Electricity: Forced Cost Hikes May Hinder
Skyrocketing energy costs will not likely break biotech start-ups, but they could stall their research and development efforts.
Tom Oster, director of purchasing at Biocom, San Diego’s biotechnology industry association, said he is worried funds lost to high electric bills will prevent start-ups from hiring additional people to move costly projects forward , a crucial element for success.
Last week’s actions in Sacramento to temporarily cut electric bills in San Diego will do little to help San Diego’s biotech industry, which depends on high-tech tools, cool storage rooms and other costly equipment to develop drugs, industry experts said.
Oster said while biotech leaders aren’t happy about the increase, their hands are tied.
Biocom has heard all about its members’ electricity woes in recent weeks, he said.
“One of our larger biotech members complained his electricity bill soared $50,000,” he said.
Another biotech created a team to search for new cost-cutting ways.
In an industry where there are few options to cut back on electricity , aside from the obvious switching off lights and computers , creativity is key, he said.
For example, biotechs that produce drugs during the day when kilowatt-hours are a premium may want to switch production to the evening when rates are at its lowest, he said.
For many start-ups without products on the market, these higher rates are especially troublesome, he said.
Still, one local biotech that contracts with bigger firms and passed on its higher costs to clients, did so only reluctantly.
“We have raised our prices in the last proposal (for the first time),” said Gina Stack, COO of IriSys Research and Development.
The Mira Mesa-based biotech, which contracts with drug makers to further develop their compounds, saw its electricity bill jump from $1,493 in June to $2,576 in July.
Now Stack is worried the move will cost IriSys its competitive edge on the market.
Craig Johnson, CFO at privately held MitoKor in Sorrento Valley, is worried too.
MitoKor’s electricity rate increase is about equivalent to a technician’s monthly salary, he said, adding he’d prefer paying for the latter.
MitoKor’s electricity bill jumped from $9,000 in June to $16,500 in July, up from an average monthly bill of $5,000.
Another local biotech executive said he is sad to see dollars budgeted for research flow into utilities.
“Cash is something biotechs are mindful of,” said Robert DeVaere, vice president of finance at Epimmune, whose electricity bill recently doubled.
Another biotech executive, Hillary Theakston in the investor relations department at Diversa Corp. said, the firm sees no alternative, but to ride out the electricity wave.
“We’ve done what we can within reason to conserve energy,” Theakston said. “In terms of reducing cost , that’s not an option for a growing company like ours.”
The Sorrento Valley-based biotech saw a $15,000 increase to $25,000 on its July electricity bill.