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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.

Although biotechnology 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.

“We’re counseling 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. 

Those fundamental 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 spending.

“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).

Canada’s rejuvenation 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 competition.

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 planners.

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