Laboratory Space Shortage Constrains Southside San Francisco Biotech Growth

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QB3@953, a biotech incubator, has been so successful that many of the startups housed there are searching for larger laboratories in Southside San Francisco. But their moves have been stymied by high rents and real estate prices, as well as a lack of space for midsize companies. 

The incubator, launched almost two years ago, provides roughly 50 companies with a stylish, comfortable facility, featuring a shared kitchen and conference rooms. It’s located at 953 Indiana Street, across from vacant lots and close to textile and handbag manufacturers.

QB3@953’s location offers easy access to the San Francisco International Airport and Downtown, as well as proximity to the University of California, San Francisco.  Larger tenants, such as L’Oreal and GlaxoSmithKline, provide advice and equipment to their smaller neighbors. “None of them want to leave. All of them want to stay in San Francisco,” said Douglas Crawford, associate director of QB3. “They have this Catch-22. They need data to get money, and they need money to get data.”

According to Richard Yu, scientific director of QB3@953, the building is full.  “We want more space. We’re turning away multiple people a week,” he said.

Existing Production, Distribution, and Repair (PDR) zoning in Dogpatch doesn’t allow another incubator to be built nearby. The Eastern Neighborhoods Plan would have to be altered to allow for such commercial activity. Without a change in land use policy, the incubator’s success stories are likely to move to the Peninsula or East Bay.  “We’d love to see the PDR zoning include a definition of production and chemical analysis. It would be wonderful if PDR could embrace small biotech companies,” said Crawford.

Kaspar Mossman, communications director of QB3, said demand for space is so great that QB3 is working on opening another incubator in Berkeley.

QB3@953 is a separate but related entity from UCSF, the educational institution closest to it. The nonprofit was established in 2000 as a network of life sciences incubators, with a mission to drive innovative research. QB3 is associated with UC Berkeley, UCSF, and UC Santa Cruz. It’s directed from UCSF’s Mission Bay campus by Regis Kelly, a former UCSF vice chancellor.

Unlike incubators located on university campuses, QB3@953 offers space to companies that have no relationship with UC. The building consists of 24,000 square feet, with no time limits on leases. In comparison, UCSF’s on-campus incubator, Garage@UCSF, rents only to spin-offs from UC laboratories, is 2,500 square feet, and provides two-year leases.

QB3@953 is a collaboration between QB3 and Dewey Land Company, Incorporated, a developer experienced in land use permitting processes. Since QB3@953 isn’t on a UC campus, it had to secure funding to obtain necessary permits. Mission Bay Capital, LLC, a venture firm in which Kelly and Crawford are managing partners, financed 953’s opening. Mission Bay Capital funds successful companies that’re leaving or have left the incubator.

According to Kristin Bole, assistant director of public affairs at UCSF, the educational institution doesn’t have a specific interest in seeing QB3-associated companies remain in Southside San Francisco. “That is more of a benefit for the startups and entrepreneurs than it is for the university,” said Bole. “The one area in which it is a benefit is when the entrepreneurs are current faculty or students, in which case having the company nearby is simply easier logistically. Part of UCSF’s core mission is in “translating” the discoveries from our labs and clinics into public benefit, either through new therapies or economic benefit of new jobs and companies. (This) only happens if the discoveries are developed by either spinoff companies or biotech/pharma/tech companies.”

Leah Makley, chief scientific officer at Viewpoint Therapeutics, is an example of the close ties between the incubator and UCSF. “I was a graduate student at UCSF’s campus in Mission Bay and graduated in October 2014. I started renting lab space at the incubator in December 2014. Labor and research development is expensive. The incubator model allows companies to operate much more efficiently in the early stages,” said Makley.

Viewpoint has access to some of UCSF’s core lab facilities. It collaborates with a number of research groups on campus to use their equipment.  The company is working on a medical treatment for cataracts that’ll supplement or replace surgery.  “Currently surgery is the only treatment for cataracts. Untreated cataracts are the leading cause of blindness in the world,” said Makley.  “We’re also starting to use our understanding of protein folding to look at other diseases outside of ophthalmology…typically age-related diseases, including neurodegeneration.”

According to Ethan Perlstein, chief executive officer of Perlstein Lab PBC (Public Benefit Corporation), his company has two goals.  “Our first mission is a social mission, to eliminate…the sudden onset of death” in children and adults, said Perlstein. “Our second mission is an environmental mission…to reduce the carbon footprint of drug discovery.”

Perlstein Lab runs its tests with small organisms, such as worms, fish, yeast, and flies. These animals have rare diseases involving extremely old genes. They require a minimal amount of food, water, and energy to house. Perlstein Labs recently discovered a molecule that “reverses a neurogenerative disease in worms and flies…We’ve now outsourced some of our genetic research to see if the molecule will work in mice,” said Perlstein.

Bell Biosystems, another QB3@953 tenant, is researching cellular levels to create synthetic organelles.  “If you think of a cell as a house, an organelle is a room in the house. They have specialized functions,” said Caleb Bell, CEO and co-founder of Bell Biosystems.  Adding a synthetic organelle to a cell enables it to complete a function it couldn’t have otherwise performed.

Bell said the company is also developing Magnelle®, a living, magnetic contrast agent. A contrast agent is a substance that highlights structures and fluids in the body in medical imaging. Bell Biosystems will use Magnelle to track transplanted cells to make sure they reach the target area in the body. “If you want a stem cell to work, it has to end up in the right place,” said Bell.

