Vicki Nienaber broke out on her own to start the tiny biotech Zenobia Therapeutics last June, just as things were starting to go from bad to worse in San Diego’s innovation economy.
Nienaber had been laid off the month before from ActiveSight, a contract research firm that was going out of business. Things, however, weren’t all bad for the 45-year-old Ph.D. She had just won a $350,000 grant from the Michael J. Fox Foundation to develop a possible treatment she had discovered for Parkinson’s disease.
Yet she had to act fast if she wanted to keep the grant; foundations aren’t keen on spending their money on scientists who don’t have anywhere to practice their science. The best option for Nienaber was to start her own company, but $350,000 is a relative pittance when you have to start a laboratory from scratch. One piece of lab equipment can cost hundreds of thousands of dollars, and a lot of stuff in a lab costs more than $10,000.
So Nienaber did something that was virtually unheard of a decade ago, she bought used. And 30 days later she had her lab set up and the folks at the Michael J. Fox Foundation were happy. “We could have never set up this lab if we had bought everything new,” she said.
Nienaber said she saved tens of thousands of dollars by buying used equipment ranging from refrigerators to highly specialized instruments for purifying proteins. And she bought most of it from Sorrento Valley’s BioSurplus.
Companies used to shy away from buying used equipment because it offered no warranties and they didn’t always know where it came from. But BioSurplus, and others like it, have professionalized the industry in recent years. And their business has boomed as the overall biotech industry has cratered.
“We do well when the industry is doing good, and we do better when the industry is doing bad,” said Fred Hill, BioSurplus’s marketing director, adding that the 20-employee company, which also has a location in Fremont, has seen sales increase by 60 percent over the past year.
“The timing for us is really good right now.”
It couldn’t be worse for the rest of the biotech industry, which locally employs more than 40,000 workers and has an annual economic impact approaching $9 billion. Since the vast majority of the more than 600 local biotech companies are private, it’s impossible to know exactly how many have gone out of business since the credit markets first began freezing up in late 2007.
But it has been a bloodletting. Scores of companies, through either closings or significant cutbacks, have laid off more than 3,200 people since last summer, according to Xconomy.
And when a company closes a lab, or closes down entirely, it will auction off its equipment to raise capital. And this is where companies like BioSurplus, and others like Vista-based LabTrader and Rancho Bernardo-based Scientific Equipment Exchange, come in. They will both buy the equipment outright, or on consignment, and sell it at a deep discount — usually 40 to 50 percent of new prices.
The Sorrento Valley location evokes the feeling of a high-end thrift store for scientists. The front showroom is packed with rows and rows of instruments, ranging from microscopes to freezers and centrifuges. In the back room sit $150,000 cell counters and robotic handlers.
“We like to think of ourselves as the Home Depot of used biotech equipment,” said Hill, clad in a blue button-down shirt with a BioSurplus logo on it. Most of its employees have backgrounds in science.
The company’s bread-and-butter customer is a start-up like Zenobia, or even a smaller operation. “Sometimes we get people who are just working out of their garage — looking for a couple of instruments they need to get them to the next step,” he said. “They are buying it on their own credit cards — spending $5,000 to $10,000 at a time.”
However, Hill said, a big reason for the boost in sales this year is that large pharmaceutical companies, like Pfizer — which has a large research facility in San Diego — are buying more used equipment as part of their cost-cutting measures.
Hill estimates that as much as 25 percent of BioSurplus’s business now comes from large pharmaceutical companies. However, for competitive reasons, the larger companies are hesitant to disclose how much used equipment they are buying. A local spokeswoman for Pfizer claimed to not have details on Pfizer’s used equipment purchases, nor did a representative from Life Technologies, a large, locally based biotech.
BioSurplus was founded in 2000 by Ken Snoke, who had been a lab technician at a locally based company called Cytel. Snoke first got the idea for his company when he was asked to buy a couple of used instruments on behalf of Cytel. He noticed the high turnover in the industry resulted in a lot of under-utilized equipment.
Snoke said his main challenge in the beginning was proving that he was reputable in a business that was considered by many to be disreputable. “Before we came along it had that stigma,” Said Snoke, who sold the company in 2003 to San Diego native Preston “Cinco” Plumb.
“The few people who were doing had made it kind of a shady business.”
A decade ago, the typical used lab equipment seller was a guy selling out of a self-storage unit, Snoke said. “The model had to be worked out so the buyer felt safe in buying a used expensive instrument,” he said. “You can’t save 50 percent and have the thing not work — that can kill you as a start-up.”
Snoke said he paid attention to details, things like making sure the equipment he sold still had service contracts, and that all the needed software came with the machines. Eventually, he said, his more professional approach made people feel comfortable buying the equipment.
Economic realities also helped the model along, Nienaber said. “We did it out of necessity, but it has really worked out,” she said.
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