Life Sciences in California (5 of…)

At last another segment about the life sciences industry done. This one is California-centric because that’s where I work and where I have been allowed to explore.

First I’d like to peel off a couple of layers of the onion-like world of life science.

The Globe
According to a European report, in 2002 pharmaceutical investment in the US in R&D was $33.3 billion which is consistent with the statement above. European investment was $23.6 billion and Japanese was ~$9.5 billion for a total worldwide of about $69 billion. Pharmaceutical sales worldwide was about $505 billion with 51% sold I the US, 25% sold in Europe, 12% in Japan and the rest sold elsewhere in the world. In other words, the US is the hub of investment and of sales of pharmaceuticals and—the pharmaceutical industry emphasizes—the greatest beneficiary of drugs. I have not found a good source of data about global biotechnology sales.

The United States
The US Department of Commerce report on biotechnology cited before says that there are 1,457 biotechnology companies in the US (the report does not differentiate pharmaceuticals and biotechnology). Biotech employed 191,000 people in 2002, up from 79,000 in 1992. Now, as for the national breakdown of life science companies (a way of keeping score):
· 352 in New England
· 226 in the San Francisco Bay Area
· 109 in the San Diego Area
· 76 in the Los Angeles/Orange Co. area
· 70 each in New York and New Jersey
· 71 in the Pacific Northwest
· 36 in Texas

So, in total, California is the state with the largest number of life science companies. But the bi-costal equation is balanced by about an equal number of East Cost companies, and the pharmaceutical industry has a greater concentration there. A cover letter for regional biotechnology development plans by the ousted Governor Davis claims: “Our state is currently home to more than 2,500 (emphasis mine) biomedical companies, which employ 225,000 people in the areas of medical devices, biopharmaceuticals, academic research, wholesale, trade, and lab services.”

Since the Governor’s figures don’t match the US Department of Commerce, it is evident that what is classified as a “life science,” “biotechnology,” or “biomedical” company varies considerably and figures are hard to compare. Suffice it to say that the California life sciences economic sector has enough companies and enough aspirations for future growth that there is significant rivalry among regions within the state to attract more life science related business.

In an initiative begun under Governor Davis, the state has facilitated a process of establishing regional biotechnology development plans. Conferences were held in 2002-2003 to initiate analyses and plans for Los Angeles and the Bay Area. (It appears the process may have been interrupted by the gubernatorial recall before Sacramento and San Diego areas got to their plans.) Two resulting region plans—each entitled “Taking Action for Tomorrow”—tend to emphasize the regions’ strengths and to identify the issues that require remediation for biotechnology to thrive in the region.

San Francisco Bay Area
The Bay Area is the granddaddy of biotech regions. It lays claim to being the spawning ground for the world’s first biotechnology companies. The roots of biotechnology go back to work done at a Palo Alto company, Syntex, Corp., in1961 (now Roche Bioscience). Then came Cetus Corp., founded in Berkeley and finally the first true biotech company, Genentech, was founded in 1976. The key technology that started the field was recombinant DNA, the ability to edit and move parts of DNA around at will. Now the Bay Area’s regional plan claims some 726 companies employing 80,000 people. (Again, the criteria are not stated.)

Bay Area promoters looking for even more growth point to its outstanding research institutions (Stanford, UCSF, Berkeley, et. al), innovative workforce, and a cooperative venture capital community. (Evidently 40% of all venture capital dollars in the US are in the hands of California VCs and 77% of those dollars are held in the Bay Area.) Optimistic promoters expect life science to grow from 2% of jobs in the area to 3% in 2010, and account for 3.9% of salaries reflecting the high salaries in the field.

The big worry of Bay Area life science boosters: complacency. Everybody around the country and around the world is after the benefits of bioscience. The Bay Area is the Old Champ facing the young contenders. The area also has big problems with a less than stellar transportation infrastructure and high cost of living, especially housing.

The Silicon Valley was not known as a biotechnology center during the roaring days of electronics and Internet companies of the ‘90s. But, during the hard times that befell the electronics industry in recent years, there was a lot of talk about biotech being the “next big thing,” perhaps even the salvation of the Valley. There seemed to be an expectation that the region could transfer its expertise in microchips and computing to biotechnology, especially the bioinformatics portion of the industry.

