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Market Report: Life Sciences Nurture Existing and Emerging Hubs

Life sciences is a unique industry with a voracious appetite for capital. It can take years and millions - even billions - of dollars to bring new products to market. Those escalating costs are driving changes in location decisions as companies strive for greater operating efficiencies.

April 2012
Novo Nordisk has announced plans to relocate into the new Princeton Forrestal Center in Plainsboro, N.J., when the redevelopment project is complete in 2013.
Novo Nordisk has announced plans to relocate into the new Princeton Forrestal Center in Plainsboro, N.J., when the redevelopment project is complete in 2013.
The life sciences or biotechnology industry is a large and diverse sector that is home to major firms such as Merck, Cargill, and Amgen. As of 2008, the industry employed more than 1.42 million people in the United States who work on everything from producing biofuels to innovations in medicine to cure cancer, according to the Biotechnology Industry Organization (BIO) in Washington, D.C.

The complex nature of biotech demands a significant investment of both time and capital. In pharmaceuticals, for example, it can take 10 to 15 years and cost an estimated $800 million to $1.2 billion to move drugs through the discovery process from early-stage R&D through clinical trials and approval by the Food and Drug Administration. The investment needed to bring products to market across the broader life sciences sector is fueling industry consolidation and increased pressure on operating efficiencies.

"What you have seen in the life sciences industry in general, and particularly in bio-pharma, is a challenge around innovation and bringing new products to market," says Richard M. McBlaine, international director of Solutions Development and chairman of Strategic Consulting at Jones Lang LaSalle in Chicago. For example, several pharmaceutical giants have had blockbuster drugs come off of patent, and they have been challenged to bring in new drugs to fill the gap. That is driving a bigger issue of how to improve efficiency and profitability, he adds.

Compounding the problem is increased global competition from countries such as Korea, Singapore, and China. Those countries are battling the "brain drain" of scientists that once migrated to the United States. Now those emerging countries are spending money to keep scientists in their home countries and create their own clusters. "This is a globally competitive environment, which is why we work so hard with policymakers at the state and federal level to ensure that we are promoting the right policies to continue to make sure that American innovators continue to lead the biotech economy," says Fritz Bittenbender, BIO's vice president of Alliance Development and State Government Relations.

Growing Clusters
Although biotechnology firms certainly exist all across the nation, there are more than 15 U.S. clusters that are notable for their sizable concentration of life sciences firms and skilled worker base. "Access to basic research, access to pharmaceutical talent, and access to capital are the three things that really help to develop these clusters around the country," says Bittenbender. So, it is no surprise that clusters have popped up around top universities, such as Harvard and the Massachusetts Institute of Technology, which were ranked as the top two universities for life sciences in 2011-2012 by Times Higher Education.

In fact, Boston represents the top cluster for life sciences in the United States. The Boston MSA features more than 85,000 high-tech research employees - seven times the national average of the number of workers in biotech R&D, according to the "2011 Global Life Sciences Cluster Report" produced by Jones Lang LaSalle. Other top markets noted for their life sciences clusters include New York/New Jersey, the San Francisco Bay area, Los Angeles, and Washington, D.C./suburban Maryland.

Jones Lang LaSalle conducted a comprehensive study to identify the top markets for real estate expansion for life sciences companies focused on pharmaceuticals, biotechnology, medical device technology, agricultural biotechnology and biofuels. Erin Bovee describes the top 16 emerging markets based on the following criteria: percentage of total employment in high-tech research and hospital/medical fields; number of science & engineering graduate students; National Institutes of Health (NIH) funding; venture capital funding; R&D spend as a percentage of region's total state GDP; and square-footage of academic and research facilities.

Those hubs in the Northeast and California will continue to play an important role as headquarter cities and centers for life sciences R&D. However, over the last 10 to 15 years, there's been more separation of functions such as corporate headquarters, administrative, R&D, manufacturing, and distribution, notes Matt Jackson, a managing director of Strategic Consulting at Jones Lang LaSalle. Essentially, there are more specialized hubs emerging within the life sciences sector that are devoted to specialized activities, such as only R&D or only manufacturing. Puerto Rico, for example, is emerging as a hub for manufacturing because of some of its tax advantages for attracting companies, he adds.

Focus on Efficiency

As profits are increasingly squeezed, life sciences firms are placing more emphasis than ever before on the efficiency of their facilities. In the past, core sites were supplemented by a number of satellite locations that worked on specialized products. "We have seen in the last five-plus years a lot of consolidation where those satellite locations have been shut down," says Jackson. In addition, firms have opted to shut down hub locations as operations have consolidated elsewhere.

For example, Pfizer recently sold its 660,000-square-foot building at 685 Third Avenue in New York City after the firm decided to either cut or relocate more than 1,000 jobs. Some of the recipients of that consolidation have been life sciences hubs such as Boston. "We have seen a lot of new capital investment going into the R&D sector there," notes Jackson.

That being said, life sciences firms are continuing to expand both in the United States and internationally. One of the most notable examples is Novo Nordisk in Plainsboro, N.J. The firm has announced plans to relocate into the new Princeton Forrestal Center when the redevelopment project is complete in 2013. Initially, Novo will lease 500,000 square feet, which represents a 150,000 square feet expansion in that submarket for the company.

Financing Hurdles
Although U.S.-based life sciences firms continue to grow both in domestic and international markets, financing will continue to be significant hurdle. Groups such as BIO are advocating for programs that help to provide needed capital to continue to foster innovation throughout the industry.

In 2012, BIO is working with Congress to pass several initiatives. For example, the association is continuing to push to extend and expand the Therapeutic Discovery Project (TDP) tax credit to provide critical R&D funding to emerging biotech companies. The TDP program, which was enacted in 2010, has provided $1 billion in research grants and credits for small biotech companies pursuing new therapies for diseases such as Alzheimer's and HIV/AIDs.

"There is a growing recognition among policy makers that innovation can over time help to solve some of the healthcare problems that we have in America and decrease some of the healthcare costs," says Bittenbender. "As we look towards the future, that is the message that our industry has to do a better job of discussing."

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