Oxford's Pierre Leocadio on Why They Want to Be a 'First Mover' in French Life Sciences Market
As part of our high-conviction investment strategy to build a leading global life sciences business we entered into a partnership with Novaxia, a leading French urban investor and developer, to develop much needed new supply of life sciences space across France. Targeting approximately €1 billion (C$1.3 billion) of investment over the next few years, the partnership marks our entry into French life sciences.
On the verge of announcing an initial set of investments, Pierre Leocadio, SVP, Head of Office, Retail and Life Science, Europe at Oxford discussed the opportunity in France, the Novaxia partnership and why Oxford wants to be a ‘first mover’ in the French market
Q: What attracted Oxford to invest in the French life sciences market?
Pierre Leocadio: We have high conviction in life sciences and we want to deploy capital in Europe, but there are several market-specific factors that we like about France. First, would be the market opportunities: France is Europe’s second largest biotech VC market, with VC funding into French life sciences companies seeing an annual growth of approximately 20% over the last ten years. This creates significant future growth and demand for lab space. This is coupled to strong existing fundamentals: France is an established global leader in R&D and within health, the country has claimed 13 Nobel Prizes in medicine, has a large pharma trade surplus and is ranked second in Europe for the number of biotechnology products being developed.
We also like the dynamics of the market: from a growth perspective, we believe we are just at the beginning for the life sciences market in France, so entering gives us a significant first-mover advantage over the next few years.
Lastly, we wanted to utilize the knowledge we’ve built in France and capitalize on that. We started to invest there in 2014 and since that time we’ve built a deep knowledge of the market: we know all the key players and have built a good reputation.
Q: What is unique about the life science market in France?
PL: For years we’ve seen R&D budgets decline in France and collaborations between academia, hospitals and the private sector have been limited. However, there’s been a huge push by government to invest in healthcare and biotech and this has been accelerated by COVID-19.
Private capital has mirrored this. There’s been exponential growth in VC funding, and that is a major catalyst for the formation of new companies and discoveries of new therapeutics. And we’re now seeing healthcare providers, like the Paris hospital system, working in collaboration with private capital and academia more than ever before.
France provides all the ABCD fundamentals (Academia, Business, Clinical and Demographics) to support growth in life sciences, but now they’re finally mixing together well and moving in the same direction.
Plus, France has always been a leader in oncology and infectious diseases, and it has some of the world’s largest research hospitals and institutes dedicated to that field (such as CNRS, Inserm or Institut Pasteur). We’ve seen a lot of startup activity emanate from those institutions.
Q: There’s a critical shortage of incubator space in Paris, what has caused this?
PL: Incubators in France have historically lived within hospitals or public research institutes, with very little private space available. The only real option for a startup was to work within a hospital or institute in what was, relatively speaking, lower-quality space. With the increase in VC funding, startup companies are much better capitalized and can be more discerning about the space they work in. There’s been a significant shift for these companies to favour state-of-the-art, ready-made R&D space with great amenities for employees.
We know there is very little of this modern, high-quality life science space being delivered in Paris over the next five years. So, by delivering this product, we are going to be able to connect with this growing life science ecosystem, help drive this growth and create significant value.
Q: Has Oxford’s global life sciences expertise been advantageous in entering France?
PL: It’s a big differentiator for us versus our competitors in all aspects: asset management, development management and investment. Collaborating with our North American life sciences teams provides us insightful data and trends when we underwrite new deals. Discussing with our OMERS venture capital and capital markets teams provides us significant inputs when reviewing our occupiers covenants and financials. Finally, having a global business enables us to have all solutions for our occupiers to support their growth internationally.
Q: What have been some of the biggest challenges?
PL: As the market is not as mature as the U.S., it lacks the same level of data points and you don’t have the same expertise in the market at an advisory level; we’ve had to work twice as hard to get conviction. Another is, being a first mover, we’ve had to open many doors ourselves, which Novaxia have been a great partner on. All these items are moving in the right direction, but they raise the barrier to entry, which ultimately is a benefit to Oxford and Novaxia as we have already done the hard work.
Q: Oxford’s stated focus has been on Paris, but what other markets will Oxford explore?
PL: Our initial focus is indeed Paris. Aside from its constrained supply, it benefits from possessing all the factors that lead to the cluster effect which we strongly believe in. France is very centralized. Paris has the largest hospitals, the best academic institutions and attracts 80% of all biotech VC funding—so the pieces are all there.
Outside of Paris, Lyon will be a natural second step for us. It’s a big and deep target for life sciences with history in the sector, government support and companies already choosing it as an alternative to Paris. We’re open to other secondary and tertiary markets and continue to perform due diligence, but Paris and Lyon are the emphasis.
Q: There’s been some turmoil in the capital markets, with growth companies taking hits to their valuations. Has this altered our strategy in life science?
