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Will Rochester downtown biotech deal die?

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Dr. Christian Homsy, CEO of Cardio3 BioSciences.

An ambitious deal to bring a Mayo Clinic-linked Belgium biotech firm to downtown Rochester has stalled over money.

Celyad, formerly known as Cardio3, signed agreements early this year with the city and state to create a prototype manufacturing facility that would create 33 jobs. But the projected cost to remodel the fifth floor of the Minnesota BioBusiness Center turned out to be higher than expected, and the project hasn't started as the company reviews its options.

"The budgets we got far exceeded initial assumptions on which the project was decided," said Celyad CEO Dr. Christian Homsy in an email from Belgium this week. "Including the city support, the fit-out cost now exceeds the cost to do the same work in other locations where there is no city or state support."

The company's relationship with Rochester began in 2007, when it licensed stem-cell research by Mayo Clinic's Dr. Andre Terzic and Dr. Atta Behfar. They have collaborated for years on the cardiopoiesis technology the company uses to repair patients' hearts by re-programming their own stem cells to regenerate cardiac tissue. Mayo Clinic owned 2.69 percent of Celyad as of March 3.

In March, the Rochester City Council approved a five-year lease for Celyad to take over the entire fifth floor of the Minnesota BioBusiness Center. That meant displacing all the Mayo Clinic workers based on that floor.

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The lease was the second phase of a deal funded by $1.2 million from the city of Rochester's economic development sales tax fund. The city agreed to pay for $600,000 in equipment and improvements for Celyad's new facility.

The state of Minnesota pledged to give Celyad $357,000 from its Jobs Creation Fund, if the company creates 33 Rochester jobs within two years and invests $1.5 million within a year.

Celyad began paying a rent of $22,444.50 per month, or $18 per square foot, in May. City officials say the company has made all of the required payments.

However, the 14,963 square feet of space still remains empty and untouched since Mayo Clinic moved its offices at the start of 2015.

Celyad officials long have said they favor Rochester, and the company's website even lists a facility here. It once based its U.S. headquarters here, but Celyad now is working on a U.S. headquarters in Boston.

Rochester Area Economic Development Inc. has helped orchestrate Celyad/Cardio3 deals over the years. RAEDI President Gary Smith confirmed this week that a design for the fifth-floor facility was created to meet Celyad's specifications. Celyad and RAEDI split the cost of the design. He said RAEDI contributed $85,000 for its half.

Smith also acknowledged the company is re-assessing its plans for a Rochester facility, which is something companies usually do prior to signing a lease.

While the project is not as certain as it was in March, Homsy said that it is not dead and still could go forward.

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"Rochester is still one of the options for the moment, but the cost of the plant to Celyad seems to far exceed the initial budgets foreseen by our partners at Mayo and the City," he wrote. "So in order for us to make an informed decision, we need to make sure we are comparing apples to apples. Once this clarity is reached, we will first discuss it with the city in a transparent way, and make the appropriate decisions."

Smith says he and other officials would be disappointed if Celyad opted to not occupy the fifth floor. However, he says it would not be hard to find another tenant for the space, which was previously occupied by Mayo Clinic.

The five-year lease with the city of Rochester does include "an early termination provision," which Celyad specifically requested. The provision allows Celyad to end the lease after Oct. 31, 2016. It requires notifying the city six months prior, so the earliest the company could terminate the lease is April 30, 2017.

To leave early, Celyad would need to pay the city $269,334. That amount equals about one year of base rent.

If Cardio3 does leave before its lease is up, all of the city-funded fixed equipment and improvements will become the city of Rochester's property. The city agreed in the lease to pay for $600,000 in equipment and improvements to the space.

Beyond the fifth floor prototype manufacturing facility, the deal was designed to clear the way for what Smith calls, "the big enchilada."

That economic development coup entails Celyad building a 100,000-square-foot manufacturing facility with 350 employees in Rochester. That's what the company anticipates it will need if the Federal Drug Administration gives it a green light to take its stem-cell treatment to market.

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