014 Biomedical Industry Report
Letter from the Governor The State of is the birthplace of the biomedical industry and a worldwide leader in health innovation advancements. leads the nation in biomedical firms, jobs, output, federal grants and patents. The industry generates highly skilled and well-paid jobs in local communities all over the state. is proud to be a leader in biomedical innovations that cure deadly diseases each success promises to improve the lives of people worldwide. Jerry Brown Governor of This year enacted several laws to bolster our biomedical industry, including AB 9 and SB 90, which revamped the way approaches economic development and makes targeted investments in the biomedical industry. This exempts biomedical companies from paying state sales tax when purchasing equipment used for manufacturing and research and development, making it easier for biomedical companies to invest more in their R&D operations and expand their manufacturing base in. The Healthcare Institute is an important partner in our efforts to foster a stronger biomedical industry and boost job growth in. I look forward to working with the many innovative biomedical companies around the state to advance new technologies and contribute to a healthier society. Sincerely, EDMUND G. BROWN JR. Letter to Stakeholders This year is CHI s twentieth anniversary, and in those twenty years, has developed a vast biomedical ecosystem. Today 67,000 ns are employed by the academic research institutions, biopharmaceutical companies and medical technology manufacturers that constitute the industry s direct employment in the state. Beyond this, another half million additional jobs from professional services to construction and real estate depend on the biomedical industry. David L. Gollaher, Ph.D. President & CEO Healthcare Institute Peter Claude Partner, Pharma & Life Sciences Advisory For a generation has been the world leader in life sciences innovation. We are home to the most jobs, the most biotech, device and diagnostics companies, the largest share of NIH grants and the world s greatest concentration of top-tier basic research institutions. But the challenges to our leadership have never been more serious. Other states and countries, like China, are aggressively courting researchers and executives with promises of economic incentives. Recent gridlock in Washington, together with sequestration, pressure on discretionary spending and the need for skilled labor immigration reform, threaten s (and the nation s) basic research enterprise, which is the foundation of our ecosystem. Meanwhile, the State of, is taking steps to improve the environment for biomedical research and development. Governor Brown has signed legislation to reduce duplicative regulation of drug and device facilities and, recently, to offer tax incentives for firms to expand operations within the state. As this report demonstrates, s medical device and biopharmaceutical industry was resilient through the worst of the Great Recession, being one of only two states to add employment in this industry from 008-01. With both federal research funding and venture capital investment down, our resilience faces new tests as we seek creative ways to advance our industry to the next level. Fortunately, has the talent, creativity and entrepreneurial energy to pass these tests and open new paths for our industry s future. Sincerely, DAVID GOLLAHER, Ph.D. PETER CLAUDE
An Economic Cornerstone s biomedical industry touches millions of people throughout the world. The drug therapies, diagnostic tests and devices these companies produce save lives, boost health and improve quality of life. Closer to home, the industry is a powerful contributor to the state s economic health. s biomedical industry employs 67,000 people with average annual salaries exceeding $95,000. Of the,490 biomedical companies in,,5 are privately held. These are mostly small, innovative startups working to bring promising new technologies to the marketplace. It s a tough road, but their success is a key driver of economic growth. During the recent recession, from 008-01, s biopharmaceutical and medical device employment grew percent, in contrast to traditional leaders such as New Jersey and Massachusetts, which lost jobs. This ability to grow while facing an economic headwind exemplifies the strength of s biomedical sector. Only North Carolina outperformed at 8. percent growth. Biomedical Industry in, 01 (estimated) Total revenue $96 billion Direct employment 67,000 Total wages, salaries and benefits $7 billion Average annual biomedical industry wage $95,740 Total NIH grants awarded $. billion Total venture capital investments $.8 billion Total biomedical exports $0.9 billion Direct federal taxes $5.9 billion Direct state and local taxes $.1 billion Number of biomedical companies,490 Biopharmaceutical Companies Public 15 Private 908 1,060 total Device and Diagnostics Companies Public 86 Private 1,44 1,40 total Growth in Biopharmaceutical and Medical Device Employees by state, 008-01 Illinois Indiana Massachusetts Minnesota New Jersey New York North Carolina Pennsylvania Texas U.S. -.6% -9.8% -9.