July VC Raised Drops to $2.9 Billion, Bay Area Has the Largest Deals

 By David Gross

The Biotech XBI ETF is now trailing the Year-to-Date returns on the S&P 500 by over 30 points, so it's not surprising that life sciences fundraising has slowed from its torrid pace earlier this year.  After raising nearly $4 billion a month in January and February, the industry raised just under $3 billion in July.  It's fair to say euphoria has slowed to maybe just strong enthusiasm.

The biggest deals in the month came out of the Bay Area, with Berkeley-based AgTech startup Pivot Bio raising over $400 million, and Elon Musk's Fremont-based Neuralink pulling in $205 million.  Because month-to-month fluctuations are common, I wouldn't read too much into San Diego, New York and LA's low numbers for the month.  I'll have a YTD update and a new video on regional trends out soon.

Iovance Leasing 50,000 Sq Ft at Alexandria's San Carlos, CA Campus for $67.20 per Square Foot

 By David Gross

In a lease signed a few months ago, cell therapy developer Iovance Biotherapeutics committed to nearly 50,000 square feet over 10 years at Alexandria's District project in San Carlos, CA, just south of the San Mateo Bridge, with an initial base rent of $67.20 per square foot.  This is nearly $10 lower than Nkarta's recent deal with Healthpeak Properties in South San Francisco.   

With South San Francisco filling up, Alexandria is luring tenants south to the Mid-Peninsula in what it refers to as the "Stanford" submarket, and is in the process of putting over a half million square feet of lab and office into the San Carlos Project.   Immunology developer Allakos Therapeutics signed onto the project right before COVID in late 2019, taking nearly 100,000 square feet at $69 per foot, with a $150 per foot Tenant Improvement Allowance.  As part of this expansion, Alexandria is also developing another half million square feet on Fabian Way and Hillcrest Avenue in Palo Alto, which are in fact close to the Stanford campus.  

Seagen Signs Lease for $15.50/Sq Ft in Everett, WA

 By David Gross

Oncology biologics developer Seagen is taking all 258,000 square feet of a new project in an industrial park 30 miles north of Seattle in Everett, WA.  The initial base rent of $15.50 per square foot might seem extremely low, but the company has a history of moving lab workers into industrial/flex space, as it has done at its Bothell, WA headquarters about 15 miles south of the new space.  Through a combination of its out-of-pocket costs and allowances, the landlord is allocating $156 per square foot to improvements from which Seagen can draw a TIA (tenant improvement allowance) if those funds aren't spent.

Moving into an industrial park next to an Amazon distribution center, Seagen is willing to locate employees in a neighborhood designed for tractor trailers, not people.  Therefore, this should not be seen as a reflection of the true market for office/lab space around Seattle.  Sequencing manufacturer Nanostring Technologies, for example, is paying current rates over $50 per square foot for its headquarters at BioMed Realty's Vue Research Center in South Lake Union.

At $39/square foot, Suburban Maryland is not a Premium Market

 By David Gross

Earlier this week, I commented on Boston Properties' (BXP) strategy of pursuing lab space in Metro DC, a market it knows well from its office holdings, but not one that commands premium pricing in wet lab space.  Cell therapy tools developer MaxCyte recently announced a 67,000 square foot lease at 9713 Key West Boulevard in Rockville, for what appears to be approximately $40 per square foot based on SEC filings, and Sensei Biotherapeutics leased 7,000 square feet in Alexandria's 1405 Research Boulevard building last year for $39 per foot.  This is nowhere near the $60+/square foot rates now seen in Boston, San Francisco, New York, and San Diego. 

In its recent earnings call, BXP said labs are just over 6% of its portfolio, and it expects this to double over the next few years.  It recently acquired 435,000 square feet near the Shady Grove Life Sciences Center for just $267/square foot, and will be converting all the properties it bought into labs.  While it's also pursuing lab properties around Boston, BXP is likely developing properties this region because of its strong presence in the DC area office market, which often commands premium rents from high billable rate law firms and contractors seeking proximity to the Federal Government.  But in biotech, the activity is centered in a suburban area that has few geographic barriers to entry, is driven by NIH funding, not venture capital, and where lease rates are about 1/2 of what they are in more VC and IPO-driven life sciences markets.  

bluebird bio Could Sublease to Facebook in Kendall Square

By David Gross

With life sciences companies paying rents anywhere from $10 to $30 per square foot higher than other tenants, many outside the industry are moving out of core clusters in Kendall Square, Torrey Pines, and South SF to let biotechs have the expensive markets to themselves.  CRM software developer Pegasystems, for example, recently announced it would expand outside its long time home of Kendall Square, taking on 130,000 square feet in Waltham. 

Facebook, however, appears to be bucking that trend, and is reportedly in talks to sublease some of the 267,000 square feet bluebird bio agreed to lease at $99.95 per foot two years ago in a separate sublease from Aventis.  The social media company already has 130,000 square feet down the street at 100 Binney Street, and doesn't appear to be phased by Kendall Square rents, which are some of the highest in the country.

