Life Sciences Industry Footprint Driven By R&D Productivity, Emerging Markets Sales

The areas where life sciences companies locate their facilities, commonly called industry clusters, are shifting worldwide as these companies respond to rising demand for new drugs in Asia and Latin America, significant patent expirations and the need for increased R&D productivity and innovation.  According to Jones Lang LaSalle's second annual Global Life Sciences Cluster Report, which will be broadly distributed in January 2013, life sciences companies are choosing cities where they can capture market opportunities for sales, drive R&D productivity and optimize operations.

With downward pricing pressure and the need to control facility costs, life sciences companies are making calculated and strategic decisions for their facilities investments. The historical dynamic of mature-market R&D discovery vs. offshoring lower-value operations is slowly evolving as emerging markets increasingly drive consumer demand.

"Major life sciences companies are optimizing their real estate and location strategies to be prepared for patent expirations – as well as to capture market opportunity in the Asia Pacific and Latin American regions," said Bill Barrett, Executive Managing Director, Life Sciences at Jones Lang LaSalle.  "Strategic facilities investments have become critical to keeping a tight rein on costs while continuing to find success through R&D investment and new drug discovery.'" 

While every regional cluster is unique, the interplay at a global level reveals clear trends separating mature versus emerging markets. Established life sciences clusters in mature markets are being driven by R&D success and proven innovation, while the potential for significant sales growth continues to push expansion in Asia Pacific and Latin America.

Evolving Consumer Demand Drivers Focus on Emerging Markets
Rising demand in emerging markets is driving more than sales offices; manufacturing and drug development operations are thriving as well, as clusters in emerging economies strive to move up the value chain while capturing local consumer demand, particularly in the Asia Pacific and Latin American regions.

By 2016, China is expected to leapfrog ahead of Japan and become second only to the United States as the world's largest pharmaceuticals market. Healthcare expenditure is growing rapidly as a percentage of GDP not only in China, but also in India and Indonesia—countries in which increased spending on public healthcare is widening the prospective patient pool and increasing consumer demand. Four of the largest pharmaceutical companies already earn a third of their revenues outside their traditional markets of the United States, Western Europe and Japan.

Emerging clusters in Asia Pacific and Latin America have long been destinations for clinical trials, manufacturing and distribution by multinational companies, which continue to make significant facilities investments in these regions. Despite increased affluence, for example, India continues to shine as a location for cost-effective clinical trials.

Despite the erosion of its cost advantage by rising wages and other factors, China also remains a very cost-effective site for R&D. In Beijing, for example, a global pharmaceutical company has launched a five-year $1.5 billion project to build a new facility to house 600 researchers focused on drug discovery and translational research, taking advantage of nearby major universities and hospitals along with lower facilities costs than would be found in more mature markets.

Some emerging clusters are aiming higher up the value chain as R&D support destinations. Clusters in Asia Pacific and Latin America are aggressively increasing their competitiveness and life sciences capabilities through economic incentives, public funding, education policies and stronger intellectual property protection and international cooperation. India, China and Singapore have been seeking to increase their presence in the industry beyond manufacturing, dedicating resources to fund intellectual capital, business parks and incubator centers while retaining a competitive cost environment for attract foreign direct investment in R&D.

"We are seeing even greater bifurcation of location strategies in response to industry stressors," said Barrett. "Multinationals are aggressively outsourcing operations to the most cost-effective locations, while focusing resources on increasing R&D productivity, either in mature clusters or in low-cost clinical trials locations."

India, China, Brazil and Singapore are also launching initiatives to ramp up the potential of domestic start-ups and intellectual property, while promoting the return of Western-trained scientists to help spark life sciences-related multinational and domestic economic development. The Chinese government reportedly is providing $1.6 billion in funding to stimulate domestic R&D drug research programs, along with stronger intellectual property protection, to seed future domestic life sciences innovation. These efforts are in early stages, although some have led to acquisition opportunities for multinationals.

R&D, Innovation Driving Mature Markets
Even as life sciences companies respond to the European sovereign debt crisis and related economic challenges, innovation centers like San Diego are gaining market share, with multiple middle market companies expanding into former laboratories vacated by multinational company mergers.

The pressure is on to capture growth opportunities in biologics and biosimilars, and to otherwise diversify product lines—whether through mergers, acquisitions or licensing—to compensate for the traditional long and costly biologics development lifecycle. According to Deloitte's 2012 "The Future of the Life Sciences" study, 90 percent of life sciences executives expect biotech companies to become the primary source of innovation in developed markets by 2015. These trends create new facilities portfolio challenges as companies strive to consolidate their holdings and determine the most effective locations for different aspects of their operations.  The Deloitte study also notes that more than half of life sciences executives expect to see further consolidation in the industry, with implications for facilities footprints.

Mature cluster bright spots include Greater Boston and Zurich, where world-class research facilities, deep intellectual capital and private-sector institutions continue to drive R&D facilities development activity.

"R&D productivity and operational efficiency are paramount," said Barrett. "Major life sciences companies continue to pay a premium for proximity to the intellectual capital and infrastructure that characterizes the mature clusters, while offshoring the more commodity-like functions to more affordable clusters."
Jones Lang LaSalle has a team of real estate and facility management experts dedicated to helping life sciences companies optimize and manage their real estate portfolios.  The firm provides a comprehensive range of facilities management services to the life sciences community covering 70 million square feet of research, manufacturing and commercial space. Jones Lang LaSalle's industry leading full-service platform includes: integrated facilities management, engineering and operations, energy and sustainability, transaction advisory services, lease administration, project management and a new platform for integrating laboratory services, Labwell.

A leader in the real estate outsourcing field, Jones Lang LaSalle's Corporate Solutions business helps corporations improve productivity in the cost, efficiency and performance of their national, regional or global real estate portfolios by creating outsourcing partnerships to manage and execute a range of corporate real estate services. This service delivery capability helps corporations improve business performance, particularly as companies turn to the outsourcing of their real estate activity as a way to manage expenses and enhance profitability.