Boston Remains the Top Life Sciences Market
Boston is the top spot for life sciences companies this year, according to a new report from CommercialCafe, earning top marks for its large life sciences workforce and for having the largest real estate market for the subsector. Life sciences accounted for 24.8 million square feet of office space in Boston, with 14 million square feet of that LEED-certified. CommercialCafe analysts say the area is “poised for significant further expansion,” with an additional 23.8 million square feet of upcoming projects under construction. Boston also ranked sixth of the markets the firm surveyed for life sciences educational attainment, with more than 840,000 residents over age 25 holding at least a bachelor’s degree in science, engineering, or related fields. San Francisco followed behind in the #2 spot. The Bay Area is home to the largest talent pool among cities CommercialCafe studied and is the third-largest life sciences workforce of the metros the firm studied. Nearly 7.3% of office space in the city was home to life sciences companies at a total of nearly 14 million square feet. Nearly 11 million square feet of new life sciences office projects are in the works in the city as of May 2022.
San Diego came in at third place with the top score for the highest share of life sciences properties out of the total office space, with 12.3 million square feet of life sciences stock accounting for nearly 11% of the market. The city was followed by New York, which logged the highest score for life sciences educational attainment, with nearly 2.5 million residents holding degrees in science and engineering and/or engineering-related fields. Rounding out the top ten were Washington, D.C., Chicago, Philadelphia, Raleigh, Seattle, and Houston. Recent research from CBRE also points out that life sciences growth is also pushing past the typical coastal markets: Nashville is leading the way in the US in terms of percentage growth of life sciences jobs, for example. “There is a conventional view of life sciences that emphasizes large lab markets such as Boston, the Bay Area and San Diego…we take a broader view, analyzing life sciences workforces across the U.S. as well as the connection that talent has to how – and where – companies grow,” said Matt Gardner, CBRE Americas Life Sciences Leader. “It’s also important to keep in mind that the life sciences industry encompasses more than drug development in the lab. Major growth drivers for life sciences – even amid market headwinds – include personalized treatment, advanced materials and future foods.”
By: Lynn Pollack
Life sciences services: Clinical trial landscape
While inflation, labor, supply chain and COVID-19 disruptions continue to burden the overall economy, strong business conditions persist across the middle market and the life sciences industry. According to Neil Bradley, executive vice president and chief policy officer of the U.S. Chamber of Commerce, “For our economy to reach its potential, expanding the labor force and limiting inflation must be a top priority for policymakers through 2022.”
In the following outlook for summer 2022, we discuss capital markets and the impact of biotech funding on clinical trials. We also look at labor challenges facing the overall economy, and how the life sciences industry, particularly the clinical trials and life sciences services sectors, remains resilient. In addition, we cover core metrics related to clinical trial activity.
Capital markets and clinical trial funding
Following the Federal Reserve’s shift in sentiment around rate hikes, a downgraded J.P. Morgan Health Care Conference amid last-minute cancellation of in-person events, and lackluster performance of recently publicly launched companies, the overall stock market contracted during the first quarter of 2022. Since its high on Dec. 31, life sciences tools and services has dropped 13.2% as of March 31.
For certain, there is apprehension in the marketplace related to future biotech funding and whether pre-revenue life sciences companies will have the cash on hand to sustain themselves. Clinical research organizations, or CROs, that rely on contracts from these biotech companies might find cause for alarm; however, the stock market contraction doesn’t tell the whole story. The reality is that while IPO activity has significantly slowed in the first quarter, we are coming out of the highest number of IPOs and largest amount of capital raised in the history of the industry.
From April 2020 to March 2022, the life sciences industry raised over $43 billion in capital through IPOs—approximately $16 billion more than the total raised over the prior three years. The story is similar for private equity and venture capital investment: Capital raised over the pandemic period was approximately equal to the total raised over the prior three and a half years. While funding may have slowed in the near term, biotech companies have significant cash and liquid asset reserves to meet immediate needs, with estimates pinning median biotech burn rates at approximately three years; however, the range is wide, with some companies having little remaining cash and others having over five years’ worth. This means that while a funding slowdown will not mean the end of the industry, it may negatively affect companies that did not secure additional funding prior to the start of 2022. CROs have expressed a positive outlook. In their fiscal year 2021 earnings releases, each of the large CROs, with one exception, indicated that their volume of requests for proposal had not slowed. This included RFPs from small to midsize biotech companies. The one exception was Medpace Holdings, which reported a 10% reduction in biotech RFPs in the second half of 2021 and a 25% reduction in January 2022. Other large CROs commented that they maintained or grew their RFP volume, with most also reporting double-digit increases in their backlog. We remain optimistic that the market may be too nearsighted in its valuation of the life sciences market; however, time will tell.
