It seems that biomedical companies in California are being tempted to relocate, but they are staying put. A new study, released earlier this week by California Healthcare Institute, said that 80% of the CEOs of biomedical companies have been courted by other countries, state governments or regional economic development associations in the past year.
Yet companies are showing confidence in California as they plan to increase jobs, manufacturing, research and development operations within California versus elsewhere.
However resting on its laurels is not an option for California. CEOs warned that within five years, another country could conceivably recreate the ecosystem that has made the U.S. the leading biomedical region in the world. Sixty percent believe that another state could recreate the ecosystem unless both government and industry adapt to new challenges.
California is currently home to the biggest concentration of biomedical companies, researchers, entrepreneurs, suppliers, venture capitalists and workers in the world, according to the report. And the state is at the forefront of new developments in biologics, which is the fastest growing segment of the global biopharmaceutical industry. The state has the largest clustering of companies and more products in clinical development than any state in the U.S. or any other country in the world.
Highlights from the report include:
- For the first time in the report's 17-year history, nearly twice as many biomedical CEOs said they intend to increase manufacturing within California (41%) versus outside the state (21%) over the next two years.
- 68% of CEOs said they expected to expand the overall size of their workforce within California, while only 31% planned to increase workforce levels outside the state.
- 78% of CEOs surveyed said that they maintained or expanded R&D operations within California over the past year, and 88% plan to do so over the next two years, with the majority of those (62%) saying that they expect to expand R&D within California.
The key reasons cited for locating in California were the availability of a highly skilled, entrepreneurial workforce and California's culture of innovation, anchored by leading research universities.
While relocating out of state was not a strategy cited by CEOs surveyed, when asked about the most attractive U.S. biomedical markets outside California, 76% named Greater Boston followed distantly by North Carolina (31%), Minneapolis-St. Paul (25%) and the Washington-DC corridor (20%).
"The most resilient of the state's high-tech industries after the economic downturn, the biomedical industry is poised to lead Californias economic recovery," said David Gollaher, CEO of California Healthcare Institute. "Yet the pace of the industry's progress could be slowed by cost pressures, declines in venture capital funding, particularly for early stage developments, and regulatory inefficiency and uncertainty at the FDA."
While employment levels in biomedical industry fared better than most other industries, they have felt the effects of the economic downturn and changing dynamics of the healthcare market. For the first time in five years, in 2009 biomedical employment declined in California by nearly 6,000 jobs.
Still, cumulative growth over the past five years remains positive. Between 2005 and 2009, the biomedical industry added nearly 12,000 jobs in California, with academic research and biopharmaceuticals growing at an average annual growth rate of more than 2.3% and wholesale trade by 1.5%.
Looking at venture capital funding California companies attract more venture capital investment in life sciences than any other state, divided between biotechnology and medical device companies. According to the PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report with data provided by Thomson Reuters, California life sciences companies attracted $2.5 billion in venture capital funding in 2010, down from $2.7 billion in 2009 but still more than any other high-tech sector in the state.
Respondents to the CHI/BayBio/PwC Survey anticipate that the next two years will find them in a holding pattern at best, navigating risks with a great deal of uncertainty about the future. More than two-thirds of CEOs surveyed (69%) reported that R&D projects had been delayed, and the number one reason cited (44%) was "lack of funding." Forty-eight percent of respondents said they were somewhat or very likely to participate in a merger or acquisition over the next year while 51% said they were very or somewhat unlikely to do so. Only 9% of respondents said they were likely to participate in a sale or divestiture in the coming year.
Barriers to Growth
Workforce development surfaced as the single most important issue among survey respondents. Failure to encourage workforce development and growth was cited by CEOs as the greatest threat to the future of California's biomedical industry. Nearly half (47%) of respondents ranked "an unprepared workforce" among the top three threats to the industry.
Among issues deemed either somewhat or extremely important to keeping biomedical research, innovation and investment in California, the elimination of duplicative regulation by state and federal regulators was cited by 80% of respondents, workforce development was cited by 67%, and R&D tax credits were cited by 67%.
Other high ranking threats point to the complexity of thriving in the life sciences sectors as companies adapt to changing rules and regulations. Thirty-six percent of respondents said that lack of data to demonstrate product safety and effectiveness is a top threat to their business. And 35% said that liability of products on the market is a threat.
Survey respondents also ranked federal policy issues as somewhat or extremely important to their operations. Eight-four percent of respondents believe that the FDA regulatory approval process has slowed the growth of their organizations.
More than three-quarters of respondents predict that the cumulative impact of changes in the healthcare marketplace, driven largely by health reform, will decrease their profit margins and 54% believe that the pace of innovation will slow.
To review the report, "2011 California Biomedical Industry Report" click here.