Flourishing in Kansas Life Sciences Are

When it comes to the life sciences, Kansas means business. Investment in the fast-growing field is making the state a top place for research, discovery, and production of new technologies to improve the health of people, animals, and other living things.

Kansas Governor Laura Kelly and Lieutenant Governor/Kansas Department of Commerce Secretary David Toland have aggressively targeted growth in the bioscience sector with unrivaled support for world-class research, commercialization, business startups, and expansions. A strategic central location, robust talent pipeline, outstanding universities, and powerful partnerships do even more to bolster Kansas’ reputation as the ideal place to do business.

“Our life sciences sector is experiencing dramatic growth that’s made Kansas a bona fide hub for this important work,” Governor Laura Kelly said. “I’m proud of the infrastructure we’ve put in place that is fostering creative thinking and innovation to address emerging health threats and other critical endeavors.”

Achievements have been farreaching. From the University of Kansas’ nationally recognized drug discovery and development enterprise to the selection of Kansas for the USDA’s National Bio and Agro-Defense Center (NBAF), the bioscience sector is creating historic opportunities for companies in the state. NBAF — a biocontainment laboratory focusing on threats to the U.S. animal agricultural industry and other public health research — is appropriately located in Manhattan, Kan., known as the “Silicon Valley of Biodefense” due to work to predict, detect, and prevent the diseases of tomorrow.

Biopharma companies also are finding Kansas ripe for accelerated development of vaccines, treatments, and related supplies. Among medical and pharmaceutical firms gaining momentum, Scorpius BioManufacturing is building a new 500,000-squarefoot facility in Manhattan. The $650 million business investment will create 500 new, high-paying jobs. The facility will support the development of vaccines that enable an accelerated currently houses numerous high-tech and bioscience companies and has created several hundred high-wage jobs.

Kansas also is a long-standing lifesciences force in the Animal Health Corridor — the single largest concentration of animal health interests in the world, and home to more than 300 companies researching and producing veterinary pharmaceuticals, specialized food for livestock and pets, and much more. More than 60 percent of the pet food sold in the U.S. is manufactured by companies in the Animal Health Corridor.

Also notable: response to global biological threats, as well as provide commercial-level development, manufacturing, and bioanalytical testing services at every stage for biopharmaceutical products to the global healthcare industry.

Kansas is home to a wide range of brand names and successful startups alike with companies such as Merck Animal Health, Hill’s Pet Food, TriRx Pharmaceutical Services, and Ronawk.

State partners such as BioKansas are catalysts for this success. Representing more than 140 Kansas bioscience companies, academic institutions, biotech centers and related organizations, BioKansas makes the connections needed to attract and grow bioscience technologies, products, and services in the state.

More enhanced collaboration came recently with expansion of the new KU Innovation Park at the University of Kansas. The new, 70,000-square-foot facility offers fully functional wet labs, offices, and collaborative spaces for its tenant startups. The KU Innovation Park

Universities in Kansas offer numerous life-science degrees in human health science; animal and plant health initiatives; bioscience; and medical applications.

More than 16,000 Kansans are employed in the biosciences.

“Thanks to our extraordinary talent pool, technologies, and academic centers, Kansas is a world leader in life sciences research and development,” Lieutenant Governor and Secretary of Commerce David Toland said. “We are showing time and time again that Kansas has what it takes to attract these highly innovative companies, and further improve our state’s cutting-edge life sciences ecosystem.”

To learn more about the exceptional assets Kansas has to offer companies in the life sciences industry, please visit kansascommerce.gov.

Expansion and Contraction Options

The success of life science companies is more volatile than are traditional office tenants. While much focus is on the possibility of a collapse of a life science tenant, there should also be emphasis on the success of life science tenants. This plays into the conversion processes specifically. A more holistic, cradle-to-grave analysis is necessary with a life science tenant.

For example, a traditional law firm or bank tenant can project their needs and organic growth over 10 or maybe 15 years based on historical growth. Life science companies have no baseline. There is a need for flexibility in the conversion of the building to ensure enough floors and/or the entire building is converted or can readily be converted to life science use such that the life science tenant can grow into its needs. Whether it be expansion options, rights of first refusal, or rights of first offers for additional space, or even relocation rights to new space, landlords and tenants need to have an honest discussion about potential growth and take into account those needs as necessary.

While developers and life science tenants may aspire to continuously expand their size, the reality is that many life science companies fail, move, or simply require less space in a particular building. As important as contemplating possible expansion of a life science space when assessing conversion related issues, the concept of contraction and how such a reduction in space may affect partial buildings and partial floors must also be addressed by the parties. While it may be more incumbent for a tenant rather than a landlord to raise the possibility of a contraction, it is important that both parties have an honest discussion about space needs going forward and when designing the re-use of converted space, taking into account how a reduction in space may impact building systems.

Use Segregation

Conversions of an entire building allow for an upgrade of entire systems, particularly when the entire property is stripped and rebuilt; however, partial building conversions (e.g., street level retail, life science, and residential floors) require unique considerations. From a design perspective, there may be a need for elevated HVAC requirements in life science spaces, fire safety considerations, elevator usage requirements, soundproofing, and vibration mitigations that are not necessary in other uses.

There are costs for such uses that may not be allocable in a simple operating expense proration. The developer may need to look at “condominiumizing” the building in a multi-tenant and multi-use building to ad - dress the asymmetrical use of facilities and to ensure that costs are properly allocated between the various uses. While there will certainly be quite a bit of discussion among the design professionals as to how that use segregation will occur, how that will occur legally (e.g., condominiums, cross easements, and similar items) will require quite a bit of advance legal planning.

The rules and regulations may similarly need finetuning to account for the different uses in the building. By way of example, a new pet policy makes sense in a traditional office setting or even a residential setting (or at least limiting the building to certain domesticated pets). Such a restriction does not work when housing a vivarium. The presence of animals of all types must be permitted in the premises (and disposal must also be addressed). So too, gyms or other vibration-creating uses may not be permitted within life science areas as they create noise and vibration issues that can affect the calibration of equipment. While such an amenity for residential tenants may be a plus, the proximity of such amenities to life science space can create issues.

Zoning

Office use is not necessarily zoned the same as life science usage. Certain cGMP and other uses may fall into industrial and light manufacturing zoning uses that, in turn, may require the converted property to obtain a variance or special exception rather than be permitted to operate as of right. Prior to embarking on the life science conversion journey, the legal team must ensure that an audit of the zoning for the project is thoroughly vetted. Single-use buildings and multi-use buildings may trigger different facets of the zoning code. Additionally, issues regarding subtle differences between industrial, manufacturing, and warehousing uses as part of the life science premises may be as of right or need a variance which can add time, cost, and additional work in connection with a life science conversion.

Conclusion

The above conversion-related legal concepts are not intended to be exhaustive. This area of law is dynamic, with new issues and challenges arising on a monthly, weekly, and — at times — daily basis. Just as architects, civil engineers, and developers are modifying their proformas, preconceptions, and thought processes as they contemplate whether and how a building can be converted, so too will legal professionals need to adjust to the vibrant life science asset category as they contemplate future conversions.