In committing to the massive Judge Doyle Square project, Madison is investing not only in its Downtown; it’s also banking on the continued growth and market dominance of the project’s principal tenant, Exact Sciences Corp.
In a 12-6 vote with one member absent and another recusing himself, the City Council approved an agreement with JDS Development at 3:15 a.m. Wednesday. The $200 million redevelopment relies on $46.7 million in public investment, including a $12 million grant to Exact Sciences to help it create at least 400 jobs Downtown.
Given the company’s explosive growth since developing the first and only FDA-approved noninvasive stool DNA screening test for colorectal cancer, it’s a bet the council was willing to make.
But what if Exact loses market share if a competing product is approved, the firm is bought by an out-of-state company, or it goes bankrupt?
There is risk, but it’s minimized, city officials say: The development agreement accounts for such contingencies with guarantees for job creation and protection against relocation.
JDS, made up of the Hammes Co. and Majestic Realty, proposed a 250,000-square-foot headquarters for Exact Sciences and another 107,000 square feet of expansion space, a 216-room hotel for Monona Terrace, commercial space, a bicycle center and 1,250 parking spaces on blocks that now hold the landmark Madison Municipal Building and obsolete Government East parking garage.
Mayor Paul Soglin, whose detailed, passionate appeal helped carry the vote, called the project vital to “the future of the Downtown and the city” with a defeat “the greatest failure imaginable.”
Exact Sciences, which has offices at University Research Park and a new lab in the Novation Campus off Rimrock Road in the town of Madison, has pushed a fast-paced negotiation on the development agreement in order to break ground in December and have new corporate offices ready by mid-2017.
“We are expanding at a rapid clip,” Exact Sciences CEO Kevin Conroy told the council. “To extend (construction) beyond that is a fundamental challenge for our business.”
Conroy also tried to reassure council members the company will be around for a long time.
“Of the 40,000 physicians that we have called on, 20,000 have already ordered Cologuard. That’s remarkable for any product to get that kind of percentage of physicians to try something new within a nine-month time period,” he said.
Ninety-eight percent of the doctors Exact surveyed said they’ll order again, Conroy said. He said the market is huge, with 80 million Americans over 50, the age the American Cancer Society recommends to start screening for colorectal cancer.
Conroy said 14 banks and investment firms have research analysts following the company, and they project the company will have more than $100 million in revenue in 2016 and $300 million in 2017.
One of the analysts, Brian Weinstein, of William Blair & Co., Chicago, said he’s convinced Exact Sciences has staying power. “We believe the company is extraordinarily well-positioned to participate in what is a very large market with significant patient demand,” he said Wednesday afternoon.
He said there will likely be more products introduced to compete with Cologuard, but added, “This market is big enough to support multiple players.”
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Weinstein also said it would be hard for another non-invasive screening test to match Cologuard’s effectiveness. “Outside of colonoscopy, I have not seen any non-invasive test that has anywhere close to the sensitivity that Cologuard showed in its prospective clinical trial that was published in the New England Journal of Medicine,” he said.
Exact Sciences is also researching tests for other cancers, Conroy said.
As for the possibility a large pharmaceutical company might eventually buy Exact Sciences and close its Madison headquarters, Weinstein said mergers and acquisitions are “a reality in any sector” and too hard to predict. “Certainly, it’s not anything I see as imminent,” he said.
Ald. David Ahrens, 15th District, the leading critic of the project, has doubts. “There has been no evidence presented thus far that this biotech firm will fare any better than 90 percent of the biotech startups,” he said Wednesday afternoon. “Of course, Kevin Conroy told us of their success and prospects, but that’s his job. To sell his firm’s stock to investors.”
The city investment includes $12 million for job creation by Exact Sciences, $13.9 million for land acquisition and $20.8 million for 650 private parking spaces. The city is using $20.3 million to build 600 public and city vehicle parking spaces and a bicycle center. JDS would spend $44.4 million and borrow $89.3 million.
Under the agreement, Exact Sciences will guarantee the $12 million grant with a commitment to create and retain jobs and provide protection in the event of a relocation.
Exact Sciences must deliver at least 300 jobs in the city when the office building opens and at least 400 jobs at the site on Jan. 1, 2019. If not, it has six months from each deadline to remedy any shortfall or it must pay $30,000 for every job short of those requirements. Conroy said the company has the potential to have hundreds of jobs beyond the 400 it guarantees.
If Exact Sciences vacates the building, terminates its lease and relocates to another site, the company would pay $12 million if it moved in the first year, with the sum reduced by $1.5 million annually and the guarantee fulfilled after eight years.
George Austin, the city’s project director, on Wednesday afternoon said the city is well protected on job creation and relocation and most vulnerable in the unlikely event of a bankruptcy.
“The city should not be in the business of investing in companies,” Ahrens said. “Basically, we are giving them a gift to subsidize their rent and provide parking and in return we hope that if they succeed we will share indirectly from the benefits.”
If Exact Sciences fails, the city will have lost millions of dollars and have an empty office building, Ahrens added. “Quite a gamble,” he said.
JDS must guarantee $20.8 million in property taxes for the parking garage. The city’s investment for land has no guarantee.
The developer is supposed to start hotel construction in May 2017 when the parking garage is done but is given an 18-month grace period. If the hotel isn’t started by then, the city can find a different hotel developer until May 1, 2020. If the city doesn’t find another developer in that period, JDS has exclusive rights to complete the hotel by 2027.
The development schedule shows construction starting on the office expansion in 2022, but the agreement has no mechanism for the city to reacquire that site if there are delays. At the meeting, Hammes president Robert Dunn assured JDS is committed to building all phases of the project.
The city and JDS will next focus on design and other details of the project and the hotel for Monona Terrace. The Plan Commission is set to consider the project Oct. 19.