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From Site Selection magazine, March 2012

Data Driven Journey

A wave of mission-critical facilities and anchor
institution teamwork points the way to Minnesota’s future.

New life sciences and technology projects are making Minnesota skylines shimmer more brightly than ever, including in Saint Paul. The state’s unemployment rate fell to 5.7 percent in December, while the national rate hovered at 8.5 percent.
Photo by Geoff Myers courtesy of St. Paul Convention & Visitors Bureau

Among the assets available at the University of Minnesota is a 3-D imaging lab.
Among the assets available at the University of Minnesota is a 3-D imaging lab.
Photo by Andria Peters

ealthcare, life sciences and medical equipment and devices continue to be leading industries in Minnesota, growing on a continuum that goes back several generations and into the 19th century.

At the same time, owing in part to the cheap cooling afforded by the state's chilly climate, four of the top projects by investment in 2011 were data centers, including facilities in Eagan and Duluth. The two threads have come together in a US$40-million data center from the state's world-famous Mayo Clinic in Rochester.

A recent study from leading data center contractor Mortenson Construction, based in Minneapolis, indicated several general factors that seem to conspire in Minnesota's favor:

  • Healthcare and technology companies have the greatest future need for data center capacity;
  • Energy and cooling costs receive top consideration when making data center location decisions;
  • 83 percent of colocation provider respondents and 60 percent of corporate and public entity respondents will likely make mission critical investments in the next 12-24 months.

"Competitive utility rates and infrastructure are key components, along with a cooler climate," observes Kevin McKinnon, director of business development for the Minnesota Department of Employment and Economic Development (DEED), noting that the infrastructure includes a robust fiberoptic network. A low risk of natural disasters helps too, as does the lack of a personal property tax. But what really helped were new data center initiatives passed in 2011.

"Basically, companies don't pay sales tax on energy use or equipment for 20 years, if building or renovating 30,000 square feet [2,787 sq. m.] of space and investing $50 million," says McKinnon. He notes, however, that there was a lot of success already in the niche even before the new incentives, from such companies as United Health Group, Target and Thomson Reuters. Newer projects include Involta in Duluth and Five 9s Digital in Eagan. "There is tons of activity in that space in Minnesota right now," he says.

Michael Langley is CEO of the newly formed Minneapolis Saint Paul Regional Economic Development Partnership, or Greater MSP, which represents a 13-county region. He says one of the first things he did on arriving at his post last spring was a deep data dive with McKinsey & Co., which revealed, among other things, a strong cross-section of internal data and back office activity cutting across the area's corporate strengths in IT, headquarters, medical devices and aerospace.

That finding helped push the legislation across the finish line, and may be helping to push more projects toward their own finish lines very soon.

"About a third of project inventory in our pipeline now is companies interested in making a data center investment in Minnesota," he says. "Between now and later this year, there are some major companies that will be announcing major data center activities in the state."

Similar projects abound as well, such as the December announcement by Prime Therapeutics, an Eagan-based pharmacy benefit management company, that it will expand its facilities in Dakota County and add 300 information technology and business analyst jobs.

User Fees Will Help Corporations. Come Again?

The data center project from Mayo is just the latest facet of the legendary institution's $9.6-billion statewide economic impact ($22 billion nationwide, including the influence of its centers in Arizona and Florida). Mayo provides more than 10 percent of the state's privately operated health care employment, and directly and indirectly supported jobs for more than 70,777 Minnesotans in 2008. Spinoffs from Mayo include such companies as EnteroMedics (St. Paul), Torax Medical (Shoreview), NeoChord (Minnetonka) and Muve and Medspira in Minneapolis.

Repeated efforts by Site Selection to talk to Mayo executives about the threads of that impact throughout the business community went unanswered. But along the way, we talked to an institution — and Mayo partner — with its own hefty economic development influence: the University of Minnesota ... or "the U" for short.

The most recent total R&D funding rankings from the National Science Foundation were conducted in 2009, and ranked the University of Minnesota eighth in the nation, just behind Penn State and just ahead of Ohio State. New rankings were being hotly anticipated in February at campuses across the nation.