% -10.9% -.0% -.0% -1.4% -.% -.7%.0% 8.% Ripple Effect The biomedical industry s footprint extends well beyond the institutions conducting innovative research and the businesses commercializing new products. Dozens of related industries generate jobs and expansive economic activity throughout. Indirect and Induced Employment 497,000 While the industry directly employs 67,000, there are 497,000 more ns whose jobs are connected to the biomedical enterprise. These are computer programmers, construction workers, consultants, delivery people, attorneys and many others who are supported by the biomedical presence in their community. In addition, s direct biomedical employees and companies pay more than $9 billion in federal, state and local taxes. Governments receive $11 billion more from those who depend on the industry for their own livelihoods. Direct Employment 67,000 Total Direct, Indirect and Induced jobs 764,000 1
A Statewide Industry In terms of total high-tech employees, the industry s nearly 67,000 are second only to the computer and peripherals enterprise, which employs 40,000. While the biomedical industry is mostly clustered in geographic hubs the San Francisco Bay Area, Los Angeles, Orange County and San Diego the biomedical enterprise spans the entire state. s ecosystem encompasses life sciences companies, universities, independent research institutes, diagnostics labs and wholesalers to create a uniquely productive economic environment. With its large area encompassing nine counties, the San Francisco Bay Area leads the pack, followed by Los Angeles, Orange and San Diego counties. Elsewhere, the industry has a significant presence in Ventura, Santa Barbara, Riverside, San Bernardino and Sacramento counties, as well as less-populated areas throughout Northern. Biomedical Employment vs. Other Key Sectors in, 01 Computer and peripheral equipment mfg. Biomedical industry Other electronic equipment mfg. Internet, telecommunications, data processing Motion pictures Aerospace 70,000 176,000 154,000 17,000 67,000 40,000 4% 1% % Total Biomedical Employees by Cluster in, 01 Cluster Employees Bay Area* 6,60 Los Angeles County 5,071 Orange County 41,809 San Diego County 7,697 Riverside and San Bernardino counties 14,060 Ventura and Santa Barbara counties 11,09 Northern ** 10,57 Sacramento County,777 TOTAL 67,000 Note: Clusters do not sum to total due to omitted counties and data suppresion at the county level. * Includes Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano and Sonoma counties ** Includes Monterey, Kings, Tulare, Inyo, San Benito, Fresno, Mono, Santa Cruz, Merced, Madera, Stanislaus, Mariposa, Tuolumne, San Joaquin, Calaveras, Alpine, Amador, El Dorado, Yolo, Sutter, Placer, Mendocino, Lake, Colusa, Yuba, Nevada, Sierra, Glenn, Butte, Plumas, Humboldt, Trinity, Tehama, Lassen, Shasta, Del Norte, Siskiyou and Modoc counties 5% 4% Total Biomedical Employees by Cluster as a percent of the total, 01 0% 16% 14%
Venture Capital Investment A leading indicator of s of s biomedical biomedical industry industry has has been been forced forced to become to become more creative more to creativ strength is venture is venture capital capital (VC) investment. (VC) investment. Projections Projections find early-stage funding, funding, including including forming new forming new for 01 indicate that that will receive will around receive 45 around partnerships, 45 collaborations and seeking and funds seeking from funds fr percent of the of the total total biopharmaceutical and medical and device medical private device foundations. venture capital invested invested the United in the States. United States. This is is a a concrete endorsement of s of s biomedical biomedical leadership, as VCs as VCs look look within within the state the for state potential for potential winners that that reward reward investors investors with attractive with returns. attractive returns. In recent years, years, however, however, VC funding VC funding has come has under come under pressure. As As noted, noted, most biomedical most biomedical businesses businesses in are are small small and privately and privately held. These held. companies These companies are heavily reliant reliant on venture on venture capital to capital fund their to initial fund their initial operations. Unfortunately, both both and the United and the United States as as a whole a whole have have seen a seen steady a decline steady in start-up decline in start-up funding from from VCs. VCs. The medical device device industry industry has been has hit especially been hit especially hard. With the the. percent. percent medical medical device tax device included tax included in the Affordable Care Care Act, start-up Act, start-up medical device medical device companies are are struggling struggling to find investors. find investors. Since 007, Since 007, medical device VC investment VC investment is down is more down than more 40 than 40 percent across across the U.S. the In U.S. the In same the period, same biotech period, biotech investment declined by 8 by percent. 