While San Diegos life sciences companies look to the future, they must watch their back. There is an increasing amount of competition and investment coming from Asia and Europe, adding to the challenges the firms will face at home in these difficult economic times.

Theres a priority being placed in the life sciences economy across the Pacific Rim that didnt exist 10 to 15 years ago, said Joe Panetta, president and CEO and a member of the board of directors of Biocom, a trade association representing 550 of San Diegos life sciences companies that are significant contributors to the regional economy. Panetta said there is serious money being poured into the training of researchers and in company formation by governments in China, India and South Korea.

An increasingly robust life sciences industry in Asia and Europe is one of the trends that will help shape the local industry both startups and mature companies for many years to come, Panetta said, addressing both the challenges and opportunities that will drive the industry in the coming year and beyond. While he touted San Diegos remarkably rich, innovative life sciences community that is constantly moving ideas and inventions from the discovery to the tech transfer stage, he also addressed some areas of concern that will shape strategies and tactics for those businesses wanting to operate globally.

The prospect of greater competition on a world commercial stage exists if we dont continue to focus on innovative technology, if government doesnt fund research institutes which help create the ideas for new products, and if (we continue to) have a regulatory environment thats increasingly risk-averse in approving new drugs, said Panetta.

Financing Roadblocks

The recent credit crisis and economic downturn have exacerbated related challenges that face life sciences companies seeking financing to develop and license drug leads or medical devices.

While many startups can bootstrap with the money they acquire from local angel investors, San Diego companies wanting to go to the next level often have to look out of town for serious venture capital.

Most companies involved in drug discovery and development seek to license their drug to a pharmaceutical company that will further develop it and ultimately take it to market, said Panetta. Their primary concern is whether pharma is willing and able to complete drug development in this economic environment.

According to a July 2010 PricewaterhouseCoopers report, venture capital investment in U.S. biotech during the first half of 2010 increased 49 percent compared with the previous year, with $7.7 billion invested and a 23 percent increase in the number of deals.

Wainwright Fishburn, a managing partner of the Cooley LLP law firm, who represents high growth life sciences companies from startup to publicly traded, is remarkably upbeat about the financing environment in 2011 for certain sectors.

Fast Track to Market

Fishburn, a vice chairman of Biocom, said solid companies will fare well on the investment front in 2011, especially those offering very promising device and wireless medical technology products where there is a far quicker path to the marketable product stage.

They arent burdened by the long regulatory pathways that a drug company must pursue through the clinical trial process, said Fishburn. But (investment in the industry) has distilled down to a much smaller group of proven capital providers with syndicate partners that are much more focused on managing financial risk.

Looking beyond traditional venture capital, he said government grants have become significant sources of funding for local companies. He cited the example of Uncle Sam backing a local company called Trius Therapeutics. The Sorrento Valley firm won a $30 million grant from the U.S. Department of Defense in 2010 to develop new antibiotics aimed at protecting the country in the event of a biological weapons attack.

More companies will be looking to federal sources for funding, he said.

Fishburn said the fast water in 2011 will likely be in the area of genomics medicine.

The big part of the story is told with companies such as (Carlsbad-based) Life Technologies Corp., which has been creating the sequencing technology instruments that will transform medicine with targeted therapies, said Fishburn.

Intrepid Entrepreneurs

Despite the money challenges, its hard to keep good ideas and passionate entrepreneurs down, said Steve Hoey, senior program manager for the Springboard and Innovation programs of Connect, one of the regions technology and life sciences incubators.

San Diego is home to more than 500 biotechs, which employ more than 40,000 workers and have an impact of approximately $9 billion on the local economy, according to Hoey.

The life sciences sector is still going strong, said Hoey, who said San Diego ranked first in California in the third quarter of 2010 with 33 new startups.

Quite a few of them are medical device companies. Theres a deep mine of intellectual capital within these companies looking to enter the commercial marketplace.

The early-stage mentoring they receive through the Springboard program helps them to develop acceptable prototypes before going to investors.

One trend which companies at all levels will foster in 2011 is a reliance on sophisticated contract research organizations to do a lot of the heavy R&D lifting. These business partners have nearly grown to cluster size in the San Diego region. Bringing them on board makes good business sense, said Panetta, whose organization recently held a Contract Alley function at a Biocom event.