Big Pharma poised for disruption in 2019 while mid-tier companies double down on innovation

CHICAGO, Jan. 17, 2019 – For Big Pharma, finding new blockbuster drugs is becoming harder and more expensive—and the challenge shows no sign of easing in 2019. Small and mid-tier companies are responsible for 63 percent of new products brought to market since 2013, according to HBM Partners, making 2019 the year for Big Pharma to add more innovation to its business model.

JLL’s life sciences experts anticipate that Big Pharma will adopt agile real estate strategies and more entrepreneurial approaches to reinvent research and development (R&D) and compete with smaller enterprises that are doubling down on product innovation and delivery.

“Without productive, efficient R&D processes that deliver strong revenues to drive reinvestment into continuing innovation, the business model falls apart,” said Roger Humphrey, Executive Managing Director and leader of JLL’s Life Sciences group. “In 2019, Big Pharma will focus on solving the R&D conundrum through investing in startups, buying pipelines, bringing incubator spaces into the market, creating flexible lab spaces, embarking on joint ventures and more.”

Four pharma trends to watch in 2019 and beyond

New industry realities are transforming how new products are discovered, manufactured and brought to market—and will drive real estate and facilities decisions. JLL has identified four trends poised to transform the pharma industry in 2019 and beyond:

1) Venture capital will continue to flood biopharmaceutical innovators. 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 biopharmaceutical 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 R&D while reducing their in-house product development efforts.

“By investing in a broad portfolio of young ventures, a big drug company can leverage outside scientific talent and cast a wide net to gain access to breakthrough discoveries in areas of the company’s strategic interest,” Humphrey said.

2) Incubator labs will share the cost burden for drug discovery. With real estate costs at all-time highs and availability at all-time lows, life sciences companies—along with 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 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 facilities 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. 

Some incubator concepts are in-house. For example, 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.

3) Flex space will unlock innovation and savings in R&D operations desperate for a facelift. The average return on R&D investments among large biopharmaceutical firms has declined dramatically, from 10.1 percent in 2010 to a paltry 3.2 percent in 2017, creating pressure to shorten and invigorate the product lifecycle. Flexible space and access to talent are the keys to agile R&D, according to JLL’s Journey to the next gen lab report.

Today’s scientists need space that can be easily reconfigured to accommodate different kinds of research and facilitate interaction with colleagues. Mobile benches and unassigned workspaces, for example, allow for fast changes in personnel and the type of work being performed.

“A traditional R&D facility would consist of mostly lab space and a small proportion of office space,” Humphrey said. “In a few years, those proportions will likely shift to equal parts wet labs, flex space and office space for the data scientists.”

4) High-risk, high-reward mid-tier pharmaceutical companies will focus on flexibility for non-core services. In 2017, midsized and smaller biopharma companies received a record number of 23 new drug approvals—making mid-tier companies the industry darling for investors. So what is their winning strategy? Focus and flexibility enables them to respond quickly to market changes and stay concentrated on their core business of bringing new products to market quickly.

“In 2019, we expect mid-tier companies to stay focused on the product business that has brought them success in the past, while looking to trusted partners for non-core services—including real estate services—so they can prioritize innovation and accelerate agility,” concluded Humphrey.