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Biomedical incubator lab will close, but still offer other services to startups

on July 25, 2011 Source:

A victim of changing medical device and drug company business models that have made its small wet laboratory space less relevant, Cincinnati incubator BioStart plans to close on September 30 after 15 years of operations.

But president Carol Frankenstein says the BioStart show will go on, albeit in a different form. BioStart as an organization will continue to provide business development and support services — such as market research, business model assistance and team-building support — to biomedical startups in the Cincinnati area.

BioStart has received $500,000 in funding — half from the state and half from private sources — that it’ll use to continue to provide those services, as well as to conduct studies about how the organization can restructure to sustainably continue offering the services.

Frankenstein said she didn’t think all biomedical incubators were unsustainable. BioStart’s problems stemmed from the nature of its facility: 80 percent of the incubator’s space is devoted to wet labs. As more and more drug and device startups operate as virtual companies and outsource development work, that wet lab space simply isn’t as valuable to young companies as it once was, she said.

“The days are gone, for economic reasons, that a startup can develop a fully integrated company on its own,” she said. “It’s cost prohibitive to do that.”

Two other key factors also came into play. First, as more and more biomedical companies turn to overseas markets for the initial introduction of their products, some don’t particularly need space in the U.S. Second, weakness in the commercial real estate market has made space very cheap for companies that do need it, Frankenstein said.

Currently, 18 companies are occupying BioStart’s space, which is at 65 percent capacity. Prior to the economic downturn in 2008, the incubator’s occupancy rate typically hovered around 100 percent, Frankenstein said. BioStart is working to help its current tenants locate new space.

“I think the companies who are here will miss the facility because there’s nothing immediately available to replace it,” she said.

BioStart’s annual budget for its most recent fiscal year was around $1.4 million. About 25 percent of that came from the state, with most of the remainder made up from fees charged to clients for space and other services, Frankenstein said. Of its three current employees, only Frankenstein will remain with the organization.

Notable BioStart alumni include Inotek Pharmaceuticals, a cardiovascular disease drug developer that moved to Massachusetts and was acquired by Genentech in 2006 in a deal valued at up to $600 million.

Since it started operations in 1996, BioStart has helped 125 companies to launch and raise a total of $180 million. Frankenstein has been the organization’s president since 2000.

Tony Dennis, president of state biomedical trade group BioOhio, said he viewed BioStart’s closing as more of a “positive restructuring.”

“BioStart leadership is responding to changes in their local market and while the old model was successful, I believe that the restructured entity will be even more so by better aligning with local demand and opportunities,” Dennis said.

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