Celgene and Summit prove to be perfect together

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Ellen Dickson might not have said it publicly at the time, but there was one name that came to mind in fall 2013 when Merck & Co. said it would sell and vacate its 1.3 million-square-foot complex in Summit:

Celgene Corp. — the biotech giant with deep roots in the city and its headquarters a mere two miles away.

“I think for most of us, that was the first thought we had: this rapidly growing company with an enormous market cap,” said Dickson, Summit’s mayor since 2012. “And they have leased space throughout New Jersey, so they were looking to consolidate some of their space.”

It’s why she held nothing back when Celgene announced plans last week to acquire the sprawling research and development campus at 556 Morris Ave.

“There couldn’t be a more perfect buyer, in my opinion,” Dickson said.

The sale, which is still pending due diligence, will give new life to one of many sites in New Jersey that have suffered from consolidation in the state’s pharmaceutical sector. Financial terms were not disclosed, but it represents one of the most high-profile deals in recent years in both the commercial real estate and life sciences sectors.

For Celgene, a $7.7 billion biotech company founded in 1986, the deal allows it to support its growth tied to a slate of advanced drugs and therapies. That success has fueled what is already a quickly growing footprint in Summit — the company last year broke ground on a 500,000-square-foot expansion of its headquarters at 86 Morris Ave., which is projected to be complete by the end of this year.

The new space there and at the Merck campus would allow it to consolidate its employees from other sites in New Jersey into “one community at two sites that will be very closely connected,” said Richard Bagger, senior vice president for corporate affairs and strategic market access. He added that the Merck site, which has a mix of administrative and research and development space, “very importantly is also about building for the future — we have plans to continue to grow and invest, and this new site will provide the footprint for that.

“We’re located in the heart of life sciences country here in New Jersey, so we think it’s a great location and a strategic location in and of itself,” Bagger said. “But to have our two anchor facilities in the same community so close together — we feel it’s really going to be a positive for our company.”

Bagger said it’s too early to say which employees would make the move to the new site. The Fortune 500 company currently has other offices in Berkeley Heights, Basking Ridge, Warren and Cedar Knolls, with 900 employees in Summit and some 2,500 in New Jersey overall.

Either way, the Merck deal is a success story for one of New Jersey’s largest shuttered pharmaceutical complexes. And John Cunningham, a commercial real estate broker with Colliers International who specializes in life sciences, said it makes good business sense for Celgene, noting the high cost of building high-end R&D and manufacturing buildings like the ones on the Merck site.

“Celgene is one of the real pharma engines in the world right now, but they’re still going to be wise with their money,” said Cunningham, an executive managing director based in Parsippany, who is also national director of the firm’s life sciences practice. “Why spend (large sums of money) to re-create something that’s there?”

He said the cost of building lab space could be three times as expensive as standard office space, and that’s at the low end of the spectrum.

“As you get up higher and higher in the specialty spaces, it only goes up from there,” he said. “So by being able to acquire these properties for what is below their replacement value — building it all from scratch, brand new — obviously it creates an advantage there in terms of operating costs.”

Dickson noted that Merck “continued to invest in that site — there’s been a lot of money spent (there) over the last 20 years … even recently. They continued to improve and keep that site pristine.”

The site includes R&D facilities, laboratory and support buildings, manufacturing capabilities, storage, warehouse buildings and administrative office space, according to Celgene’s news release. The site includes about 850,000 square feet of administrative office space and 450,000 square feet of R&D space. 

Merck’s announcement in October 2013 that it would exit Summit rippled through the Union County city. The company, which had as many 3,200 employees there at the height of the complex, broke the news after initially saying it would consolidate its headquarters in the city, then opting instead for a complex in Kenilworth.

But that has created an opportunity for Celgene to grow its presence in Summit — an affluent, well-connected city with a bustling downtown — and its birthplace. The company was born there in 1986 as a spinoff of Celanese, only to relocate elsewhere in the state and then return to Summit about a decade ago.

Those connections were reflected in last week’s announcement by Celgene Chairman and CEO Bob Hugin, who said the company “has a long relationship and is a proud resident of Summit.” 

“Summit is an ideal strategic location for Celgene; convenient to both the New Jersey and New York City talent pools,” he said.