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California Biomedical Industry


California’s biomedical industry is its own unique ecosystem. Anchored by more than 2,700 biomedical companies and 100 public and private research institutions, the industry has spawned a network of highly specialized suppliers and service providers. And it has commercialized countless products that contribute to the health and well-being of people around the world.


It is little wonder that California, which values creativity, innovation and entrepreneurship, is global headquarters for advanced biomedical technology. San Francisco-based Genentech was the world’s first biotechnology company, quickly joined by Chiron and Amgen. Using the new technology of genetic engineering, these companies set out to manufacture human proteins, which could be used to cure certain diseases. A generation later, the emerging genomics and proteomics fields also are being led by California companies. These firms are identifying genetic mutations and the underlying cause of life-threatening diseases. Biopharmaceutical companies that specialize in small-molecule products are discovering precise targets for potential medications, and the industry’s diagnostics and device sectors are developing the tests and delivery mechanisms to accurately identify and treat patients with life-threatening conditions.


The scientific research behind biomedical breakthroughs comes both from California’s academic research institutions and from company laboratories. Genentech’s first biotech product – recombinant human insulin – was based on discoveries at UCSF. Of the respondents to the CHI/PwC survey, 24% credited a California academic research institution with the idea central to the creation or growth of their company. Breakthrough discoveries also are being made in company labs, where, on average, 42% of revenues are churned back into R&D. In 2005, companies invested $26 billion into developing new drugs, devices and diagnostics to meet an increasing worldwide demand for innovative medical products.


In the industry’s early years, seed funding came mainly from venture capital investments. Private investment continues to be a significant source of revenue, and California life sciences companies attracted $2.9 billion in venture capital investment in 2005. Companies also have turned to the equity markets for funds. Currently California biomedical companies account for 68.5% of the market capital of all of the NASDAQ-listed life sciences sector.


As the industry has expanded, so have the funding opportunities. Genentech, Amgen, Gilead Sciences and others have grown exponentially since the 1980s and have the resources to sponsor research agreements, in-license new compounds and acquire other companies. For early-phase companies, promising compounds or research services can command high prices today as fierce competition and close investor scrutiny has placed product development pipelines under greater pressure. Another significant source of research funding is product sales. Combined, California life sciences companies generated $62 billion in revenues in 2005.


Among the respondents to the CHI/PwC survey, 62% had products on the market, and 36% reported that all of their revenues came from product sales. Industry maturation has also given newer companies an advantage that the pioneers did not have. Amgen, Genentech and others founded in the early ’80s had to build capabilities for each stage of product development as they went. Today, specialized functions can be outsourced to proven vendors, accelerating development while reducing capital risks. With a predictable demand for their products and services, suppliers’ prices have come down and quality and reliability have increased. Companies can more readily find “research-ready” space and equipment at a discount than they could have 10 or 20 years ago. And local community colleges as well as universities offer training programs to prepare individuals for careers in life sciences companies – careers that were still being created in the ’80s and ’90s.


The biomedical industry is maturing yet it is still quite young. Approximately 86% of California’s life sciences companies were founded between 1980 and 2003. And among the respondents to the CHI/PwC survey, most (57%) are small businesses – 46% employ fewer than 50 people; 11% have between 50 and 100 employees.


The biomedical industry is a solid, significant and growing component of California’s economy.


(Ref. Price Water House Report for California Healthcare Industry 2006)