Intelligent Investment

Patient Capital

By: Matt Gardner, Head of Life Sciences, Americas

March 14, 2025 3 Minute Read

Isometric illustration of microscopes and test tubes, suggesting scientific research in a laboratory setting.

Take the long view on opportunities in the life sciences sector.

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After 30 years in the biotech industry, I’ve come to appreciate just how long it takes to develop new products in this extremely challenging space—and the complexities of navigating the long-run cycle of biotech science against shorter-term business and investment cycles.

And over these three decades, I’ve never stopped being awed by the life-changing implications of biotech innovations around the world.

Case in point: a gene therapy for sickle cell disease, which received FDA approval in late 2023.

The origin of this gene therapy, Casgevy—in a novel discovery nearly a dozen years earlier—is a powerful reminder for stakeholders in the life sciences industry to keep their focus on the longer-term research and pipelines despite whatever short-term market volatility may be unfolding around them.

To put it more plainly, in this industry, “patient capital” is a virtue.

The sickle cell disease gene therapy was developed in part during the most recent biotech cycle, which lasted from 2015 through 2021.

At that time, buoyed by the longest bull run in the industry's history, life sciences real estate assets made their way into the general consciousness of global capital during that period—in many cases, for the first time.

But many of these new investors jumped into their first lab investments commencing construction in 2021, giving them a taste of biotech’s high hurdle rate: Delivering new construction in 2023 and 2024 turned out to be poorly timed, with a surge of available space coinciding with the bottoming out of venture valuations and a dearth of risk capital for growth-stage biotech companies.

The result? Agonizing absorption rates in the short term, colliding with an increase in subleasing caused by the belt-tightening of a generation of biotechs struggling to raise their next round of funding.

This first wave of global capital gained valuable experience as growth partners in biotech’s long development cycle.

And, as important, they learned from those of us who had been there before.

The life sciences industry is older than we tend to recognize—and more resilient than the current market might suggest. In fact, over the long run, we’ve seen sustained growth in the seven major U.S. biotech centers since the early 1970s.

Previous economic downturns of 2001-02 and 2007-08 bear a striking resemblance to the trough we’re experiencing today—and high vacancy rates, tepid M&A and lackluster public share price performance indicate we haven’t yet returned to normalcy in life sciences.

In terms of development, prior to COVID-19, lab landlords followed a straightforward development path. New campus developments were anticipated far in advance, with construction held back until significant preleasing was secured.

These landlords would look for signals of pent-up demand: a healthy cycle of exits via acquisition or IPO, and an upswing in new company formation and early-stage venture investment.

On this last point, a key sign that the market might be ready for the next round of development would be younger companies outgrowing their incubator space and seeking dedicated “grad labs” following their first major venture investment.

This model held up for nearly 30 years. So, what’s changed?

At the beginning of this decade, during the final two years of our most recent bull market, the behavior of biotech companies and investors changed.

The IPO window remained open. Venture capitalists invested every penny of dry powder to push as many companies as possible into the IPO funnel, including those, with the benefit of hindsight, considered too early (e.g., preproduct companies, or those with phase 1 or phase 2 research but no revenue).

This prompted a change in lab landlord behavior. New campuses were started before preleasing began. Landlords and their capital partners were, for the first time in the industry’s history, willing to risk empty space to position for the next startup.

This all stopped at the end of 2021. By the first quarter of 2022, exits ceased, the IPO window shut, and rising interest rates cut into the appeal of the previously frothy transaction environment.

Despite this, the life sciences industry is only moving forward.

Historically, developing a biotech product has taken 10 to 15 years—leading to a disconnect between the biotech business cycle and the overall business cycle. Again, a perfect example of this is the development of gene therapy for sickle cell disease.

Today’s fundamentals hold promise: New science from the prior decade of research funding continues to produce medical advances, the total product pipeline is at an all-time high, and FDA approvals were the third highest in history in 2024.

Moreover, developers continue to strive to match the needs of a steadily growing base of biotech companies. While recent quarters have seen a plateau in R&D employment, the industry has increased research headcount by more than 50% between 2014 and 2024.

While investors haven’t yet reached a new equilibrium, it seems clear that the industry has returned to the pre-COVID pattern. Lab landlords will hold new development while absorption catches up.

Global capital looks ahead with optimism.

Labs remain an attractive investment—when checks are in place to ensure sustainable growth rates. For those active in life sciences investment since before 2010, today’s market doldrums are familiar.

And any time you need a reminder about why we work in biotech, go back and listen to patients’ comments during the Casgevy hearing in 2023.

You’ll find the same inspiration in the halls of cancer companies. You’ll find it in companies developing organ transplant innovations and advanced diagnostics. You’ll find it in the labs of companies developing advanced materials from microbes.

Biotech research cycles may be long. But the rewards are, literally, life changing and, often, lifesaving.

And the smart capital is unafraid.

I appreciate the struggles of the proverbial long nights and the nearly impossible odds inherent in converting science into useful products. And this is why we see the continuing value of “patient capital.”

We’ve been here before, and we’re here to help capital partners interpret and navigate the shorter-term volatility while we anticipate the next wave.

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