Big Pharma’s Big Bankroll Beginning To Bolster Biotech
As venture capitalists pull back on their funding for life sciences, Big Pharma is flexing its considerable financial muscle to grab up smaller biotech companies, providing an injection of capital that could translate into geographic expansion and more investment in the pricey facilities these companies need to operate.
In the first few weeks of August alone, Amgen purchased Chemocentryx for $4B, Gilead purchased MiroBio for $405M, and Pfizer acquired Global Blood Therapeutics for $5.4B. And other big firms struck partnership deals to co-develop and research new therapeutics: Roche struck deals with Poseida and Kiniksa for a total of $810M, GSK partnered with Mersana in a $1.5B deal, and BMS linked up with GentiBio in a $1.9B agreement.
An Endpoints analysis from May suggested deep-pocketed Big Pharma could gobble up nearly 650 public biotech firms if it wanted.
“Big Pharma is definitely getting more active on the M&A front,” Breakthrough Properties CEO Dan Belldegrun said. “And with that, I think we've also seen some big impacts on the real estate front. Pharma is saying we need to invest in the best locations in order to accelerate as many programs as possible to continue to attract talent.”
With considerable cash reserves — Belldegrun told Bisnow in May he estimated the top firms had $500B cash on hand — Big Pharma can make a sizable impact on the life sciences industry and its real estate. As part of the perpetual search for talent, larger biotech firms, like everyone else in the industry, are seeking out high-end lab space in desirable markets.
Several major pharmaceutical players announced new facilities in the last year, demonstrating their willingness to open their checkbooks to secure Class-A research facilities. They include Eli Lilly’s $700M mRNA research facility in the Boston Seaport, AstraZeneca’s 570K SF Kendall Square research facility and Takeda’s 600K SF in East Cambridge, as well as BD Biosciences 220K SF San Diego expansion last November. Bristol Myers Squibb earlier this year signed on to take 427K SF in San Diego’s Alexandria Point project.
And after the raft of mergers and acquisitions, Big Pharma’s cash stash will start to benefit the smaller firms they purchase, which typically means more jobs, research, and in many cases, additional demand for lab space.
Part of the push for expansion comes from the changing nature of biotech, which is moving more toward biologics and away from synthetic drugs, part of an embrace of developments such as cell and gene therapy and the mRNA technology showcased in recent vaccine advances. Belldegrun believes the next 12 months will be a period of “very healthy” activity for Big Pharma.
“The deal activity we predicted has already begun,” CBRE Senior Director of Research Ian Anderson said. “This is going to be the beginning of a likely wave of transactions that's going to be occurring over the next year.”
For the last decade or so, as the industry has moved toward biologics, and Big Pharma has faced patent cliffs for many of its key products, large firms have sought partnerships and mergers, in effect outsourcing research and new drug development to startups.
And although the industry pushed back hard on it, the recently passed Inflation Reduction Act, which allows Medicare to negotiate prices on certain drugs, is another headwind pushing the industry to invest more in finding the next breakthrough drug, in Anderson’s view.
Real estate professionals in general seem to believe in Big Pharma’s power to pump money into property.
A recent CBRE research report said that “Big Pharma continued to gobble up space across the U.S.,” and at a Bisnow event in Boston earlier this summer, Colliers Executive Vice President Curtis Cole said Big Pharma could be a “savior” for the real estate market.
The M&A trend is a reversal from recent years, when high-flying valuations and more free-flowing investments allowed smaller biotech firms and startups to rebuff Big Pharma entreaties. But capital markets have changed.
Funding remains strong for early stage firms, but later-stage companies have had trouble raising additional rounds, and those that are already public have seen their value decrease in a challenging stock market. Less money means shorter run rates, making it more difficult for firms to hire talent and lease space long enough to hit regulatory milestones or get the next infusion of capital.
There is a “valuation dislocation” in the market, according to Silicon Valley Bank Managing Director Jon Norris.
The high-flying market of recent years, when companies would have a few fundraising rounds then go public and skyrocket in value, has changed. With a significant decrease in the available capital for life sciences, and stock prices sinking, biotech firms are having a much harder time going public, and those firms with high private valuations from 2021 or prior are loath to try another raise and risk devaluation.
The real opportunity for M&A comes from already-public companies, trading at a lower value and looking for more funding to continue research and development. To Big Pharma, these firms look like a deal.
Norris believes most of the activity will happen with these public companies — 92 such firms went public last year — though if the downturn lasts into the latter half of 2023, many of the highly valued private firms may begin to look for some kind of investment or exit. He also expects more development deals to take place, where Big Pharma partners with some of the smaller startups to share and co-develop new cures.
Anderson says M&A activity can have a mixed impact on real estate, but overall, the infusion of funds will help stabilize the industry. This kind of investment from the big players has been one of the reasons biotech employment has stayed relatively steady over time, and it allows companies to grow their footprints.
However, as the expansion continues, politics could come into play for some of these projects. Eli Lilly, which invested significant money in an Indiana manufacturing facility, earlier this month spoke out about the state’s new abortion law banning the medical procedure in almost all cases, saying that it would hinder the company’s ability to recruit top talent.
Other big life sciences markets like California, Massachusetts and North Carolina don’t have the same kinds of restrictive abortion laws and could stand to gain if major companies decide to relocate.
There’s also a swap of sorts happening with real estate, especially the older, suburban research campuses built by Big Pharma in decades past.
Many enormous suburban sites are sold by legacy firms to be repurposed, and in some cases divided, into room for growing firms, according to JLL Vice President and Director of New Jersey Office Market Research Stephen Jenco.
Beigene, an oncology firm, recently took over a 42-acre site in Hopewell, New Jersey, and the former Roche campus in Clifton, New Jersey, will become an office and biotech space called ON3, housing several companies.
At the same time, Big Pharma invested in new research space in top markets and expanded biomanufacturing capacity. The big players continue to gravitate toward big research centers, leaving their suburban campuses while emerging players continue to backfill and repurpose some of those old campuses, Anderson said.
“Pharma activity is extremely important to the health of this industry,” Belldegrun said. “The good news is that pharma activity right now looks very healthy. And we believe that the biotech sector is going to continue to rebound here over the next 12 to 18 months.”