As Delaware’s bioscience sector grows, space is in short supply

Delaware is facing a shortage of advanced wet lab space despite a growing incubator environment that can support expansion, according to officials. New proposals hope to help build the necessary space. | PHOTO COURTESY OF EVAN KRAPE/UD

From the earliest scientific advancements made at DuPont more than two centuries ago to the brand-new cancer therapies being developed by Incyte, Delaware has a long history of laboratory-based research and development.

As the competition for those future-billion-dollar companies heats up, however, the First State is often at a disadvantage when it comes to retaining such startups. The state has fostered an environment of innovation, often connected through the University of Delaware, but it is now watching expanding companies seek out-of-state spaces to further their growth due to a lack of resources here.

According to a recent survey of 60 companies that utilize labs by the Delaware Prosperity Partnership (DPP), the state’s economic development agency, 12 anticipate needing more lab space within the next three years, totaling about 150,000 square feet. Only half of those companies said that they could accommodate that growth currently though, meaning tens of thousands of square feet of lab space need to be developed.

It’s not just about meeting the needs of Delaware’s current companies, however, but also attracting new prospects. DPP officials reported that over the past two and a half years, it has worked with 30 companies that were seeking lab space. It currently has 12 such companies in the pipeline, the majority of which need “graduated” lab space, or facilities containing more advanced features, measuring between 10,000 and 30,000 square feet. If able to be located, they could create upward of 400 well-paying jobs.

The challenge now is to continue to grow the innovative ecosystem for research in Delaware while also investing in new lab development to support their scaled growth. Neighboring competitors Maryland and Pennsylvania, which are home to hundreds of bioscience companies and have decades of financial backing and resources at their disposal, are ready and willing to poach those companies if progress isn’t made.

Bill Provine, president and CEO of the Delaware Innovation Space, a nonprofit incubator and accelerator that is home to 18 companies at the DuPont Experimental Station, agreed that more labs were needed in the state and that government aid may be needed to spur it.

“We seem to have more conservative developers in Delaware,” he said. “In other markets, like Pennsylvania, people are building more things on a speculative basis. The market demands the building and by the time it opens up, developers know that they’ll be able to land clients.”

“Delaware has a much more traditional model that needs to evolve with developers to better satisfy this [lab] market,” Provine added.

Grant fund may help

In his Fiscal Year 2021 budget proposal, Gov. John Carney had sought to create a $10 million Laboratory Development Fund that would have incentivized colleges, universities, and the private sector to develop lab space for startup companies to move into and their keeping their jobs in state. Unfortunately, that proposal was among those axed in the final budget that was crunched by the impact of the COVID-19 pandemic.

Kurt Foreman

DPP President and CEO Kurt Foreman didn’t want to let another year go by without addressing the growing lab space need though. His agency is now seeking to create a grant program from the more than $14 million allocated to the state’s Strategic Fund, a taxpayer-backed investment fund for companies growing in or relocating to Delaware.

DPP’s proposal seeks $3 million to $4 million in earmarked funds to pilot the incentive program for a year. The economic development agency would work with the Delaware Division of Small Business to screen grant applications to the program while also approaching developers and potential tenant companies to help find partners in ventures.

Because the emerging startups that need additional or higher quality lab space for their advancements are often “pre-revenue,” or have yet to turn a profit and rely on investment funding, the ability for the private sector to build out its own lab space is muted. Foreman said that he views the proposal as a “screwdriver in the toolkit” that would specifically help pre-revenue companies that often have “a little bit higher hill to climb in creating the space they need to grow their businesses.”

DPP is proposing to use the grants to cover up to a third of laboratory fit-out costs, but not the bare bones construction costs of any new development. The tenant and landlord would then share the remaining two-thirds of the cost.

Using an average laboratory fit-out price of $150 per square foot, Foreman noted that a company seeking only 5,000 square feet of labs would be looking at a project cost of $750,000. Under DPP’s proposal, the state would cover $225,000 of such a project.

Another feature of the proposal to incentivize developers to get involved is a lease guarantee provision. Developers have told DPP that such a guarantee may be needed to secure loans for lab-focused projects that are more costly than offices and whose primary tenants are pre-revenue startups.

How that incentive would work in practice is being discussed, but the state would back a portion of an approved tenant’s lease in cases of default.

Foreman presented the proposal to the state’s Council on Development Finance, the appointed board that oversees the Strategic Fund monies that DPP wants to use, on Sept. 28. The board members were receptive, but requested more details on how the program, particularly the lease guarantee, would work in practice.

DPP also presented the idea to industry leaders in an Oct. 7 webinar and they were largely supportive of the effort to help subsidize some of that growth cost. However, some remarked that the base assumption of a $150-per-square-foot fit-out cost was quite low compared to recent projects where costs have risen to $200 or even $300 per square foot due primarily to expensive heating and air conditioning systems that have to filter potentially dangerous particles.