PL: It’s been a painful moment for everyone, and the biotech sector is not immune to that. However, the long-term growth prospects are still there—aging populations driving increased demand for therapeutics, increased funding for the sector, the increased speed which firms can now get a product to the market. The potential is there, the long-term growth is there, and we want to be part of that. It’s also important to note that in the event of an economic slowdown, the occupiers demand should continue to outpace the available supply due to Paris constrained stock in the near term.
In the short term, we’ll be patient and selective around the opportunities we pursue. However, our ambition to deploy capital remains the same, and where we want to deploy that capital remains the same.
Q: Why did we choose to partner with Novaxia in particular?
PL: We recognized that establishing a life sciences business in France would be highly development-led, given there’s very little product in the market. So, it made a lot of sense to partner with a local developer in a market where we don’t have a development team on the ground.
As for Novaxia, they stood out as a partner. They were one of the only developers with a demonstrated strategy around life sciences in France—such as their impressive work to deliver one of the largest incubators in Europe at the Hotel-Dieu Paris. We also valued their agility, as we wanted a development manager that wasn’t too big, nor too small to work with local authorities on our various projects and Novaxia was the perfect fit.
Q: What has the reception been in market to Oxford’s entry and the announcement of the Novaxia partnership?
PL: Very positive. We’ve had great discussions with key stakeholder groups—academia, venture capital and the public sector—and it’s clear that everyone is pulling in the same direction and aligned in growing the sector. Potential occupiers have been excited by the prospect of a real professional and institutional landlord that will be able to support their growth entering the market, which has been great to see.
This is an excellent, short and succinct Q&A with Pierre Leocadio, SVP, Head of Office, Retail and Life Science, Europe, at Oxford.
He covers why Oxford has been very focused on investing in life sciences properties in France, mostly in Paris and a bit in Lyon, and why they chose Novaxia as a partner of choice.
In May, I covered why Oxford formed a strategic partnership with Novaxia to invest €1bn in the French life sciences market over the next few years. You can read that comment here.
A month ago, I discussed how Oxford completed the acquisition of the Biocitech life sciences campus in Paris, France, marking the first acquisition of the joint venture with Novaxia to invest approximately €1 billion to acquire and develop life sciences buildings across France.
Biocitech, located in the Romainville submarket of Paris, comprises 21,000 square metres of lab, office and specialist storage space across seven buildings and enjoys a rich history as a life sciences hub.
You can read my comment on that deal here as I highlighted some research Savills UK put out research highlighting Paris life science.
I stated despite the rise in interest rates, the fundamentals for Paris life science properties remain very strong and Paris is severely undersupplied in terms of quality lab-enabled real estate, with strong forecast occupational requirements set to absorb any near-term pipeline.
Now, as Pierre Leocadio discusses above, they are not immune to what is going on in capital markets and a retrenchment in VC funding in France and a major global recession will hit the life sciences market but the secular trends he mentioned are still intact.
Also, there isn't that much supply so Oxford is right to continue investing here and developing properties with Novaxia but they need to be selective, which is what they're doing.
Biotech is an area I know extremely well.
When I was a student at McGill, majoring in economics and minoring in math, I took electives in political science mostly with Charles Taylor and did all my pre-med courses (organic chemistry, biochemistry, physiology) as I was thinking of entering medicine.
But with a heavy course load and barely a 3.3 GPA, there was no way I was getting into McGill medicine so I went on to do my Master's in Economics at McGill and TAed for professor Tom Naylor, the combative economist, to make some extra cash on the side (I should have incurred debt and gone to LSE where I was accepted to do a Master's in Economics).
It was June 1997, I was smack in the middle of writing my Master's thesis covering what Danny Quah called Galton's Fallacy and Tests of the Convergence Hypothesis and I took a trip with a buddy to New York City when I felt something was off in the bottom of both my feet.
It was actually a painful, weird sensation traveling from both my feet to my knees and I was freaking out.
Anyway, took a flight back to Montreal, went to get an MRI at the Montreal Neurological Institute, and they found plaques in my brain compatible with multiple sclerosis.
I was shocked and it hit me like a ton of bricks (no family history).
I ended up spending hours at the McGill medical building reading everything I could on MS.
I remember because Princess Diana died that summer, we were watching it on television, but my mind was on my diagnosis and whether I was going to have a normal life.
That fall, I completed my Master’s thesis and ended up getting an A on it which I was proud of.
The next summer, I got optic neuritis in my right eye and was diagnosed with clinical definite MS (you need 2 separate episodes to be diagnosed with MS).
Almost 26 years later, I can write a PhD thesis on the good, the bad and downright ugly of MS but I was blessed and followed by a great team of doctors and nurses at the MNI.
I got on a study to take Avonex from Biogen early on and it helped initially but then my disease progressed and I had to accept the changes going on in my body (it turned out I wasn't on the placebo and then continued on Avonex for 8 years).
I consider myself very lucky and strong mentally after all these years living with MS (with lots of ups and downs).
