John McCloud is editor of Industry Property Journal, from which this article is excerpted.

Sugar Land, TX—BioMed Realty Trust's January purchase of the remaining US life science holdings of Lyme Properties represents one pole of the current biotech/pharmaceutical market. New York City-based Pfizer Pharmaceutical Co.'s decision to cut about 10,000 employees from its global workforce and close several million sf of plants in New York City, Omaha, NE and Ann Arbor and Kalamazoo, MI represents the opposite pole. What's unclear is which pole best reflects the current state of the industry.

Without question, BioMed believes strongly in its position. The San Diego-based REIT paid the Hanover, NH developer $511 million for 600,000 sf of completed and uncompleted buildings and now plans to spend an additional $100 million to finish the uncompleted buildings. The spending clearly won't stop there, for the purchase includes an 80-acre site in New Haven proposed for the 700,000-sf expansion of the Science Park at Yale and a parcel in Houston earmarked for development of the 500,000-sf Center for Life Science. Last year BioMed paid Lyme $427 million for the 702,900-sf Center for Life in Boston. It plans to spend approximately $700 million to finish the project, which was in construction at the time of purchase.

BioMed is not alone in its confidence in the future of life sciences. A report from Sugar Land, TX-based Industrial Info Resources shows 257 biotech/pharmaceutical projects with a total value of $15.4 billion started construction in North America in 2006. This compares to 319 projects valued at $11.9 billion that went into construction in 2005. The current year looks to be even better. More than $2.4 billion of capital and maintenance projects were scheduled to begin from January through March, and some 429 projects valued at $16.6 billion are scheduled to begin construction during the year as a whole.

In addition to increasing investment in life science, IIR reports improvement in what it calls the fallout rate: only 12.47% of projects scheduled to start construction in 2006 failed to advance, compared to 14.06% in 2005. IIR says the industry's ability to plan appropriately for future growth underscores its growing maturity.

However, as another report from New York City consulting firm Accenture reveals, the significance of Pfizer's downsizing should not be minimized. According to the report, $1 trillion of "enterprise value," a measure of future profitability, has been wiped out through investors' loss of faith in drug-makers' growth prospects. Accenture attributes the loss of faith to a profit squeeze from the growing popularity of generic drugs; a marketing "arms race" that has diverted resources from research and provoked public backlash; and soaring research and development costs. The report says companies typically spend $500 million to $2 billion to bring new drugs or technologies to market.

The industry has responded to its troubles through mergers and acquisitions. According to London-based M&A tracker Dealogic plc , a record 1,009 biotech, pharmaceutical and medical device companies were acquired in 2006, up from 923 in 2005 and 740 in 2004. The total value of last year's acquisitions was $135.9 billion. But this route does not necessarily guarantee a solution. Boston Scientific Corp. of Natick, MA saw its shares fall 40% after its $27-billion purchase of Santa Clara, CA-based Guidant Corp. last year.

How the industry ultimately shakes out won't be known for several years. In the meantime, new deals continue. Among the more recent transactions, CEL-SCI Corp. of Vienna, VA signed a letter of intent with BioProperties Inc. of Irvine, CA for the latter to acquire and build out a turnkey drug manufacturing facility for the new cancer drug Multikine. The FDA recently gave CEL-SCI the green light to start a Phase III clinical trial of the product. The $15-million BioProperties facility would be used for the trial.

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Life Sciences Industry in Turmoil

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