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Incubating biotech and hoping it's the next golden egg
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Corporate partners will join the effort, but the biotech incubator is initially a partnership between the city of St. Paul and the University of Minnesota. St. Paul Director of Planning and Economic Development Martha Fuller, left, and U of M Dean of Biological Sciences Robert Elde stand outside the loading dock at the facility. (MPR Photo/Jeff Horwich)
The Pawlenty administration and others watching the Minnesota economy see biotechnology as one bright light on the horizon. And no single place better captures Minnesota's biotech dreams than a sprawling, abandoned building on the western edge of St. Paul. The city bought the building this month to serve as a non-profit "incubator." Officials hope the empty space will nurture fledgling biotech entrepreneurs into tomorrow's powerhouse corporations.

St. Paul, Minn. — St. Paul and the University of Minnesota have big visions for this cavernous space, 125,000 square feet formerly occupied by Target Direct. It sits on 11 acres in St. Paul's "Westgate" area, near the intersection of Interstate 94 and state highway 280. St. Paul's Director of Planning and Economic Development, Martha Fuller, leads the way into a darkened room filled with acres of vacant cubicles.

"This was a combination warehouse and office facility," she says. "We'll see when we go upstairs there was also a call center too, with lots of incoming telephone lines. As you can see, the building is in great shape. We've been playing around with different approaches to building this out."

The way many officials see it, a big part of Minnesota's economic future literally starts here. As the name "incubator" implies, this is a place for new biotech companies to get a protected start in life, with a forgiving landlord and access to important resources. They'll have access to two U of M campuses just a few miles in either direction, with the campus transitway busstop right out the back door. A $20 million remodeling plan for the building itself includes laboratories equipped with centrifuges, autoclaves, and extensive air filtration systems, at a cost of up to $300 per square foot.

"Because (these companies) are not typically terribly credit-worthy -- they're new, maybe they haven't turned a profit yet -- they're not a landlord's favorite tenant," Fuller says. "So having a building like this, that is suitably equipped but its financial model leverages charitable gifts, you don't have the same return-on-investment kinds of hurdles that a traditionally owned, private, for-profit building would."

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Image "Not exactly shell space," but close

The city of St. Paul sees this as the center of a new biotech corridor. The University and the state want to attract brain power and money to the region. And corporate donors see a factory for new products and possible acquisitions down the road. Xcel Energy has given $2 million to the project; earlier in September, 3M gave $1 million. Xcel and 3M will likely sit on the board of University Enterprise Laboratories, the non-profit entity set up to manage the incubator.

U of M Dean of Biological Sciences Bob Elde heads University Enterprise Laboratories. He says neither the university nor the non-profit will have any financial stake in the ideas generated there.

"We're providing the real estate, we're providing the high-end laboratory that they need to do it in. We're not taking equity positions in them, or evaluating them on those grounds," Elde says.

Elde says University Enterprise Laboratories will focus its efforts on truly fledgling companies.

"We don't have any screening requirements on financial qualifications and credit and that sort of thing," he says. "The criteria are really just to give everyone a running start, because we can't predict which ones of these start-up companies are going to hopefully evolve to become the next Medtronic."

There's something about this industry where the ideas come by pretty casual interactions of people.
- Bob Elde

About half the space, 50,000 feet, will be used by the start-ups themselves. Elde estimates room for about 25 companies. He gives examples of a few small companies that will be moving over from their temporary homes on campus: One hopes to extract hydrogen from bacteria for use in fuel cells; another is working to regrow blood vessels; a third is manipulating genes to create flavors and fragrances. Other start-up companies are already lining up to get in.

"From conversations and activity that we're seeing, we think we can meet our end-of-first-year occupancy projections for start-up tenants today," Elde says. "By the time we open our doors we may need to begin a phase-two."

The rest of the space will go to a few larger biotech companies and various support services: Lawyers, accountants, maybe a representative of the U.S. Food and Drug Administration. Elde gestures to a spot under the 24-foot ceiling and describes an atrium and courtyard here with plenty of public space.

"Another aspect of this is not just the labs, but it's the social interactions among people, and because of that there's going to be a little cafe or cafeteria in the building," he says. "There's something about this industry where the ideas come by pretty casual interactions of people, in many cases."

The first companies could move in October 1st, though the lab facilities will not be complete for another year. One of those companies could be Algos Therapeutics, which is researching new pain treatment drugs. Susanne Dvorak is the president of Algos.

"We work very closely with the university and their resources, and being on the transitway is going to be a key element that will allow our staff to get back and forth between the campuses and then return back," Algos says. "We're talking with some of the other early tenants to perhaps share some of the early costs of getting started, things like phone systems and networks. It's going to make for a great neighborhood."

Some observers warn the incubator's managers must remain disciplined and business-minded, keeping a "for-profit" mentality despite their non-profit status. One of them is Matt Noah, who runs MedicalSuds, a networking group for local med-tech businesses.

"To the extent that it's run as a nonprofit, it will get nonprofit results," Noah says. "I would rather see it run as a venture capital firm or as an angel investment firm where the yardstick of measurement is a return on investment. We do want to see success of Minnesota companies, and probably the best way to do that is to follow a for-profit model."

Still, Noah wishes the project well.

"I hope for the best," he says. "I hope the non-profit model can work here in Minnesota for growing these types of businesses."

Noah says the biggest hurdle for the incubator, and for Minnesota's biotech ambitions in general, is the lack of biotech investors in the region.

"It's one thing to have great technology coming out of the university, and we do have that in the University of Minnesota and some other universities in the state," he says "But it's quite another thing to convert that technology into businesses. And to do that you need investors, you need business people. Without that, those technologies and those businesses will either die or they'll go to other regions of the country where those businesses can be supported."

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