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Athenex projects hit roadblocks in Buffalo, Dunkirk

The promise was simple.

New York State would spend $225 million for a pharmaceutical company’s headquarters and drug testing laboratory on the Buffalo Niagara Medical Campus and a cancer drug manufacturing plant in Dunkirk.

The company, in return, would create 1,400 jobs over five years – 700 of its own workers and 700 indirect jobs with suppliers and other companies.

Gov. Andrew M. Cuomo called the state’s deal with Athenex “a game-changer for Dunkirk.”

But 15 months after the deal, work has stalled in both Buffalo and Dunkirk, according to the company.

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And the company is looking elsewhere for expansion in case the local projects don’t come through. “I am actively talking to someone else, actually, and it’s in the U.K.,” said Flint D. Besecker, Athenex’s chief operating officer. “And it’s not a threat. It’s just we’re seeking other options that can accommodate our business challenge right now.”

Construction of the drug testing lab and formulation center in the Conventus medical office and research building on the Medical Campus hasn’t even started. It was supposed to have been finished in April.

The company expected site preparations and detailed engineering work to begin in the spring for the Dunkirk plant. But that hasn’t happened.

In fact, Athenex said that it had to advance money to a state agency to buy the land for the plant. What’s more, Athenex has stopped hiring and making other investments in Buffalo. It also put on hold a planned expansion at its QuaDPharma production site in Newstead. That facility, which does small-scale manufacturing and has about 45 workers, is bursting at the seams.

Meanwhile, Athenex continues to outsource its lab testing work to companies in Illinois and California – work the company thought would be done at the Conventus facility by now.

Besecker said he is not setting a deadline on how long Athenex will wait on the state, but the company must seek alternatives because it doesn’t know when the project will move forward.

“We are formulating our drugs in the kitchen outside of New York State right now,” Besecker said. “We’re looking at manufacturing options outside of New York right now. We don’t know whether those are going to be short-term, interim decisions, or whether we should create more dedicated investments in those areas. Yet to be determined. Our hope is that projects can get moving.”

State officials called the delays normal for a project of such a large scale and cost.

Companies that worked on Athenex’s North American headquarters in the Conventus building are owed a total of $1.3 million. Subcontractors held off starting work on the formulation center until they were fully paid for the office work, Besecker said.

Payments to the contractor and subcontractors working at Athenex’s Conventus headquarters were approved late last week and construction should soon start again.

Kevin C. Schuler, a spokesman for LPCiminelli, the construction manager on the project, confirmed that Frey Electric, John W. Danforth Company and Scrufari Construction Co. are owed a total of $1.3 million from the $5 million office and headquarters contract.

‘Uncertainty’ on payments

“While work never officially stopped, equipment and other necessary items were not purchased because of the uncertainty of the payments,” Schuler said.

Empire State Development said the $25 million for the Conventus project was approved by its board in February 2016, and by the Public Authorities Control Board in March.

The payments had to flow through additional layers of approval, including Empire State Development staff and, in a new wrinkle, Guidepost Solutions’ Bart M. Schwartz, the independent investigator hired by the Cuomo administration to investigate the Buffalo Billion program, officials said.

A payment approval process that once was measured in weeks now has become months. “It’s not clear to us where the logjams are,” Besecker said.

Empire State Development and SUNY Polytechnic Institute, which oversees the project for the state, said the payments have received final approval and are on their way to LPCiminelli and the subcontractors.

“The next phase of the project is the creation of the pilot labs, which will commence soon as a result of today’s funding approval,” Jerry Gretzinger, a SUNY Polytechnic spokesman, said in a statement Monday.

As for Dunkirk, officials from SUNY Polytechnic cited another reason for the holdup of the $200 million in funding: The state is also negotiating with Athenex over a second phase to the project.

Besecker, however, said those talks aren’t active anymore.

State officials declined to provide further details on the possible second phase, which had not previously been disclosed, but said they expect approval for the Dunkirk aid to come through soon. “The state funding is in the process of being finalized along the standard state funding timeline,” Gretzinger said in a statement.