8 percent. The biomedical The biomedical s Influence Nearly half of all biopharmaceutical and medical device venture capital goes to. $.94 billion 45% 01 total: $6.5 billion* 55% *based on projection Venture Capital Investment, Biotech and Medical Devices by stage, U.S. and, 011-01* $.5 $.0 $1.5 BIOTECH Investment $1.0 $0.5 0 0 Start-up/ U.S. seed stage $.09B $.0B $1.8B $1.76B $1.65B $1.70B $51M $68M $169M $46M $88M $40M $4M $75M $874M $776M $458M $410M $189M $8M $198M $580M $590M $698M *01 data based on projection from first two quarters 011 01 01* Early stage 011 01 01* Expansion stage 011 01 01* Later stage 011 01 01* 4M $0.5 MEDICAL $1.0 Investment DEVICES $1.5 $96M $M $88M $10M $445M $M $400M $8M $7M $8M $461M $44M $800M $774M $656M $66M $514M $8M $77M $596M $1.14B $1.5B $1.0B $.0 Top 10 States for Life Sciences Venture Capital Investment 011-01* 0 $1.0 Investment $.0 (billions $.0 of dollars) $4.0 1 Calif. $.45B $.84B $.94B Mass. $1.46B $1.0B $1.09B 011 01 Md. $5M 01* $188M $696M 4 N.J. $8M $67M $406M 5 Penn. $5M $48M $56M 6 Ohio $9M $179M $164M 7 Texas $47M $8M $14M 8 Wash. $97M $161M $116M 9 Colo. $89M $10M $110M 10 N.C. $155M $119M $86M *01 data based on projection from first two quarters
The Innovation Engine To a large degree, s immensely successful biomedical industry is built on academic discovery science. Basic research in genomics, pharmacology, bioengineering and other areas find their way to established companies or inspire the creation of new start-ups. Outstanding doctoral and post-doctoral training programs supply talented scientists to transform basic discoveries into novel drugs, devices and diagnostics. In 01, academics are expected to receive NIH grants exceeding $ billion, far and away leading the nation. Institutions like UC San Francisco, UC San Diego, Stanford and UCLA lead the way, each topping $00 million in grant revenue. In recent years, though, government support for basic research has become increasingly constrained. NIH funding, which has been stagnant for more than a decade, has taken a further hit from sequestration, which has cut research grants by 5 percent. While it s good news that is getting a larger percentage of this grant revenue, the total pie is getting smaller. Top 10 States Receiving NIH Grants 01 vs. 01* 01 01* 10 8 Awards 6 4 7, 7,9 Massachusetts 4,96 4,855 New York 4,575 4,68 0 $0.5 $1.0 Funding $1.5 $.0 (billions $.5 of dollars) $.0 $.5 $.0B $1.86B $.B $.14B $.47B $.B Top 10 Organizations Receiving NIH Funding 01* 0 $100 $00 Funding $00 (millions of $400 dollars) $500 1 4 5 UC San Francisco UC San Diego Stanford University UCLA Scripps Research Institute $198M $58M $9M $1M $487M Pennsylvania,7,44 Texas,477,41 $1.04B $95M $1.4B $1.B 6 7 8 USC UC Davis UC Irvine $11M $181M $180M North Carolina,10,115 Maryland,066,0 Washington 1,58 1,510 $964M $91M $970M $880M $859M $766M 9 10 UC Berkeley $114M Institute of Technology $57M Note: 01 data reflect awards through September 9, 01 *Data excludes R&D contracts and projects funded through the American Recovery and Reinvestment Act Illinois 1,846 1,799 Ohio 1,587 1,548 $746M $68M $661M $614M Note: 01 data reflect awards through September 9, 01 *Data excludes R&D contracts and projects funded through the American Recovery and Reinvestment Act NIH Small Business Grants The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs leverage government investment to commercialize innovative research and development. Similar to NIH academic funding, SBIR and STTR grants have been affected by the 01 sequester; however, has received the most. As of September 9, 01, received 1 awards totaling more than $15 million. By comparison, the next closest state, Massachusetts, received 174 grants, worth $70 million. These grants are a particularly important income source for 's many early-stage biomedical companies, which must contend with the recent decline in venture capital funding. 4
