By the Numbers: What it Costs to Operate a Biopharmaceutical Facility

Trend to smaller, less costly cities takes hold
Oct 01, 2005
Volume 18, Issue 10

Operating costs are the white-hot issue in the boardrooms of our life sciences clients and they tend to rule the site selection process. A soft economy, worldwide trade competition, drug cost containment pressures from the US government, and a lean and mean message sent by the venture capital community mean that quantitative factors that focus on the cost of doing business are trumping qualitative lifestyle factors, especially when evaluating sites for a new biopharmaceutical facility.

Many of our site-seeking clients tell us that the only way they can improve the bottom line is by reducing costs because it is extremely hard to improve the revenue side of the ledger. High-profile corporate accounting cases like Bristol-Myers Squibb and product liability cases like Merck's Vioxx withdrawal have caused corporate boardrooms to focus heavily on balance sheet issues and the true cost of conducting business. For example, Pfizer is implementing a $4 billion cost-containment program that will re-shape its network of operations in California, Michigan, Connecticut, Massachusetts, England, and Japan.


Our company conducted a corporate location study comparing the cost of doing business for the biopharma industry in 50 cities in the US, Canada, and Europe. The study analyzed all the major cost drivers of the corporate site selection process. These included salaries for employees with advanced degrees in the life sciences, wages for workers in other laboratory and administrative support positions, fringe benefits, utilities, lease rates, and other geographically variable operating costs. All costs were expressed in US dollars and are scaled to a representative 100-worker biopharma facility occupying 75,000 ft2 of office and laboratory space.

John H. Boyd
Locations featured in the study include long-standing centers of the biopharma industry such as San Francisco, Boston, Central New Jersey, North Carolina Research Triangle, and San Diego. We evaluated emerging new hubs of the industry such as Des Moines, IA, Norman, OK and Sioux Falls, SD. European biotech centers studied include London, Brussels, Düsseldorf, Amsterdam, and Madrid. The Canadian centers are Vancouver, Montreal, and Toronto.

The costs included in our biopharma reports are termed geographically variable, that is to say, those operating costs vary significantly by geography. Labor cost differentials were shaped by Boyd field interviews with major employers in candidate locations and were scaled to a representative 100-worker biopharma research and support staff. Fringe benefit costs, including all statutory benefits, pay for time not worked, and company-sponsored benefits were estimated by Boyd and reflect prevailing averages in all US, Canadian, and European locations in the analysis. Utility costs reflect local rate schedules for monthly electric requirements of 150,000 kWh. Boyd professionals honed in on real estate costs through field investigation and contact with local real estate professionals. Costs were scaled to a model 75,000-ft2 biopharma facility.

Equipment costs were based upon Boyd case study estimates and reflect a seven-year amortization rate with payment factor of 5.0 percent. Heating and cooling costs were a function of power cost differentials and comparative heating and cooling degree-days data (30-year National Oceanic & Atmospheric Admin-istration [NOAA] averages). Boyd travel cost figures (reflecting cooperate lodging, three meals, rental car and local transit, and other incidental costs) were obtained from Boyd's client BTN (New York) and investigative field research. Annual travel costs were based upon 22 billable corporate travel days per week (for multiple traveling employees) at each of the surveyed biopharma locations.

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