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How Location Strategy Can Fuel Drug Discovery

Life sciences companies are seeking locations where they can attract top talent and identify flexible facilities, which is directly affecting their real estate decisions.

Q4 2018
The pharmaceuticals industry is at a crossroads. It’s becoming harder and more expensive to find blockbuster drugs, while the labor market remains tight and real estate costs high. While simply increasing the cost of drugs is one way to offset more time- and cost-intensive research and development (R&D), it is not sustainable for patients or the industry.

This means life sciences companies need to get creative when evaluating how to improve and optimize R&D and shorten the product life cycle — and one often overlooked area is real estate. In the race for breakthrough — yet efficient — innovations, companies are seeking locations where they can both attract top talent and identify more flexible facilities where R&D real estate is multiuse.

In this innovate-or-die environment, access to scientific talent is everything. By recruiting and retaining dedicated and brilliant chemists, biologists, and data scientists, life sciences leaders can sustain momentum in the never-ending race to bring life-saving remedies to pharmacy shelves.

Increasingly, this need for a flourishing talent pool is directly affecting real estate decisions, inspiring industry leaders to invest in higher-cost cities; to design cutting-edge, next-generation lab facilities; and to find more creative ways to keep locations profitable.

The need for strategic change is indeed pressing, considering seismic change in the industry at large.

Industry Snapshot: Breathtaking Possibility and Equal Parts Pressure
To understand the new focus on real estate strategy, it’s useful to look at the larger industry picture. Globally, the prescription drug market is growing a robust 6.5 percent annually, according to JLL’s Life Sciences Outlook report, and by 2022, is expected to reach $1.06 trillion.

But getting a drug to market is an astoundingly costly feat, with some estimates putting the average cost to develop and win FDA approval for a new prescription drug upwards of two and a half billion dollars. Plus, the average return on R&D investments among large firms has fallen dramatically from 10.1 percent in 2010 to just 3.2 percent in 2017.

Compounded by the fact that most drug launches achieve only modest sales in the first five years, it’s no wonder R&D teams are under immense pressure to churn out new discoveries faster. At the same time, they’re also under pressure to successfully adopt fast-evolving technology, from the Internet of Things in medical device manufacturing, to advanced analytics in the drug lab.

Faster, more sophisticated, tech-fueled R&D requires that the right mix of people show up to work each day, now and into the future. That can often mean setting up shop in often pricey locations where coveted talent pools will flow naturally, and capturing interest with modern, satisfying facilities and amenities. And yet, cost constraints remain omnipresent, so companies must invest in innovation — while simultaneously finding cost efficiencies where possible. Following are four key ways industry leaders are approaching this balancing act:

In addition to helping facilitate new discovery, flexible lab space can also support fiscal concerns by enabling organizations to do more with less space. Trend #1: Companies following the talent to innovation-rich cities.
Top scientific talent can be difficult to come by. According to PwC’s Health Research Institute (HRI), 51 percent of biopharma leaders — the highest of any industry — say that hiring has become more difficult lately, and only 28 percent report confidence that they have access to top talent. How can they improve access? Set up shop in the cities where access to bright, new recruits is built in.

The mass migration to U.S. cities is led by millennials, who are itching for the rich live-work-play environments of an urban setting. And visionary scientists and tech pros can be even choosier. They’re seeking cities that aren’t just popular, but that also ooze with connected innovation, such that the people they rub shoulders with on the street or in line at a trendy food truck are also innovators. An atmosphere of innovation can inspire the kinds of conversations that help generate new ideas, and perhaps even prompt that next big medical breakthrough.

To tap into these vibrant ecosystems, companies are forking over the highest rents in sought-after locales like Boston, San Francisco, and San Diego, where private enterprise commingles with leading academic research centers. In addition to simply being where the current workforce wants to be, these locations also contribute to a steady pipeline of future talent.

Trend #2: “Edge” locations are gaining momentum.
In the race to the drugstore shelf, profitability often also requires frugality. Few companies can afford to pinch pennies at the risk of innovation, but some are finding a “best of both worlds” approach lies in locating just outside the priciest neighborhoods.

While close-in sectors continue to experience sky-high demand, a number of firms are now finding value along the edges of the most expensive neighborhoods, where they can enjoy the buzz of surrounding innovation, at slightly more manageable costs.

