Office REIT Alexandria Real Estate Equities sees a bright future ahead for its biosciences and pharmaceutical tenants despite the government's tough talk on drug prices and repealing the Affordable Care Act.
The firm expects the coming changes Republicans have for the Affordable Care Act will happen in five stages throughout 2017.
Another government move is likely to fill the coffers of potential office tenants with money for expansion, executives said. "The 21st Century Cures Act was signed into law on December 13 providing the NIH with almost $5 billion over a ten-year period of increased funding and the FDA about $0.5 billion as well," said the REIT's CEO Joel Marcus on the firm's fourth-quarter earnings call.
"The life science drivers continue to be very positive including positive government support, increased medical innovation, continued significant R&D investment and the continued move to externalization of R&D by big pharma to smaller companies," he said.
Marcus lauded Trump's proposed plan to make it easier for companies with profits stashed overseas to bring them back to the U.S. without onerous taxes. He said if it becomes a reality it could be a boon for life sciences expansion. "It would mean something in the range of $100 billion to $150 billion of cash brought back, easing of constraints on small innovative bio-tech companies, stimulation of innovation, a desire to bring operations back to the US and in an increase hiring in the United States both for R&D and manufacturing, he said.
The life science sector is already doing well thanks to a fast pace of FDA drug approvals, he added, saying that 75 percent of the 22 new drugs approved in 2016 were products of Alexandria's tenants. Novartis recently signed an early renewal on 47,255 square feet in Cambridge, Mass., at a 20 percent higher cash rent. And Merck has initiated a ground-up development of new office space at one of the Alexandria's properties in South San Francisco, he added.
In the fourth quarter, Alexandria Real Estate Equities' same-property net operating income increased by 3.2% for the fourth quarter and 6.0% for 2016 as a whole. Rental rates per square foot grew by 25.8 percent year on year in the fourth quarter and 27.6 percent year on year for the full year.