bioSTATus Winter // 2014 Trends // » SEVEN AREA BIOTECHS complete IPOs, raising $654 million » VALUE OF PUBLIC MASS-BASED BIOS surges to record $105 billion » JOHNSON & JOHNSON latest big pharma to open local office » ARIAD & VERTEX ANNOUNCE LAYOFFS, sublease effect unknown » INFLUX FROM SUBURBS to Cambridge continues » DRUG NEWS SPURS dramatic stock price volatility *Unless otherwise noted, all data is as of or for the quarter ended September 30, 2013 and Transwestern|RBJ data. Vacancy Take-Up % (000 omitted) 16% 1,000 14% 800 12% 600 10% 400 8% 200 6% 0 4% 2% (200) 0% (400) bioSTATus 2007 2008 2009 2010 2011 2012 2013 EXECUTIVE SUMMARY TAKE-UP & VACANCY // MARKET SIZING & SEGMENTATION // Greater Boston’s dominance in the biotechnology Total Market industry continues to drive demand for biotechnology research-focused (“Laboratory”) space against Vacancy Take-Up % (000 omitted) Cambridge a backdrop of robust public markets investment 16% 1,000 8,433,000 and continued expansion of collaborations and 14% 800 Suburbs 12% 5,598,000 600 partnerships. In the two-quarter period ended 10% 400 Boston September 30, 2013, tenants drove 550,000 sf of 8% 3,160,000 200 6% negative take-up of Laboratory real estate, a figure 0 4% TOTAL 17,191,000 which would have been positive had it not been 2% (200) for 911,000 sf of consolidative take-up on the part 0% (400) 2007 2008 2009 2010 2011 2012 2013 of Pfizer and Vertex Pharmaceuticals. The number of National Institutes of Health (“NIH”) clinical trials underway as a result of Massachusetts-based research trials at or near recently set record levels for Phases I, III and IV. The 55 Trials in the first phase represent a dip from the record 57 underway in the first quarter, though operations swelled to reach or approach record levels140 for three different trials while 2010 Q1 2011 Q3 2012 Q1 Tecfidera, a Biogen Idec drug approved in 2013, has revenue generating potential the number reflects a continued2012 Q1strong commitment2013 Q3 on the part 2013of biopharmasQ3 to 120 of up to $3 billion by 2018; the greatest expectation for any drug approved in 2013. keep an approved drug-generating pipeline active, as this pipeline has grown from 100 Massachusetts continues to boast the country’s largest biotechnology research & a level of just 22 ten years ago. Trials underway in the second phase have seen the 80 development workforce, a factor that undoubtedly attracted Johnson & Johnson to most sluggish growth in recent years, with this phase requiring far more capital 60 Cambridge become the ninth of the ten largest biopharmaceutical companies in the world to than the first phase, though remaining relatively distant from revenue generation in 8,433,000 open a Boston-area presence. The public markets have40 also expressed enthusiasm, terms of both time and visibility. At 98, the number of trials underway in this phase Suburbs 5,598,000 20 is not only below a five-year median level of 104 trials, but substantially below a adding 40 percent of value to Massachusetts-based bio stocks while absorbing seven Boston 3,160,000 initial public offerings (“IPOs”) of stock since April 1st,0 by far a record number for such peak number of 138 observed in the first quarter of 2006. Trials underway in the Phase I Phase II Phase III Phase IV a short period of time for life sciences companies. third phase tied the record of 113 observed a year ago while trials in the fourth phase Source: Food and Drug Administration, Transwestern|RBJ TOTAL were one off from a record level observed in the first quarter. Biogen Idec’s Tecfidera 17,191,000 While the sentiment remains decidedly positive, several cautionary themes persist. multiple sclerosis therapy may be the blockbuster approval of 2013; the drug is The number of Mass-based research efforts in phase II clinical trials reflects a rush estimated to have an industry-leading $3 billion in revenues by the end of 2018. of capital to later stage efforts, and also an increasing propensity to pull funding on compounds that clear the first phase, but for whom a second phase could be costly Massachusetts remains a global leader in the number of biotechnology-skilled and potentially fail. While the state remains the leader in number of biotech R&D laborers. The state’s 28,000 biotechnology research & development workers remains 140 workers, California’s R&D workforce has grown twice as fast over the last five years, the greatest such amount in the United States, outpacing2010 Q1 California’s2011 23,000 Q3 such 2012 Q1 2012 Q1 2013 Q3 2013 Q3 and the competition remains fierce with essentially all other geographies,120 eager to workers despite that state’s general population being six times greater. While this win biotechnology firms and target workforce. While most firms