In addition to the 20 FORTUNE 500 companies located in the Twin Cities, the state can boast of 10,000 businesses founded in the state by U alumni. A new president, continuing partnerships and a new collaborative research policy figure to help boost the fortunes of all of the above when it comes to industry-academy partnership and job creation.

"The new president of the university, Eric Kaler, is going to be a very progressive leader in that regard," says Greater MSP's Langley. "From an economic development practitioner's point of view, I see the University of Minnesota realizing they can be much more progressive in terms of encouraging commercialization of research coming out of the university."

The opening up couldn't come at a better time, Langley notes, with the FDA announcing on Feb. 1 its agreement in principle with the medical device industry to collect $595 million in user fees from the industry over the next five years in exchange for speedier regulatory process abetted by more FDA staff, potentially 200 more by the time those five years pass.

Congress first established the user fee program 10 years ago with the Medical Device User Fee and Modernization Act of 2002 (MDUFA I), prompted by growing concerns about the capacity and performance of the medical device review program. The five-year program was reauthorized with the Medical Device User Fee Act of 2007 (MDUFA II) and is set to expire on Sept. 30, by which time the parties hope to have submitted the new agreement to Congress for approval.

"Certainly the folks in Minnesota and industry nationally are applauding that move," Langley says of the new agreement. "There are a lot of pent-up patents and activity. Patients will benefit more than anybody."

Langley was hired by Greater MSP last year after working as CEO of the Allegheny Conference on Community Development in the Pittsburgh area, which boasts its own heavy-hitting academic institution in Carnegie-Mellon University.

"Clearly both areas have strengths in life sciences, healthcare and technology," he says. But when it comes to setting a Bureau of Labor Statistics location quotient for all sectors in the biomedical arena, the Twin Cities clocks in at 2.35 compared to a plenty strong 1.11 rating for Pittsburgh.

"In Minneapolis-Saint Paul we have 688 companies in those sectors, and Pittsburgh has 385. Pittsburgh average earnings in 2011 were $82,000 [in the sector]. But in Minneapolis-Saint Paul it is $106,555. The national average for biomed is $99,000." He admits that this fact has more than one implication.

MN-IP Aims To Make Things as Easy as the Alphabet

According to research released by the Battelle Technology Partnership Practice in 2010, Mayo Clinic and the University of Minnesota have a combined $18.5 billion economic impact on the state of Minnesota.

Mayo officials in December hosted President Kaler to sign a renewal of a memorandum of understanding that has roots going back to 1907, when William J. Mayo, M.D., became a member of the University of Minnesota Board of Regents. In 2003, Mayo and the U announced the Minnesota Partnership for Biotechnology and Medical Genomics, which as of July 2011 had generated 94 peer-reviewed papers in scientific journals and more than $82 million in external funding, resulting in an eventual estimation of 2,464 jobs.

Most recently, in 2010, the two institutions announced the "Decade of Discovery," with the goal of preventing, treating and curing Type 1 and Type 2 diabetes in 10 years. The renewed memorandum of understanding calls for the two to plan and implement collaborative education programs to support the state and region.

Since the memorandum was first signed three years ago, Mayo Clinic and the University of Minnesota have begun numerous collaborative efforts, including the Bachelor of Science in Health Professions educational collaboration and the Biomedical Informatics and Computational Biology consortium.

"We're seeing an uptick in other life sciences areas as a result of our strength in medical devices," says Langley of Greater MSP, citing a new 275,000-sq.-ft. (25,550-sq.-m.) expansion by Boston Scientific in the cardiovascular research arena. "A lot of applications now are medical delivery, so there is this emerging trend of combining medical device and pharmaceutical delivery. We're not just a medical devices area anymore. With more collaboration between the University of Minnesota and Mayo Clinic, our upside is bigger than some people even imagine at this point."

News even more meaningful to industry may have come six days before the collaboration announcement, when the U, after thorough external consultation, announced Minnesota Innovation Partnerships, or MN-IP, a new approach to the way it handles intellectual property arising from research projects funded by business and industry partners.

With MN-IP, a company sponsoring research at the university will be able to pre-pay a fee and receive an exclusive worldwide license with royalties taking effect only in cases of significant commercial success. The policy offers the added advantage of removing the uncertainty and financial concerns that often surround industry-funded research projects.