Bryan Tracy, co-founder of White Dog Labs, a New Castle-based biotech company working with fermentation, asked whether landlords may be able to assume the tenant’s fit-out cost and prorate it over the length of a longer-term lease.

“Thinking about it strategically, it makes a lot more sense for us to preserve our cash to spend on operational costs and employment for the state as opposed to dumping into capital that we, at the end of the day, don’t actually own in many cases or won’t be able to take with us,” he noted.

Foreman said that was a worthy idea that officials would take into consideration as they build out the specific parameters of their proposal.

Delaware Tech Park eyes expansion

One of the state’s oldest nonprofit incubators, the 28-year-old Delaware Technology Park (DTP) based at the University of Delaware, has its eyes on growth as well to support the bioscience industry.

DTP is currently home to more than 50 tenants, ranging from multinational corporations like QPS to manufacturers like Sepax Technologies to a number of smaller startups, that occupy five buildings at the research park located off Marrows Road in Newark just east of the university’s campus. The organization also operates a laboratory extension called DTP@STAR and is currently building a 100,000-square-foot FinTech Center, both on UD’s STAR Campus.

DTP President and CEO J. Michael Bowman and Andrew Lubin, the chairman of the nonprofit’s board, explained Oct. 7 that they reached their capacity and need to find new ways to grow.

Delaware Technology Park seeks to build a new 60,000-square-foot facility, but needs an investment partner. | PHOTO COURTESY OF DTP

“The park is full. We have companies that would like to grow further, and we have companies that like to come [to DTP],” Bowman said.

To ease that demand, DTP is looking to build a new 60,000-square-foot, three-story research facility on nearly 9 acres at the Innovation Way property, leaving potential for a 40,000-square-foot addition as well. Bowman conceded that DTP’s ability to borrow to fund its construction is tapped out, and the organization is seeking partners in the venture.

Lubin said that DTP hoped to secure users for at least 20,000-square-foot spaces, meaning it would be marketed more toward later-stage companies that may already be commercialized.

“Where we are right now is purely schematic. We would not move forward on this building until we had a minimum percentage of occupancy committed,” Lubin said.

Bowman noted that, if built, the project would also likely attract additional federal grant funding to help ensure tenants were ready to take advantage of its offerings, noting that DTP tenants have secured more than $1 billion in grant investment over the last 20 years.

The research park continues to drive a high level of interest due to its relationship with UD, which is ranked by U.S. News & World Report as the No. 8 chemical engineering school in the nation and has many other top 100 rankings in other scientific disciplines.

“The main reason frankly is access to the university assets, faculty, students, equipment, imaging, and all kinds of test protocols that they can’t afford themselves but the universities willing to help them with,” Bowman said. “Intellectual property comes out of the university along with grad students and postdocs.”

Innovation Space supports entrepreneurs

Fresh off the success of Prelude Therapeutics, a resident business that recently entered the stock market and is now worth more than $1 billion, the 3-year-old Delaware Innovation Space is preparing to help more companies accelerate their growth in the state.

The Innovation Space recently received a $1.5 million grant from the U.S. Department of Commerce’s Economic Development Administration, which highlighted the incubator and accelerator’s work in its announcement of the national grant awards. The EDA grant will match funding from the Innovation Space in a $3 million, three-year accelerator program split into two parts – Spark Factory and Science Inc. – that will launch starting late this year.

Spark Factory will be geared toward very early-stage companies that need to practice a pitch, investigate their technologies and identify their value proposition, said Hattie Duplechain, program manager for learning experience at the Innovation Space who will lead the EDA-backed accelerators.

Hattie Duplechain

“We’ll host a monthly event where founders will have an opportunity to pitch their company to a supportive community of experts, receive real-time feedback and continue to have conversations and get coaching over the course of the next month or two after that,” Duplechain said.

Meanwhile, Science Inc. will support companies with more developed business plans to move to the next level. Participants will come together as a six-month cohort to receive coworking space and concierge business coaching in a development curriculum, Duplechain said, noting that success looks different to each company. Some may go public like Prelude Therapeutics did, but others will be bought out by larger companies, some will license their technology and still more will stay private while commercializing their manufacturing.

The benefit of such incubator and accelerator programs are two-fold, with the most direct being the development of future profitable companies often offering jobs paying higher median salaries. The programs also help attract established companies looking for new ideas and employees though.

“When we look across the accelerator landscape, we really see that companies often are making decisions about where they land and where they grow their businesses based on this kind of early-stage support and opportunities to engage in a broader ecosystem,” Duplechain said.

By Jacob Owens

jowens@delawarebusinesstimes.com