California: Worker Training, Red Tape, & Financing Among Hurdles
California still enjoys the nation’s largest life science cluster along the San Francisco Bay Area and in and around San Diego. But shortcomings in workforce training, state regulatory policy, and early-stage financing threaten to permanently stunt the industry’s growth in the Golden State and send jobs elsewhere.
According to the 2011 California Biomedical Industry (CBI) report, the state lost some 6,000 biomedical jobs in 2009, totaling 2% of the sector’s workforce. That came on top of a 3% job growth between 2001 and 2008, according to figures released last summer by Battelle and the Biotechnology Industry Organization (BIO).
CBI identified the need for workforce training as the issue of greatest concern. In its survey of life science CEOs, 67% ranked it as extremely or somewhat important, followed by controlling taxes (47%) and developing economic incentives for growing companies (38%). Gail Maderis, president and CEO of BayBio, told GEN that trained workers are needed most for positions in the industry’s fastest growing segments such as lab techs for personalized medicine companies, biofuel process engineers, and stem cell workers.
Just how many workers these and other hot segments need is not known but will be answered, she said, by another study. “We and Biocom are looking to do a workforce survey to try to get beyond just the raw numbers to the specific skill sets we need,” said Maderis, who was previously president and CEO of FivePrime Therapeutics. Biocom is San Diego’s regional life science industry group.
Also to be quantified, Maderis added, is the cost of duplicative regulations to California life science businesses. For example, California has a state equivalent of the FDA. Both conduct separate inspections of drug and vaccine manufacturing plants statewide. BayBio will use the data to try to persuade lawmakers to loosen the red tape, with legislation expected later this year.
Such data will be needed if life science advocates hope to sway lawmakers, who along with Gov. Jerry Brown (D-CA) are scrambling to plug a $26.6 billion shortfall. “While we would like state support for some of this, we like many of the other states are in a cost-cutting mode this year. It’s unlikely we’re going to see any extra resources devoted from the state,” Maderis acknowledged.
Besides not giving money to companies, the state could decide to take more money from firms. Life science advocates in 2009 persuaded lawmakers to let California companies choose how to base their state taxes: either solely on sales or a combination of sales, facilities, and employees.
Last year, opponents tried to overturn the law through Proposition 24, which failed. Now, the state Legislative Analyst’s Office wants to make single sales factor mandatory and retroactive to this year. It cites the potential for $240 million in additional taxes in 2010–11 and $1 billion in 2012–13.
Another challenge to California is the falloff in venture capital funding. State biotech companies racked up $252 million during the fourth quarter of 2010, down from $399 million in the final three months of 2009, according to a MoneyTree report. The number of deals fell to 26 from 38.
In MoneyTree’s Bay Area region, VC financing during Q4 dropped to $153 million from $208 million, while the number of deals shriveled to 12 from 23. Year-over-year, VC money to Bay Area biotechs dipped 4%, from $946 million to $908 million, while the number of deals went from 91 to 80, as reported in MoneyTree.
Joseph Panetta, president and CEO of Biocom, told GEN his group is encouraging start-up life science companies to team up with corporate giants for research and especially funding. “We did a little survey and found that about half the investment capital that came into the San Diego region last year came out of big pharma and big biotech, and that seems to be a trend that is continuing,” Panetta noted.
For San Diego, MoneyTree reported a 7% dip in VC funding to nearly $414.5 million from $445.6 million in 2009. The number of deals rose to 51 from 48 in 2009. Yet in the fourth quarter, VC funding totaled just $96 million versus $178 million in Q4 ’09, according to MoneyTree. The number of deals fell from 14 to 12.
One hopeful sign: The life science VC firm Thomas, McNerney & Partners will be moving its West Coast office to San Diego from San Francisco. That will be welcomed by local start-ups, Panetta added, since several long-dominant West Coast firms have not raised new funds in recent years.
The San Diego region accounts for some 40,000 life science jobs. That number has, however, been fluctuating lately, and companies are fine-tuning their operations. Biogen Idec will eliminate 325 jobs by shutting its campus at University Towne Center, home to its cancer therapy research program and eliminating its Rituxan sales force. Responsibility for U.S. sales and marketing of Rituxan will move to its partner Genentech. In January next-generation sequencing giant Illumina inked a $335 million, 20-year lease to expand into the campus. It will consolidate offices scattered within the region, where the company bases about 1,100 employees.