University Enterprise Laboratories plans $20M expansion

University Enterprise Laboratories (UEL), the St. Paul-based  bioscience incubator that never quite lived up to expectations, is planning an ambitious $20 million expansion project.

UEL plans to add 40,000 square feet of lab and office space on 3.5 acres of land next to the facility, according to documents obtained by MedCity News.

The project is in its initial stages and no decision has been made on how to finance it, said UEL board chair Paul Knapp, president and CEO of Space Center Ventures in Roseville, Minn. Overwhelming interest in the original facility, which is 90 percent leased, prompted the board to consider an expansion, he said.

UEL just signed a six-year lease with Ativa Medical Inc. The company, the first to be funded by the Twin Cities Angels’ new investment fund, is developing ways to speed the delivery of diagnostic technology to market.

Also, MRI Robotics LLC, a company designing remote-controlled medical devices that can be used inside MRI machines, will be the first company to inhabit the “Garage,” a cluster of small labs/offices UEL recently created in the existing building to offer space based on less expensive, six-month leases to young start-ups.

Founded by former University of Minnesota student Blake Larson and Dr. Timothy Vaughan, a university-based expert on high-field MRI, the company is developing a MRI-guided biopsy device to detect breast cancer.

In a way, the Garage returns UEL back to its original mission of incubating biotech start-ups. First launched in 2004, the $20 million UEL facility, located at an old Target distribution center, was supposed to launch a bioscience corridor along University Avenue in St. Paul.  UEL received major financial backing from St. Paul, the university and big corporations like 3M Cos., Medtronic Inc. and Boston Scientific Corp.

But UEL fell victim to bad timing, questionable geography and economic reality. As its name suggests, UEL’s original mission to house companies spun out of the university. But the start-ups never emerged, mostly because the university’s technology transfer office was a mess at the time. Also, a planned bus line connecting the school’s main campus to UEL fizzled out.

Today, none of UEL’s nearly 30 tenants originated from university research, even though the building is home to the school’s Office for Technology Commercialization.

Critics also said UEL leases were too expensive, a necessity given the facility’s enormous size: 125,000 square feet of office and lab space. As a result, UEL had to concentrate more on finding tenants to subsidize the cost of the building than incubating biotech start-ups.

With the Garage, UEL hopes to attract young start-ups that will eventually grow to a point where they will lease regular space in the facility.

The expansion, designed by Architectural Alliance in Minneapolis, suggests a more aggressive strategy by UEL to attract companies. The 30 new 1,ooo-square-foot lab/offices will generate 75 biotech jobs and “provide significant cash flow and equity cushion to UEL,” the documents say.

The big question is how UEL plans to pay for the expansion. The proposed $20 million budget breaks down to $11.5 million for construction, $3.8 million for land costs and $2.3 million for design and professional management fees.

Though the facility generates positive operating cash flow, UEL faces a 2012 deadline to repay a $13.8 million bond issued by St. Paul. Knapp, the board chair, says UEL’s financial prospects have improved, which might allow it to refinance the bond once it matures two years from now.

Currently, UEL carries a $1o million debt, or about 70 percent of its entire value. The group estimates the expansion will add $444,444 to its value, lowering its loan to value ratio to 52 percent, which could make it easier to refinance the loan.