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California’s Biomedical Industry Healthy, but Could Lose Its Edge


Posted by Heather Thompson on March 1, 2010

The health of California’s biomedical industry, which constitutes one-third of the U.S. biotech, medical device, and diagnostic firms, is often considered an indicator of the well being of the entire sector. According to the “2010 Report: California Biomedical Industry,” the industry has proved resilient despite the global financial downturn. However, several factors are challenging its continued vitality.

Some positive signs, according to the report that was cowritten by the California Healthcare Institute (CHI) and PricewaterhouseCoopers (PWC), is that the number of California bioscience employees increased by about 3000 from 2007 to 2008. Additionally, the major biomedical clusters of the San Francisco Bay area, Los Angeles, Orange County, and San Diego saw growth rates between 1 and 2.5% from March 2008 to March 2009.

On the other hand, there are some statistics that show negative trends. California’s life sciences sector attracted more venture capital funding than any other state in 2009, but it still saw a significant decrease. It raised $2.6 billion in 2009 compared with
$3.5 billion in 2008. That’s the “lowest level in 12 years,” said Tracy Lefteroff, partner, PWC, who spoke about the report at a February 2 Webcast hosted by PWC and CHI.

George Scangos

This declining access to capital is, of course, a concern for executives who want to build their R&D pipeline. The CHI report included a survey of the state’s top 200 biomedical employers. It found that 92% of the participants ranked access to capital as “somewhat important” or “extremely important” over the next five years. Another financial concern: 52% said that they expected bankruptcies to rise over the next two years.

Speaking at the Webcast, David L. Gollaher, PhD, president and CEO of CHI, discussed how policy made in both Sacramento and Washington DC could have a strong effect on the industry. Survey respondents ranked corporate taxation and tax incentives for innovation as the most influential factors on the industry’s ability to keep research and investment in the Golden State.

Lastly, a potential talent drain was also identified as something that could hurt the state’s position. California’s budget deficit of more than $20 billion makes it difficult for it to “deliver on its historic promise for kids to go to college,” Gollaher said. “Over the next 5–10 years, unless we can continue to provide the talent that the companies require, the industry will not be able to grow at its historic rate.”

This sentiment was echoed by participant George Scangos, president and CEO of Exelixis and chairman of CHI. He described the state’s attempts to save money by making cuts to the higher education system—the base of California’s vibrant industry—as “shortsighted and counterproductive.”

The biomedical industry will continue to increase in size, Scangos said, but he questioned whether it would choose to do so in California. “We’re not asking for a handout and we’re not looking for TARP money. We’re asking for an environment in California that allows us to fulfill our responsibilities as we grow our industries and companies here in California.” Like cuts to the education system, Scangos labeled any state attempts to provide disincentives to increase employment, through taxes or other means, as similarly counterproductive.

Given the budget deficit and the uncertainty of healthcare reform, the long-term outlook is hard to predict for California’s biomedical industry. For example, 81% of survey respondents said that, in the next two years, they expected to maintain or add jobs in California. However, 66% said that they planned to add manufacturing jobs out of state.


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