Middle Age Crisis Over for the Life Science Sector?--$19 Billion Investment Reported for 2011 North American Construction Starts

---

Reported by Annette Kreuger, Industrial Info Resources (Sugar Land, Texas)--With a wary look back at 2010's feeble performance, the life sciences sector is reporting a whopping $19 billion in projects starts through the end of this year. An analysis by Industrial Info's Pharmaceutical Tracker - Online Database of active capital and maintenance (MRO) projects revealed 726 active life science projects with a current kickoff date in 2011.

Click on image at right for a listing of the top 10 life science project starts in 2011.

What does this mean? Do the high-dollar numbers mean the industry is cured? Is it on the way to resuming its traditional levels of double-digit growth? No, not so much. Perhaps if we view the entire industry as an entity unto itself, one with a lifespan that resembles our own, it becomes a little clearer. In its glory days of youth, the growth was seemingly unabated. Here, there, everywhere, Big Pharma and its lesser peers could not build fast enough to contain the virtual explosion of new products. If one was good, two was better. And the money flowed in as the use of prescription drugs became the norm within the culture.

Moving into adolescence and young adulthood, the rise to the top continued. The life science sector became the "Young Turk" of the industrial world, with stunning technology and the big dollars needed to make it happen. The term "Big Pharma" became synonymous with "Big Bucks." The goal of many a marketing grad (and a number of science majors) was to land a job in the industry that could easily translate into a six-figure income laden with perks. Life was good. Oddly enough, that robust health made it one of the most vilified industries in modern history.

But the seemingly inevitable happened: Tomorrow came, as it is wont to do. The bills came due, and the aches and pains appeared. Time to pause and take stock before real damage occurred. The only way to survive and indeed thrive was to change to accommodate reality. And reality is often hard to accept. The more we have, the more conservative we become across the board. Or so we should. Age is supposed to bring wisdom, but the scores of bankrupt companies testify to the lack thereof. There are reasons the majors became so, and they are not eager to lose their status. The survivors will do what is necessary to achieve that goal.

It is now truly a global industry, a leaner operation filled with seemingly ruthless cost-cutting strategies impacting tens of thousands of workers. There are fewer companies at the top, as mergers and acquisitions continue as the main avenue of growth. The line between pharma and bio is so faint as to be nearly invisible, as the two branches have come together for future growth. Time continues to run out on any number of billion-dollar blockbusters, forcing many to accept that there is just no way to improve on the old product and thus secure a new patent, paving the way for generic proliferation. Growth is in biologics-vaccines, oncology and a host of other booming therapeutics requiring live cells. Truly, it is not your father's Pfizer (NYSE: PFE) (New York, New York) anymore.

Yet, the industry still turns in stunning numbers, even as it continues to reinvent itself. The $9 billion from 2010 was a bitter pill to swallow, but that was still $9 billion in hard-cash construction starts. And the $19 billion on tap for 2011 is more than double that--perhaps proving that while sprints may be out of the question, don't count the sector out for the long-distance marathons. The life science sector simply has to pace itself and keep reevaluating along the way. It is even open to receiving its own form of social security from Uncle Sam in the form of construction grants to help fund certain new research and production facilities.

The odds are that not all of the reported projects will begin construction this year. But if tradition holds true, a large percentage will. Historically almost 80-85% of reported projects made it to construction, and while the number spiraled down in 2010, hitting a low of 50%, it currently sits at about 70%. And a large number of those projects that are put on hold are simply pushed out until market conditions improve. Very few that make it to viable planning are actually cancelled. With all of the merger and acquisition activity, some may well be cancelled, only to be resurrected in another form once all of the combined assets are reviewed and site decisions are made.

A case in point is Vertex Pharmaceuticals (NASDAQ:VRTX) (Cambridge, Massachusetts) and its $800 million decision to proceed with its new biopharma research campus at the Fallon Companies' Fan Pier site in Boston. Tracking this project has been a case of go, no go, dead in the water, and then back to life--bigger than originally planned.

As varied as the industry itself, the projects range from $1 million scheduled production plant maintenance shutdowns to a $1 billion lab project at Oak Ridge National Lab. If the Oak Ridge project is taken out of play due to federal budget cuts, it will still leave a healthy $18.3 billion on the table. The projects referenced are sourced out of the public, private and institutional markets, and include everything from grassroot projects to annual maintenance shutdowns. The current top 10 projects for the industry are valued at a stunning $5.8 billion, and all are being monitored closely for any changes in activity. For the first time in a long while, the top-10 list includes only two federal projects, with the remainder a divide among public and private.

Forced to take its own medicine, the industry, in the throes of middle age, is preparing for its next incarnation. Attention and quick response to warning signs, cautious optimism and the ability to accommodate a changed reality are all factors that will allow the industry to evolve into a golden-years era that will be just that.

View Plant Profile - 1079453 1519197
View Project Report - 35001022 300007080

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. IIR's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.