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$3M Tax Break Promise Convinces OSI Pharma to Consolidate, Expand in NYC Suburb

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By Alex Philippidis

WHITE PLAINS, NY — OSI Pharmaceuticals this week was promised $3 million in sales tax breaks from New York state and Westchester County governments to help pay for its $100 million consolidation of its US operations and expansion in Greenburgh, NY.

At the same time, additional details emerged about the tax incentives and about the search that ended in the New York City suburb located less than an hour's drive north of Manhattan.

Westchester’s Industrial Development Agency agreed Tuesday to preliminarily “induce” OSI’s consolidation/expansion by assisting the pharma company with economic incentives. OSI is seeking an exemption, valued at $3 million, from state and county sales taxes on construction materials and equipment.

Two days later, the state Empire State Development Corp. disclosed another incentive: The state will shoulder the $1.8 million annual cost of OSI's rent to the State University of New York system for its leased 63,500-square-foot building at SUNY Farmingdale State College, located on Long Island, within the Broad Hollow Bioscience Park, spokeswoman Lisa Willner told BioRegion News. It was unclear at deadline if ESD will award additional incentives to OSI.

The subsidy will cover the cost of OSI's lease until the Broad Hollow space is rented out. The company is expected to vacate the bioscience park in 2010, Willner said.

OSI will vacate Broad Hollow, as well as its 60,000-square-foot owned headquarters in Melville, also on Long Island, starting in the fourth quarter, when it begins shifting its total 200 Long Island employees to the Ardsley Park Science and Technology Center, a 43-acre, 400,000-square-foot campus on Route 9A (Saw Mill River Road), which has been mostly vacant since the departure in 2005 of Purdue Pharma.

By 2010, OSI will combine those employees with 145 oncology staffers now located in Boulder, Colo., and 20 employees now based in Cedar Knolls, NJ. The pharma company will also recruit employees for its new Greenburgh campus, promising to boost payroll there to 600 people by 2012.

The job promise has qualified the company for not only the county and state incentives, but the prospect of reduced property taxes through a payment-in-lieu-of-taxes agreement negotiated but not yet approved by Greenburgh and the Ardsley school district.

“We look forward to building a cluster of biotech companies in your area,” Pierre Legault, OSI's executive vice president, chief financial officer and treasurer, told the IDA board, meeting here at the county government’s main offices.

A few minutes later during a Q-and-A session, Legault said OSI is about a week away from closing on its $27 million purchase of the Ardsley Park Science & Technology Center from seller MillSaw Realty, a partnership associated with, but not an entity of, Purdue Pharma, the company has said.

OSI is dipping into its $660 million in available cash to pay for the campus, Legault said, so it won’t need a tax break typical of recent relocation projects in Westchester, an exemption from the mortgage recording tax levied by the state and county. That tax stands at $1.30 per $100 of mortgage value.

Once the sale closes, he said, OSI will begin renovations to labs and pavement, begin talks with a handful of remaining tenants with leases in the campus — notably Supresta, a maker of phosphorus-based flame retardants — as well as start modernizing the campus' power house, the source of heat, air conditioning and steam for the labs, in consultation with the region's utility, Consolidated Edison.

Con Ed is offering OSI its Business Incentive Rate, which offers qualified companies a discount of about 35 percent on the transmission and distribution portion of their bill. That typically results in a roughly 14-percent discount on the overall bill, according to James Hartwick, the utility's economic-development manager.

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He said OSI may also qualify for rebates on its renovations from the New York State Energy Research and Development Authority if the renovations meet the agency's energy-efficiency standards.

While OSI has projected the cost of its total spending on the Greenburgh relocation/expansion at $95 million, the actual cost could reach $100 million or more, Legault said, depending on the extent of renovation needed.

Inside the Search

Legault also offered some insight into the thinking of OSI executives when they selected Greenburgh over sites within and outside the New York metro area.

Within the region, he said, "our number one choice was really to stay in Farmingdale if at all possible, understanding there was some limitations. We have some very specific requirements being a biotech company," he said.

One requirement OSI had insisted on was an animal facility, something local officials balked at approving following opposition from the college community and others. "While we are well aware that animal testing in medical research is controversial, the Food and Drug Administration won't approve new medicines without a certain amount of animal testing. So not supporting an animal facility is incongruous with supporting biotech in the first place," OSI CEO Colin Goddard said in an op-ed column published in the Long Island newspaper Newsday.

In that column, Goddard linked the refusal of officials to approve an animal facility with the defection of another Broad Hollow tenant, Helicon, to San Diego.

Officials also balked at approving an expansion within Long Island that would have allowed OSI to develop part of the Farmingdale campus and lease its site from the state. State Sens. Carl Fuschillo Jr. (R-Merrick) and Kenneth LaValle (R-Port Jefferson) have told Newsday in separate interviews that they objected to the state assisting OSI without soliciting competitive bids for the site, or receiving a payment in lieu of taxes in return, with Fuschillo saying the effort progressed to a "draft" of a 40-acre no-bid lease.

Michael White, executive director of the Long Island Regional Planning Council, told BRN this week the loss of OSI is among issues that have prompted regional economic-development leaders to develop an "economic-development working group."

The group will start with the economic-development directors of Long Island's Nassau and Suffolk counties, the IDA directors of both counties, the IDA directors of various Long Island municipalities, and a representative of ESD. The group will eventually include business group leaders.

"In the first instance, we want to really have the discussion and dialogue, and then create better communication and collaboration between the governmental entities" given their heavy involvement in Long Island's attraction and retention of businesses and their jobs, White said. "It's important to put the government people in the room so there's some basic discussion — 'Here's what we do, here's what we can do, here's how we could be working better together.'"

