Stuart R. Gallant, MD, PhD

In the last two decades, startup pharmaceutical companies have become increasingly frugal with investment capital.  One of the ways to save a bunch of money is by picking the right location to establish a laboratory.  Today’s post presents some of the options, along with issues to bear in mind when building your company’s first nest.

Old School—The Office Park

Going back decades, a lot of pharmaceutical and analytics companies have been founded in office parks.  Given the depressed state of commercial real estate, getting favorable lease terms is likely in the current economic environment.  Here are some issues to think about:

• Is the space configured for labs?  Buildings in business parks are often configured as carpeted warrens of office cubicles.  How readily can your company’s new home be converted to lab space?  What are the floors, walls, ceiling, and ventilation system like?  A major remodel will add to the project cost and timeline.
• What utilities (laboratory gases, electrical infrastructure to support power thirsty laboratory equipment, safety showers, etc.) may be required?
• What infrastructure is needed?  Will a shipping and receiving area be required?  Office space?  Servers?

New Alternatives—Incubators and Accelerators

There has been an explosion of incubator and accelerator space in the last decade.  Some things to think about are:

• Who is running the space?  Incubator sponsors include:  universities, pharmaceutical corporations, and private corporations.  University incubators may offer increased access to high-end specialized equipment owned by the institution.  Incubators owned by pharmaceutical companies may offer the possibility of partnering and investment opportunities with the sponsor.
• Who are the other tenants?  The tenants in the space offer a close-at-hand network of startup founders who can offer advice about laboratory techniques, financing, and business strategy.
• Incubator or accelerator?  Incubators and accelerators may offer similar services in terms of space and support.  The difference is that an accelerator is typically a short-term location for your business while you accomplish a particular goal—while an incubator can be a home for many years until your company grows so much that it needs a new home.
• What is the application process?  Depending on the type of incubator, the application process varies.  For the less exclusive arrangements, the application is designed to shield the owner against your business failing and skipping out on rent—just a basic credit worthiness analysis.  For the more prestigious locations, your business plan is evaluated, and the sponsor considers if your company might be an enterprise that would receive a strategic investment in the future if you hit your milestones.

How Is Lab Space Configured?

Thinking about laboratory infrastructure at the time of lease signing as a spectrum, the simplest configuration is a concrete slab with four walls—the startup is expected to remodel the space to create a working laboratory.  On the other end of the spectrum is the most complete laboratory incubator space.  Here are some architectural features to look for in an incubator:

• Movable walls:  Modern construction techniques allow internal walls to be moved in a matter of days—nonstructural walls can slide to enlarge or shrink a lab space.  This allows the total building footprint to be used in the most efficient way, reducing the per square foot leasing cost.
• Floor and wall finishes:  Are the finishes both chemically resistant and easily cleaned?
• Ventilation:  Does the lab have a separate air handler, preventing lab to lab contamination?
• Movable benches and shelving:  Can the internal layout be quickly customized to support your team’s workflow?  Many labs now come equipped with benches and shelving, meaning that you only need to bring freezers and dedicated laboratory equipment.

What Services Are Offered?

The most valuable resource founders and startup employees have is time.  Unloading tasks onto an incubator can be enabling for startups—some of these tasks include:

• Basic utilities:  Municipal solid waste, city water and electricity, janitorial, site security, cafeteria, meeting rooms, etc.
• Laboratory utilities:  Laboratory solid and hazardous waste, flammable solvent storage, deionized water, backup power, emergency freezers in case a key sample freezer goes down, etc.
• Support programs:  Laboratory safety program (training and oversight of laboratory safety), ordering and warehouse (coordination of the deliveries from VWR, Thermo, etc.), human resources and accounting.
• IT infrastructure:  Wi-Fi, ethernet, server, and cloud administration.
• Lab equipment:  Some pharmaceutical startups require similar types of laboratory equipment (flow cytometry, qPCR, analytical and preparative chromatography equipment, mass spec analyzers, high speed centrifuges, etc.) which is both pricey and may be used infrequently.  Is there a set of shared equipment that can be use on a fee-based or free basis?
• Support vendors:  Pharmaceutical startups may require contract research organization support for analytical services, vivarium, and other specialized tasks.  Are these services located close to the proposed laboratory space, so that samples can be efficiently transferred with minimal delay?
• Miscellaneous:  Does the incubator offer lunch-and-learn opportunities, vendor shows bringing in laboratory equipment suppliers to demonstrate new products, and networking and mentoring opportunities?

What’s the Cost?

In the past, contracts for rental of space were called “leases.”  Some lab space landlords are now calling these contracts “licenses.”  Some things to consider in your company’s lease or license agreement:

• Term:  In office parks, landlords often targeted a longer-term arrangement and expected tenants to bear the entire cost of modifications to make the space suitable for lab work.  With dedicated lab space facilities, terms are shorter, and startup costs are lower because the space is already setup as a lab.  A typical license may be 1 or 2 years.
• Cost:  Pers square foot costs vary widely.  Some universities and pharmaceutical corporations sponsoring incubators may view these facilities as loss leaders.  These arrangements are designed to improve the chance of early startups transitioning to later stage startups and entering clinical trials.  Other incubators are for-profit businesses.  With that range in mind, some examples include:  1) An early-stage incubator facility offering a bench in a shared lab and an office desk in a cubicle area for $1500/month—a full range of support services, including shared equipment, is included.  This could be sufficient to allow 2 scientists to conduct studies prior to initiating a full pre-clinical program.  Costs increase as more space is required.  2)  The average leasing price for commercial laboratory space in Boston/Cambridge is $100 per square foot.  (It’s lower in Denver at $60 per sq. ft.)  A 500 sq. ft. startup laboratory to house 6 or even 10 scientists would be an economical $50k per year—expecting a broad range of services and minimal startup costs.
• Associated investment:  The operators of the incubator may be inclined to invest in your startup—either in capital or in services such as foregoing lease payments.  The standard caveats apply—a pharmaceutical startup usually only has the assets of its intellectual property and its scientific and management teams; any deal should be carefully evaluated for the price at which any equity is sold.

Conclusions

As companies look for ways to reduce their capital burn rate, use of purpose-built lab space leasing facilities offers an attractive way to be frugal and efficient at the same time.  It makes sense to do a broad search before committing to a home.  Angel investors and members of the startup community can help your company to develop a list of prospective laboratory locations.

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