Organizations operating in the life sciences industry face many inherent challenges in bringing products to development—public policy changes, mergers and acquisitions, expiring patents, and pricing pressures to name a few. These challenges directly impact how life sciences organizations allocate their capital and how they use commercial real estate to support their businesses. With uncertainty being the only constant for these companies, building flexibility and agility in real estate planning can remedy these challenges.
Planning and Alignment Challenges
From a real estate planning perspective, the most challenging changes occurring in the life sciences industry have to do with:
- Pipeline: Even with a real estate strategy in place, science does not always go according to plan. A variety of factors can profoundly reconfigure the landscape as it relates to revenue generation, production, and distribution networks of life sciences companies. These include lengthy approvals, patent expiration, threats from biosimilars, and changing insurance reimbursement policies.
- Timing: There is a fundamental timing mismatch between the length of a business planning horizon (at most three quarters) and a real estate planning horizon (at least five years).
- Capital: Real estate is competing for the same dollars as research and development (R&D), which is the engine that historically has driven these companies. In addition, M&A activity as well as the impact of CRO and CMO activities can strongly influence capital availability and decision-making.
Drug Lifecycle and Real Estate Implications
A deeper understanding of how drugs move through a maturity cycle can help to quantify the risk exposure, identify potential real estate needs, and develop a strategic response. When a drug is in the R&D phase, real estate is expected to provide space that optimizes innovation. As the product scales up, there should be appropriate infrastructure in place to help deliver the product worldwide. At the maturity midpoint, real estate leaders are typically considering alternative uses for their facilities, and/or pursuing the necessary options for a graceful exit.
New Models for the Post-“Blockbuster" Drug Era
Another complicating factor for life sciences organizations is that the model for product delivery is shifting. Where once the “blockbuster” model called for large-scale exploration and innovation through R&D in the hope of discovering a breakthrough product, the return on investment for such efforts have declined and breakthroughs have become scarce. Rather than continuing to fund the discovery efforts of new products in-house, life sciences companies are increasingly outsourcing R&D or are choosing to acquire smaller companies that show the promise of discovering the next breakthrough product or process.
Adopting Agile Strategies Mitigates Uncertain Conditions
So, how can life sciences organizations make sound business decisions amid so much uncertainty? Real estate leaders must adapt for the future and prepare for unpredictable demand by developing a strategy focused on agility, flexibility, and efficiency. With advanced analytics available at our fingertips, it is now easier to model and quantify risk and, like actuaries, price various coverage options. We are able to develop and price flexibility and exit strategies at the outset of real estate decisions. The five steps below can help life sciences organizations keep options open and costs contained:
- Quantify risk and uncertainty to better understand the challenges ahead
- Qualify required strategy profile (adaptability vs. optionality)
- Define real estate tools to put a proper real estate strategy in place
- “Stress test” solutions with various scenarios to identify potential areas of weakness
- Gain buy-in from leadership through a strategic, data-driven plan to ensure success throughout the project
While all organizations strive to be agile and flexible in the face of industry changes, many find it incredibly challenging to plan for that uncertainty. Learning to embrace ambiguity is the key to finding success in an uncertain market. Finding a comfortable place in the gray areas allows you and your business to adapt to the changes ahead, and thrive in an ever-evolving life sciences landscape.
Interested in learning more?
Christelle Bron leads the Integrated Transaction Solutions for the East Region of the Americas within CBRE's Advisory & Transaction Services | Occupier. Connect with Christelle on LinkedIn.
