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Biomedical Industry Loses Momentum in California, According to 2012
California Biomedical Industry Report
SACRAMENTO, Calif., Feb. 8, 2012 /PRNewswire/ -- After two decades of
steady annual job growth, employment in California's biomedical
industry stalled while the state has struggled to recover from
financial shortfalls and the industry adapts to a sharp pullback in
funding from risk-averse investors in an uncertain regulatory
environment, according to the 2012 California Biomedical Industry
Report published today by the California Healthcare Institute, BayBio
and PwC US.
Job losses precipitated by the financial crisis, recent company
downsizings and the lure of scientists, researchers and facilities
outside of California set biomedical industry employment back to 2006
levels, the report found. At the same time, California is the source
of approximately 28 percent of the nation's biomedical pipeline and
remains the world's leader of new innovation in emerging scientific
and technology disciplines such as personalized medicine, regenerative
medicine, mobile health, and nanotechnology. The report finds
optimistic signs that California's biomedical industry is poised to
regain its earlier momentum, but the pace and location of future
growth is uncertain.
"California's biomedical industry embodies the state's distinguishing
strengths, and there have been enormous investments of time, energy
and money in building it," said Gail Maderis, president and CEO of
BayBio. "Yet we're at a crossroads, and we'll need to continue to work
together - industry and policymakers - to address the challenges to
innovation and productivity the industry now faces."
PwC's analysis of the most recently released labor figures for the
California biomedical industry shows the following:
-- The 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.
-- Approximately 6,300 biomedical jobs, or 2.3 percent of California's
biomedical workforce, were lost across the state between 2008, when
biomedical employment peaked, and the beginning of 2011.
-- 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 California's universities and competition
increased for California's research talent.
-- The strongest sectors in California's 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 state's 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
-- 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 percent and 9 percent respectively.
California's Biomedical Industry on a Precipice According to the 2012
biomedical CEO survey, a joint project of CHI, BayBio and PwC, 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.
Over the past year, California biomedical companies reported
significant expansions in their out-of-state and foreign operations,
according to CEOs surveyed. The survey also found that:
-- While more than half (57 percent) of biomedical company CEOs plan
to expand research and development (R&D) activities in California over
the next two years, almost as many (56 percent) say they will expand
manufacturing outside the state.
-- Nearly 78 percent 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.
"The importance of California's biomedical industry as an engine to
create jobs and income cannot be overstated. Now is the time for
creative solutions," said David L. Gollaher, Ph.D., president and CEO
of California Healthcare Institute. "California companies are
adaptive and resourceful. Increasingly, they are looking beyond
California and our nation's borders to countries and regions with
financial incentives, access to capital, and expanding markets.
Despite the tremendous assets in research, talent and capital that so
far have secured California's leadership in the biomedical industry,
we are at risk of losing our lead in an increasingly competitive
Access to Capital is Critical to Future Growth Biomedical companies
have found it increasingly difficult to access capital through
traditional means and sources as investors turn to industries that are
more predictable and yield lucrative returns more quickly. The CEO
-- Nearly three-quarters of respondents said that their company had
delayed a research or development project in the past year. That
compares to 69 percent of the responding companies reporting delayed
projects in 2010. The overriding reason, at just over 40 percent, was
cited as "funding not available."
-- Venture capital investment in California life sciences declined
from peak levels in 2007, following the aftermath of the 2008
financial crisis, but venture capital (VC) 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.
-- 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
percent of the country's 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 percent. Venture capital investment was accessed by 25 percent of
the respondents. Only 6 percent successfully tapped the capital
markets for funding, while 4 percent were supported by
non-governmental organizations (NGOs) or disease foundations.
"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 industry's ability to develop innovative products while
effectively managing the challenges associated with clinical and
A full copy of the 2012 California Biomedical Industry Report is
available at www.chi.org, www.baybio.org or
Methodology CHI and BayBio worked with PwC to collect and administer
data for the 2012 CHI, BayBio, PwC California Biomedical Industry
Survey. The survey was conducted in November 2011 and targeted
approximately 100 companies that conduct business in California in the
areas of pharmaceuticals, biotechnology, medical devices, diagnostics
or medical equipment.
About the California Healthcare Institute CHI represents more than 275
leading biotechnology, medical device, diagnostics, and pharmaceutical
companies, and public and private academic biomedical research
organizations. CHI's mission is to advance responsible public policies
that foster medical innovation and promote scientific discovery. CHI's
website is www.chi.org. Follow us on Twitter @calhealthcare, Facebook,
LinkedIn and YouTube.
About BayBio BayBio is Northern California's life science association,
supporting the regional bioscience community through advocacy,
enterprise support, and the enhancement of research collaboration. Its
members include organizations engaged in, or supportive of, research,
development and commercialization of life science technologies. Online
at www.baybio.org. Follow BayBio on Twitter at @baybio.
About PwC's Pharmaceutical, Medical Device and Life Sciences Industry
Group PwC's Pharmaceutical, Medical Device and Life Sciences industry
group (www.pwc.com/us/pharma and www.pwc.com/us/medtech) is dedicated
to delivering effective solutions to the complex strategic,
operational and financial challenges facing pharmaceutical,
biotechnology and medical device companies. We provide
industry-focused assurance, tax and advisory services to build public
trust and enhance value for our clients and their stakeholders. Follow
PwC Health Industries at http://twitter.com/PwCHealth.
About the PwC Network PwC firms help organizations and individuals
create the value they're looking for. We're a network of firms in 158
countries with close to 169,000 people who are committed to delivering
quality in assurance, tax and advisory services. Tell us what matters
to you and find out more by visiting us at www.pwc.com.
5/8 2012 PricewaterhouseCoopers LLP, a Delaware limited liability
partnership. All rights reserved. PwC refers to the US member firm,
and may sometimes refer to the PwC network. Each member firm is a
separate legal entity. Please see www.pwc.com/structure for further
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