PRINCETON, N.J. — The biotech industry has come to an odd pass in its site selections. Sure, it remains an ostensibly "hot" sector avidly coveted by area recruiters. At the same time, though, biotech finds itself buffeted by sharp cost pressures, as a sluggish economy slows revenues and accelerates federal cost-containment demands.
        And that scenario has prompted many biotech firms to take a sharp-eyed look at the costs of where they locate.
        Those costs are precisely the point of a new study by The Boyd Company (www.theboydcompany.com). The Princeton, N.J.-based location consultancy has just released a 105-page report comparing operating costs for biomedical labs in 48 North American locations.

Sioux Falls, Iowa, home of the University of South Dakota (pictured) and its Health Science Center, finished only some $8,000 behind Montreal as the lowest-cost location for a biomed lab.

        And there are considerable bottom-line disparities in different locations, the study reports. Operating expenditures, in fact, can be 50 percent higher in some locales, The Boyd Company found. The study details annual costs that range from a high of US$12.1 million in San Jose, Calif., to a low of about $8 million in Montreal and Sioux Falls, S.D. (See accompanying charts of the study's 10 highest- and lowest-cost locations.)
        That broad cost range comes from an analysis that focused on what the study called "geographically variable factors," including salaries and benefits, utility bills, lease rates, and corporate travel costs. "Those costs not varying significantly with geography, including start-up and relocation expenses, were not considered," report researchers explained.

10 Lowest-Cost Biomed Locations 1. Montreal . . . . . . . . . . . . . . . $7,955,000 2. Sioux Falls, S.D. . . . . . . . . .$7,963,262 3. Athens, Ga. . . . . . . . . . . . . .$8,121,568 4. Shreveport, La. . . . . . . . . . .$8,202,453 5. Tulsa, Okla. . . . . . . . . . . . . $8,237,917 6. Toronto . . . . . . . . . . . . . . . . $8,452,187 7. Colorado Springs, Colo. . .$8,500,337 8. Charlottesville, Va. . . . . . . .$8,517,371 9. Rochester, Minn. . . . . . . . . $8,547,240 10. Salt Lake City . . . . . . . . . . $8,614,914 Source: The Boyd Company's A Comparative Cost Analysis for North American Biomedical Industry Operations. All figures are in U.S. dollars and represent annual operating costs at each location.

        Here's a look at how the study was conducted and some of its findings:

Labor-Cost Range:
$1.5 Million a Year

How Costs, Sites Were Determined: The costs tallied in the report were for "hypothetical 75,000-sq.-ft. (6,750-sq.-m.) research and product development facilities employing 100 workers," the study noted.
        The 48 sites included in the study were selected according to Boyd's perceptions of their status as "current or emerging centers of new biomedical and biotech corporate investment in a range of key sectors, such as bio-pharma, molecular science, agri-bio, genetics, genomics, proteomics, bio-informatics and others," the study said.
        Labor the Biggest Cost Component: Unsurprisingly, labor costs (including fringe benefits) were the biggest expenditure detailed in the study. (The study omitted labor costs for "executive management staff . . . as these costs would tend not to vary as significantly by geography, but rather by individual company compensation practices.") Labor expenditures were highest in San Francisco, at $6.2 million year, while they were lowest in Montreal, at $4.7 million a year. Canadian locations' labor-cost performance got a boost from the nation's health-care system, the study reported.

10 Highest-Cost Biomed Locations 1. San Jose, Calif. . . . . . . . . . . $12,106,100 2. San Francisco . . . . . . . . . . . $11,935,032 3. Fairfield County, Conn. . . . .$10,748,891 4. Boston . . . . . . . . . . . . . . . . . .$10,632,657 5. Nassau/Suffolk, N.Y. . . . . . .$10,290,838 6. Princeton, N.J. . . . . . . . . . . . $10,186,943 7. Chicago . . . . . . . . . . . . . . . . .$10,172,623 8. Philadelphia . . . . . . . . . . . . .$10,073,441 9. San Diego . . . . . . . . . . . . . . .$10,041,176 10. Middlesex/Somerset/Hunterdon, NJ . . . $10,035,825 Source: The Boyd Company's A Comparative Cost Analysis for North American Biomedical Industry Operations. All figures are in U.S. dollars and represent annual operating costs at each location.

