City and county commissioners will consider issuing $2.9 million worth of debt as part of an economic development deal designed to keep a promising bioscience company in Lawrence, and to provide the community more space to attract other biotech firms.
City commissioners and county commissioners next week will consider a plan to purchase and renovate the former Oread Labs building at Bob Billings Parkway and Wakarusa Drive. The deal is part of an effort to keep CritiTech, a Lawrence-based pharmaceutical company, from leaving the community in search of additional laboratory space.
The deal is unusual in Lawrence economic development circles because of the amount of upfront money that governments are being asked to provide, but leaders said it deserves strong consideration.
“Economic development doesn’t just happen,” said County Administrator Craig Weinaug. “It is not something that happens by talking about it or making it a campaign promise. It takes a lot of action.”
City and county commissioners are going into the project with financial projections that the deal largely will pay for itself over a 25-year period.
Under the current proposal, the city and county would jointly own the building, and each would be responsible for 50 percent of the $2.9 million worth of debt needed for the project. But both parties believe that lease payments from CritiTech and other companies that will reside in the building will be sufficient to pay off the bonds.
The proposal calls for the Lawrence-Douglas County Bioscience Authority to be responsible for attracting new tenants and operating the building. The bioscience authority would collect the rents and make annual payments to the city and county to cover the bond costs.
The city and county would subsidize a portion of the project. The interest rate for the bonds is expected to be about 5.5 percent. The city would not pass the full interest costs along to the bioscience authority or the tenants. Instead, the city and county would each agree to make interest payments of about $20,000 per year, on average, over the 25-year course of the bonds.
The project’s financial projections, though, also spell out the risks. The projections estimate that the building would need to land at least one other tenant of about 2,500 square feet — in addition to CritiTech — to make the project break even financially.
“This is a difficult decision when times are tight, but these are the times you really have to say we’re open for business and embrace business,” said City Commissioner Mike Dever, who has been working on the deal as a member of the local bioscience authority. “This puts our money where our mouth is.”
Keeping CritiTech’s operations and headquarters in the city is a major part of the plan, leaders said. CritiTech — which began in 2003 as a spin-off of Kansas University research — is working on products to reduce the side effects related to cancer drugs.
The company — led by longtime Lawrence investor Sam Campbell — is getting closer to delivering a significant cancer treatment improvement to the market. In 2008, the company began enrolling patients for a phase I clinical trial of Nanotax, a reformulation of a commonly used chemotherapy drug used to treat ovarian cancer. This summer, the company expanded the clinical trials.
Local bioscience leaders believe the company is far enough along in its development to have a good chance at success.
“CritiTech is the kind of company we want to model,” said LaVerne Epp, president of the Lawrence-Douglas County Bioscience Authority. “It started at KU, it has produced jobs here, and it has great potential. We want to keep it local. We want to create companies like CritiTech.”
Currently, the company employs 14 people. Campbell said it was difficult to project how many new employees the company may need in the next five years, but he expects the number to grow. He also said the company would pay above-average wages, but was not able to provide a specific target. He said many of the current employees are KU scientists who have invested in the company and are working for less-than-market wages for bioscience employees in hopes of future profits.
Economic development leaders confirmed that other communities have begun to offer packages to lure the company away from Lawrence. According to sources familiar with the situation, economic development leaders in Wichita recently made a significant offer to the company.
Campbell said the company needs more space as it moves into more advanced clinical trials that are some of the final steps before Nanotax can go to market.
“We intend to put a new pharmaceutical production unit in place that would give us 10 times our production capacity,” Campbell said.
Currently, CritiTech leases about 2,400 square feet in the building from the property’s current owners. The remainder of the 17,500-square-foot building is largely vacant after Deciphera Pharmaceuticals moved much of its operations out of the space and into a downtown Lawrence location.
But Campbell and others said the remaining space needs significant renovations to allow it to be used efficiently. The city and county are estimating that the building will need about $600,000 worth of heating, cooling and ventilation work.
The deal calls for the city and the county to buy the building — which goes by the name of West Lawrence Labs — from the Topeka-based investment partnership New Oread Group for $2.3 million.
The deal would come at the same time that a partnership that includes the city and county are building a new bioscience incubator facility on KU’s West Campus. But leaders said this new project would not compete with the incubator. Instead, the west Lawrence building is seen as a place that companies that outgrow the incubator could move into.
“We want those companies that graduate out of the incubator to be able to find a home in Lawrence,” Dever said.
City commissioners are scheduled to discuss the project at their 6:35 p.m. meeting on Tuesday at City Hall. County commissioners are scheduled to discuss the proposal at their meeting on Wednesday at the Douglas County Courthouse. Weinaug said the meeting begins at 6:30 p.m., but the discussion on the proposal will begin about 7:30 p.m.