remain100 in organic job growth keeps pace through a combination of gradual organic growth and a growth mode, consolidations by ARIAD Pharmaceuticals, Merck and Vertex80 could recurring stream of large, new presence announcements, the middle quarters of materially impact the market and introduce large amounts of state-of-the-art60 modern 2013 also saw a number of challenges to growing headcount. ARIAD eliminated 36 Laboratory space to the sublease market. The two quarters have also showcased40 percent of its Cambridge-based workforce following the cancellation of a critical the rapid decisiveness of the public markets. While value is quickly added, it is also drug trial, reversing growth plans it had in place with the expectation of a strong 20 quickly taken away. trials performance. Vertex, on the eve of its highly anticipated move to the Seaport 0 PhaseDistrict, I announced the layoffPhase of II 15 percent of its staffPhase following III a downward Phase IV INDUSTRY Source: Food andrevision Drug Administration, of revenue Transwester expectationsn|RBJ related to the INCIVEK drug, a “blockbuster” Tecfidera King; Employment Growth Mixed; Hello J&J! that had originally sparked the company’s physical expansion; the drug has faced The biotechnology research function churns on with Massachusetts-based clinical more intense competition from similar drugs than had been previously envisioned. 2 bioSTATus Winter // 2014 PerkinElmer, while announcing a national downsizing effort, still has plans to grow Largest Cambridge Life Sciences Leases // its Massachusetts presence, including additional staffing at its newly opened facility TENANT ADDRESS SF LEASED in Hopkinton. It is unclear whether a decision by Merck to eliminate 20 percent of its Novartis 700 Main St 100,000 global workforce by the end of 2015 will affect its 400-person Longwood Research Genzyme 64 Sidney St 57,000 Center. Large biopharma consolidation efforts have generally benefitted the area’s Bluebird Bio 150 Second St 44,000 workforce numbers as these initiatives have the traditional intensions of transforming 24M Technologies 130 Brookline St 40,000 former old-pharmaceutical Vacancyexperimentation into more targetedTake-Up biopharma-style % (000 omitted) research efforts. 16% 1,000 Constellation Pharmaceuticals 215 First St 36,000 14% 800 Metabolix 21 Erie St 28,000 12% 600 Validation of the Greater Boston area’s competencies in biotechnology laboratory MIT One Kendall Sq #300 23,000 10% 400 research continues to source8% from a mix of large biopharmas and smaller groups BIND Therapeutics 325 Vassar St 18,000 200 looking to enter, understand6% and collaborate with the area’s dynamic industry 0 Nucleus Scientific 148 Sidney St 15,000 4% force, and from an increasing roster of supporting organizations. Among these 2% (200) Ensemble Therapeutics 99 Erie St 12,000 new supporting groups is0% American Laboratory Trading, a dealer of second-hand(400) Manus Biosyntheis 1030 Mass. Ave 11,000 2007 2008 2009 2010 2011 2012 2013 laboratory research equipment, a significant complement to earlier-stage research Epizyme 400 Technology Sq 11,000 firms looking to maximize available funding. Johnson & Johnson became the ninth Eleven Biotherapeutics 215 First St 11,000 of the world’s ten largest biopharmas to open an area presence, opening its “Boston Teleflex One Kendall Sq #1400 10,000 Innovation Center” in Cambridge (Eli Lilly & Company is the holdout). The center Greater Boston largest leases since April 2013. Source: Transwestern|RBJ stands among operations they are opening in California, London and Shanghai, in an effort to increase participation in next generation biopharma research and going public since April 1st. In each offering, investors exercised the additional 15 collaboration. percent of stock available through an “over-allotment,” indicating a high level of investor interest in the issues. Cubist Pharmaceuticals, Synta Pharmaceuticals and MONEY Cambridge Tetraphase Pharmaceuticals were able to exercise follow-on8,433,000 offerings of stock, Offerings Overflow; Partnerships Proliferate; Broad another $100m while Merrimack Pharmaceuticals executed two simultaneousSuburbs issues, a $75 million The public markets proved historically receptive of Massachusetts-based 5,598,000 offering of convertible preferred stock and a $57.5 millionBoston offering of common stock. biotechnology companies as a record number of IPOs highlighted robust public Despite an essentially full pipeline of expected offerings3,160,000 for much of the year, just investor appreciation. An aggregate $654 million of capital was raised for first- two offerings remain in registration at the beginningTOTAL of December – a $50 million time issuers, with Acceleron Pharma, Agios Pharmaceuticals, BIND