In south Boston, for example, the new Innovation Square development sits just outside the med-tech epicenter in central Boston and Cambridge, and has already commanded serious industry interest, thanks in part to its proximity to some of the nation’s most sought-after graduates.

North Carolina’s Raleigh-Durham-Chapel Hill “Research Triangle” area also offers steady access to top-tier talent, considering it is anchored by three Tier 1 universities — Duke, UNC-Chapel Hill, and North Carolina State — and is surrounded by several other four-year institutions, too. Here, more than 5,000 STEM graduates matriculate each year, adding to industry appeal, while also providing value via significantly lower rents than the top-three life sciences clusters.

Increasingly, this need for a flourishing talent pool is directly affecting real estate decisions, inspiring industry leaders to invest in higher-cost cities; to design cutting-edge, next-generation lab facilities; and to find more creative ways to keep locations profitable. Trend #3: Flexible design supports both agility and cost savings.
With the death of the blockbuster drug comes the death of the one-size-fits-all laboratory. Today, flexible, adaptive space is key to supporting continual innovation. After all, different medical breakthroughs require different materials, different environmental controls, and different layouts to test out and produce.

According to Journey to the next gen lab,many life sciences companies are now purposefully designing lab space that can be changed on a dime, so it’s simple to switch gears for the next big discovery. Consider mobile benches that make it easy to accommodate changing personnel needs; infrastructure, like retractable electrical cords and thick floor slabs, that make it easy to reconfigure entire labs; and more collaborative “flex” space outside the lab area, where conversation can help fuel productivity.

We’re also seeing a greater mix of both lab and computational space than we’ve seen in years past, as pharmaceutical science becomes increasingly integrated with data and analytics.

In addition to helping facilitate new discovery, flexible lab space can also support fiscal concerns by enabling organizations to do more with less space. And when a flexible, modern space also features the latest equipment and technologies, it can help support recruitment and retention goals, too.

Trend #4: Big and small firms can play well together.
It can be challenging for a large organization to be as nimble as a small one, while small firms can find it harder to secure funding and attract the same level of star talent as their bigger peers. Together, however, both can potentially benefit in a synergistic relationship.

Right now, we’re seeing that early-stage ventures are often the ones driving innovation. According to JLL research, in 2017, midsize and smaller biopharma companies won a record-breaking 23 new drug approvals. Some of the big players are taking note — and action, by setting up venture capital funds and partnering with startups to advance their own development pipelines. This allows the big company to leverage outside scientific talent and access new innovation that aligns with its goals and gives the small one access to greater funding and important alliances outside its own organization.

These changes are having profound implications on real estate decisions, by making incubators a newly critical part of the innovation ecosystem. For startups looking to grow in the leading life sciences cities, incubators offer a meaningful, affordable opportunity to be in the right place at the right time. Massachusetts, for its part, is home to more than two dozen incubators.

Other examples include New York’s Alexandria LaunchLabs in Manhattan’s East Side Medical Corridor, which was the first biotech incubator to launch in New York City. Opened just last year, its 15,000 square feet of lab and office space now house approximately 20 startup companies. Johnson & Johnson’s JLABS incubator concept is another prominent example, with incubators currently in 11 locales around the world, featuring everything from a modest five-foot bench to a 5,000-square-foot wet research lab complete with the latest equipment.

Zooming In on the Next-Gen Lab of the Future
These and other trends are reshaping the map of where, why, and how life sciences organizations work. No simple algorithm exists now to determine the right place to house a facility, given the many complexities of this fast-evolving industry. Fortunately, just as with the breathtaking pace of discovery now under way, there are also breathtaking new advances in real estate data and insights.

With sophisticated location analysis technology and dynamic screening tools, life sciences leaders are increasingly able to probe deeper into the details, from crunching numbers on current labor pools and competition, to comparing long-term demographic change across metro areas. Understanding both short- and long-term potential for growth in any given location can help companies make more informed decisions about the cities where they operate and the kinds of facilities to invest in.

It’s a different kind of science than chemistry or biologics requires. But at the end of the day, real estate and lab personnel in the life sciences world are all dedicated to the same cause: helping humans live longer, better lives — wherever discovery may take us.

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