Another Valentine's Day Sob Story: Writing A Dear John Letter To Your Biotech Landlord
By Herman F. Bozenhardt and Erich H. Bozenhardt
Like it or not, if a biotech company leases an existing building, problems and functional issues will be encountered.
Depending on the landlord and the contract, the relationship will either work or deteriorate. Before you sign any contract, you must engage both an engineer and lawyer to ensure the best deal financially and provide an operable environment for the production. A good financial deal does not assure you will get the equipment, utilities, and clean environment you need to operate.
There are many cases in which you need to build an “escape clause” into the contract and be prepared to exit the relationship and move on. A lease contract is often akin to a prison sentence, where contaminations, roof leaks, power failures, and/or failing utilities degrade the ability to produce and deliver clinical materials.
Like all relationships, there is an endpoint, and we must be ready for alternative production locations and an exit strategy. The “courtship” of a biotech tenant and a landlord often takes months, with negotiations over lease length and costs. Initially, the “romance” expects that the two parties will exist together for the long term; however, that is rare. The initial agreement must contemplate the full-scale production of the biotech company’s products and the ability of the leased space to accommodate the necessary construction. This can only be established after a detailed engineering study, geotech survey of the property, and witnessed testing of the utilities. The agreement must have an exit clause, akin to a prenuptial agreement, in order to keep all parties from diverging from the intent. Landlords change hands with buyouts and acquisitions, not unlike biotech companies, and agreements made with one owner must be honored by the next.
We will use our article “Danger Ahead: What Biotech Companies Need To Know About Leasing Space” as a basis for the technical content and to develop a systematic method for the analysis of the site.
The following is a letter drawn from actual current situations the authors have encountered.
Dear Landlord,
We regret to inform you that after careful consideration, we have decided to break off negotiations on the proposed lease and pursue other properties. This decision comes after a number of negative reports from our engineering analysis, which have led us to conclude that the space will be inadequate for our processing and production needs. Although both parties have expended a significant effort in this transaction, we are compelled by our board of directors to withdraw.
Specifically, our due diligence findings revealed the following:
- The architectural layout, while attractive with the CEO’s office, private offices, adequate lab space, and various conference rooms, does not meet our needs in terms of production space. We would have to demolish all this space and rebuild more functional space for operations and our personnel.
- The facility has no updated drawings; the most current one uncovered is dated 1992. This will require our company to laser scan the interior and provide ground penetrating radar for the interior spaces and the exterior courtyard. This effort, however, may not reveal a number of buried items such as electrical duct banks. Without the records of the past 20+ years of use and construction, we run the risk of needing potentially expensive construction.
- We asked the local power authority for a power assessment and the capacity of the current shared site transformer, and we were informed that the transformer is nearly at capacity and will not accommodate any manufacturing. We would be required to provide our own transformer and endure the expense of trenching a path from the transformer to intercept the power company’s primary cable.
- The backup generator that we saw in the courtyard does not service our property and we would have to install our own in a limited space.
- To accommodate our HVAC, we will need new air handling units (AHUs) because the DX/gas pack units on the roof are inadequate. These new handlers will require a chilled water system, again to be installed in our limited courtyard space.
- After evaluating the current rooftop DX units, we concluded that some are 20+ years old and need to be replaced, but your agreement forces us to attempt repairs.
- Although we have discussed our needs for compressed air and nitrogen, there is no internal interstitial piping to accommodate our requirements.
- The current roof is about 15 years old and we have seen water stains on the interior of the building at our various site visits. Since we began these discussions, you have informed us that a new roof is not in your capital plan. This potentially exposes us to intrusive water and mold contamination.
- The roof joists are a very light material and therefore can only accommodate the existing light DX AHUs. This means we may have to spend nearly $1 million on an above-roof platform to accommodate industrial AHUs needed for our cleanrooms.
- We feel we would be starting our production site with a major engineering handicap and would require approximately 18 months to design and carefully build out an adequate production facility. This will delay our market entry and endanger our business.
In summary, although we were led to believe this facility was ideal for biotech construction, our analysis indicates that utilizing your property will cost more in capital, delay our development, and increase our risk. This facility is more oriented toward the common office environment that it was initially created for.
Sincerely,
Biotech Company That Will Not Be Your Tenant
In summary, promises, fancy offices, and elegant property are not a solid basis for choosing a site for biotech process development or production.
- Every biotech organization must take the time to create a manufacturing or development master plan or vision for their site.
- That vision needs to be translated into an engineering conceptual design or at least a feasibility study for manufacturing.
- That conceptual design must be used as the basis for the audit, using an engineering checklist such as the one linked to above.
- Once the audit is completed, a firm understanding of the costs, risks, and commitment that go with the property will be known. Audits can be done in one week’s time, which will allow the biotech organization the flexibility to choose which property best suits its business needs.
- The engineering studies should always go on in parallel with the legal reviews, negotiations, and board meetings/approvals.
- Don’t be pressured into signing a lease because the landlord/agent tells you that “multiple parties” are interested in the space. This is a common pressure tactic. Resist the temptation — a bad landlord is a nightmare of problems, delays, and costs.
About The Authors:
Herman Bozenhardt has 44 years of experience in pharmaceutical, biotechnology, and medical device manufacturing, engineering, and compliance. He is a recognized expert in the area of aseptic filling facilities and systems and has extensive experience in the manufacture of therapeutic biologicals and vaccines. His current consulting work focuses on the areas of aseptic systems, biological manufacturing, and automation/computer systems. He has a B.S. in chemical engineering and an M.S. in system engineering, both from the Polytechnic Institute of Brooklyn.
Erich Bozenhardt, PE, is the process manager for IPS-Integrated Project Services’ process group in Raleigh, NC. He has 14 years of experience in the biotechnology and aseptic processing business and has led several biological manufacturing projects, including cell therapies, mammalian cell culture, and novel delivery systems. He has a B.S. in chemical engineering and an MBA, both from the University of Delaware.