Labor and inflation While the overall U.S. economy struggles to return to its pre-pandemic labor market size—a measurement of total employees—the life sciences labor market has matched or exceeded its pre-pandemic level since mid-2020. Spurred by the widespread need for vaccines and historic levels of investment, the disparity between life sciences and the overall U.S. economy makes sense. As job openings continue to exceed the number of available skilled workers, compensation increases are expected. While U.S. compensation overall has remained relatively in line with inflation since 2004, professional, scientific and technical services wages have significantly outpaced inflation, further highlighting the demand for skilled labor. As a side note, the professional, scientific and technical services labor bucket is not exclusive to life sciences; however, it houses research and development compensation and is the most granular dataset available. Companies should not rely on this historical trend of life sciences compensation outpacing increases in the consumer price index. For the first time in two years, as of Dec. 31, year-over-year CPI growth exceeded professional, scientific and technical services total compensation growth, with rates of 7% and 6%, respectively. Historically, companies have combated periodic inflation through increases in salaries and even larger increases in supplemental pay (bonuses, overtime and shift differentials); however, it has been decades since the economic environment resembled the current one. New compensation strategies should be considered to avoid losing skilled employees in whom companies have already deeply invested. After all, some estimates pin the cost of skilled employee turnover at 1.5 times the employee’s salary, which, regardless of inflation, far outpaces the cost of salary adjustments. Compensation may reduce talent turnover, but it doesn’t remedy the existing shortage. To drive efficiencies, companies are looking at adopting new technologies such as advanced algorithms, artificial intelligence, machine learning and virtual platforms. Some practical applications of advanced algorithms include reducing trial administrator burden by identifying new patient populations, predicting the outcomes of clinical trials before they start, or even exploring chemical reaction databases for promising new compounds. The recent widespread deployment of virtual trial platforms is catalyzing the decentralized clinical trial model and allowing for more flexibility in employee work location. Clinical trial trends Study starts and disruption Clinical trial study starts rebounded from their pandemic-induced lull in 2021. While starts are not up significantly, study duration is increasing, thereby increasing the number of trials active at any given time. In addition, while most of the pandemic’s impact on active clinical trials has likely been remediated, some trials that were paused during the pandemic have not yet restarted.
Given that some virtual trial providers are targeting a one-to-two-year trial timeline and some large CROs are incorporating virtual components into 50% of their new trials, we’ve been optimistic that virtualization might lead to reduced study duration. However, duration continued its upward trend through the first quarter due to several ongoing challenges. In a first-quarter site survey performed by WCG Clinical Inc., over 50% of sites cited staffing as the top issue currently affecting them. As labor challenges persist, site enrollment timelines and capacity to perform testing will suffer. In addition, while enrollment trends remain challenging, identifying investigators to oversee study sites is equally so—45% of investigators participate in only one trial at a time. A final factor contributing to duration is an increase in trial complexity. Whether due to a growing number of study amendments or greater intricacies in therapies being tested, trials are becoming more complex and require more procedures. As an example, according to the IQVIA Institute’s Global Trends in R&D 2022, over 800 next-generation biotherapeutics were in development in 2021—encompassing CAR T-cell therapy to fight cancer, cell therapy, gene therapy and RNA therapeutics. The next-generation pipeline has seen a compound annual growth rate of 27% since 2016.
Virtual trial companies As noted in a recent Clinical Leader article, Explosive investment in virtual trial companies: The latest data, virtual trial companies are accelerating a new era of clinical trials. We remain optimistic that investments in clinical trial technologies will ultimately have a positive impact on study duration, clinical trial cost, enrollment and patient-centricity; however, virtual trial companies did not escape the slowdown in first-quarter funding, which was well behind the 2021 pace. In addition, the industry is still defining the virtual trial space. Though trial virtualization is often described as “decentralization,” this is a bit of a misnomer. Since most trials are retaining a mix of brick-and-mortar sites and virtual visits, “hybrid” may be a more apt descriptor.