Submarkets around downtown Boston, including the Seaport and Kenmore Square, are commanding rents in the 70s, and Alexandria is making a big push near Kenmore Square with its new Fenway development.  While some companies have headed west out of Kendall Square to Watertown or Waltham in search of cheaper space, the Kenmore/Fenway neighborhood offers urban amenities those submarkets can't match and is poised to see rents head towards $100 per sq foot.  Boston is already one of the hottest commercial real estate markets due to the presence of life sciences,  if more companies outside biotech decide to expand in the industry's core Boston submarkets, we could see commercial real estate renting for prices never seen anywhere in this country.

San Diego-based Kumquat Biosciences Signs Potential $2 Billion Deal with Lilly

By David Gross

Kumquat Biosciences, a developer of small molecule immuno-oncology drugs, has signed a deal with Eli Lilly worth up to $2 billion to develop therapeutic candidates for tumor specific therapies.  The San Diego-based company is headquartered at BioScience Properties' 10770 Wateridge Circle building in Sorrento Valley, just across I-805 from Lilly's San Diego Biotech Center.   They are also just down the street from Sorrento Therapeutics' Directors Drive facility, where that drug developer just renewed for over $60/square foot, one of the first leases to break that threshold in the San Diego market.  Anaptysbio is currently paying $51.91/square foot in the same building as Kumquat (after escalators) on a lease signed in May 2020.

Senti Biosciences Expands Manufacturing Capacity in the East Bay

 By David Gross

South San Francisco-based CAR-NK developer Senti Biosciences has signed a 92,000 sq. ft. lease for cGMP manufacturing facilities the East Bay.  While the site at 1430 Harbor Bay Parkway has an Alameda address, it sits right next to Oakland Airport property.  Senti is leasing the site from Invesco, which bought the building in June for $307 per foot.

Senti will use the facility to manufacture two allogenic CAR-NK drug candidates, both of which have yet to enter clinical trials.  Due to the sensitivity and immaturity of CAR-NK drugs, especially compared to CAR-T, Senti does not want to outsource production to a CDMO.   Additionally, CARs in general require much more manufacturing space than standard in vivo therapies which are often produced in much smaller manufacturing environments.

The neighborhood next to Oakland airport has nearly a million square feet of flex and industrial space, and other life sciences tenants including Abbott Labs and Fluxion Biosciences.

2021 Biotech IPOs by Metro

 By David Gross

UPDATED: So far there have been 69 IPOs and SPAC mergers among US biotechs in 2021.  While about 80% of venture funding in past years has been concentrated in the big four markets, about 70% of this year's IPOs have been from companies based in the Bay Area, Boston, San Diego, and New York.  This is comparable to their current shares of venture funding.  With venture funding becoming more diffuse geographically, there's a strong chance life sciences IPOs will begin to reflect more of the up and coming markets later this year and into 2022.

Some of the big names have included Bay Area-based Zymergen and 23andMe, San Diego-based Erasca and Singular Genomics, and Sana Therapeutics, based in Seattle, which shocked the market by going public while still in preclinical trials.   The IPO and SPAC merger markets are holding steady at about 9-10 US deals per month, and about 12 deals total including foreign listings on U.S. exchanges.  However, with the XBI Biotech ETF trailing the broader S&P 500 significantly this year, it would not be surprising to see a pull back as 2021 progresses.  

Q2 Biotech VC Drops Slightly from Q1 to $10.06 Billion

 By David Gross

Slowing down just a bit from Q1's torrid pace, Q2 Biotech VC dropped 13% to just over $10 billion.   Much of the reduction was due to a slowdown in activity in Boston, which dropped from $4.7 billion to $3.2 billion in the quarter.  Boston's reduction in dollar volume was primarily due to less deal activity, not smaller average deals.   The Bay Area actually surpassed Boston's deal count.

Q2 also saw none of the $400 million+ mega-rounds that Q1 did with Insitro, EQRx, and Elevate Bio.  The largest deal went to Waltham, MA-based Adagio Therapeutics, which raised $336 million to find a long-term treatment for COVID, with the second largest deal going to San Diego sequencing company Element Biosciences at $276 million. 

Deals were also a lot more spread out in Q2 than Q1, the top four markets (Boston, Bay Area, NY/NJ, San Diego) dropped from 82% to 71% of funds raised.   Large deals outside the big four included Seattle-based immuno-oncology developer Umoja raising $210 million and Chicago-based Jaguar Gene Therapy raising $139 million.  

Heading into the 2nd half of the year, momentum continues to look strong in gene therapy, ag bio, and -omics.  Lab rates in the big four markets are surpassing $60/sq foot, ahead of office rents.  However, most startups are more concerned with speed than rents. Therefore, the opportunities in university markets and non-traditional big city life sciences markets continue to be centered on talent, capital, or both - but not the cost of lab space. 

Q2 2021 Biotech VC

Q1 2021 Biotech VC

Is Boston Properties Investing in the Wrong Lab Space Markets?

