Incubator labs poised to disrupt how the next pharma breakthrough is discovered

As startups continue to drive life sciences innovation, Big Pharma and enterprising real estate developers see new opportunities

CHICAGO, July 30, 2018 — Innovation in the life sciences industry is evolving at a breathtaking pace. A deep pipeline is emerging from early-stage ventures driving a large cross-section of new medicines, according to JLL's seventh annual Life Sciences Outlook. Recognizing this new reality, major life sciences companies and a host of knowledgeable real estate developers are bringing new life sciences incubator spaces into the market in hopes of fostering the next new innovation.

As every Big Pharma executive knows, the majority of medicines approved in recent years—63 percent of new products since 2013, specifically—originated from small companies, according to HBM Partners. Additionally, in 2017, midsize and smaller biopharma companies received a record 23 new drug approvals.

"Big Pharma is entering new territory as major players question whether incubator labs represent a threat or opportunity as the primary generator of new products," said Roger Humphrey, Executive Managing Director and leader of JLL's Life Sciences group. "This new market dynamic presents a unique opportunity for traditional industry players. By casting a wide net of investment in a broad portfolio of young ventures, a big biopharmaceutical company can leverage outside scientific talent and gain access to breakthrough discoveries in their strategic areas of interest."

The worldwide prescription drug market is growing at 6.5 percent annually and is expected to reach $1.06 trillion by 2022. To capture this market opportunity, major biopharma companies are creating their own venture capital funds and partnering with startups or licensing technology to fuel their own drug pipelines. Many are also outsourcing research and development while reducing their in-house product development efforts.

Incubator labs provide a new ecosystem

With real estate costs at all-time highs and availability at all-time lows, life sciences companies and real estate owners and investors are finding new ways to engage with the up-and-comers. Life sciences incubators are popping up across the United States and are becoming a critical part of the ecosystem. Massachusetts alone is home to more than two dozen incubators.

For young companies looking to grow in the top life sciences clusters, incubators are filling a critical gap. Part investment fund, part accelerator, incubators nurture the growth of early-stage life sciences companies by providing turnkey laboratory and office space, entrepreneurial support, strategic programming and access to capital. 

One new player, New York's Alexandria LaunchLabs in Manhattan's East Side Medical Corridor, was the first biotech incubator to launch in New York City. Located at the Alexandria Center for Life Science, LaunchLabs opened its doors in late 2017. Today, its 15,000 square feet of lab and office space house approximately 20 startup companies.

Early adopter Johnson & Johnson established its JLABS incubator concept five years ago and now operates incubators in 11 locations around the world. JLABS space options range from a humble five-foot bench to a 5,000-square-foot wet research lab outfitted with the latest equipment.

Markets for innovation. . . and frugality

Home to world-class academic institutions, top-notch research facilities and tight-knit medical communities, Greater Boston and the San Francisco Bay Area continue their reign as the top U.S. life sciences clusters.

It's no surprise that the top life sciences clusters command the majority of venture capital funding in the sector. However, the contrast between the largest and smallest clusters is stark. San Francisco and Boston received more than two-thirds of funding, while no other cluster received more than 5.0 percent.

"Top markets such as Boston and San Francisco continue to offer the life sciences innovation trifecta of access to talent funding and real estate inventory in strong life sciences, healthcare and tech communities," said Humphrey. "So, for those life sciences companies where innovation is king, the return often justifies the investment in these markets despite the high cost of space and talent."

For life sciences companies looking for a semblance of frugality, suburban Maryland and North Carolina provide unique and compelling opportunities. Aided in part by strong educational institutions such as Johns Hopkins University, University of Maryland and others, suburban Maryland continues to benefit from a highly educated workforce. North Carolina's Raleigh-Durham-Chapel Hill "Research Triangle" area is anchored by three Tier 1 universities—Duke University, the University of North Carolina at Chapel Hill and North Carolina State University—and is home to several other four-year institutions.

The concentration of higher education in the Research Triangle produces more than 5,000 STEM graduates each year, while life sciences employment across suburban Maryland has increased by 35 percent year-over-year. These markets also offer compelling value with significantly lower rents than the top three life sciences clusters. 

JLL's annual Life Sciences Outlook tracks geographic shifts in life sciences innovation, operations and facilities investments, including an analysis of markets actively investing in their life sciences sectors. It includes a ranking of the top U.S. life sciences clusters, as well as an analysis of global trends. 

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with nearly 300 corporate offices, operations in over 80 countries and a global workforce of 83,500 as of March 31, 2018. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated.