Creating Resilience

Life Sciences Merger & Acquisition Activity and Potential Real Estate Repercussions

October 23, 2023 3 Minute Read


Mergers and acquisitions (M&As) have always played a large role in the Life Sciences industry. Current industry trends and economic factors indicate more M&A is on the horizon for both early-stage companies and industry leaders. Since real estate is one of companies’ largest expenses, performing proper due diligence prior to any M&A is vital to address potential pitfalls, including research disruption and large, unnecessary expenditures.

Challenges: Early-stage companies seek capital

Funding constraints put growing early-stage companies in a precarious position in capital-intensive R&D environments. Prior to 2022, these companies could look to venture capital funding or the IPO market for capital infusions. However, initial public offerings in the biotechnology sector have slowed markedly in 2023, extending the downturn to nearly two years.1 Even compared with pre-pandemic activity, 2022 and 2023 have been slow. BioPharma Dive data shows that biotech companies priced 54 offerings in 2018 and 47 in 2019, which is twice as much as the past two years’ activity.1 Lack of initial public capital makes it difficult for growing companies to find the resources they need to continue expensive trials.

Unfortunately, as the IPO market has dried up, so too has venture capital. Despite lots of dry powder in the venture world, early-stage funding is on pace to fall by 55% compared with 2021, according to HSBC. Venture firms are now more focused on helping their existing portfolio companies survive and finding safer bets for new investment. Companies that may have gone public in economically stable times are staying private longer.2 The startups trying to grow privately face tighter budgets. And even if venture firms do invest, these firms are making smaller investments overall.2 With the lack of necessary capital available, early-stage companies could be forced into being acquired to continue their development.

To make early-stage companies more attractive to potential acquirers, and to balance the increased risk of development and regulatory failure borne by earlier-stage companies, buyers increasingly are implementing contingent-payment structures—milestones based on development and regulatory events, commercial launch, royalties and net sales related payments—that traditionally are used in collaboration and licensing deals.3 Increased use of contingent-payment structures to balance risk of early-stage acquisitions allows large companies to be more aggressive with acquiring or supporting early-stage companies. It is also another reason why the industry anticipates seeing more M&A activity moving forward.


Challenges: Industry leaders anticipate repercussions from patent expirations

While funding is not a concern for larger, more established organizations, other challenges remain. The industry’s leading companies face a growth gap over the next five years as a wave of market-leading biopharmaceuticals lose patent exclusivity and face market competition from cheaper generic and biosimilar products. Big drugmakers are facing a “patent cliff,” with more than $200 billion in annual revenue at risk through 20304 as patents for nearly 200 drugs will expire. And almost every major pharma company will be impacted.5

Large pharmaceutical companies will need to make up the lost revenue from the end of patent exclusivity, and while they continue to spend on internal research and development, only 10% of drugs entering clinical trials receive regulatory approval. The traditional approach to clinical development is a lengthy process with only a 10% success rate.6 According to data from both IQVIA and Deloitte, R&D productivity and returns have, with a few exceptions, steadily declined across the industry each year over the past decade. To make up for this lack of R&D productivity and lost revenue, big drugmakers will look to acquire established products or engage in more promising trials to aid their own R&D.4


Solutions: A trusted M&A advisor can mitigate real estate risk

While the business case will ultimately drive M&A activity, it is important to focus on the real estate ramifications of any transaction, since real estate expenses are one of the largest financial line items behind R&D for companies. Additionally, real estate can provide capital recovery opportunities with a proper disposition and consolidation strategy. Finally, real estate plays a significant role in promoting the new shared brand and culture of the combined organization and is vital to minimizing scientific disruption.

A commercial real estate advisor can help companies before, during and after any M&A activity to:

  • Provide realistic, achievable and actionable post-merger commercial real estate portfolio strategies and cost savings.
  • Free up capital through strategic property and land sales.
  • Accelerate value realization through an aligned life sciences platform.
  • Drive cost containment and mitigate risk across the portfolios.
  • Ensure that the due diligence process properly accounts for all elements of the lease review, site inspection and everything else related to the real estate portfolio.
  • Create operational efficiency and minimize disruption within scientific environments.
  • Promote the shared brand, integrate culture and manage change.
  • Assist in office and lab relocation planning and execution.

A trusted commercial real estate advisor is most effective when engaged early in the M&A process. To learn more, contact CBRE Life Sciences.


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