SUNY Polytechnic said workers have made progress at Dunkirk. Workers have performed preliminary site discovery and created basic building drawings. But Besecker said the anticipated schedule of finishing construction by 2018, and of hiring the 450 plant workers by 2023, is no longer realistic.

Local life sciences leaders have long pointed to Athenex as a potential pharmaceutical powerhouse for the region. The company, formed in 2003 as Kinex Pharmaceuticals, traces its roots to research conducted by a University at Buffalo chemistry professor.

The company raised millions of dollars from local investors in its early years and began pursuing an ambitious, international expansion strategy, fueled by tens of millions of dollars raised from investors in Asia.

The company acquired or made licensing agreements with several small pharmaceutical companies, giving it access to market-ready drug ingredients and drug candidates, and it now has 375 employees in Buffalo, Newstead, New Jersey, Texas, Hong Kong, Taiwan and China.

Delays in Dunkirk

In October, the company announced plans to construct two drug manufacturing and distribution plants in China’s Chongqing province. The Chinese government’s capital investment in that project is likely to total $200 million, and Athenex will spend $75 million on equipment. One of the plants is set to open next year.

Last fall, Athenex moved its Buffalo base of operations from its longtime home in the Hauptman-Woodward Medical Research Institute on the Medical Campus to the nearby Conventus building, where it had 45 employees last year.

In February, Cuomo unveiled details of the state’s deal with Athenex project at a packed community forum at Dunkirk High School.

Under the $225 million project, the sixth floor of Conventus would provide space for the company’s North American headquarters, drug testing lab and formulation center. The 250 new Athenex jobs included a planned expansion at the company’s drug production site in Newstead.

In Dunkirk, the state would build a state-of-the-art cancer drug manufacturing plant for Athenex on vacant land along a stretch of state Route 5 known as Lake Shore Drive East. The company would make sterile injectable drug products, anti-infectives and drugs that are on the federal government’s shortage list.

Work is nearly complete on the office space in the Conventus building, Besecker said, except for some of the electrical system.

Athenex wanted site preparation and building design work to begin for the Dunkirk plant to begin in spring. Neither happened.

In June, the option to buy the two parcels of land that make up the site was about to run out, Besecker said. It became clear the cost of one of the parcels would rise if the option expired. SUNY Polytechnic, however, did not have the money to buy the land.

That’s because, even though the State Legislature approved the $200 million for the project this spring, and Cuomo signed that legislation, Empire State Development and the Public Authorities Control Board have not approved the funding.

Empire State Development spokesman Jason Conwall said it’s not unusual the funding request hadn’t made it onto the agenda of the agency’s board meetings.

Christopher Walsh, an associate vice president at SUNY Polytechnic, said that one reason the institute hasn’t forwarded the funding application is because it began negotiations with Athenex on a potential second phase of the project.

Besecker called SUNY Polytechnic’s mention of the possible second phase a “red herring.” He said Athenex had talked to the state about a possible joint venture with an Asian company, which would set up operations near the planned Dunkirk facility. It would be about half the size of the original Dunkirk investment, in jobs and dollars, and use a less advanced technology. But he said he broke off serious negotiations three months ago because he and Athenex board members want to see progress on the original plans first.

With the June deadline looming, Athenex advanced SUNY Polytechnic the money to buy the Dunkirk parcels. SUNY Polytechnic, through its Fort Schuyler Management Corp. arm, paid $242,400 for two parcels, containing a combined 33.6 acres, according to Chautauqua County records.

‘A big deal’ for Chautauqua

Elected officials in Chautauqua and Erie counties remain eager for the project to advance.

Chautauqua County officials see the Dunkirk plan as a way to make up for the county’s manufacturing job losses. “It’s a big deal for this county,” County Executive Vincent W. Horrigan said.

State Sen. Timothy M. Kennedy, D-Buffalo, said, “It’s imperative that we move the process along, we get through any barriers that may be put in place and ensure that these jobs are created in our community as expeditiously as possible.”

Empire State Development and SUNY Polytechnic said that the Conventus payments are flowing now, that work should begin again there soon and that the Dunkirk funding won’t be held up much longer. Empire State Development’s Conwall said, “I’m sure it will go to the board at some point in the near future.”

email: swatson@buffnews.com

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