Remarks delivered at BIO 2023 (Boston, June 5-8) by Suzet McKinney, DrPH, MPH, Principal and Director of Life Sciences, Sterling Bay (and AURP Board Member) on “Trends in the Life Sciences”
We heard a lot yesterday about challenges with the Inflation Reduction Act, the CHIPS & Science Act, the Bayh-Dole Act, all of which were important but much was about challenges related to these pieces of legislation and how those challenges impact the life sciences industry. Today, I wanted to focus on more positive things to consider about the LS industry. My work takes me all across the country, so I’m fortunate to have opportunities to really see a lot that extends outside of my home base of Chicago.
The first area I’ll discuss is something that we are all dealing with in some shape or form and that is, finance. Clearly, we are all living through a time of extreme financial and economic uncertainty.
For the past several months, I’ve continuously seen questions about the potential for continued funding flow within the life sciences.
Anecdotally, I always say that as long as we have healthcare challenges to cure, vaccines to develop, medical devices to discover, the life sciences are not going away and will continue to see funding. That’s my anecdotal response, but as I’ve spoken to VC funders in many places, they all have a similar message.
That message is VC funding is still there, and while many VC firms are being a bit more conservative in the distribution of those funds, eventually they will have to release them.
Even where we’ve seen decreases in VC funding, the funding being released is still quite high in comparison to other industries. CBRE reported Q1 2023 VC funding fell to $3.6B that quarter, on par with 2019 pre-pandemic levels. In the April/May edition of CBRE’s monthly “top stories in life sciences”, they note that IPO activity has decreased over the last 2 years, but 2023, has brought increased M&A and reverse merger activity, with over $64B in M&A activity having been posted by the end of April of this year.
I will tell you that despite some concern that life sciences as an industry is slowing down, development continues to be strong. The news of Alexandria Real Estate selling off some of its LS portfolio and paused construction on some of its projects sent some nervousness through the atmosphere. However, it appears that these were strategic business decisions made by ARE.
Development is robust across the country as developers continue to break ground on new projects across the country. For my company, we opened a new 320,000 square foot life sciences (LS) building just 3 weeks ago, and broke ground on a one million square foot LS complex a week later in Sorrento Mesa. You only need to take a trip to San Diego and drive the Sorrento Mesa area to get an idea of just how robust the development pipeline continues to be.
LS development also continues to see high rates of conversion activity as well, especially as cities and large urban cores contemplate ways to repurpose empty office properties that have been left deserted due to continued hybrid or work from home reality spurred by COVID-19. A recent Bisnow article discusses the record number of office to lab conversions in the U.S, primarily concentrated in major LS hubs across the country.
We are seeing BIG collaborations in the LS as well. Collaborations spawned by large grants and philanthropic gifts for LS research. In 2022, spurred by the success of their San Francisco biohub, Facebook CEO Mark Zuckerberg and his wife Priscilla Chan, announced a $250M competitive grant for university collaborations aimed at new medical breakthroughs is one example of these mega collaborations. Another example is the ARPA-H research hub competitive application.
From a tenant perspective, employee demand within small, medium, and large life sciences and biotech companies is driving tenant behavior. Many companies are resorting to a “flight to quality” of sorts, or in other words migrating to developments that offer a wide range of amenities that their employees are demanding. These amenities are not limited to great restaurants and retail outlets, but also residential facilities, proximity to urban cores, proximity to other innovative companies, access from a transportation perspective, and even outdoor space.
So, I think the message here is that like other industries, the LS industry is experiencing some headwinds. However, those headwinds have not proven to be insurmountable. We are all being impacted by some pretty tough economic conditions, so the headwinds that we are seeing are a factor of this current economic environment. I don’t think we’ve seen anything yet to give us too much concern that the industry is doomed somehow.
As I prepare to conclude, I’d like to turn a bit to give us all a few things to think about as we either head back to our respective homes, or off to BIO for the rest of the week. The AURP Board is preparing to embark on a strategic planning (SP) process later this summer. I’ve been a part of many strategic planning processes over the course of my career.
As I’m sure you all know, when embarking on any SP process, it’s necessary to spend some time contemplating where you’ve been and considering where you want to go before starting to determine the path that will be followed to achieve the end goals of the strategic planning process.
As I sat in the audience yesterday, I was struck by the AURP tagline of “building communities of innovation”. And that’s exactly what we all do every day, whether you are operating a research park, if you’re in architecture and helping to design the facilities within these parks, or if you’re doing other work that aligns in some manner. But I think sometimes we can get so bogged down in the work that we’re doing everyday that we don’t spend much time reflecting on the impact that our work has on so many, both in and around our innovation districts.
The innovation communities in which we all work are inspiring creativity, sparking innovation, encouraging collaboration, fostering biomedical research, and solving complex healthcare challenges. LS has never been more important and relevant to society. The organizations and companies in which we work, and those that reside within our research parks all have some level of ESG and DEI metrics that we’re working to meet.
And according to research by Bruce Katz formerly of the Brookings Institution, innovation clusters are often most successful when they are located near low- to moderate-income neighborhoods. Why? Because these districts create jobs, as well as concentrate educational healthcare assets. They also create environments where the life sciences and associated innovations become increasingly accessible to those who haven’t previously had opportunities for involvement.
I was particularly struck by Rowan Walrath’s comment yesterday that COVID represented a time when we were all patients with an unmet medical need. That statement, for me, really encapsulates the importance of the work we all do everyday because AURP members are creating and supporting the spaces and places that make these breakthroughs possible.
So, I know some of you are heading home today, while others are staying here in Boston to attend BIO. Wherever you are going once we leave here today, I hope you will do so remembering how important your work is and how important your membership and participation in AURP is changing lives every day. Thank you.