Now that the economy of the Valley is recovering to a degree along more traditional lines there is less talk of a life science transformation. It also may be that there is a realization that the skills involved are not that easily switched. Biotech is very different in knowledge and in business models. Indeed, in many parts of the country the enthusiasm for life science as an economic future does not seem to be accompanied by a realistic appraisal of all the elements needed for success in the field.

Los Angeles Region
The Los Angeles region (including Riverside, San Bernardino, Orange, Ventura and Santa Barbara counties) does not have a reputation as a life science-intensive area. But that hasn’t stopped them from developing a regional life sciences plan and having aspirations of becoming a world-class life science center. Their strategic plan claims: “Another unique characteristic of the region is its truly international stature. As USC President Steven Sample observed, ‘Los Angeles is the new world industrial center’—not just for the Pacific Rim but for the world.” That’s confidence.

The LA plan also notes that success in biotechnology depends on gathering a substantial set of resources into a “cluster.”

A cluster, as defined by Harvard University Professor Michael porter, is a “geographically proximate group of interconnected companies and associated institutions in a particular field, linked by customer, supplier, or other relationships.” …Life sciences recognizes and affirms the relationship among closely related “core” industry segments (such as pharmaceuticals, medical devices, and agricultural biotechnology). But it also includes those additional industries—among them specialized professional service firms (law firms, real estate developers), specialized capital providers (biotechnology venture capital), research institutions, and industry associations—that regularly interact with core organizations.

Los Angeles also demonstrates why life science is so sought-after. Their plan notes that in 2002 the life sciences industry employed more than 80,000 people in the region at an average wage of $67,000, an 80% premium over the $37,000 average wage in the region. Life sciences has grown 17% per year the last five years compared to 7% for the region as a whole. So the politicians and business people see a spillover from life science to other industries.

The problems they seek to solve include:
· Enhancing technology commercialization
· Lowering the cost and difficulty of doing business
· Developing and improving workforce efficiency
· Strengthening the regional life sciences community

The region surrounding the state capitol is striving to get out of the shadow of the Bay Area and establish an independent initiative in life science. The region claims to have 86 life science companies with 2,500 employees.

The hub of biotechnology development is UC Davis. The university has an aggressive effort to work with and incubate startup life science companies. It has a program called CONNECT: The UC Davis Program in Technology and Entrepreneurship. They produced the “Sacramento Regional Life Sciences Strategic Action Plan” independently of the state initiative the produced the plans for the Bay Area and LA. Another supporting resource on the margin of the region is the Lawrence Livermore National Laboratory on boundary between the Bay Area and the San Joaquin Valley.

The aspirations of the Sacramento area shows that biotechnology in one form or another is disseminated to many areas of California. The agriculture-intensive regions of the San Joaquin Valley—northern and southern—makes the area a user as well as a developer of biotech applied to animal and plant food products. The appeal of the Sacramento area to biotechnology companies is lower costs for land and other resources than its rivals elsewhere in the state and an agricultural community receptive to innovation. The agricultural market is also not as heavily regulated as the human health market.

San Diego
The growth of life science companies in San Diego County has, over the past two decades, made the area a real up-and-comer. The region has some long-standing heavyweights in life science such as the Scripps and Salk Institutes that have served as anchors for the growth of for-profit startups in the area.

The San Diego area does not have a regional life science plan as the other regions discussed above do. I don’t know the circumstances that left them out of the governor’s project. BIOCOM, an association that claims to support the life sciences industry in the region does claim that it has 450 members, a rough count of companies and organizations that find it worthwhile to pay dues to associate with others in the industry. Unfortunately, BIOCOM charges $70 to get a copy of their directory and annual biotechnology survey.

The pillar of the biotech sector in San Diego County is UC San Diego. The university has a vigorous industry/academic “partnership” with the surrounding community and beyond. I attended a conference in March entitled “The California-China Connection.” The university invited representatives of Chinese science ministries, universities, and hospital systems to the campus to discuss issues about developing quality life science research in China and the potential for working relationships with the San Diego community. In the conference, the dean of the UCSD College of Medicine spoke about the university being “a global university” and about its interest in building links with the emerging Chinese life science system. So the ambitions of biotechnology promoters, while regional is some respects, extend far from domestic locations.