The group, White said, will "see what more we can be doing as a region, both Nassau and Suffolk county working together on job creation, business retention, and even a regional identity for recruitment for business."

"There's disappointment and frustration for Long Island of losing an OSI, an entity that was birthed here from incubation. It's a big loss," White added. "Certainly, Long Island has to look at it very closely, and perhaps learn from that experience on what Long Island can be doing better to respond and not only retain, but attract the sort of high-tech and biotech, high-paying job industries."

While the loss of OSI is significant for Long Island's biocluster, the region's life-sci industry can rebuild through its existing research anchors, such as Cold Spring Harbor Laboratory and Brookhaven National Laboratory, Nathan Tinker, executive director of the New York Biotechnology Association, told BRN on Wednesday.

"Long Island has still got some key and major academic assets to draw upon and to build upon," Tinker said in an interview at a NYBA networking event held in Westchester at the Landmark at Eastview, a life-sci campus owned by BioMed Realty Trust. "The Farmingdale facility is a fabulous facility, and in some ways, to my mind, it may be that having OSI there, taking up so much space, almost held them back. So this may be an opportunity to build up the smaller, emerging company opportunity there, and to develop a stronger, broader sort of cluster.

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"That may not be easy in the given environment," Tinker acknowledged, "but on the other hand, with [Broad Hollow executive director] Greg [Blyskal] and some of the other really good smart people out there, I think they can put that together."

Second Choice

By the time OSI began its national site search, Greenburgh was originally OSI’s second choice in the New York metro area. Number one on that list was the East River Science Park in New York City, whose first phase is now under construction by developer Alexandria Real Estate Equities.

But the aesthetics of the wooded Greenburgh campus, its potential for cost-saving through the efficiencies of a single site, its availability of additional developable land, and its availability of facilities that would have to be built new elsewhere at higher cost, propelled Ardsley Park past East River Science Park and other NY-area sites — as well as past two regions with larger life-sci clusters, North Carolina’s Research Triangle Park, and greater Philadelphia.

"There's a big cluster of pharmaceutical companies in North Carolina that was very appealing to us, but it would have been very disruptive" to OSI since the company would not have been able to retain as many of its current staffers as it will in Greenburgh, Legault said. "And then, we looked at Philadelphia, which also has a big cluster of pharmaceutical companies, and the state was really willing to do lots of work with us."

Another factor in Greenburgh's favor, Legault said, was the willingness of local and county officials to work with OSI and the state to attract the pharma company. Through its relocation consultant Deloitte, OSI had been in contact with Westchester officials for "several" months, he added.

The first visit of OSI reps to Westchester took place in December, and included dining at Ardsley Park. "We had a luncheon where the County Executive [Andrew J. Spano] brought people from [Westchester] Medical Center and [New York Medical] College to talk about bio in the county, just a chit-chat," said Theresa Waivada, the IDA's executive director.

"They probably had a team of eight people up here. They went by Project Genesis, and all first names," said Waivada, who is also Westchester County's deputy director of economic development. "They also wanted to meet with companies and interview companies," which OSI did with help from the nonprofit Hudson Valley Economic Development Corp.

"Six weeks ago, we got a call that [Goddard] had come up to Ardsley [Park] to look at it, and fell in love with the site, and felt it was perfect for what he wanted to do," Waivada said. That led to a luncheon in which Deloitte and OSI reps disclosed the company's name, and received detailed information on how to apply for economic incentives.
Waivada and Salvatore J. Carrera, director of Westchester County's Office of Economic Development/Real Estate, said the office shepherded OSI on visits to several Westchester sites, including Landmark at Eastview, a 751,000-square-foot lab-office campus on Greenburgh's border with Mount Pleasant, as well as several sites in the county seat of White Plains.

"It was touch-and-go, but they came to us. We did not go to them. And because they came to us, we put out the red carpet like we do for anybody who comes in here," Carrera said.

Carrera said his office is working to arrange weekend bus tours of residential areas in Westchester and nearby (and less expensive) Rockland and Putnam counties for OSI employees interested in moving closer to their new jobs. The office is also working with Westchester's Department of Transportation and OSI to develop a shuttle bus service offshoot of the county Bee-Line bus system that would link the campus to stations of the Metro-North commuter railroad.

"This is a done deal, but we haven’t stopped working with them," Carrera said.

OSI's arrival, he said, will help Westchester step up its recruiting of other life-sci companies: "It's going to be a major shot in the arm for the biotech cluster given that there were some false starts over the past five to seven years. We want to see a biocluster here, and this is a major step forward in making that happen.

"We're working with other biotech companies as we speak about retention, expansion, and relocation" in Westcheser, Carrera added. He declined to identify the companies.

Legault said Westchester's existing yet nascent life-sci cluster also weighed into OSI's decision — namely the chance to stand out in a biocluster better known for the headquarters of established public companies like Progenics, Regeneron and Acorda; as well as the medical college, and the presence of newer companies like med device maker EpiCenpt and Profectus Biosciences at Landmark at Eastview.

"We expect by coming here, hopefully we can be one of the contributors and anchors in creating a cluster in this area," Legault said. "You want to be able to influence. This was not the key decision factor, but it was one of the factors we took into consideration. You want to be around other companies, because as you have other companies that get involved in a given area, it creates an appeal and it becomes easier to recruit the proper resources."

The CEO of one life-sci company already in Westchester agrees that OSI will ultimately help the county life-sci cluster.

"It takes one or two pioneers to kind of get the ball rolling. And although we have a number of strong companies in Westchester, a company with the visibility and size of OSI really starts to get us in a whole different direction," Vijay Aggarwal, the CEO of prostate cancer prognostic test developer Aureon Laboratories in Yonkers, NY, told BRN at the NYBA event. "It's not a final answer, but it's a very important step along the way to building a really meaningful cluster of companies."

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