It's been twenty years of solid employment growth in the biomedical field in California, but from 2008 until 2011 6,300 jobs (2.3%) were lost, according to a new study published last week by the Healthcare Institute, BayBio and PwC US.
The downturn is due to a number of factors including; financial situation causing layoffs, 'lure of scientists, researchers and facilities outside of California' and decreased funding due to an uncertain regulatory environment.
Employment in the academic research sector was hit hardest, suffering a net decline of 3,121 jobs between March 2008 and March 2011, as state cutbacks in funding for higher education affected the research mission of Californias universities and competition increased for California's research talent.
The San Francisco Bay area continues to command the highest number of biomedical industry employees in California, but San Diego County and Orange County are the only areas where biomedical employment increased in 2010, by 14% and 9% respectively.
"California's biomedical industry embodies the states distinguishing strengths, and there have been enormous investments of time, energy and money in building it," said Gail Maderis, CEO of BayBio. "Yet we're at a crossroads, and well need to continue to work together -- industry and policymakers -- to address the challenges to innovation and productivity the industry now faces."
However all is not doom and gloom as the state is the source of 28% of the nation's biomedical pipeline and remains the world global leader of new innovation in emerging scientific and technology disciplines such as personalized medicine, regenerative medicine, mobile health, and nanotechnology, according to the report.
And revenue is still flowing as 2,323 biomedical companies with operations in California provided 267,271 jobs, paid approximately $20.4 billion to California-based personnel and generated revenue of $115.4 billion in California in 2010.
The strongest sectors in Californias biomedical industry are focused on translating basic research and discoveries into products to serve patients and their caregivers. Biopharmaceuticals, including human therapeutics and drugs, is the second largest and highest-paying employer in the states biomedical industry. Modest growth in this sector offset losses in all other biomedical sectors except wholesale trade, which includes import and export of products in the global market.
Importance of Location
While most biomedical companies held steady or expanded their operations in California through the financial crisis, their decision to do so primarily influenced by the state's culture of entrepreneurship and innovation. Companies that reduced operations in California over the past year did so to cut costs because of the overall cost of doing business and because they expanded operations outside of California.
In fact, CEOs said they expect further reduction in activities at their firms over the next two years will hit their California facilities the hardest, compared to facilities located elsewhere.
While more than half (57%) of biomedical company CEOs plan to expand R&D activities in California over the next two years, almost as many (56%) say they will expand manufacturing outside the state.
Nearly 78% of biomedical company CEOs said that their firm had been courted by other countries and/or states within the past year. Respondent companies have expanded operations in every major continent around the world, with the greatest concentration of companies so far in Western Europe and China.
Boston, North Carolina and Minneapolis/St. Paul were cited as the top three most attractive biomedical markets for R&D innovation in the U.S. outside of California.
Access to Capital
Funding is decreasing. Nearly 75% of respondents said that their company had delayed a research or development project in the past year. That compares to 69% of the responding companies reporting delayed projects in 2010. The overriding reason, at just over 40 % was cited as "funding not available."
But that doesn't mean that funding hasn't improved in the past few years. From peak levels in 2007, following the aftermath of the 2008 financial crisis, venture capital investments now appear to be on a steady growth trend. Venture capital firms have invested more than $2 billion per year in California's life sciences companies for the past dozen years and in 2010 invested $2.7 billion in California life sciences companies, a slight increase over 2009, with further growth in 2011.
There has been a decisive shift toward VC investments in later stage biotechnology projects while the medical device sector saw big increases in early stage projects.
"The life cycle of biomedical startup companies has changed as challenges to raising capital have increased," said Tracy Lefteroff, national life sciences partner at PwC US. "Whereas their greatest challenge in years past was in validating the science, these companies now need to validate getting funding by lowering costs and improving returns. The strength of California's life sciences industry remains closely tied to the level of confidence that the investment community has in the industrys ability to develop innovative products while effectively managing the challenges associated with clinical and regulatory risk."
California companies have 699 products in clinical development, from the investigational new drug (IND) filing to the end of Phase III clinical trials. By that measure, California accounts for more than 28% of the countrys biotechnology pipeline.
Biomedical companies are exploring every alternative resource to fund their ongoing operations. In 2011, respondents relied most on angel investors/self-funding and government grants, both coming in at 26%. Venture capital investment was accessed by 25% of the respondents. Only 6% successfully tapped the capital markets for funding, while 4% were supported by non-governmental organizations or disease foundations.
To view the report click here.