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Biotechnology Business Development Center Business Case

Biotechnology Business Development Center Business Case. Prepared For: City Council Approval Date: December 14, 2004. Prepared By: Myron Borys Vice President, Economic Development. Previous Studies.

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Biotechnology Business Development Center Business Case

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  1. Biotechnology Business Development Center Business Case Prepared For: City Council Approval Date: December 14, 2004 Prepared By: Myron Borys Vice President, Economic Development

  2. Previous Studies Nearly $360,000 has been spent directly on the issue of lab space to date. We do not need more studies, but action – the industry need is clear! BBDC - Business Plan

  3. Biotechnology Industry Profile • 45 Biotechnology companies in Edmonton directly employing 1,100 people • 74% of Alberta’s 61 Biotech companies are located in Edmonton • Edmonton is the 4th largest regional cluster in Canada • Alberta Companies generated $275M in revenues in 2003 • 13 publicly traded companies in Alberta • Alberta companies raised $87M in financing in 2003 With 74% of the industry in Edmonton, a facility is becoming a necessity to grow and retain companies and people. BBDC - Business Plan

  4. Previous Findings “If the region is able to harness its capacity to perform leading edge research and put its intellectual wealth to work in regional ventures that will help move activity from R&D to production and distribution, then the cluster will flourish. This may all be possible, but it will take considerable new thinking and action by regional stakeholders.” (2000 Greater Edmonton Competitiveness Strategy) 2003 Feasibility Study Showed: • 72% of surveyed companies expect to grow in next 2-3 years. • Lab should be built as a flexible shell structure to accommodate shifting demand. • Growth will require 63,000 – 78,000 square feet of new space. • The mix of space is 57% Lab/R&D, 27% production, 16% admin. • 78% of surveyed companies prefer Research Park as location. • Tenants are willing to pay market rent for space and prefer to lease BBDC - Business Plan

  5. Research Labs • U of A • ARC • Capital Health • Fed/Prov Gov’t • Corporate Facilities • Isotechnika • BioMS • Biomira • Cytovax The Opportunity Multi-Tenant Wet Lab Facilities ?????? • A known gap in regional facilities exists creating a barrier to growth for emerging biotech companies. • The biotech industry is a knowledge based growth industry • Edmonton has 45 biotech companies – up from 17 ten years ago • Global industry is $60 B, growing at 25% annually • Demand exists in the Edmonton area • 2003 Market Feasibility Study showed demand for 68,000 sf • Letters of intent have been received from 5 biotech companies requesting 46,000 sf of space • Private sector sees sector as too risky without lease guarantee A window of opportunity exists to solve a critical industry need. BBDC - Business Plan

  6. Recommendations • That City Council approve the business case for the Biotech Center subject to EEDC being able to secure: • The proposed financing from the Provincial and Federal governments. • Minimum tenant commitments for 50% of the flex space before construction begins • $8M in mortgage financing by the City of Edmonton • Access to the necessary City owned land in the Edmonton Research Park BBDC - Business Plan

  7. The Proposal • Construct a 71,000 sf structure adjacent to the ATC consisting of: • 10,000 sf of fully equipped shared wet lab • 55,000 minimum sf of flex lab space to be customized to tenant requirements • 5,700 sf of entrance, common area, coffee shop/light food space. • Shared lab available on a breakeven basis to Edmonton biotech companies. • A high quality building envelope with high flexibility to accommodate various tenants. • Total development cost of approximately $14.2M to be financed as $1.2M value in kind (Cit land, EEDC services), $5M in grants, and $8M as a City mortgage. BBDC - Business Plan

  8. The Proposal – Plan view BBDC - Business Plan

  9. Design Principles • Based on client needs and consultation • Key elements: • Provide access to shared wet lab space • Make core structure flexible • Do not pre-configure office space – let tenants customize own space and provide a Tenant Improvement allowance • Provide 28 ft. high ceiling to accommodate production space • Provide competitive rental rates and terms • Provide opportunities to interact and access to shared facilities at the ATC • Process was industry driven and inclusive • 2003 Feasibility study surveyed 18 firms • Design team consulted with several biotech firms looking for space in 2004/05 • Steering committee representation • Involvement of Biotech Cluster leadership team and BioAlberta BBDC - Business Plan

  10. Demand Assessment • Letters of intent for a total of 46,000 sf received from “A” list: • KMT Hepatech: 7,000 sf • Ceapro: 18,000 sf • Virexx: 5,000 sf (may be taking Cytovax space) • PBR: 6,000 sf • Kinetana: 10,000 sf • Big Bangwidth: B list company expressing need • Over past two years, Isotechnika, Altachem Pharma, Cytovax and Zed-I Solutions have absorbed 65,000 sf in the Edmonton area (only half in the ERP) • Target tenant profile developed: • “A” list criteria • Local Biotech companies • Demonstrates potential to grow • Becoming financially viable • Second stage company • fully developed business plan • Need for space matches BBDC offer • Typically require 5,000 sf or more • “B” list – includes other technology companies with similar characteristics Companies are waiting for EEDC to act – they will eventually go elsewhere. There is a defined window to take advantage of current demand. BBDC - Business Plan

