Avoid Missteps During Major Footprint Expansions

Life sciences executives can find themselves facing crossroads that can fundamentally shift the paradigm of their business. From M&A and IPOs to facility construction, geographic expansion, and new commercial offerings, these transformative events can be critical junctures that affect a company’s success.

This series explores transformative events for companies in the life sciences industry and the challenges and opportunities that those events present. Whether a particular challenge is new or familiar, it is important to be aware of those challenges and related risks and to consider the need to engage the services of a third party to help fully address potentially wide-ranging impacts.

With growing competition and continual pressure to evolve and innovate, many companies in the life sciences industry are contemplating footprint expansion as they scale operations to stay competitive and meet growing market demands.

Through acquiring new facilities, leasing additional office spaces, or constructing state-of-the-art research and development (R&D) centers, expansion can be a key strategy for growth. However, this journey often is fraught with challenges that require careful navigation. Financial strategy and compliance, facility optimization, security, and cost management are all elements of this transformative event that present their own sets of hurdles.

As life sciences companies undergo expansion, they have the chance to redefine their operations and embrace new strategies or technologies. By addressing the complexities of financial planning, optimizing facility efficiency, enhancing security measures, and strategically managing costs and taxes, organizations can not only overcome obstacles but also unlock new avenues for success, transforming these challenges into catalysts for growth and innovation.

Challenge: Navigating potential pitfalls

Footprint expansion requires a thoughtful and thorough financial strategy – from securing funding and managing cash flow to forecasting the demands that expansion will place on the budget. Life sciences companies undergoing expansion will need to balance the need for capital with the risk of overleveraging.

The necessary costs are compounded by the need to comply with financial regulations that vary by region, which might be unfamiliar to a company expanding into a new geographic area. Without a clear financial road map, life sciences companies might overextend themselves or struggle to sustain their expansion efforts – and potentially jeopardize their short- and long-term financial health.

Opportunity: Crafting a resilient financial blueprint

Despite these risks, expansion presents a unique opportunity for a company to optimize its financial strategy. Whether by performing a thorough internal review or reassessment or by engaging the services of a third party, management can revise its existing plan as necessary or develop a new plan that aligns with new or evolving growth objectives. This can include exploring and analyzing the risks and benefits of various funding options or new strategic partnerships or investments.

Ultimately, a well-structured strategic approach that incorporates short- and long-term planning and cost expectations can help ensure a smooth expansion process and a more resilient financial position – and better position a company to capitalize on new market opportunities.

Challenge: Designing for peak performance

As a company expands its physical footprint, management will need to verify that new or expanded facilities are optimized for operational efficiency. Management’s expansion plan should incorporate tangible considerations – such as layout design and equipment selection – so that these key decisions support the company’s processes and expansion goals.

Precision and quality are especially critical in the life sciences industry, and even seemingly minor inefficiencies can lead to increased costs and slower production timelines. An additional challenge lies in designing facilities that not only meet current operational needs but are also adaptable to future technological advancements and market demands.

Opportunity: Building the future of innovation 

While an expansion represents a significant capital investment, it can also offer an opportunity to implement new technologies or manufacturing best practices that can produce substantial returns in enhancing facility efficiency. Furthermore, companies that invest time and resources up front into maximizing utility and energy efficiency can benefit not only by saving on costs but also by demonstrating their commitment to decreasing their environmental impact.

By planning with a long-term horizon in mind, companies can create spaces that are not only efficient but also flexible and scalable. Manufacturing, research, and corporate facility expansion built with the end goal in mind can help support innovation and collaboration, ultimately contributing to a company’s competitive edge in the industry.

Challenge: Fortifying the front lines

As a company builds new facilities and expands operations and infrastructure, management needs to reassess and upgrade security measures and infrastructure to protect valuable assets, such as physical resources, intellectual property, and sensitive data.

Companies in the life sciences industry can be especially vulnerable to security threats, given the high value of R&D as well as proprietary information. Furthermore, these companies are likely to collect significant and growing volumes of data and to rely increasingly on system operations. In such an environment, a security breach or a service disruption that is not mitigated by a thorough business continuity and recovery plan can significantly damage a life sciences company’s reputation and bottom line.

Management will need to find a way to implement robust security protocols to safeguard against physical threats and cyberthreats while also ensuring that changes in infrastructure cause minimal disruption or delay to expanding operations.

Opportunity: Securing success with advanced solutions

Addressing new security needs provides an opportunity to integrate advanced solutions and infrastructure enhancements that bolster operational resilience. Too often, companies might neglect to continually assess their organizational needs, leading to security measures that are outdated and inadequate. A new expansion plan can represent the perfect opportunity to reassess a company’s security needs – and update its infrastructure accordingly – across the organization.

Challenge: Tracking extensive costs over a long horizon 

Managing the costs associated with an expansion can be a daunting endeavor, requiring cost management on multiple potential fronts, including construction, leasing, and new expenses related to operations and head count. Additionally, expanding manufacturing or research facilities in new jurisdictions can introduce an array of new tax considerations. Without effective cost management and tax planning, companies risk eroding their profit margins and encountering unexpected financial burdens for which they are unprepared.

Opportunity: Maximizing value through strategic planning 

Effective and proactive cost management and strategic tax planning can transform these challenges into opportunities for financial optimization. By planning proactively, companies can identify cost-saving measures and tax incentives that align with both specific expansion goals and overall organizational objectives. Management should consider how to create and execute an effective cost management and tax planning strategy by carefully analyzing and controlling construction costs and capital expenditures and by taking full advantage of tax exemptions.