JLL’s annual Life Sciences Outlook, released in July, tracks geographic shifts in life sciences innovation, operations and facilities investments, including analysis of countries and cities most actively investing in their life sciences sectors. It includes a ranking of the top U.S. life sciences clusters – in which Philadelphia ranks seventh.
“In their U.S. operations, biopharmaceutical companies are being squeezed by rising costs for highly trained talent, more expensive real estate markets and a shrinking supply of available laboratory space,” said Roger Humphrey, Executive Managing Director and leader of JLL’s Life Sciences group. “Many are willing to pay a premium for proximity to the leading research institutions and scientists, but the lack of space is compelling companies to look at secondary sites that are a little less conveniently located.”
The report also takes a look at top global cities to watch and analyses of global trends that have shifted the way in which life sciences firms conduct business. These four trends are key in terms of improving productivity in the cost, efficiency and performance of firms’ national, regional and/or global real estate portfolios:
#1: The rise of generics and biosimilars
- The patent cliff continues to have a major impact on the revenue stream for large pharmaceutical firms.
- Government regulations have also shifted demand toward the development of generics.
- Thanks to the patent cliff and demand pressure from regulators, generic spending in entrenched life sciences markets will rise by 35.0 percent to $40 billion through 2019 according to Deloitte.
- Generics producers are increasingly looking to emerging markets, which have increasing capital to spend on medications.
- Although sales of generics are increasing, the sector’s real estate demand will remain low.
- Despite the preference for major markets, rents for generics firms stay low.
#2: Increased consolidation and globalization
- M&A activity is increasingly becoming a vehicle to grow revenue, especially amongst branded pharmaceutical and medical device manufacturers.
- Consolidation is largely driven by the need to adopt new business models and expand product offerings.
- Factors influencing M&A activity this year:
- The development of orphan drugs, pharmaceuticals designed to treat rare diseases
- Biopharma R&D, which has much less generic competition than synthetic pharmaceuticals
- Operational efficiencies, which are gained by acquiring established specialized research and development
- Globalization is another key strategy for big biopharma firms looking to counteract the trend of increased generic demand. Emerging markets have seen growth in the life sciences industry over the past several years, in tandem with increased chronic disease.
- Emerging markets provide the chance to grow at a lower cost but they also present real estate challenges such as lack of market transparency. Unfamiliar regulations can also make assessing facility options, lease negotiations, and lab design difficult to navigate. Emerging markets sometimes do not have consistent fiscal and monetary policy, which can make financing risky and challenging.
#3: Space that enables productivity and innovation
- R&D productivity in life sciences has declined in recent years; however, trends indicate we are in the midst of a turnaround. According to a Deloitte study, the 2013 net present value of the life sciences sector jumped 46.0 percent from 2012, with newly approved products reaching a sales potential of $24.4 billion.
- To foster an innovative environment, life sciences firms are modifying traditional lab configurations to provide more options for teamwork and collaboration.
- Firms are also investing in more state-of-the-art lab space to conduct highly specialized biopharma research. In order to retain top talent, companies are offering new infrastructure and lab equipment.
- The competition to innovate is global. Three of the top four global clusters for patent approvals were in Asia in 2013.
#4: Following the talent
- To satisfy the demand for biopharma and orphan drugs, firms need to attract specialized labor, often with PhDs. Faced with a limited labor pool from which to draw, proximity to centers of higher education are an important requirement for many life science clusters.
- Companies must also be mindful that the labor pool for life sciences is an international one, as many students achieve bachelor’s degrees and above in other countries.
- The competition for highly skilled labor is putting upward pressure on wages in the life sciences sector.
- Due to the size of the available labor pool and advanced educational requirements of life sciences companies, we expect wages will continue to increase. This keeps the cost of doing business high for life sciences companies and places expense management in areas such as real estate under greater scrutiny.
- We expect companies will invest in technology to make research less labor-intensive—a long-term strategy for the sector.