What I learned -- and I really should write a more detailed comment on health one day -- are the three most important things about health:
- Proper sleep (cool room, pitch black and invest in a great mattress and pillow).
- Proper diet (Mediterranean with minimal supplements, just take some vitamin D every day)
- Moderate exercise (no need to go crazy, just move and stretch a bit every day)
And in that order. Ask my 91-year-old father, a retired psychiatrist, what's the most important thing in terms of health, both mental and physical, and he'll tell you good quality sleep.
Anyways, where am I going with this?
Oh yeah, the biotech industry.
I can also write war stories investing in biotech stocks as I track very closely what the top biotech funds are buying and selling every quarter.
Investing in biotech isn't just risky, it's super risky and binary, you can wake up one day and your stock is down 90% on bad results from a clinical trial.
Even if everything goes well, your stock can plummet for no apparent reason. It's a heavily manipulated sector where the big funds engage in all sorts of tactics, like naked short selling to manipulate shares (just check out the price action on AVEO Oncology after it got FDA approval for its renal drug. It eventually got bought out but they dragged the price down from $11when it received FDA approval to $3 a shares before it got bought out by LG Chem for $15 a share).
Anyway, the good thing about tracking biotech stocks is you track exciting research and cutting edge treatments across many diseases (when you have MS, you can relate to many other diseases).
For example, here is are some biotechs and news items I am tracking lately:
- Mirati Therapeutics (MRTX) won FDA approval for its rival to Amgen's lung cancer drug on Monday. The approval comes as MRTX stock continues to experience wild swings (understatement). The drug now dubbed Krazati is the second to hit the market that blocks a specific mutation in a protein called KRAS.
- Prometheus Biosciences (RXDX) reported promising results for one of its drugs in two inflammatory bowel disease studies last Wednesday, and RXDX stock catapulted by triple digits. The company studied its drug, currently dubbed PRA023, in patients with ulcerative colitis and Crohn's disease, two forms of inflammatory bowel disease. More than a quarter of ulcerative colitis patients and almost half the Crohn's disease group entered remission 12 weeks after treatment. The results exceeded Prometheus' expectations, RBC Capital Markets analyst Gregory Renza said in a note to clients. Now, Prometheus is planning to run final-phase studies in 2023.
- An experimental antibody therapy for multiple sclerosis can cut symptom flare-ups by half, versus a standard treatment, a new clinical trial has found. The drug, called ublituximab, beat a standard oral medication for MS in reducing patients' relapses — periods of new or worsening symptoms. It also proved better at preventing areas of inflammatory damage in the brain.Ublituximab is not yet approved for treating MS; the U.S. Food and Drug Administration is reviewing the trial data and is expected to make a decision by the year's end, according to drugmaker TG Therapeutics (TGTX).
When I was first diagnosed with MS, there were only three drugs approved for treatment, now there must be at least 20 approved treatments for relapsing remitting MS (better, more targeted) and a handful for progressive MS (more treatments need to be found for progressive MS, especially to remylenate nerves but some new stem cell therapies look very promising).
I'm just giving you a small sample, if you think about cancer and other chronic illnesses, there are a lot of new promising treatments.
It's still early days but life sciences companies need to continue their research and they need proper facilities to do this.
This is why I'm cautiously optimistic about life-sciences properties over the next decade(s).
They are specialized buildings catering to specialized needs of cutting edge biotech and pharmaceutical giants.
You need these properties, not only in France but right here in Canada.
In fact, as I was reading the Q&A with Pierre Leocadio above, I was thinking Montreal should be a mecca for life-sciences properties.
If only our governments can create the winning conditions.
Alright, let me wrap it up with some parting thoughts.
There's no doubt Europe will experience a major recession and VC funding will dry up over the next 12 months.
It will be tough but Oxford and the real estate subsidiaries and divisions of other major Canadian pension funds are approaching this with a long-term view and they're partnering up with the right strategic partners to capitalize on the long-term trends in this sector.
Oxford is already a world-class investor in life sciences properties and it will become a significant player in France in that sector.
Below, Dr. Rod Wong, RTW Investments managing partner and CIO, joins the 'Halftime Report' to discuss his thoughts on the biotech sector going into the new year, his investing thesis behind Avidity Biosciences and more.
And what is the best treatment for your MS? Tune in as MS Nurse Advisor Jane Bridgman walks you through the list of available treatments for MS, their benefits and risks, and their potential side-effects and ways to manage them. Jane is a registered nurse with 8 years’ experience in disability and aged care, progressive neurological conditions and primary health care.
Lastly, sleep expert Dr. Shelby Harris talks with “GMA” on how to get some restful shuteye during these stressful times.
Remember my advice, proper sleep & diet and moderate exercise are the keys and surround yourself with positive people who believe in you. And count your blessings if your disease isn't as bad and you can live a relatively normal life.
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