"At the university and other higher education institutions, industry-funded research often involves complicated research contracts and protracted negotiations over terms related to any intellectual property that might result from the research," said the announcement. "Both sides frequently find the experience frustrating, time-consuming and counter-productive to effective partnerships.

"Using feedback from business partners who often criticized the university's traditional approach, Vice President for Research Tim Mulcahy and his team have come up with a new approach that is a true game-changer," said Kaler. "We expect that MN-IP will make the University of Minnesota a research destination of choice for major corporate partners looking to sponsor research at a world-class research university."

"We're transitioning from an approach that focused almost exclusively on the remote probability of royalties," said Mulcahy, "to one that values the many tangible and intangible benefits that accrue to the university, our corporate partners and the state from truly effective partnerships. Our technology commercialization staff will be encouraged to work with faculty to attract sponsors and establish beneficial partnerships. Companies will have a stronger incentive to commercialize technology resulting from university research. And consumers will benefit as these innovations are developed and ultimately make their way to the marketplace."

'Are You Crazy?'

In an interview, Mulcahy says he's seen a lot of interest displayed since the new policy was announced, with a number of new contracts already signed, a couple deals closed and several other deals under discussion. Tellingly, he says, "companies that have done business with us in the past, but not as frequently as we've liked, have been to see us."

Mulcahy, in his post with the U since 2005, previously worked at the University of Wisconsin-Madison, known for its strong IP policy. But he says the new policy did not draw very heavily on consultation with peer institutions.

"In fact we believed this was a trend-setting opportunity and there wouldn't be many moving in this direction anyway," he says. One influential factor, however, was the university's membership in the University-Industry Demonstration Partnership, a consortium hosted by the National Academies.

"I was a national president of that organization, and some of the points that led us to reshape our thinking came up in that forum," says Mulcahy. "We heard from companies that they believe it's been very difficult to work with universities because of our tenacious focus on royalties that might come out of IP associated with corporate-sponsored research. We had unrealistic expectations, and we were foregoing a lot of benefits. I found those arguments quite compelling."

So, like any good researchers, his team performed some analysis of the royalty stream over 25 years. It was significant in dollar terms, he says, but was a small percentage of the total, and was quite small on an annual basis.

"We reasoned we were losing a lot of goodwill in exchange for a low financial return," he says. "So we switched the proposition around, put a higher value on relationships, and less on the royalty stream. We pitched the idea, and it resonated, fortunately."

Then a number of major companies had the opportunity to offer their tweaks and nudges. In the end, says Mulcahy, it was a policy to be happy with. He says that some of the new discussions are with medical device firms. The best part, he says, is that the conversation has veered away from terms in research agreements, and toward more optimistic, open-ended yet immediate ideas surrounding university strengths and technologies. Those include the strengths available at campuses outside the Twin Cities, such as biomed, engineering and environmental research in Duluth, bioinformatics in Mayo's home territory of Rochester, or the world-class cancer research conducted by university partner The Hormel Institute in Austin.

The tone of such discussions has shifted to how the parties can capitalize on innovations through probing areas of alignment and synergy. If that sounds like a lot of buzzwords, it's because the buzz is palpable.

"The business community is intrigued, and it's bringing people back to our door, which is a big thing for us," he says, calling attention to a breadth of subject matter at the flagship campus that stretches as wide as the northern plains and offers great opportunities for interdisciplinary work.

But more important than all that strength, he says, is a mindset that says to companies that the school wants to work with them to access those assets in ways that will benefit all concerned.

"Universities are large organizations that, to some extent in the past, had less need for outward connections," he says. "But in general most universities are recognizing they need to be contributors to regional and national economic development. There's a growing awareness that we need to be sure to emphasize our relevance. The opacity we normally have isn't doing anybody any good when it comes to business and industry. It will take time, but I think it's going to pay off.

"I did get some calls saying, 'What are you guys doing? Are you crazy?'" he says. "That makes me feel good in a way."

Story in Pictures

Among the assets available at the University of Minnesota is a 3-D imaging lab.
Photo by Andria Peters
Click for a larger view.
Click for a larger view.

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