        "Boyd's location experience and compensation surveys point to a lower corporate cost burden for fringe benefits in Canada, largely due to that country's national health-care plan," researchers said. "Boyd projects biomedical industry fringe benefit costs in the U.S. at 27 percent of base payroll costs. Total fringe benefit costs in the Canadian biomedical sites are estimated at 20 percent of annual base payroll costs."
        Those lower fringe benefits heightened the cost-reduction profiles for the three Canadian sites included in the study. In addition to Montreal's status as the lowest-cost location, Toronto was the sixth-lowest, and Vancouver was 12th-lowest.
        Canadian sites got a further cost-cutting boost from the exchange rate with the U.S. dollar. Boyd researchers used the exchange rate that applied at the time of the study - US$0.637 per 1.00 Canadian dollar. (Early this week, the exchange rate has changed significantly, to US$0.730 per 1.00 Canadian dollar.)

Lease, Amortization Costs Vary
From $5.2 Million to $2.8 Million

Deep Disparity in Lease, Amortization Costs: The study also detailed a wide range for real estate costs. Researchers defined occupancy costs in the study as leased "Class-A research and office space in each of the surveyed locations [with] annual costs . . . keyed to effective asking rates."

Columbus, Ohio (pictured), was the study's lowest-cost location for facility leasing and equipment amortization, at some $2.8 million a year. Of that total, $1.3 million was for occupancy costs.

        San Jose again finished with the highest costs for facility leasing and equipment amortization, at some $5.2 million a year. A U.S. locale - Columbus, Ohio - ranked as the lowest-cost location for leasing and equipment amortization, at some $2.8 million. Occupancy expenditures in both San Jose and Columbus comprised the biggest leasing and amortization component. Leasing costs in San Jose were some $3.7 million a year, the study reported. In Columbus, annual leasing costs were some $1.3 million.
        Power-Cost Curve Can Be Four Times Steeper: Utility expenditures were a smaller overall cost component for the biomed labs - a facility type that's typically not among big power users. Nonetheless, the study found broad discrepancies in utility expenditures.
        Both the highest- and lowest-cost electric power locations came from the same West Coast Region delineated by the study. San Jose finished as the highest-cost site, at $275,040 a year, while Vancouver was the lowest-cost locale, at $81,480.
        Comparing Travel Costs: Corporate travel costs, by comparison, evidenced a less broad cost differential among sites. Researchers defined those costs as "traveler lodging, meals, local transportation and other business travel incidentals . . . to be incurred by employee visitations (e.g., management, technical, trainee) to each of the . . . surveyed . . . sites."
        Chicago was the highest-cost location for corporate travel, at $392,883 a year, Boyd found. Sioux Falls ranked lowest, at $202,808.

Hematech Does Sioux Falls

The study's costs focus may seem to some observers out of synch with traditional biotech site selection behaviors. Historically, the industry has tended to cluster its labs in the more high-profile scientific and academic clusters on the U.S. East Coast and West Coast.
        The study underscores, though, that those ingrained location behaviors have considerable cost ramifications. Moreover, there is some anecdotal evidence that less traditional locations are exerting increased locational allure - not only by offering lower costs, but also by having the appropriate human and physical infrastructure in place.
        A case in point is Westport, Conn.-based Hematech (www.hematech.com), which a year ago opened a small research lab in Sioux Falls. The facility in Sioux Falls, which is home to the University of South Dakota Health Science Center, is part of Hematech's network researching genetically altering cattle to produce human vaccines to fight a variety of diseases.
        "Our experience in making this facility operational has confirmed the confidence we placed in Sioux Falls," Hematech CEO James Barton said when the lab opened last year with some 20 researchers. "The acceptance of our vital health-care mission and our groundbreaking scientific applications has been exciting and gratifying.
        "Our initial analysis of Sioux Falls as the most desirable place for the expansion of our research operations was correct," Barton continued.
        "The Sioux Falls business climate, with leading universities and world-class health-care facilities, will assist in Hematech's recruitment of highly-skilled scientific and biotech employees, thus further promoting additional corporate value and growth opportunities."
        Hematech's lab could grow to 200 employees by the end of the year, Barton said.
        Another draw for Hematech was its ongoing work with nearby Trans Ova Genetics' Genetic Advancement Center, which is located just outside Sioux Center, Iowa. Barton called the Trans Ova partnership "a key element in our strategy for developing innovative disease-fighting agents."