By David Gross

It's become well known that lab space is greatly performing office space.  With rates in San Diego now topping $60/square foot, the high end pricing has moved well beyond Boston, SF, and New York.   The leading lessors are also moving beyond Alexandria, BioMed Realty, and Healthpeak as commercial space developers are running to this sector.  Leading Class A office developer Boston Properties, which owns the Embarcadero Center, Citibank Building, Salesforce Tower, and Prudential Center, is aggressively following this trend, and converted and acquired nearly 600,000 feet of lab space in Waltham and Suburban DC/Maryland last quarter.

Boston Properties (BXP) is a publicly traded REIT like Alexandria, and focused on high rent markets, primarily Boston, New York, DC, San Francisco, and Los Angeles.  Its stock has returned 30% YTD compared to 16% for Alexandria, and it will be interesting to see whether it decides to go up against Alexandria in San Diego, which is  a top-of-the-line lab market, but a middle-of-the-pack office market. Meanwhile, DC is exactly the opposite.  The modest $269 per square foot price Boston Properties paid for its Suburban Maryland campus is well below the $500+ per square foot prices to build or acquire labs in San Diego.  If BXP wants to get serious about labs, it might need to rethink which markets command premium rents, because right now La Jolla/Torrey Pines is running way ahead of where it's investing along the I-270 corridor outside Washington.

Cantor Fitzgerald pays over $500/ft for Northern LA County Lab Space

 By David Gross

Many of us have been waiting for lease rates in LA to start catching up to San Diego and The Bay Area.  While not a lease transaction, Cantor Fitzgerald recently paid an impressively high $92 million for  180,000 square feet in the Southern California Innovation Park.  The building they acquired, at 25155 Rye Canyon Loop in Valencia, is fully leased to Boston Scientific.

For more discussion about LA's biotech market and regional lab space, don't forget to join me and developer Ben Pouladian next Tuesday at 5pm on ClubHouse.

San Diego Tops $60/Sq Ft - Sorrento Signs 15+ Year Lease

By David Gross

Yesterday I posted on DermTech's deal with Kilroy for $51/square foot in La Jolla.   But San Diego is emerging as one of the few markets that could support over $60/square foot with its rapidly growing life sciences sector.  Sorrento Therapeutics recently signed a deal to take a new property at Healthpeak's Sorrento Gateway project, with an initial base rent of $61.20 per square foot.

The deal gives Sorrento 163,000 square feet at the development and is signed with escalators for a long, 188 month, or nearly 16 year, term.   Sorrento already leases space across the street from the property at 4930 Directors Place, and is consolidating its leases to have the same 2037 end date.

With Class A Space in La Jolla and Torrey Pines becoming some of the most expensive in all of Southern California, will be interesting to see what happens to the efforts to bring life sciences companies to Downtown San Diego, where IQHQ is building its $1.7 billion RaDD (San Diego Research and Development District) on the urban waterfront. 

San Diego Tops $50/foot - DermTech Leases 76,000 Square Feet from Kilroy in La Jolla

 By David Gross

Melanoma test maker DermTech recently signed a lease for 76,000 feet at Kilroy's Del Mar Corporate Centre II development in San Diego, in a building constructed in 2002.  Located north of Torrey Pines along I-5, this area is in the upper reaches for life sciences companies and will include 30,000 feet of conversion from office to lab use.

Base rent begins at $51 per square foot for the four phase lease, rising to over $80 per square foot over the 10 1/2 year lease term.  Rents in this area have been hanging around the 40s, so a deal above $50 is notable for the very hot La Jolla/Torrey Pines market.  It's also higher than sublease rents around Mission Bay in San Francisco.

Nkarta Leases 88,000 Sq Ft in South SF for $77 per Foot, Escalating to over $110.

By David Gross

Nkarta, a developer a Natural Killer (NK) cells for cancer therapies has leased 88,106 square feet in South San Francisco with an initial rent of $76.80 per square foot.   The 12 year term includes 3% annual escalators that will bring base rent to approximately $111 per square feet in the final year of the lease.

The landlord, Healthpeak Properties, is including a net TIA, or Tenant Improvement Allowance, of $236 per square foot to cover the buildout of the space, which will include 2,700 square feet of cGMP manufacturing space.   Rates in South City continue to outpace rates in the "City" of San Francisco where a flood of sublease space is available around Mission Bay, and due to tenant concerns about Prop C taxes.

LabLaunch Building Incubator in Atwater Village, Los Angeles

By David Gross

In between the established hubs in the Bay Area and San Diego, Los Angeles continues to look for its life sciences niche.  Located seven miles north of downtown, and in between Los Feliz and the Glendale line, Atwater Village is the latest LA neighborhood to get in the game, with LabLaunch building an incubator which startups can lease for $4,600/month.  

As I've mentioned in the past, one of the biggest challenges in LA is coalescing around a handful of hubs instead of having Pasadena fighting Westwood fighting Irvine fighting Ventura County.   Will be discussing this more next Tuesday, August 3 at 5pm on ClubHouse.