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Insight & Intelligence : Mar 7, 2011
A Look at the Top Two Bio Clusters in the U.S.: California and Massachusetts
Financing and workforce issues are at the top of their agendas for this year.!--h2>
The nation’s top biotech clusters may enjoy common strengths, but they too are facing challenges in the current economic environment, including tightening of financing for early-stage companies, state funding cutbacks, and workforce development issues. The top tier of biotech clusters in the U.S. comprises California’s San Francisco and San Diego regions, Boston and Cambridge in Massachusetts, as well as Maryland and North Carolina.
While these areas have seen life sciences workforces that have mostly grown over the past decade, more sources of financing than most of the rest of the U.S., and a still robust stream of facility development, they are not immune to problems. Challenges will likely stunt their growth, absent action by industry leaders, the groups that represent them, and to the extent possible, cash-strapped state governments.
Below is the first of two articles discussing key recent developments, focusing on California and Boston/Cambridge; the second will cover North Carolina and Maryland.
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.
Massachusetts: VC Falloff & Job Creation on the Agenda
The recent VC decline was also evident in Massachusetts. During Q4 ’10, financing tumbled nearly 40% to $143 million from $234 million in Q4 ’09. The number of deals fell from 21 to 18, according to MoneyTree. Year-over-year, VC rose 3% from $816 million in 2009 to $844 million last year, as did the number of deals, which went from 76 to 84.
“Venture capitalists want to have a comfort level about certain kinds of applications that go to the FDA, that they will get through the FDA and get through it in a fairly reasonable amount of time,” Susan Windham-Bannister, Ph.D., president and CEO of the Massachusetts Life Sciences Center (MLSC), a quasi-public agency overseeing the state’s $1 billion biotech initiative, told GEN.
With a $1.8 billion budget gap to fill, Gov. Deval Patrick (D-MA) has frozen annual funding for the center’s operations at $10 million in his proposed $30.5 billion budget for FY 2012. Patrick dramatically expanded the center’s funding in 2008 through a measure that authorized $1 billion in bonds. That law envisioned annual operating budgets of $25 million, a figure never attained due to budget cuts.
MLSC also funds some programs through its $30 million capital budget. This includes 32 equipment and supply grants totaling $3.5 million to community colleges, vocational-technical schools, and community workforce development programs for life science training.
The center also awards up to $25 million in tax incentives annually. Last year the center awarded a total $23.9 million in tax incentives to 30 companies that promised in return to create 1,000 jobs. The previous year, 26 companies won a total $24.5 million in incentives toward 800 jobs.
The tax credit program provides a peek into the progress and setbacks of life science job creation in the state. Only three-quarters of the 800 jobs promised in 2009 have been created. Of the 26 firms that received tax incentives, 14 have yet to meet commitments and five have given back their money.
The largest was Genzyme, which in January returned $6 million it accepted on a promise to create 200 jobs. The decision came before the company sold its Genzyme Genetics unit for $925 million to LabCorp. The remaining 21 companies committed to 574 new jobs and created 607. Twelve exceeded their promises, with Sunovion (formerly Sepracor) creating 80 jobs after promising 25.
Several other companies delivered on expansion projects, Dr. Windham Bannister added. Among them were Organogenesis and Genzyme. Organogenesis opened new headquarters in Canton last September. This was part of a $63 million expansion to include a regenerative medicine R&D and manufacturing plant expected to open in 2013. MLSC awarded two grants totaling $7.4 million, part of a $12.9 million state incentive package that included tax credits for R&D expansion; in return the company promised to create 280 new in-state jobs by 2013.
Genzyme said it envisions almost doubling its Framingham campus over the next decade, beyond the $300 million manufacturing plant and quality control laboratory set to open later this year. Genzyme expects to create a total 1,000 jobs in Framingham. MLSC approved $12.9 million in grants in 2008 and 2009 toward an upgraded wastewater treatment system.
More corporate projects are in the pipeline. On February 10, EMD Serono opened a $65 million center at its Billerica campus to support research focused on infertility, oncology, and neurodegenerative diseases. The company will create nearly 100 new jobs.
Last October, Novartis announced plans for a $600 million expansion of its global research HQ in Cambridge that will add 300 jobs over five years to a local workforce of about 2,000. A few months earlier, sanofi-aventis said it would add 300 jobs in Cambridge by creating a new division focused on cancer research. In February of this year sanofi-aventis closed a $20.1 billion acquisition deal for Genzyme after pursuing the company since the middle of 2010.
Projects like these will likely keep employment growing within the state’s life science industry. As of 2008, according to Battelle/BIO, that industry consisted of 72,627 jobs including medical device jobs. This represented a growth of 30.7% from 2001 to 2008. When narrowed to biotech and pharma the sector reached an all time employment high of 46,559 in 2009, according to data released last year by the Massachusetts Biotechnology Council (MassBio). However, the 2009 number rose a mere 1.2% from 2008’s 46,001.
That could be chalked up to recession jitters if the job number for 2010 bounces back. If it doesn’t, however, life science leaders will have to take a good hard look at why.
Alex Philippidis is senior news editor at Mary Ann Liebert, Inc., and Genetic Engineering & Biotechnology News.
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