SACRAMENTO, Calif., Feb. 1, 2011 /PRNewswire/ -- Eighty percent of biomedical company CEOs in California report that their companies have been courted by other countries, state governments or regional economic development associations in the past year, according to survey findings included in the 2011 California Biomedical Industry Report, published today by the California Healthcare Institute, BayBio and PwC. Yet the survey found surprising consensus of confidence in the state's ongoing attractiveness to the biomedical industry, with many CEOs planning to increase jobs, manufacturing, research and development operations within California versus elsewhere.
Still, the danger for the U.S. and California is that other parts of the world are quickly catching up, warns the report. The survey of CEOs found that the unique ecosystem that has helped to build California's leadership in biomedical technology innovation may be fragile and short-lived unless both government and industry adapt to new challenges.
The 105-page report provides insight into California's rise to global leadership in the biomedical industry and the impact of the industry's presence on the state. California is home to the biggest concentration of biomedical companies, researchers, entrepreneurs, suppliers, venture capitalists and workers in the world. Despite increased competition and proliferation of biomedical and medical technology innovation overseas, California remains the industry's global leader and it stands to grow even larger as the U.S. epicenter of biomedical innovation. At the forefront of new developments in biologics, the fastest growing segment of the global biopharmaceutical industry, California has the largest clustering of companies and more products in clinical development than any state in the U.S. or any other country in the world.
Confidence in California and the outlook for the industry is evident in the findings of the reports' CEO survey:
"The most resilient of the state's high-tech industries after the economic downturn, the biomedical industry is poised to lead California's economic recovery," said David Gollaher, CEO of California Healthcare Institute. "Yet the pace of the industry's progress could be slowed by cost pressures, declines in venture capital funding, particularly for early stage developments, and regulatory inefficiency and uncertainty at the FDA."
Biomedical Industry in California
According to the 2011 report, the biomedical industry directly employs 268,000 people in California, a workforce second only to the state's information technology sector, and approximately twice the size of the motion picture industry. The biomedical sector supports another 783,000 people – 13.8 percent of the state's total workforce – who hold biomedical industry-related jobs across diverse sectors. The biomedical industry accounts for approximately $59 billion in direct wages and $86 billion in related personal income that contribute to California's tax base.
Large, diverse and distributed throughout the state, California's biomedical industry is concentrated primarily in four clusters around academic research centers in San Francisco, San Diego, Los Angeles and Orange County and surrounding counties of Riverside & San Bernardino, Sacramento, Ventura and Santa Barbara. Approximately 40 percent of jobs are in the medical devices, instruments and diagnostics sectors, 30 percent in biopharmaceuticals and 16 percent in academic research.
While employment levels in biomedical industry fared better than most other industries, they have felt the effects of the economic downturn and changing dynamics of the healthcare market.
Access to Capital
Another year of declines in venture capital funding, the lifeblood for the country's innovative new companies, could significantly threaten the future of the biomedical industry. California companies attract more venture capital investment in life sciences than any other state, divided between biotechnology and medical device companies.
According to the PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report with data provided by Thomson Reuters, California life sciences companies attracted $2.5 billion in venture capital funding in 2010, down from $2.7 billion in 2009 but still more than any other high-tech sector in the state.
"The demand for innovative pharmaceuticals, diagnostics and devices are expected to grow as healthcare delivery becomes more outcomes-focused and medicine becomes more personalized and targeted," said Tracy Lefteroff, National Life Sciences Partner at PwC U.S. "This represents a tremendous opportunity for the investment of private capital, but companies will need to work more collaboratively with the public sector, the investment community and other health sectors to minimize risks and maximize return in the new healthcare landscape."
Lower risk tolerance among venture capitalists is reflected in their funding trends. Whereas venture capitalists historically have funded device, diagnostics and pharmaceutical R&D firms from start-up through development and commercialization, trends indicate that venture capitalists have shifted their support to companies in late-stage development.
Respondents to the CHI/BayBio/PwC Survey anticipate that the next two years will find them in a holding pattern at best, navigating risks with a great deal of uncertainty about the future.
Opportunities and Barriers to Growth
With the economy and biomedical industry funding environment showing some initial signs of recovery, the 2011 CEO survey sought entrepreneurs' thoughts on sustaining growth. Workforce development surfaced as the single most important issue among survey respondents. Failure to encourage workforce development and growth was cited by CEOs as the greatest threat to the future of California's biomedical industry. Nearly half (47 percent) of respondents ranked "an unprepared workforce" among the top three threats to the industry.
"We challenge California's leadership to pledge support for the life sciences community through legislation, regulation and support for state-level investment, particularly policies which support innovation," said Gail Maderis, president and CEO of BayBio. "The life sciences community urges the state's leadership to support core state programs that will drive innovation over the next 10 to 15 years. We look forward to working with our companies, investors and elected officials to continue bringing a robust pipeline of therapies to the patients who need them."
CHI and BayBio worked with PricewaterhouseCoopers LLP to collect and administer data for the 2011 CHI/BayBio/ PwC California Biomedical Industry Survey. The survey was conducted in November 2010 and targeted approximately 100 companies that conduct business in California in the areas of pharmaceuticals, biotechnology, medical devices, diagnostics or medical equipment.
About the California Healthcare Institute
CHI represents more than 275 leading biotechnology, medical device, diagnostics, and pharmaceutical companies, and public and private academic biomedical research organizations. CHI's mission is to advance responsible public policies that foster medical innovation and promote scientific discovery. CHI's website is www.chi.org. Follow us on Twitter @calhealthcare and Facebook.
BayBio is Northern California's life science association, supporting the regional bioscience community through advocacy, enterprise support, and the enhancement of research collaboration. Its members include organizations engaged in, or supportive of, research, development and commercialization of life science technologies. Online at www.baybio.org.
About PwC's Pharmaceutical and Life Sciences Industry Group
PricewaterhouseCoopers Pharmaceutical and Life Sciences Industry Group (www.pwc.com/pharma or www.pwc.com/medtech) provides assurance, tax and advisory services to proprietary, generic and specialty drug manufacturers, medical device and instrumentation suppliers, biotechnology companies, wholesalers, pharmacy benefit managers, contract research organizations, and industry associations. The firm is dedicated to delivering effective solutions to the complex strategic, operational, and financial challenges facing pharmaceutical, biotechnology and medical device companies. Follow PwC Health Industries at http://twitter.com/PwCHealth.
About the PwC Network
PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information.
© 2011 PwC. All rights reserved. "PwC" and "PwC US" refer to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate and independent legal entity.
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