Biotech Firms Select New Urban Clusters
- Apr 03, 2013
Out with the old and in with the new seems to be the motto for biotechnology and pharmaceutical companies today—at least when it comes to their real estate.
Once located where they were founded—on university campuses or near sources of chemicals—biotechnology firms are now relocating to key science markets, urban clusters where academic scientists, commercial scientists, funding and entrepreneurial activity are plentiful.
“We think there’s a trend toward concentration and a strong desire for geographic proximity in these urban environments, where collaboration and interaction among all different players in the life sciences can be facilitated,” said Tom Andrews, executive vice president & New England market director for Alexandria Real Estate Equities Inc.
Alexandria—an owner, operator and developer for the life science industry—in January signed ARIAD, a biotechnology company focused on cancer research, to a 15-year lease for its corporate and research-and-development headquarters at Alexandria Center at Kendall Square in Cambridge, Mass. Alexandria owns about 170 biotech properties and is currently developing three more: One is in Cambridge, Mass., which remains the No. 1 market for biotechnology company clusters, with more lab space than office space. The other two are in Mission Bay in San Francisco, and in Manhattan, both of which are also top biotech markets.
Alexandria’s new Manhattan building will house some of global healthcare company Hoffmann-La Roche’s researchers when it departs its longstanding U.S. operation in Nutley, N.J.; it has already moved its top U.S. executives and its sales and marketing operations to South San Francisco, the home of its giant biotechnology company, Genentech.
And while smaller biotech startups tend to be attracted to academic facilities, where their scientists might be finishing up their Ph.D. work and conducting long-term research projects, or because they can collaborate with the deeper-pocketed
academic institutions, some of the bigger pharmaceutical companies are also flocking to the likes of Cambridge, home to Harvard University and the Massachusetts Institute of Technology, according to Erin Bovee, senior life sciences researcher at Jones Lang LaSalle Inc. Jones Lang LaSalle client Pfizer, for instance, will relocate groups of researchers there from Groton, Conn., and Sandwich, U.K. And Sanofi-Aventis has announced plans to close its Bridgewater, N.J., campus and move its operations to nearby Boston.
Another source of such movement is the growing demand for biologic biosimilar pharmaceuticals, also known as generic drugs, as a significant number of patents expire for brand-name biologic drugs and the multibillion-dollar market opens for biosimilar products, according to Jones Lang LaSalle. As the market opens up, these companies will require increased capacity for drug production, marketing and sales, giving rise to three major trends: a need to optimize the real estate platform and related data; increased outsourcing, with expansion into highly technical areas; and a seismic R&D shift to the middle market, which means doing more with less space. With biotech companies feeling the recession pinch, although they are anticipating a drop in revenue this year as the key brand-name drug patents expire, they are scaling back on manufacturing and distribution expenses. Nevertheless, they are strategically positioning themselves in advanced biotech markets for innovation purposes.
“Companies are looking at their entire footprint, trying to select those non-core aspects of their companies, seeing where they can cut costs and move to cheaper locations for those types of functions,” said Bovee. The more innovative research aspects of their business, however, need to be in the top biotech markets, which can be expensive. Nevertheless, the thinking goes, “keeping our lab and innovation there will hopefully lead us to those drugs that we want that will pay off in the back end,” she added.
According to JLL’s 2012 Cluster Report, the following round out the top 10 markets for life sciences: the Greater Boston area, San Diego, the San Francisco Bay area, Raleigh-Durham, Philadelphia, Washington, D.C., New Jersey/New York City, Los Angeles, Minneapolis and Seattle.
While a university presence in these markets plays a big role for biotech firms, quality of life and related characteristics also have an important role, according to Richard McBlaine, international director of corporate solutions at Jones Lang LaSalle. “Increasingly, younger knowledge workers in the field of science and engineering decide where they want to live and then seek employment. And where knowledge workers are is a key factor in deciding where companies locate.”
“The number of players who have shown a desire to locate close to these urban academic environments is pretty substantial and a healthy trend at this point,” Andrews, of Alexandria Real Estate Equities, concluded. “It parallels a strong trend of large well-capitalized technology companies also wanting to get as close as possible to academic science near the best universities and also close to a young workforce graduating from those universities.”