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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)
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