Joel Marcus built a real estate empire on the life sciences industry’s steady growth. Over three decades, his company Alexandria Real Estate Equities has amassed tens of millions of square feet of office and laboratory space in drug development hubs like Boston, San Diego and the San Francisco Bay Area.

Those holdings have given Alexandria a front row seat to biotech’s boom over much of the past decade through to the sector’s pandemic highs and more recent downturn.

“Too much money over too long a period went into the industry in a way that created too many companies pursuing too many opportunities. That never ends well,” said Marcus. “What the industry has learned through the shakeout of the last two years is more discipline at the front end of forming companies.

BioPharma Dive spoke about biotech’s outlook with Marcus and with Whitney Snider, a doctor and former Celgene business executive who oversees Alexandria’s venture investments. The following conversation has been lightly edited and condensed for clarity.

BIOPHARMA DIVE: Biotech’s geographic clusters are well known. Where do you see the sector expanding?

JOEL MARCUS: The key problem non-established clusters have is you need four elements to make a cluster really work. You got to have a great location. You got to have a deep talent pool, both scientific and managerial. You got to have risk capital and you’ve got to have great science and technology. Very few places have all four of those.

You’ll find that in places like Philadelphia, you can start a company there, but you really can’t scale. You can’t find the talent to scale. We just moved a billing company to San Diego because it ran into that exact problem. It’s not an infrastructure problem. It’s a talent pool problem that limits new clusters from emerging and succeeding.

If you start a company — unless you have a very boutique operation and you’re looking to sell the company — anybody who wants to grow has to think about the talent pool to do that. In drug development, you’ve got phases of research, development and commercialization. The people that are really talented in those three areas really don’t exist in many locations other than the established clusters.

So where do you expect to see biotech growing?

MARCUS: I would say Texas. If you looked at Houston, Dallas and Austin combined, they could become a tri-cluster area — not today, not over the next three-to-five years, but probably a decade from now. You have some really good institutions, a number of new medical schools. But you don’t have any depth of talent and you don’t have any depth of risk capital there.

Not too many other places would be on my radar.

Biotech is rebounding after a downturn. How does this recovery compare to other cycles in the past?

MARCUS: The market has started to recover, [funding] great entrepreneurs with big market ideas who have proven themselves before. We’re starting to see some strong returns of investment. There is now an appetite for IPOs in the public markets.

WHITNEY SNIDER: While some of the venture funding has come down from the peak of 2021, we’re seeing very healthy levels and inflow. This first quarter has been really strong.

If you remove the mega mergers, which we consider over $50 billion, we’re seeing a really important recycling of capital and talent back into the industry, which we think speaks to the strength of companies and therapeutics in development.

What do you think will sustain this recovery?

MARCUS: The industry continues to invest through multiple different routes, hundreds of billions of dollars into R&D, and that’s been pretty steady.

The pharma companies have on their balance sheets, both in cash and borrowing power, over a trillion dollars today. That’s a historical high. They have many great products, although their challenge is to find replacements for the products that are going off patent through the end of the decade. That’s why there’s been an aggressive pursuit through partnering, licensing and bolt-on M&A by pharma to find these product opportunities.

How has venture capital changed?

MARCUS: They have metered investment and been more disciplined than they were over the past handful of years, understanding the markets aren’t there necessarily immediately for exit. And they have to be more disciplined about management teams, strategies, and the appropriate shots on goal.

I think where the pain still lies today is in the public companies, biotech companies in particular. Venture on one end and big biopharma on the other are extremely well capitalized. The challenge today is those companies that went public that either have preclinical data or they’re in the clinic, but their cash may not get them to the next value inflection milestone.

Where are you most optimistic?

SNIDER: It’s truly early in the game here in 2024. We have seen a strong start for biotech IPOs, particularly those who have clinical stage programs. The next crop of companies going public, weathering in the public markets, hopefully will set kind of a new precedent. We’re seeing incredibly impactful areas such as oncology, metabolic, neuropsychiatry. Hopefully those companies will fare well on public markets.

MARCUS: A handful of years ago, nobody would have imagined a metabolic market for the GLP-1 drugs that have emerged. Eli Lilly 10 years ago was a backwater pharma hanging out in Indianapolis. Novo was a pharma out of Denmark that people didn’t really know. Now, they’re literally number one with blockbuster drugs at a size no one ever imagined.