Symic, with about 20 employees, is the largest QB3 tenant. It too is conducting cellular level research.  “We’re targeting a cell’s environment, the extracellular matrix,” said Ken Horne, CEO of Symic. The extracellular matrix (ECM) is a group of molecules outside cells that has been secreted by the cells. The ECM gives structural and biochemical support to the cells closest to it.  “The ECM is really pervasive throughout human anatomy. We think there are many drugs we can develop” that will affect the ECM, said Horne.

Symic is developing several compounds that target the ECM. These include SB-061, which mimics a protein that reduces cartilage degradation and pain in patients with osteoarthritis; and an agent that reduces the development of abnormal connections between arteries and veins in patients with chronic kidney disease who are undergoing dialysis.

Growing biotech companies could be encouraged to remain in Southside San Francisco through the development of incubators for midsize businesses and the creation of shared space, dividing a 50,000 square feet or larger laboratory into smaller areas. Perlstein said QB3@953 researchers have gotten to know Dogpatch and Mission Bay since the incubator opened. This may help them advocate for zoning code  changes, and encourage property managers and owners to breakup large lab spaces.  “The real estate market is not flush with lab space less than 10,000 to 15,000 square feet. We’re considering a roommate situation. I think that’s going to happen naturally. Companies are just going to force solutions to make these second and third tier incubators. We need to help these adolescent companies graduate,” said Perlstein.

Bell said he’d prefer to keep his company in San Francisco. “Some companies get acquired just out of the incubator. Some fail. After I graduated from Stanford University with my Ph.D., I went on food stamps for about two years. The company then got into StartX (a nonprofit incubator associated with Stanford University). We received a grant from Breakout Labs, a program of the Thiel Foundation,” said Bell.

Bell Biosystems later rented space in a Sunnyvale incubator. After a short time, the company moved to QB3@953.  According to Bell, his company’s next funding round should enable it to “take off the training wheels” and move to its own space. 

Michael Alvarez, vice president of business development for Bell Biosystems, said Bell would prefer not to move to the East Bay.  “The convenience and access have made it useful for us to be here. It’s prime real estate because of its ease of access to Downtown San Francisco and the airport. It’s easy to find us,” said Alvarez.

Horne said Symic also wants to stay in Dogpatch. He indicated that the company is well-funded and is “definitely willing to pay up for it…it’s absolutely miserable to find real estate that’s lab-ready. There’s a tremendous competition for space, not only amongst ourselves but with tech,” said Horne. “What I think UCSF can do is encourage property developers not just to build for the Pfizers, Celgenes, and FibroGens, but for the midsize companies, the up and comers. Right now we are literally stepping on one another’s toes. We can’t hire more scientists because we don’t have more space. There’s tons of money to hire more people but no space to put them.” 

Officers of incubated companies are concerned that they’re unable to share much of their work with the community. Small biotech companies looking to be acquired or funded typically keep their work discreet to ensure that their data and methods aren’t plagiarized. Much of their efforts are extremely specialized. It can take a skilled communications officer, which many companies don’t have, to explain how research the company is conducting will benefit the general public. The multiple communication challenges limit the companies’ ability to generate public support.  “We have a Facebook and a LinkedIn. Our customer base is researchers and companies developing cell-based therapeutics, not the general public,” said Bell.

“Small biotech companies like ours may never actually sell a product directly to patients,” said Makley.  “Larger companies or partners are in an ideal position to pick-up that asset and take it all the way to development.  We are reaching out to foundations and groups that would be great partners for us.”

Perlstein said Perlstein Lab PBC tweets and blogs about its research, which is more than most companies do.   “Definitely other startups have commented on our sharing of data. We have attracted a following among scientists,” said Perlstein.

Susan Eslick, a Dogpatch Neighborhood Association (DNA) member, confirmed that residents are largely unaware of the research taking place at QB3@953. Eslick said DNA had the most communication with the team behind QB3@953 before their building opened. “They came to introduce themselves. I said, “Be creative, use color, make it interesting. It’s a cool, simple building and I think they did a good job. I love the design of the building,” said Eslick.

According to Yu, biotech companies and incubators like QB3@953 deserve more space because they bring innovative products to market that larger companies wouldn’t have developed. They also create white-collar jobs for City residents. “A number of them have grown from a single bench to up to four to five employees in the past two years. We just got a crop of six or seven one-benchers,” said Yu. “It’s hard to scale up and have a bigger impact on job creation if there’s no space. If we had more space, there’s also some analytical equipment we’d be able to purchase.”

Crawford said City government, particularly the Mayor’s Office, has been supportive of QB3@953. “Supervisor Cohen has visited. Despite the fact that these companies are tiny, they are attacking incredibly important and big challenges. They’re doing so in a way that is incredibly efficient,” said Crawford.  “A lot of the people that work here live in the Mission, Potrero Hill, or SoMa. They’re not commuting in from Hayward to do this.”

QB3 receives state money to finance the incubator’s operations. Ninety percent of funding supports research, with ten percent going to companies growing and leaving the incubator. More space for QB3@953 would generate more income for QB3. “Everything in here is á la carte,” said Mossman. “An eight foot bench, fridge space, freezer space, human resource-type services, even Rich Yu’s time can be rented. A lot of the larger companies donate the equipment or loan it to the incubator for a period of ten years. That makes it practically a donation. For them, it’s a showroom.”

According to Mossman, more lab space for rent or purchase would also allow QB3@953’s success stories to maintain relationships formed at the incubator. 

“There is a lot of crosstalk between companies now,” said Makley. “A lot of the startups are younger people who came out of academia not having done this before. We’re all working through the same challenges. It’s a great community to be a part of.”