Rate increases and blackouts hurt the business environment

http://www.guardian.co.uk/international/story/0,3604,524529,00.html

The Scientist 15[15]:16, Jul. 23, 2001
By Douglas Steinberg
 
As California's energy crisis deepens, biotech companies have worries in addition to the ruined experiments and damaged equipment that concern life scientists in academia.1 Soaring energy prices could slowly sap the industry's economic health, and blackouts could spoil large batches of drugs by interrupting FDA-mandated protocols. "Biotechnology companies in California sort of naively thought that they were located in a First World business environment," says Joseph Dougherty, an analyst at Lehman Brothers in New York. "They now find themselves in something that looks more like a Third World environment as far as their power goes."

Making Preparations

In May, the California Public Utilities Commission allowed two of the state's utilities to increase rates for certain business customers by as much as 50 percent. If price hikes survive political opposition, their impact on the profitability and competitiveness of the state's biotech industry fortunately might be smaller and later than their effects on other industries. The cost of a drug or biological reagent is a small percentage of its selling price, and energy isn't even a large portion of that cost, explains Geoffrey E. Harris, senior biotech analyst for UBS Warburg in New York. "My bigger concern," he adds, "is that somehow [the crisis] would shut down production capacity for a period of time."

Some California companies have already prepared, to varying degrees, to meet that threat. "Because you have earthquakes here, you have to have backup power systems," notes Sue Markland Day, president of the Bay Area Bioscience Center in San Francisco. Amgen, for instance, has been preparing for potential power outages since the 1994 Northridge earthquake, according to spokesman David Kaye. The company's emergency generators now cover 70 to 80 percent of its power requirements.

"We can't afford to be without power," says Kaye. "We're the sole source for Epogen and Neupogen in the U.S. So if the power suddenly went out and we lost it for a couple of days, that would cause a major problem for our customers and patients." (Epogen is used to treat anemia, while Neupogen combats various cancer complications.) John Sung, senior director of facilities at Gilead Sciences, worries about the vulnerability of the company's San Dimas plant to blackouts. Only partially covered by backup generators, the plant produces AmBisome and DaunoXome, antifungal and anticancer drugs, respectively. Though adding further generator power is very expensive, Sung concludes, "I don't think we have any choice."

The Effect of Blackouts

The energy crisis has already disrupted industry research. In May, a one-hour blackout hit Affymetrix's Emeryville facility, where bioinformatics researchers use supercomputers to design DNA microarrays. Affymetrix pegs the direct cost of the outage at $125,000 for the lost time of more than 50 employees, says vice president of corporate affairs Thane Kreiner. In March, Palo Alto-based Roche Pharmaceuticals experienced a one-hour blackout that cut off power to three research buildings and interrupted some experiments.

Roche's experience shows how even the best-laid plans can go awry. Under a program begun last winter, the city of Palo Alto agreed to send Stage 3 alerts, when power reserves drop below 1.5 percent, to the pager of the company's utility operations manager, Jerry Meek. If Roche cuts its power usage 15 percent within the next half-hour, it is exempt from rolling blackouts except as a "last resort," according to Meek. On March 19, however, Palo Alto shut off the wrong power grid and severed the company's power without warning. (In May, the program worked as planned during three Stage 3 alerts.)

Incyte Genomics, also in Palo Alto, relies heavily on computers, making it vulnerable to momentary outages. When an evening blackout hit the company last April, two factors protected its critical data-processing center, recalls director of corporate services Robin Weckesser. First, the city alerted Incyte in advance. Second, when Incyte built the center two years ago, it installed an uninterruptible power supply system. This bank of batteries and transfer switch keep computers running in the seconds before the backup generator gets up to speed.

Though California's biotech companies report extensive conservation efforts, these have limits as a response to the energy crisis. Computers in Incyte's data center can't tolerate temperatures higher than 68 degrees. Roche reduced energy consumption 18 percent in the first three months of 2001--but not during the unusually hot May. "In our research areas, we have to provide 100 percent outside air," says Meek. "So if it's 90 degrees outside, I need to cool that air down to, let's say, 60 or 62 degrees to go into some of the laboratory spaces." The unavoidable result, he adds, is tremendous energy consumption.

Douglas Steinberg (dougste@attglobal.net) is a freelance writer in New York.
 

© Copyright 2001, The Scientist, Inc.