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JLL: Is the West Losing Its Global Life Sciences Lead to China?

JLL's 2014 Global Life Sciences Cluster Report Reveals International Shifts in Innovation, Markets and Players

SAN DIEGO, CA -- (Marketwired) -- 06/23/14 -- Intellectual dominance in life sciences has traditionally been concentrated in the key markets of Boston, California and Germany, near the multi-national corporations that drive innovation. Yet, a key market ranking -- the third annual JLL Global Life Sciences Cluster Report released today at the BIO International Convention in San Diego -- suggests that the industry may be shifting its intellectual prowess toward emerging markets and middle-market corporate players.

"The biopharmaceutical industry is undergoing a significant transition as start-ups, specialty firms and mid-tier companies become the leading source of new product innovation," said Roger Humphrey, Executive Managing Director of JLL's (NYSE: JLL) Life Sciences group in the Americas. "This shift is reflected in the changing physical landscape of biopharmaceutical operations, including real estate."

The 2014 JLL Global Life Sciences Cluster Report identifies three primary global life sciences trends:

1. Start-ups, specialty firms and mid-tier companies are beginning to lead innovation.

Following the "doom and gloom" era of patent expirations, depleted product pipelines and uncertainty in U.S. healthcare reform, 2013 brought new energy to the life sciences industry. As large pharmaceutical companies continue to retrench, small- to medium-sized companies and specialty players are steadily growing, propelling initial public offerings to a volume not seen since the "dot.com" bubble of the 2000s. In some instances, vacated facilities are being retrofitted to accommodate the growing needs of mid-tier and specialty biopharmaceutical companies seeking space and access to resources.

These trends are stimulating significant changes in biopharmaceutical facilities. In mature markets such as the United States and Western Europe, many large life sciences companies have consolidated their operations and vacated their campuses. In 2013, for example, Germany-based Boehringer Ingelheim put up for sale its 190-acre, world-class production campus in Petersburg, Va., in the southeast United States. The company cited competition from low-cost generic medicines as a factor in the decision.

2. Competition is going global: for innovation, customers and talent.

North America and Europe continue to be the dominant contributors of life sciences Patent Cooperation Treaty (PCT) applications -- but a review of year-over-year application volume by country of origin reveals dramatic global shifts in innovation. Developing countries are beginning to challenge the hegemony of more mature economies.

North America and Europe's PCT life sciences patent volume is steadily decreasing, while that of Asia, Latin America and the Caribbean is increasing. In 2012, China reported the largest year-over-year increase -- 42.8 percent -- in total number of life sciences PCT applications, a rate far outpacing the growth of its overall PCT applications. Asia's share of PCT life sciences applications grew to 26 percent in 2012 from approximately 5 percent in 1990, while North America's share shrank to 41 percent in 2012 from more than 50 percent in 1990.

"Notably, the three countries with the most year-over-year growth in overall PCT applications -- China, Korea and Japan -- are also among the least collaborative countries," notes Erin Bovee, lead researcher for JLL's Global Life Sciences Cluster Report. "These countries appear to be seeking self-sufficiency in innovation."

Emerging countries are also gaining ground in talent development. China educates only a small percentage of its population, yet long ago surpassed the United States as the frontrunner in science and engineering doctorates. The United States remains a leader in awarding higher degrees in science and engineering, but is training fewer young workers than such countries as the Netherlands, South Korea, the United Kingdom, Australia and Japan.

3. Facilities are receiving new attention as a source of cost savings and regulatory compliance.

As detailed in JLL's 2011 Global Life Sciences Cluster Report, global pharmaceutical companies acted quickly in response to the patent cliff by consolidating; reducing their facilities footprints through building sales and decommissioning; trimming labor costs through layoffs; and increasing the outsourcing of non-core services.

"The need for strategic corporate real estate portfolio planning is at an all-time high as companies of all sizes seek operating efficiencies," said Humphrey. "Globally, the changes in life sciences companies' real estate portfolios are some of the most drastic among all industries."

The industry's move to more profitable and faster growth models has led to downsizing in mature markets and a focus on opportunities in emerging markets. JLL's 2014 Global Corporate Real Estate Trends for the Life Sciences Sector found that more than a third of life sciences companies anticipate reducing or consolidating their real estate portfolios in European markets, while 63 percent and 48 percent plan to increase their portfolios in China and Brazil, respectively, and 35 percent in Russia. In 2011, for example, Pfizer opted to relocate its antibacterial research unit from the United States to Shanghai.

Beyond the site selection challenges, many companies have turned to strategic facilities management to reduce operating costs. The life sciences sector is already the most active in facilities outsourcing, according to JLL's Corporate Real Estate Trends report, with 22 percent of companies fully outsourcing portfolio and facilities management functions, compared to 13 percent in other industries.

"Life sciences companies around the world are using qualified service providers to manage not only building systems, but also laboratory and production equipment, hazardous waste, supply chain and other critical areas like facilities regulatory compliance," said Dr. Lee Elliott, Head of EMEA Research for JLL. "We expect facilities outsourcing to continue to extend into highly-regulated spaces that, in the past, were off-limits."

About the Global Life Sciences Cluster Report
JLL's annual Global Life Sciences Cluster Report tracks geographic shifts in life sciences innovation, operations and facilities investments, including a ranking of the top U.S. life sciences clusters and analyses of countries and cities around the world most actively investing in life sciences. The complete findings of the 2014 Global Life Sciences Cluster Report are available here.

About JLL's Life Sciences Capabilities
JLL offers a team of real estate and facility management experts dedicated to helping life sciences companies optimize and manage their real estate portfolios. The firm provides a comprehensive range of services with singular technical operations and GxP expertise dedicated to the Life Sciences and Pharmaceutical community with more than 70 million square feet managed of R&D/pilot plant, manufacturing and office space worldwide. Its industry-leading platform includes Labwell, a comprehensive laboratory service.

A leader in the real estate outsourcing field, JLL's Corporate Solutions business helps corporations improve productivity in the cost, efficiency and performance of their national, regional or global real estate portfolios by creating outsourcing partnerships to manage and execute a range of corporate real estate services. This service delivery capability helps corporations improve business performance, particularly as companies turn to the outsourcing of their real estate activity as a way to manage expenses and enhance profitability.

For more news, videos and research resources on JLL, please visit the firm's global media center Web page http://bit.ly/18P2tkv.

About JLL
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4 billion, JLL has more than 200 corporate offices and operates in 75 countries worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3 billion square feet and completed $99 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $48.0 billion of real estate assets under management. JLL is the brand name of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com.

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