Located at 3 Blackfan Circle, the Center for Life Sciences Boston (shown in this rendering) is under construction by BioMed Realty Trust. It will be ready for occupancy in the second quarter of 2008. The laboratory market in Boston’s Longwood Medical area has been framed by the structure’s development over the last few years.
Don’t mess with the Terminator.
When it comes to biotech, the Bay State trails Arnold Schwarzenegger’s California by a wide margin. The Silicon Valley in the San Francisco Bay Area alone is saturated with more than 30 million square feet of office, research and development, and laboratory space that serves the industry, while Boston, Cambridge and the suburbs have about half that.
Case in point: Of the 74 top biotech companies headquartered in the United States, 23 are California-based while 15 are located in Massachusetts.
But Massachusetts is still a major biotech contender, according to the Summer 2007 Biotech Review from Meredith & Grew, a Boston-based real estate brokerage firm.
It’s easy to see why organizers of the 2007 BIO International Convention chose Boston to hold its conference in May, which drew a record 22,366 attendees, a nearly 15 percent increase from the previous year, with representatives from 48 states and 64 countries. The commonwealth is home to 380 firms employing approximately 35,400 workers.
During the four-day session, Gov. Deval Patrick unveiled his plan to make Massachusetts the global leader in life sciences through the Massachusetts Life Science Strategy.
Patrick’s plan includes a 10-year, $1 billion investment package that includes funds to bridge the National Institutes of Health (NIH) funding gap through a competitive grant program meant to sustain biomedical research programs in Massachusetts; create the Massachusetts Stem Cell Bank, which would make new stem cells available to researchers; establish Life Science Fellowship Grants for the state’s research institutions to ensure Massachusetts is competitive with other states and nations; and establish a Massachusetts Life Science Innovation Center to streamline technology transfers, development time, and funding opportunities.
It’s unclear how the governor intends to pay for all of this, but many in the life science community are convinced that Patrick will make good on the promise.
“The future of life sciences is here in Massachusetts,” Patrick told convention attendees. “We have the talent. We have the entrepreneurial spirit. Now let’s seize the future.”
The region’s biggest life science clusters are located in Cambridge’s Kendall Square and Boston’s Longwood Medical Area. But an increasing number of biotech firms are located in the suburban Boston markets, the report found.
Funding for the research-driven industry comes from a number of sources, both public and private. Due to the world-class research hospitals in the LMA, Massachusetts has consistently been a top recipient of NIH funding, ranking second to California each year since 2002, according to the report. For 2005, the most recent data available, Massachusetts outranked all other states in NIH funding per capita, at $355.
On investment activity and venture capital, the state has made great strides, the report said. Massachusetts-based companies received $1.7 billion in venture capital funding during the first half of 2007, with 27 percent going to biotech companies. The Massachusetts biotech sector received $446 million in the first half, at an average of $11.2 million per deal.
Of the total investment in Massachusetts biotech companies through the second quarter, 87 percent involved Cambridge-based companies. Some of the larger investments in the first quarter included Targanta Therapeutics, $70 million; Microbia, $50 million; and Sitris Pharmaceuticals, $36 million.
Investment volume in the second quarter slowed, as did the average deal size, with the two largest investments including Archemix, $30 million, and Aveo Pharmaceuticals, $21 million.
NIH and venture capital funding is not the sole source of capital for biotechnology-related research, the survey found. Alliances between the larger biotech/pharmaceutical firms and smaller companies provide significant funding during the drug development cycle.
Strategic Alliances
Perhaps the biggest draw of the region is the availability of a skilled, highly educated workforce, as well as the proximity to research partners and opportunities for collaboration that have attracted many of the world’s bio-pharma companies to the area, the report noted.
The initial public offering market had a lukewarm first-half of the year, with mixed market response to the handful of biotech firms that debuted in 2007. Instead, many young firms are electing to remain private or finding alternative routes to the public market.
Firms that began trading during the first half of 2007 included an increasing number of companies that formed alliances or completed merger and acquisition transactions, according to Beyond Borders: Ernst & Young’s Global Biotechnology Report for 2007.
That report found that the pace of global strategic alliances more than doubled in 2006 compared to 2005, and merger and acquisition activity increased by 17 percent from year to year, reaching the second-highest level in the industry’s history.
For example, in July, Cambridge-based Hydra Biosciences signed a collaborative agreement with Pfizer Inc. to develop pain medication that would allow Hydra upfront and success-based payments totaling $195 million for the first product launched.
Cambridge’s Genzyme Corp. formed a partnership with San Diego-based Ceregene that includes a $25 million upfront payment and also entitles Ceregene to up to $125 million for development-related milestones and reimbursement for half of the development costs for its Parkinson’s disease treatment.
Also this summer, Ariad Pharmaceuticals finalized collaboration with Merck & Co. to develop an experimental cancer treatment. In addition to an upfront payment of $75 million, Merck will pay up to $452 million in milestone payments based on the development of a product to treat metastatic sarcoma, and up to $400 million based on achievement of sales thresholds and development costs.
Affordable space for the biotech market is also getting harder to find. The latest survey of the Greater Boston lab market by Jones Lang LaSalle, a real estate money management and services firm, found the vacancy rate for lab space in Greater Boston fell to 9.5 percent in the second quarter of 2007, down from 19.7 percent in the previous quarter. The availability rate fell slightly to 14.5 percent in the second quarter, down from 15.3 percent in the first quarter, the report said.
Overall availability across the Greater Boston lab market dropped nearly 4 percentage points over the past year to 14.5 percent, well below the 10-year average of 18 percent, according to the Jones Lang LaSalle report. Smaller companies that cannot afford the $60 per-square-foot rents in premier lab space are struggling to find less expensive lab facilities.
“Considering the large number of lease transactions expected to close by year-end, the market is well on its way to bypass the five-year average absorption volume of approximately 530,000 square feet,” the survey said.
