Biotech Is Having A Moment In The Spotlight, But New Therapies Take Time To Transfer To Real Estate
It’s not everyday that biotech gets a mention on Saturday Night Live. But during last weekend’s episode, a sketch about the new CRISPR sickle cell anemia treatment — one that many, including advocates and patients, found in poor taste — underscored the attention the sector is getting as the year ends.
In addition to the Food and Drug Administration's approval of the sickle cell treatment, offering the first approval and validation of CRISPR technology, there have been numerous positive signs for the industry after a year of financing challenges, rising lab supply and a dearth of real estate deals.
Biotech stocks saw a bump early this month, with analysts at Stifel Financial noting that “the market rally is very much intact” in mid-December. News that the Fed may lower interest rates thrice next year suggested the industry may see more activity soon. This comes after small increases in venture capital funding in recent quarters, according to CBRE data.
But tying a little bump to a big biotech upswing, the kind that would make a big impact on real estate markets, is “oversimplifying,” said Matt Gardner, who leads CBRE's life sciences practice.
“The prevailing condition is the headwind in the market, which is limiting the options available to smaller companies,” he added.
“I do think it’s not a direct A to B, ‘Our stock price has gone up and we need more real estate’,” Newmark Head of National Life Science Research Liz Berthelette said. “But overall, if you continue to see these growth drivers — the financials look better, there's more liquidity, borrowing becomes easier — I think that ultimately leads to growth within real estate.”
There is some reasons to temper expectations about current market activity, Gardner said, namely the locked-up venture capital markets. There’s an all-time high in the backlog of IPO-ready firms, as well as dozens of firms looking for strategic alternatives — meaning they can’t find an exit.
The trends haven’t been encouraging. Pitchbook forecasts that 2023 will see 55 IPOs and 29 acquisitions totaling $17.9B, fairly similar to 2022 performance, but far shy of 2021, when the market saw 200 IPOs and $86.4B in deals.
This all suggests firms aren’t able to self-finance the kind of business and associated real estate expansion approvals can create. They may be pushed toward being acquired by a larger firm, which due to their size and existing infrastructure, won’t always need to drastically expand and sign large new leases.
That said, there are significant signals of a build-up of activity for another wave of investments and funding that may be coming in the near future. The venture capital that has flowed to biotech this year remains concentrated in early-stage firms, mostly seed and Series A funds, the latter of which made up half the deals in 2023, according to McKinsey. This suggests a potential explosion of approvals, milestones and expansion in the mid-term.
Big Pharma merger and acquisition spending reached record volumes in 2023, according to Stifel, with a run of $1B–plus deals in the last few months. In early December, AbbVie, maker of Botox, made plans to acquire ImmunoGen for $10.1B, and then announced it was buying out Cerevel for $8.7B a week later.
“We absolutely see some capital waiting for the rates to come down,” Gardner said. “And there’s a lag between early-stage funding and when it shows up in commercial real estate. The fact that we’ve already seen that strong uptick in the earliest stages of funding does tell you that it's maybe 12 months away.”
The long-term focus on new cures and treatment, an evergreen sentiment in biotech, gains more credence in light of a slate of expected new approvals. Cell and gene therapy is predicted to explode in terms of revenue, with McKinsey predicting a jump from $3B in 2022 to $21B in 2026, and a Boston Consulting research paper from this summer shows significant growth in what they call new modalities. New medical technologies like CRISPR and mRNA are expected to become a bigger focus of research and biotech revenue.
The FDA has a busy schedule of drug approvals in Q1 2024, especially during March. A number of new therapies may get a green light later this year, including, for example, a drug for schizophrenia that analysts predict could see global sales of $6.2B.
“There are a whole bunch of overlapping threads going on that are changing the industry,” Gardner said. “Gene therapy getting passed is just one of them. It's a huge event, but it also signals lots of changes are coming.”
