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With $300K Tax Carrot, Charles River Labs To Expand Ohio Plant; Plans 80 New Hires

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Charles River Laboratories has begun pre-construction work on a project designed to expand a preclinical manufacturing plant in rural Ohio, and add 80 jobs to the region’s workforce.
 
The contract research organization kicked off the project in Spencerville after the state last week awarded it almost $300,000 in tax credits as part of a nearly $1.4 million state-local economic incentive package.
 
“We are moving forward with the Ohio expansion and have started the site prep work,” Charles River spokeswoman Amy Cianciaruso told BioRegion News via e-mail. “Construction is expected to be complete mid-year 2009.”
 
Ohio won over rival interests from Massachusetts, Nevada, and Quebec, Canada, three of six areas worldwide where Charles River has either completed or is currently expanding existing plants.
 
In Spencerville, Charles River will build a 58,000-square-foot, single-level addition on the north side of an existing 55,000-square-foot building and stock the facility with new machinery and equipment. Over the next three years, Charles River plans to add 80 staffers to the plant’s existing workforce of 204 employees.
 
On Dec. 3, Ohio’s Department of Development announced that the Ohio Tax Credit Authority approved a five-year, 55-percent tax credit valued at $296,902. In return for the credit, provided under the state’s Job Creation and Retention Tax Credit program, Charles River Labs must maintain operations at the project site at least 10 years.
 
The tax credits are part of a $1.4 million economic incentive package crafted for Charles River in recent weeks by officials from two local taxing entities and the state.
 
As part of the package, the village of Spencerville will spend about $60,000 on infrastructure improvements, namely improved water and sewer systems, plus give the company five years’ worth of free water for the increment used by the plant expansion, valued about $500,000; the Spencerville Local School District will provide a five-year full abatement of real estate taxes valued at almost $500,000; and the state will give the company $80,000 toward job training through the Ohio Investment in Training Program.
 
“We first met with Charles River on this project last February, so it has been ongoing for the last 10 months,” Marcel Wagner, president and CEO of the Allen County Economic Development Group, told BioRegion News. “Charles River is an extremely important project for us.”
 
He said the expansion in Spencerville will make the company the village’s largest employer. The timing of the expansion is noteworthy, too, because the northwestern Ohio village of about 2,300 is still reeling from the combined loss of 300 jobs in 2006 and 2007 after two local manufacturers closed their doors: MacDonald’s Industrial Products, a maker of plastic parts for General Motors and Lear; and Spencerville Metal Systems, a maker of bumpers, trim, and other auto components for Ford and Chrysler predecessor DaimlerChrysler.
 
Charles River Runs Through It
 
Charles River has been in Spencerville since 2002 when it took over a Springborn Laboratories plant after buying the privately held company for $27 million. Springborn employed 130 people in Spencerville, according to a Charles River press release at the time.
 
According to that statement, the company bought Springborn to “expand Charles River's market share geographically, as well as add to Charles River's customer base a number of medium and smaller pharmaceutical companies that often rely on outsourcing services to a greater degree than large pharmaceutical companies to develop new products.”
 
ODOD said the Spencerville expansion would cost Charles River $16 million. Charles River said it does not disclose the value of any of its expansion projects.
 
Charles River is actually one of two CROs for which ODOD earlier this month said it would help create new jobs in the state. The other, Cincinnati-based Kendle International, stands to receive a five-year, 50 percent tax credit valued at $487,556 toward a $3.9 million expansion in Cincinnati.
 
Though Kendle hasn’t decided yet where to expand — it must still choose between Cincinnati and a site across the Ohio River in Kentucky — an Ohio project would include plans to lease 11,753 square feet and refurbish with new equipment an existing 19,139-square-foot facility. The expansion would also add 75 jobs to Kendle’s Cincinnati workforce of 635 over the next three years.
 
“Kendle is focusing on finalizing our negotiations with the City of Cincinnati, State of Ohio and Belvedere Corporation. However, a Northern Kentucky option has not yet been ruled out.  We anticipate making a formal decision/announcement by year-end or early in January 2008,” Kendle spokeswoman Lori Preuit Dorer told BioRegion News via e-mail on Dec. 10.
 
If it chooses Ohio, then like Charles River it would be required to maintain operations at the project site for at least 10 years.
 
Matt Schutte, a spokesman for BioOhio, the state’s life sciences industry group, said the Charles River and Kendle plans reflect growing interest among CROs to expand in the state. Contributing to the geographic interest include Ohio’s lower cost of business compared with neighboring states; the state’s productive workforce, since Ohio’s gross domestic product is the nation’s seventh-highest (397.2 billion in 2006); and the state’s concentration of top-tier hospitals like Cleveland Clinic and the medical centers of Ohio State University and the University of Cincinnati.
 
“There’s a lot of healthcare excellence in the state, which also can translate into a clinical proving ground for the bioscience or biomedical industry,” Schutte said.
 

“There’s a lot of healthcare excellence in the state, which also can translate into a clinical proving ground for the bioscience or biomedical industry.”

Charles River’s expansion in northwestern Ohio is welcome news for the region’s life sciences industry, which lags behind other more urban regions of the state such as Cleveland, Columbus, and Cincinnati.
 
Ohio has seen expansions this year by several of its life sciences companies. They include Amylin Pharmaceuticals, which two months ago broke ground on a second, $400 million manufacturing and packaging plant in West Chester; and Eurand, an Italian pharma that began work in September on a $5.5 million plan to expand an R&D/manufacturing facility in the Dayton suburb of Vandalia.
 
