incentives
have ‘sunsets’ built in, and the prudent companies will look instead
at the underlying, more permanent costs of operations,” from the
cost of obtaining an adequately trained workforce to the price of
real estate and electricity.
business factors will drive decisions about new biotech developments
much more than during the 1990s tech boom in Silicon Valley,
according to Boyd.
“Costs are tending to
dominate these decisions because of the soft economy,” he said. And
venture capital companies, the major funders for most of these young
firms, are also weighing in on behalf of prudent
“The VC companies are
more sophisticated,” thanks to their experiences during the dot-com
crash, Boyd said. “They’re asking their client companies more
questions about how they’re spending their money, about why they’re
choosing one location over another.”
A recent study by Boyd’s
company highlights who the winners might be in the new race for
frugality, ranking 48 North American cities — cities that Boyd said
are legitimate biotech contenders — on the local operating costs
that a startup would face.
The most affordable city
on the list was Montreal, which was joined in the top tier by two
other Canadian cities, Toronto (sixth) and Vancouver (12th).
probably will have a marked effect on a comparable northern market
such as the Twin Cities, which ranked 13th.
A big factor in the
improved Canadian showing is the exchange rate for U.S. and Canadian
dollars which, despite the U.S. dollar’s recent swoon, still
provides investors with much more buying power in Canada
than in the United States or Europe.
But Canadian cities have
had long-standing appeal to international investors.
“These are world-class
cities, and Montreal is already a leader in the pharmaceutical
industry,” Boyd said. European investors in particular are
“predisposed to Canadian cities, sharing more in culture and
politics with them than their U.S. counterparts.”
Boyd’s advice in the
past was to stick with American cities, based on currency and trade
advantages. But the strong dollar and, even more so, the effects of
NAFTA have shifted that balance. “Canadian cities now rank well on
quantitative as well as qualitative measures,” he said.
The other new
competitors that threaten the Twin Cities’ share of the pie are
small-market Midwestern cities, such as Sioux Falls, S.D., Des
Moines, Iowa, and Rochester.
Those regions match up
well on cost and with the specialized needs of some biotech
contenders, Boyd said. An example: Greenwich, Conn.-based Hematech
last year chose Sioux Falls for a major new laboratory. Hematech,
which develops disease-fighting antibodies, found in South Dakota
the inexpensive land and culture that could support the cattle herds
it uses to incubate its genetic products.
Sioux Falls has another
advantage that turns the heads of the emerging biotech market: Its
residents pay no state personal income taxes.
“These are startups,
with entrepreneurial-type people, and the absence of personal income
tax is a considerable factor for them,” Boyd said.
The tax advantage also
aids the company in persuading employees to relocate, or new staff
to move to join the firm — something that’s become more difficult in
a post-9/11 world, he said.
Minnesota does have
considerable advantages it can utilize in the race for biotech jobs,
including its location in flyover land.
New tech businesses like
the mid-continent location because it saves them in travel time and
cost. It is only two to three hours by air to any domestic location,
and airport congestion is still manageable, Boyd said.
“Companies know it’s
wasteful to have a six-figure executive standing in line at the
airport for an hour,” he said.
Some other cards that
Minnesota holds in this game are:
• The Twin Cities
airport itself, which is attractive to companies anticipating
international trade. The airport is accessible, efficient and, as a
Northwest Airlines hub, offers nonstop, timely service to many
domestic and overseas cities.
• The region’s financial
advantages include favorable rankings on facility lease costs —
thanks to a commercial real estate boom and a manufacturing slowdown
— and utility costs that are lower than most U.S. markets.
• The culture and
quality of life rankings in the Twin Cities remain top-drawer, Boyd
said, but that doesn’t matter a great deal in this
After 30 years of
consulting, Boyd said he doubts that governments can fundamentally
improve a business climate through tax incentives or other benefits
targeted to an industry. His advice instead is to take a page from
the doctors’ credo: Try to do no harm.
“It’s good if
governments can refrain from raising taxes to meet their budget
deficits. And in the Twin Cities case, their leasing prices on
facilities are giving them an advantage, so governments would be
wise to keep that in mind when they consider restrictive land-use
policies” that could push those costs higher.
Boyd will present the
findings of the report, “The Boyd Biomedical Cost Study,” today in
the Twin Cities to a group of Midwestern corporate