Alexandria Bets That Future of Life Sciences Is In the ‘Urbs, Not ‘Burbs

Xconomy Boston — 

Young biomedical scientists don’t want to sit in traffic for hours every week, burning gasoline for more than $4 a gallon.

That’s part of the equation for Alexandria Real Estate Equities as it plans to bet $1 billion over the next decade that it can build, and fill up, new laboratory space that’s a short bike ride from MIT or a quick walk from the subway stop. Its idea—still in the planning stages but described last month in the Boston Globe—is to build a sprawling complex with six buildings spanning 1.5 million square feet of lab and office space in East Cambridge, integrated with four acres of open space, underground parking, and room for restaurants. If it passes muster with city officials, the complex would turn the once purely industrial hub into more of a 24-hour urban place where people live and work.

“A lot of the workforce in the innovation economy is younger people, who may still be a bit tethered to their academic institutions and live in communities like Cambridge or Somerville,” says Tom Andrews, a senior vice president and regional director in Massachusetts for Alexandria (which also has properties in the Seattle area). “They don’t really want to get in a car and drive to Waltham.”

Biotech companies have always wanted to settle near the intellectual vibrancy of great universities, hoping some would rub off and foster innovation at work. Biogen Idec, the world’s largest maker of multiple-sclerosis medicines, grew up near its founders’ labs at MIT and Harvard. Genentech, the world’s biggest maker of cancer drugs, followed the same path near UC-San Francisco and Stanford.

No doubt that’s partly why Alexandria thinks it can attract an emerging crop of younger companies to fill up more space than the Prudential Tower has in Boston. Some of the factors working in Cambridge’s favor are the same as they were in the ’70s and ’80s, when Biogen and Genentech were growing. For instance, Alexandria subscribes to the ideas articulated by Harvard Business School professor Michael Porter about industry clustering, Andrews says. Simply put, innovative companies like to cluster together to take advantage of informal interactions that can speed up technological development. Not surprisingly, about half of the 4 million square feet Alexandria has acquired in the Bay State since the mid-’90s is in Cambridge, Andrews says.

The property for Alexandria’s expansion, located between Kendall Square and the CambridgeSide Galleria (very much in the neighborhood of Xconomy’s headquarters at 10 Rogers Street), is “from a location standpoint, in the absolute sweet spot,” for new biotech development, says Greg Lucas, a principal at CBRE/Lynch Murphy Walsh Advisors. Since Alexandria is planning to introduce the space in phases, Lucas says he doesn’t think the firm runs the risk of flooding the market with surplus space.

Alexandria emphasizes that the idea is still far from becoming reality. The company has submitted proposals to the city but still needs to get approval, Andrews says. Alexandria hasn’t signed up any anchor tenants, either. But aside from being close to Biogen, Genzyme, and MIT, part of what makes Alexandria bullish about Cambridge are transportation trends. Commuting times are getting longer, gas prices are an issue in the presidential campaign, and people are starting to think seriously about ways to reduce time spent in the car and live closer to work.

The Alexandria proposal takes those desires into account. The envisioned labs and offices would cover land that’s mainly used now for parking lots and one-story industrial buildings, all of which Alexandria owns already. (Click on the image, above right, for a larger view of the “active open space” that Alexandria envisions as part of the development.)

A couple early signs of life can already be spotted: a 275-unit residential building was recently completed near the envisioned development on Third Street in Cambridge, and another project under construction nearby will bring 575 new housing units to the neighborhood, Andrews says. But that, he says, could be only the beginning. “Kendall Square over time will become more of a 24-hour city, with real urban amenities, with the ability to walk, drive, shop and work in close proximity to where one lives,” Andrews says.

The risk, which any life sciences landlord can appreciate, is that biotech is one of the ultimate boom-bust industries. Only an estimated one of 10 drugs that enters clinical trials ever passes all the tests required to become a marketed product, according to a 2004 article in Nature Reviews. Congress could pass price controls on drugs that would send biotech stocks reeling, drying up venture capital for startups. Safety worries about new drugs at any time may make U.S. drug regulators especially cautious about approving new ones. If that weren’t enough, one consequence of an economic downturn is that biotech companies who survive may migrate to the suburbs to save on rent. Biotech space in Massachusetts suburbs typically costs about 30 percent to 60 percent less than space of a similar quality in Cambridge, Andrews says.

Still, even for penny-counting startups, the extra cost is often worth it, says Robert Paull, CEO of Genocea Biosciences, and a managing partner at Lux Capital Partners in New York. “A lot of startups need to be where the action is,” Paull says. “You need proximity to your investors, your partners, your key suppliers. It helps to be close to Logan Airport. You’ll pay a little more for that.”

Genocea, a vaccine developer, chose to move into an Alexandria property at the corner of First Street and Binney Street in Cambridge. One big reason is that more than half its employees live in or near the city, Paull says.

And he’s hardly alone in his view. “There’s incredible energy in Cambridge,” says Alan Crane, CEO of Tempo Pharmaceuticals, a nanotech drug developer in the same building as Genocea. Crane says he likes to recruit the type of employees who are drawn to the intellectually stimulating environment of Cambridge, which helps nurture valuable relationships with advisers at universities.

“It may be cheaper in the suburbs, but there’s an opportunity cost to leaving Cambridge,” Crane says. “It’s too much to give up.”