And over the past three years, Alkermes added 100,000 square feet to its manufacturing facility in Wilmington, while two divisions of Boehringer Ingelheim, Cleveland-based Ben Venue Laboratories, and Columbus-based Roxane Laboratories, added space as well.
 
According to a new annual report BioOhio is set to release later this week, Ohio was home as of the early fall to 818 bioscience organizations statewide, including companies and academic and nonprofit research institutions. The largest segment of the industry is medical device/equipment makers, which account for 383 organizations; followed by therapeutics and pharmaceuticals with 195 organizations. CROs are included in the “research” employer category, which accounts for 89 organizations.
 
The report also includes an economic study by Pittsburgh, Pa.-based Tripp Umbach showing the commercial bioscience industry accounts for 48,000 direct jobs and 128,000 when indirect jobs such as service providers are included.
 
Scrambling to Grow
 
Headquartered in Wilmington, Mass., Charles River is among the CROs scrambling to satisfy biotech and pharma companies intent on cutting drug-development costs by outsourcing their early-stage drug testing. That scramble is apparent outside Ohio; one rival, Covance, announced last month it plans to build a $175 million, 410,000-square-foot labin Manassas, Va., where it will shift 450 employees from nearby Vienna and Chantilly [BioRegion News, Nov. 26]. 
 
Charles River investors apparently welcome the expansion and the hope of profits it will generate. The price of its stock closed Dec. 7 at $63.58 per share, about 3 percent shy its 52-week high of $65.43 per share.
 
During the third quarter, Charles River Laboratories’ net income from continuing operations jumped more than one-third to $43.5 million from $32 million on sales that rose nearly 19 percent. Based on its third-quarter performance, Charles River last month raised its overall projection or “guidance” on its earnings this year to between 16 and 18 percent over 2006, from 13-15 percent over 2006; and on its sales to between 14 and 16 percent over 2006, from 9-12 percent over 2006. The company has set a Dec. 13 conference call to announce its guidance for 2008.
 
Jon Ogg, a partner in the financial news-analysis web site 24/7 Wall St., told BioRegion News via e-mail the company’s growth has attracted investors interested in the life science industry yet seeking an alternative to struggling pharmaceutical and biotech companies.
 
Ogg also noted a Goldman Sachs study that concluded in part that the market opportunity for CROs will nearly double over the next four years, from the current level of roughly $16 billion to $29 billion by 2011.
 
“It is hard to argue with the company or its strategy right now,” Ogg told BRN via e-mail. “There is plenty of business for it to grab.  So on that front, the plant [expansion projects] might be a good thing rather than something to draw caution to.”
 

 
Rapid River Growth
 
As Charles River Laboratories sets the stage for expanding a preclinical manufacturing plant in rural Ohio that will add 80 jobs to the region’s workforce, the company has either completed or is currently constructing six other new facilities worldwide over the past year. These include:
 
A space in Reno, Nev., where the company is completing construction on the first phase of its new, 450,000-square-foot preclinical services facility, set to open in January 2008. Charles River is adding a second floor to a 300,000-square-foot building it bought last year from State Farm Insurance.
  • In Sherbrooke, Quebec, where Charles River is constructing a new 300,000-square-foot preclinical services facility and plans to add 1,000 people to its area workforce of 1,600 people. Approximately 25 percent of it will be built in the first phase, which is scheduled to be completed in the first quarter of 2009.
  • In Frederick, Md., the CRO is building a new research models facility, half of which will be dedicated to the National Cancer Institute under a $111.6 million, 10-year contract. Half the facility will be used to produce animals for NCI researchers, while the rest would be for sale to customers. The remainder will provide additional capacity to serve mid-Atlantic customers. The facility is scheduled to open in the third quarter of 2008.
  • In Hollister, Calif., Charles River earlier this year completed a 31,000-square-foot expansion of its facility, creating a preconditioning services room and doubling its capacity for research model production. The company has also grown capacity by shipping for testing elsewhere animals from the South and Midwest, a move it said will improve its ability to serve customers on the West Coast, the company’s fastest-growing market.
  • In Shanghai, China, the CRO, in a joint venture with Chinese partner Shanghai BioExplorer Company Ltd., is constructing a new 50,000- square-foot facility set to open in the second half of 2008; and
  • In Shrewsbury, Mass., company executives joined Nobel laureate Craig Mello in opening a new 450,000-square-foot preclinical services facility in January 2007, replacing a smaller facility in nearby Worcester, Mass.
In return for expanding in Shrewsbury, Charles River received a 5-percent reduction in property taxes on the portion of the site it improved. The rebate was part of a 20-year tax increment financing plan, said Mike Hale, assistant town manager.
 
Hale told BioRegion News Shrewsbury had hoped to attract Charles River to a 60-acre former farm parcel abutting its facility and owned by the town. The site is zoned for office research use, with life science employers in mind, and has a potential build-out of 600,000 square feet. One selling point: The site is about 4 miles northeast of the University of Massachusetts Medical School in nearby Worcester.
 
Shrewsbury is devising a master plan for the site, called the Allen Property, and is marketing it through a brochure on its web site. Would-be developers should contact Hale at [email protected].
 
“When [Charles River] came to Shrewsbury, they had hoped to expand in two phases. The first phase is near completion, and we haven’t had much dialogue about the second. But when they first came, it wouldn’t have started yet, anyway,” Hale said. “We’d still like to see a biotech initiative adjacent to Charles River.”

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