Recent Research: Can California Keep Its BioTech Edge?

California leads the world in biotech research today and likely will continue to dominate in the years to come according to The Dynamics of California's Biotechnology Industry, a new report from the Public Policy Institute of California. The report concludes that California retains a sharp biotech edge, despite reports of firms leaving the state or establishing plants elsewhere.

Authors Junfu Zhang and Nikesh Patel note that the state generates more than half of U.S. biotech revenues and accounts for nearly half of national R&D spending. California biotech garnered 46 percent of the venture capital invested in biotech between 1992 and 2001 and accounts for 40 percent of the nation’s biotech jobs, according to the authors.

Nonetheless, Zhang and Patel warn against assuming biotech will produce the same economic boom for California and the U.S. as produced by information technology during the last decade. Zhang and Patel point to the longer time for biotech start-ups to reach profitability, the lack of network effects driving exponential growth, and no foundation technology promoting growth in other sectors.

The lengthy report provides policymakers with an in-depth review of the California environment that nurtured the industry. Zhang and Patel examine the role of venture capital in the formation of new firms, the founders of these firms, and the flow of existing firms into and out of the state. Their findings include:

• Biotechnology relies on knowledge even more than the information technology sector, with nearly half of the venture-backed biotech establishments founded by scientists.
• Universities generate more biotech spinoffs than existing biotech companies with two-thirds of these academic entrepreneurs remaining in the same state. In California, 82 percent of the professors establish their new companies in the state.
• Despite increasing venture capital, the creation of biotech companies remained constant suggesting that although the industry cannot survive without investment, capital alone will not sustain biotech growth.
• More than half the growth in biotech employment results from the creation of new firms rather than the expansion of existing firms.
• California realized a net gain in biotech due to plant migration in terms of jobs, revenue and surviving businesses even though more biotech establishments moved out of California than into the state. The authors note that plants leaving the state were mature with constant revenue and jobs, while nascent establishments moving into the state experienced greater revenue and job growth.

Zhang and Patel extol California’s strong research capacity, exceptional venture capital investment, and high quality labor pool as elements that will keep a razor-sharp edge to the state’s biotech industry. The authors point to these strengths as shoring up the advantage for companies to remain in California and encourage them to establish production facilities near their headquarters. Zhang and Patel suggest industry leaders and policymakers in California nurture local biotech manufacturing clusters, noting that it takes roughly five years to build new biotech production facilities.

The Dynamics of California's Biotechnology Industry is available at: http://www.ppic.org/content/pubs/R_405JZR.pdf