According to Jones Lang LaSalle’s Global Life Sciences Cluster Report, although life sciences companies continue to center their headquarter relocations, biotechnology start-up and innovation activity within Europe, the United States and Japan, the emerging markets of Brazil, India, China and others located throughout Asia and Latin America are becoming more competitive.
Life sciences entities are trying to balance operations among the Americas, EMEA, and Asia. Complex macro and micro factors have forced the life sciences industry to re-examine traditional business models and location strategies and to re-balance the portfolio of assets among regions of the world. Struggling economies, increased competition, pricing pressure, depleted product pipelines and heightened regulatory processes have all strained profitability, influencing the industry’s facility and location decisions.
The drive for discovery and innovation is causing companies to re-think the way they make location decisions, creating a focus on balancing the real estate costs of established life sciences clusters with an increased efficiency in generating innovation.
“While real estate costs are higher within these established clusters, the intellectual capacity and enhanced odds of discovering the next powerful, profitable drug justifies the price premium,” says Bill Barrett, executive managing director, Life Sciences at Jones Lang LaSalle. “Since ideas are the new currency of the modern enterprise, the knowledge workers within established clusters can compete globally based on the quality of their innovation, regardless of the hard costs of location.”
This dynamic is bifurcating in what regions the drug discovery process takes place, with discovery aspects likely to remain in-house and in already established, high-cost clusters while testing and viability measures will leverage the lower costs of emerging clusters via contract research organizations and other outsourced resources.
Due to changing market dynamics, life sciences companies are placing more scrutiny on their facility strategies and footprints to determine ideal locations for revenue growth potential, improved operating margins and improved returns on installed assets. This has led to a shift in facility configurations and adaptations to improve competitiveness.
Manufacturing facilities represent a large share of operations in emerging clusters, and while investment in non-R&D facilities experienced a pause during the recession, Barrett expects to see investments return to emerging clusters as companies come out of the recession. “Factors such as growing economies, large populations, rising personal income levels and progressive political policies in emerging clusters encourage growth and direct investment from industry leaders,” he says. “Additionally, companies will leverage favorable conditions in emerging clusters as they bring on additional manufacturing capacity to take advantage of lower cost structures.”
“In most emerging markets, local consumers seek affordable drugs from known, trusted makers so early establishment in population-dense countries like China, India and Indonesia is vital to capture market share,” said David Wilton, Regional Director, Corporate Solutions for Jones Lang LaSalle in Asia Pacific. “Demand for drugs within these markets is increasing due to the shift in lifestyle created by the rise in personal income and purchasing power. This has resulted in a heightened awareness of traditionally Western diseases and associated treatments.”
A large share of inward investment in the United States and established countries throughout Europe continues to be focused on manufacturing aspects of the industry. However, these locations are seeing investments shift away from manufacturing as Brazil, China, India and other smaller clusters emerge as cost-advantageous sites that provide both revenue and margin opportunities.
Emerging market governments in Asia and Latin America are making capital investments and improving political policies to become more competitive in high-tech aspects of the industry and to be in contention for CRO opportunities. Massive research parks in these emerging global clusters are fuelling growth in R&D.
Though emerging clusters are playing a role in the global life sciences industry, Europe, the United States and Japan are still world leaders in the sector, especially in the R&D aspects of the value chain.“World-class research universities, sustained venture capital and other investments coupled with the supporting infrastructure within these mature clusters continues to fuel innovation in the United States and Europe,” says Charles Tillet, national director, Corporate Solutions, and head of EMEA’s Life Sciences practice. “Requirements from small start-ups and the occasional right-sizing or re-locating of headquarter operations remain prevalent in established clusters in the United States and Europe.”
The analysis shows real estate activity is most prominent in cornerstone locales, such as the Bay Area, the New York / New Jersey corridor, San Diego, Boston, Seattle, Philadelphia, the United Kingdom, France, Switzerland, and Germany, and Jones Lang LaSalle predicts these clusters will remain leaders in site selection for headquarter operations and R&D functionalities.
Release Date: Nov. 16, 2011
Source: Jones Lang LaSalle