PharmExec Blog

California Biotech — Good Governance Tops Wish List

New industry survey data documents a fraying investment base marked by a distant and unresponsive FDA as well as an unprepared work force complacent about hungry foreign competition.

California’s biotech industry has taken its annual pulse of business conditions — and while the prognosis is not for putting the state on the policy equivalent of life support, corrective therapy is clearly needed. The 2011 California Biomedical Industry report, issued on February 1, is a joint effort of the California Healthcare Institute, the BayBio trade association and consultancy PwC. Its signal finding is that maintaining California’s status as the world’s biggest locus for biotech innovation depends on enlightened, world class regulation.  Unfortunately, however, this is not being provided by the bureaucrats in Sacramento or Washington, especially the FDA.  

The report is a public relations tool with statistics that documents how biotech is an essential driver of productivity and high-value growth.  Nearly 14 per cent of the state work force depends on investments in the sector, which employs some 268,000 people [or 783,000 indirectly] at an average salary of $72,000.  Some 16 per cent of total employment is in the area of academic research, a trend that highlights the growing importance of external partners in seeding the innovation that generates a commercial return.  Likewise, 12,000 new jobs were added by companies in 2008-2009, making biotech “the most resilient of the state’s high tech industries.” More important in an era of fiscal retrenchment, the 1,000-plus biotech and device companies operating in California contribute $86 billion to the local tax base.

The report incorporates a survey of CEOs of local biotech companies, in which the mood was mainly upbeat after the punishing financing reversals of the recent recession.  Access to venture capital, a key asset for the state, is returning in strength;  most of those polled expect a steady increase over the next several years, above the $2 billion recorded in 2010. R&D operations are staying in-state, although only 41 per cent of CEOs expect manufacturing investments to remain at par or increase over the next two years.

In terms of threats and challenges, the report and its CEO polling data are definitively frank — there are three.  Foremost is duplicative and unpredictable state and federal regulation in key areas like risk benefit, tax and reimbursement, followed by an unprepared workforce and finally environmental standards that primarily impact manufacturing.  The FDA is cited repeatedly for its tilt toward risk over benefit, which is causing the US to fall behind Europe in the pace and scale of innovation.

Many of the CEOs surveyed believe that China, India and other emerging Asian markets will pose a similar threat in being able to “replicate the California biotech ecosystem” without the drag imposed by FDA.  Global competition for a place at the table is intense, with 80 per cent of the CEOs confirming they had been “courted” by other US states or countries for investment in the past year.

Surprisingly, a conference call on the report hosted by the Institute yielded little on what the industry should do to help resolve the state’s current budget crisis, which is likely to force steep cuts in support for California’s world-class university system.  The outcome is far from academic, as one company represented on the call, OncoMed Pharmaceuticals, exists today because of a university-held patent on its key therapy.

Noting that powerhouse California-based biotechs like Chiron and Genentech also had their early roots in the work of academic researchers, OncoMed CEO Paul Hastings said “we were born from this legacy of public investment in basic science.”

Hence we are back to the central question:  who provides the physical and intellectual infrastructure to let the private sector do its best?

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