California’s biotech industry has taken its own pulse in a new survey that tracks how the state is doing in serving as the nation’s medicine cabinet and avatar of drug innovation. While the news is unexpectedly good, the future for the Golden State will tarnish if state and federal policies are not recast to compete with distant but aggressive neighbors on the other side of the Pacific. It’s in Mumbai, Mukden, and Manila where the ultimate battle will be joined to preserve California’s status as the top global site for investment and jobs in biotech.

The survey of 200 biomedicines companies located in the state was conducted over the past three months by PricewaterhouseCoopers on behalf of the industry’s principal trade association, the California Healthcare Institute. Key findings include:

• Biotech companies actually added to jobs 2009—one of the few sectors in the state to do so. Direct employment totaled 274,000, up from 271,000 in 2008, and indirect, spinoff employment exceeds 750,000. The industry is the state’s second largest source of jobs, narrowly edged out by computer/information technology, and far exceeds employment in the two other sectors associated with the “good life” of California, movies and aerospace.
• The average wage in biotech is a relatively high—$75,000 per year—which confers status an industry where workers can afford the state’s high-priced real estate.
• The industry is highly innovative, with 869 compounds in development around the state. It is also the largest magnet for venture capital, sucking in 42 percent of investments made in the US in the past year.
• Much of that capital is needed to manage risk as two-thirds of the state’s biotech companies have yet to market their first product. To drive that process some 80 percent of companies surveyed anticipate hiring more people in the next few years.
• The bad news is that 40 percent of the group surveyed expect some of these new jobs will be based outside of California, particularly jobs in manufacturing due to high local labor costs. And some 58 percent will add to R&D payrolls outside of California. The long term danger is that as more manufacturing moves offshore, critical knowledge-based development work will follow, affecting in turn the capacity of the state’s academic infrastructure to support basic research.

Good Policy: It Counts
There was virtual unanimity that the policy environment for biotech in California and the US at large is trending negative. The dominant sentiment was that government is fostering uncertainty in a sector that requires predictability, given the long lead times for research. Key drivers include the state’s fiscal mess (with a $20 billion budget deficit that has to be breached this year) and cuts imposed to beat back a significant shortfall in 2009. Most vulnerable is the state’s higher education system, once the envy of the world in terms of cutting edge science and ready commercialization through collaboration with the private industry.

State tax policy is another area cited as creating a huge disincentive for risk-based investments. Meanwhile, at the federal level survey respondents pointed to the lack of resolution on issues such as the narrowing of standards for IP protection, excessive tort actions, rules of engagement for follow-on biologics, comparative effectiveness research, and overall health/insurance reform. Price controls to control entitlement spending were flagged as the biggest threat to the industry from Washington, followed closely by an uncooperative, risk-averse FDA.

In contrast, there are marked improvements taking place in the infrastructure for biotech research in Asia. China is making big investments in science education (witness its recent announcement of a multi-billion dollar stake in stem cell research) and research institutions are churning out thousands of scientists a year—all at wages less than a fifth of the going rate in California. Beijing is taking advantage of a 20 percent annual real growth rate in domestic biopharmaceutical sales to earmark $1 billion in fresh biotech infrastructure spending over the next year. As a designated “priority” sector, biotech is slated to account for 4 percent of the country’s GDP by 2020.

“The center of gravity in biomedicines is definitely shifting eastward,“ Tracy Lefteroff of PricewaterhouseCooper’s told Pharm Exec. He noted that maintaining California’s long term biotech advantage depends heavily on leading with differentiation. “China and India will dominate the production of mass market medicine, but the most innovative specialist therapies—fragile, complex biologic compounds—will remain closer to home. Our system based on entrepreneurialism and collaboration cannot easily be replicated.”

Nevertheless, public policies will have an inordinate impact —for good or bad—and that simply adhering to the status quo is unacceptable for charting a profitable future. A new industrial policy focused on addressing the state’s vulnerabilities to a globalizing world filled with alternative sites for research and manufacturing is critically needed. That policy has to be structured as a stronger working partnership between the industry and politicians in Sacramento and Washington.

Pharm Exec has two suggestions on how to carry this effort forward: (1) ensure that the CHI pro-innovation agenda is seamlessly integrated through PhRMA in President Obama’s new legislative focus on an export-led jobs recovery; and (2) distribute to every state legislator and member of the California congressional delegation a text of Chinese vice-premier Li Keqiang’s speech to the World Economic Forum in Davos, outlining a huge new effort to stimulate domestic demand, which includes a healthy expansion of the science base.