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Insight & Intelligence : Feb 8, 2012
Full Results from Recent Survey of California Biopharma CEOs Highlight Frustrations
Companies are increasingly taking their business elsewhere, mostly due to financial constraints.
Some of California’s biopharma CEOs complained publicly that the Golden State’s image has been tarnished in recent years by the financial squeeze on startups and a combination of federal and state red tape. Just how deeply those views are held will become public today, when the California Healthcare Institute (CHI) releases full results from a survey of some 100 CEOs for CHI, BayBio, and PwC (formerly PricewaterhouseCoopers). The report is called California Biomedical Industry: 2012 Report.
More sobering to California advocates and their supporters should be the extent to which CEOs view California’s arch-rival region among U.S. biopharma clusters as attractive. Boston/Cambridge, MA, is considered the most attractive American market for R&D, with close to 80% of CEOs citing the region as attractive. More than 30% view North Carolina as attractive, and votes were 30% for Minneapolis-St. Paul, about 15% for the Washington, D.C., corridor (which includes Maryland), 5% for the New York region, and 3% for the Phoenix area. Nearly 78% of CEOs said they were courted within the past year by other countries or states.
“The most important attributes of an area for life science investment are the talent pool, the links to strong academic centers, and venture capital. When you look outside of California, which is very strong both in the Bay Area and in San Diego, the next largest cluster that has that triumvirate of venture capital, strong academic institutions, and a large experienced workforce is Boston,” said Gail Maderis, president and CEO of BayBio.
When asked about their companies’ two-year plans, 57% of the CEOs said that they anticipated the fastest-growing operations to be in-state R&D, though a nearly equal percentage (56%) expected to expand out-of-state manufacturing. Nearly 20% expected to cut their California manufacturing, G&A staff, and total workforces, compared with single-digit reductions forecast across all functions out-of-state.
Despite years of talk about Asian growth, 45% of California biomedical CEOs said their companies expanded in Western Europe for R&D, manufacturing, G&A, and overall workforce. China and East Asia were runner-ups at 24%. Elsewhere overseas, 9% of CEOs expanded into India and South Asia, 8% to South America, 7% to Australia, 5% to Eastern Europe, and 1% to the Middle East.
In China and East Asia, manufacturing accounted for 37.5% of employees in China/East Asia, followed by 29% in R&D. In Europe, workforce comprised 29% while R&D was 27%.
“The state’s expansive and interconnected community of researchers, entrepreneurs, employers, investors, and suppliers currently is not producing to its potential. The longer these resources are underutilized, the more quickly and irrevocably they will dissipate,” the report concluded.
Loss of Jobs
The CHI report also found that California retains the nation’s largest workforce in biotech, pharma, and medical devices. The state logged 267,271 jobs in 2010, down 501 jobs, or 0.2%, from 2009. The state’s job picture appears brighter when only biopharma jobs are examined. The state gained 1,040 biopharma jobs between March 2008 and last March. But between March 2010 and March 2011, 375 jobs were gained, compared to a 750-job increase between March 2009 and March 2010.
By contrast, between 2008 and 2011, lab services grew by 766 jobs; medical devices, instruments, and diagnostics shrunk by 2,628 jobs; and academic research lost 3,121 jobs. Overall, the biomedical industry lost 4,037 jobs during the period.
Within California, the Bay area lost 690 jobs between 2009 and 2010. Even with this 1.3% dip, the region remains the state’s largest cluster with 51,255 jobs. San Diego saw the biggest employment gain (3,353, or 13.9%), followed by Orange County (2,208 jobs, or 7.9%).
While a slow-down in financing, the tax incentives in place for innovation, and workforce preparedness were the main issues highlighted in the survey, CEOs also voiced concern over the duplication of state and federal regulations. Businesses complain that the California Food and Drug Branch (CFDB), like FDA, carries out inspections every two years, uses the same GMP compliance standards as FDA, differs little with the federal agency on what is inspected, and does not coordinate inspections with FDA.
State Assembly member Jerry Hill (D-San Mateo) thus introduced Assembly Bill 1277, which would preclude CFDB from requiring inspections for drug and medical device manufacturers that meet FDA requirements. The measure passed the Assembly and is pending in the state Senate Committee on Health.
Additionally, CHI and biopharma leaders are supporting a bill being drafted by U.S. Rep. Brian Bilbray (R-San Diego) that would essentially block state food and drug agencies from carrying out the functions of a federal counterpart. Under the bill, states and state agencies would retain authority to conduct facility inspections when they determine that a drug or device manufactured there presents threat of serious adverse health consequences or death, when the federal government orders a recall of a product manufactured or processed at a facility in the state, or upon request of or authorization by Washington.
Legislative solutions is one avenue biopharma firms will pursue to cut through red tape. Washington should take up Bilbray’s bill, though a Senate Democratic sponsor would have to move it past the Republican-majority House of Representatives. This being an election year in Washington and Sacramento (for legislative seats), bills will be tough to advance, but that shouldn’t stop industry and its allies from starting work.
To address the capital crunch, Washington and Sacramento may be too cash-strapped, but industry should challenge both to help in other ways: California should lift its suspension of the net-operating-loss carry forward and resist efforts to make the single sales factor apportionment mandatory.
Alex Philippidis is senior news editor at Genetic Engineering & Biotechnology News.
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