Results: A Robust Pipeline Important as it is to analyze the many factors that contribute to s successful biomedical industry, the ultimate goal is to produce drugs, devices and diagnostics that will improve health and reduce suffering. As of mid-october 01, companies had 1,158 drugs in the pipeline to treat cancer, heart disease, neurologic and infectious diseases and other conditions. In the most important metric of all, the ability to help people, is excelling. Products by Therapeutic Area Best of the Best boasts the highest concentration of world class research institutions in the world. The state has 10 of the top 100 universities on the Shanghai Index. They are Stanford, UC Berkeley, Institute of Technology, UCLA, UC San Diego, UC San Francisco, UC Santa Barbara, UC Irvine, UC Davis and USC. By contrast, New York has five and Massachusetts, three. Number of Universities in the World Top 100 Shanghai Index, 01 rankings New York Pennsylvania Illinois Massachusetts 10 5 4 Texas Indiana New Jersey North Carolina Minnesota 1 Cancer 06 Infectious Diseases (incl. HIV) 10 Central Nervous System 108 10 1 4 5 Hormonal/Nephrology (incl. Diabetes) 90 Immune System 81 Cardiovascular 67 Pain 67 Eye/Ear 64 Musculoskeletal 55 s excellent academic infrastructure is also reflected in the total number of life science doctorates awarded per year, with more than 1,00 in 011. The next closest is New York with just more than 900. Doctoral Recipients in Life Sciences Disciplines Top 10 states, 011 Total life sciences doctoral degrees 1,09 Hematological 47 New York 911 Respiratory 45 Texas 745 Dermatology 4 Penn. Mass. 59 577 Gastrointestinal 4 Genitourinary 16 Miscellaneous 4 N. Carolina Illinois Florida Ohio Michigan 470 457 446 46 54 Diagnostic/Imaging/Delivery 0 500 1,000 1,500 5
Looking Ahead Gaining regulatory approval and reimbursement for drugs and devices is a long, capital-intensive process, particularly for small companies. Decision makers in Washington and Sacramento will continue to play a key role. Thoughtful, forward-looking policies that bolster NIH funding, transparent FDA regulatory processes, value-driven coverage and payment policies and robust intellectual property protection will help ensure continues its longstanding biomedical leadership. State policies that foster higher education and STEM funding, coupled with a better tax, regulatory and lawsuit climate need to be addressed for s biomedical ecosystem to thrive. Fostering a Better Business Environment While pioneered the modern biomedical industry, past performance is no guarantee of future success. In particular, the state must find innovative ways to become more business-friendly or risk losing its leadership position. Fortunately, steps are being taken to improve the business climate. Recently, legislation championed by Governor Jerry Brown to reduce duplicative state biomedical facility inspections has become law. In addition, the governor s economic development package included several business-friendly sales tax exemptions. These are positive steps, but more can be done. Report Authors David L. Gollaher, Ph.D. President and CEO Healthcare Institute Peter Claude Partner, Pharma & Life Sciences Advisory Project Team Erica Hiar Healthcare Institute Todd Gillenwater Healthcare Institute Art Karacsony Ousmane Caba Sources PAGE 1, Bureau of Labor Statistics Quarterly Census of Employment and Wages; 007 Economic Census; Bloomberg PAGE PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report based on data from Thomson Reuters; Wall Street Journal Writing Josh Baxt Baxt Communications Graphics and Design Paul Horn Cover Illustration Jim Nuttle Economic Analysis Kristen Soderberg Jack Rodgers PAGE 4 National Institutes of Health PAGE 5 BioPharm Insight; Academic Ranking of World Universities (ARWU) 01; Shanghai Ranking Consultancy; IND filed through Phase III, Oct. 17, 01; NSF/NIH/USED/USDA/NEH/NASA; Survey of Earned Doctorates, 011 About Healthcare Institute CHI represents more than 75 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, Facebook, LinkedIn and YouTube. See methodology and more at: www.chi.org/014biomedreport About s Pharmaceutical and Life Sciences Industry Group is dedicated to delivering effective solutions to the complex strategic, operational and compliance challenges facing pharmaceutical, biotechnology and medical device companies. We provide industry focused assurance, tax and advisory services to build public trust and enhance value for our clients and their stakeholders. More than 180,000 people in 158 countries across our network of firms share their thinking, experience and solutions to develop fresh perspectives and practical advice. For more information visit: www.pwc.com/us/pharma and www.pwc.com/us/medtech CHI HEADQUARTERS 888 Prospect St., Suite 0 La Jolla, CA 907 858.551.6677 Fax 858.551.6688 CHI SACRAMENTO 101 K St., Suite 1840 Sacramento, CA 95814 916..497 Fax 916..498 CHI WASHINGTON, D.C. 1608 Rhode Island Ave. NW, Second Floor Washington, D.C. 006 0.974.61 Fax 0.974.60