Shrinking Economy Hits California Biotech Sector

A report released on Feb. 8, 2012 from the California Healthcare Institute, BayBio and PwC shows that the shrinking economy, changes in investment strategies, and pressures on the pharmaceutical market have put the brakes on one of the US’s most robust biotechnology centers. California had enjoyed steady growth in its biotech sector for the past two decades, and according to the report, is the source of 28% of the country’s biomedical pipeline. More recently, as with the rest of the world, the slowdown in the global economy has taken its toll on this area. The industry lost approximately 6,300 jobs, or about 2.3% of its life-sciences workforce since 2008, returning employment levels to those seen in 2006.

The report defines the biomedical sector as consisting of basic research, biopharmaceuticals, diagnostics, medical technology, research tools, laboratory services, and wholesale trade companies. When broken down by area, the employment news is not uniformly bad. Most of the job losses were from academia and from the device industry, and were partially offset by gains in the biopharmaceutical sector. CEOs within the industry were surveyed as to the reasons for reducing their company’s operations within the state. The top three reasons given were cost cutting, the overall business climate, and expanding new operations outside of California. Most CEOs were optimistic about the future, the majority indicating that they expected to either hold steady or increase operations inside and outside of California.

The investment climate has been affected by the economic slowdown, which in turn, affects the operations of companies in California. According to the report, more than 74% of respondents said that their company had delayed a research or development project in the past year, up from 69% in 2010. The overriding reason, at just over 40% of respondents, was cited as “funding not available.” In an accompanying press release, Tracy Lefteroff, national life sciences partner at PwC US offers this analysis. He says, “The life cycle of biomedical startup companies has changed as challenges to raising capital have increased. Whereas their greatest challenge in years past was in validating the science, these companies now need to validate getting funding by lowering costs and improving returns. The strength of California’s life sciences industry remains closely tied to the level of confidence that the investment community has in the industry’s ability to develop innovative products while effectively managing the challenges associated with clinical and regulatory risk.”