  11. Value Proposition • Why locate in the Edmonton Research Park? • Critical mass- proximity to other biotech companies to potentially share services and reduce cost • Avoid the time and cost to retrofit warehouse space • Rents are comparable or lower • Proximity to Alberta Research Council • Shared wet lab provided at extremely low cost • Availability of other services – meeting space, coffee shop, etc. • Close to International Airport • Able to handle tenant growth (ATC and RC-1) and contraction (sublet to other tenants) Locate at the center of Edmonton’s growing biotech cluster in a facility specifically targeted for your unique company needs, with access to a well equipped lab. BBDC - Business Plan

  12. Tenant Example • What would a customer pay (10,000 sf example): • Building rent, including TI: $13.75/sf • Tenant gets a TI allowance of $300,000 towards fit up • Utilities and taxes: paid by tenant direct: $7/sf • Operating costs: $2.55/sf • TOTAL: $23.30/sf • Shared lab, if required: $20/sf inclusive of operating costs, utilities, lab equipment maintenance. Competitive rates for new construction in the City, plus subsidized lab space available at half the cost of commercial space. BBDC - Business Plan

  13. Regional Positioning The BBDC occupies a unique position in the Edmonton region and fills a distinct gap that exists. Letters of support from the U of A and from the Alberta Research Council have been received. BBDC - Business Plan

  14. Industry Positioning As companies evolve their space needs change – the Edmonton region has a distinct gap after the incubator stage – a multi-tenant wet lab. BBDC - Business Plan

  15. Financial Model Assumptions • Construction estimate verified by independent cost estimator comparing recently awarded projects in the Edmonton region: • Agrivalue Food Processing Business Incubator in Leduc • Agri-food Discovery Place, U of A campus • City provides land for project at no cost • All City permits and fees paid by project budget • No revenues from potential coffee shop • 50% pre-leased at completion of construction • 5.4% cost of borrowing (City 25 year rate) • Total development cost of $13M (not including $1.2M in land) BBDC - Business Plan

  16. Financial Analysis - Results The likely case shows a breakeven business case in line with EEDC’s non-profit objectives. BBDC - Business Plan

  17. Funding Proposal • Leverage City contribution of land and services to secure Industry and Provincial/Federal funding of approximately $5M to create a unique regional resource: the Shared Lab Facility. • City provides land and EEDC provides value in kind of approximately $1.2M • Western Diversification provides a $2.5M grant towards the construction of the Shared Lab facility • Province of Alberta provides matching grant of $2.5M towards construction of the Shared Lab facility • Potential corporate sponsors purchase naming rights to new BBDC building or other sponsorship • EEDC would rent space in Flex Lab portion of building at market rates to avoid undercutting private sector development in Park. • EEDC would make Shared Lab available to all companies in the region, not just companies located in the Park, at subsidized rents. • EEDC and ARC to partner in operating Shared Lab as a regional resource. BBDC - Business Plan

  18. Government Perspective Seen as providing key regional infrastructure facility to stimulate growth of a strategic industry Accessible by all firms in the Edmonton region All three levels cooperating – leverages City contribution Creates critical mass of biotech companies in Research Park Why it will work Private Sector • Solid sponsorship opportunity in a high traffic, high visibility location is appealing. • Developers will not be undercut and will continue to build in the Park. • Taxpayers are not subsidizing companies directly but are creating regional infrastructure. • Tenants are too risky for private developers, so competition with private developers is not perceived. Potential Tenants • Relieves pent-up demand for multi-tenant wet lab facility • Access to fully equipped and managed Shared Lab at a very low cost: $20/sf vs $40+/sf. • Access to a new facility with a prestige address which they can customize as required, at market rates or just below. This is a win-win-win for all parties involved – a much needed regional resource can be created. BBDC - Business Plan

  19. Risks • Funding approval not secured – WD, Province, City and Private sector do not step up • Have started lobbying process early – all levels of government are working on the project • Project size and scope can be adjusted to be viable at lower investment levels than$14.2M • Industry demand may not materialize • Demand is dynamic – plan to reach full lease-up by end of year 2. • RC-1 and ATC have been at 99% occupancy for a sustained period and were fully leased within 2 years of opening. • B-list companies increase pool of potential tenants in the short term • Cost over-runs • All costs were verified against existing projects in the Park and recent construction elsewhere • Necessary contingencies have been factored in • Complex interior finishing will be financed by tenants BBDC - Business Plan

  20. Next Steps • City Council approval • December 14, 2004 • Solidify demand – intent to lease • Tenants waiting for EEDC and City approvals to commit • Target 50% pre-lease of flex space before construction starts • Secure financing • Target year end 2004 confirmation from all levels of government • City approves $8M loan in early 2005 – final bylaw reading • Begin detailed design • Early 2005 for Q1/Q2 2005 construction start BBDC - Business Plan

  21. Financial Analysis - Sensitivity The model is most sensitive to the number of total square feet leased (same shell cost spread over more rentable area) and the rent per square foot. The model is less sensitive to variable interest rates BBDC - Business Plan

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