Life sciences clusters: the emerging markets trend

While R&D directors and healthcare managers puzzle through the evolving scene in pharmaceutical science and practice trends, the companies that provide real estate services to life sciences are doing the same—but with obvious differences in their approach. While patent applications, FDA regulatory policy and reimbursement trends affect life sciences research, the real estate market is driven by available space, workforce quality, educational resources and government subsidies. Out of all this, says Jones Lang LaSalle (Chicago), one of the leading real estate and facilities-management providers in the US, comes these conclusions:

• Boston metropolitan area is still No. 1 for its concentration of life sciences activity; with San Diego a surprising No. 2, jumping five slots from JLL’s 2011 report
• Multinational pharma companies are busy right-sizing the many facilities they have acquired through M&A activity in the past few years; this puts large, older facilities in places like New Jersey and Pennsylvania on the market (and in some cases, they’re lost to life sciences in favor of other tenants)
• Growth in life sciences clusters is still being driven primarily by smaller companies opening laboratories in many clusters across the country. Emerging clusters include Chicago, Denver, Atlanta, central/southern Florida, and Indianapolis.

State and regional economic development organizations hang on their rankings energetically, touting the benefits of locating to their region in the competition to bring new development—and precious jobs—to their region. JLL doesn’t track the value of the economic incentives available to companies moving into a region, which gives a somewhat different picture of the overall scene.

One particular region calls attention: the relatively low ranking of the San Francisco Bay area, home of Silicon Valley and many of the leading venture capital firms. As it happens, the California Health Institute, BayBio and PwC also published their 2012 California Biomedical Industry Report at the beginning of this year; combining the resources of the Bay area, Los Angeles and San Diego, they note that in terms of public and private investment, “for the first three quarters of the year, California attracted $1.98 billion, which is more than the combined total of the next eight states (MA, PA, TX, OH, WA, NJ, MN and IL).” The report is available at www.californiabiomedreport.com.

“There’s no question that the Bay area is a major cluster, even just looking at research funding,” says Richard McBlaine, international director at JLL. “There is a well-established venture network, and life sciences fits easily into the high-tech orientation of that region.”

JLL’s methodology combines proportional life sciences employment (out of all employment); proportional life sciences establishments (out of all establishments), dollars of venture capital funding and dollars of NIH funding. (It’s worth nothing that neither of these surveys include the growing concentrations of healthcare-provider facilities across the country, which is becoming a valuable part of translational research in healthcare). Erin Bovee, a senior research analyst at JLL, notes that one change from previous studies is to look at the number of establishments, rather than the square footage of those establishments; in part, this accounts for the sizable jump of San Diego from the previous year.

This year’s report also expands the number of clusters JLL analyzed, trying to level-set the entire country in terms of life sciences activity and trends. There’s some awkward fitting to the list—people in Ohio (No. 14 on the 2012 ranking) wouldn’t normally equate activity in Cleveland with that in Cincinnati, let alone Columbus; on the other hand, the report also looks at local activity in these clusters, such as the ramping up in the Route 202 corridor outside Philadelphia, or Orange County outside Los Angeles.

Global trends

JLL operates internationally and its 2012 report spans the globe in analyzing national trends. But the report doesn’t attempt to rank nations or regions around the world the way it does inside the US. “There are lots of problems with outdated data, and with different measures of economic activity,” notes Bovee.

One overarching message, however, is the intensification of R&D activity occurring in emerging markets, especially Asia and Latin America. “This has been going on for some time, but it’s striking how interest and activity has risen in the past year,” she says.

“Multinational companies used to invest abroad in search of cheaper manufacturing, or as a requirement of nations’ trade policies,” says McBlaine. “But increasingly, they are investing in R&D in emerging markets because those countries want to get their own high-tech economy going, and because those emerging markets play a role in future medical discoveries.” He adds that “this is not a zero-sum game,” in which, say, Brazil’s gain is Boston’s loss; it’s more about how healthcare and medicine are a growing part of the world economy.