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CLSI’s 2016 Economic Impact Report

CLSI-EIR-v2

BAY AREA LIFE SCIENCE STARTUPS:
Accelerating Innovation in the Life Sciences

OVERVIEW

Pre-Series A life science companies in the Bay Area are significantly impacting the local and state economy. This is the key finding of a survey of 137 Bay Area life science startups conducted by the California Life Sciences Institute (CLSI) in Q3 of 2015. WWhile these startups are on the leading edge of innovation in the industry, they are often not captured in traditional analyses, leaving uncovered the important economic and workforce contributions of the region’s youngest companies. As members of a vibrant and innovative life sciences cluster, these under-the-radar companies are attracting significant private and public funding, are filing and receiving patents, and creating jobs in California.

SURVEY METHODOLOGY

Out of 450 surveys disseminated from August – October 2015, responses were received from 137 startups, a 30% sample. The data are also a representative sample – 22% – of the just over 600 startups we have identified in the cluster at large1. Survey questions were created by CLSI in conjunction with QB3 and Silicon Valley Bank (SVB). SVB, JLABS SSF and JLABS@953 assisted with survey dissemination to tenant companies. CLSI also collected responses from 33% of 150 Fellow startups, members of the California Life Sciences Association (CLSA).

THE COMPANIES

Stage of Development: Emphasis on Early

The majority of company respondents are concentrated in the early stages of development, particularly in the pre-clinical or R&D phase, accounting for over 60% of responses, followed by clinical (13%), commercial (12%) and beta testing (9%)2. (Figure 1) Over half (59%) of company respondents are one- to four-years old, with a full 13% under one year since inception. (Figure 2)

development stage
Figure 1
years since inception
Figure 2

If we extrapolate these findings to the estimated 600 startups in the cluster, this suggests that over 380 companies are operating in the R&D or pre-clinical stages of development.

Company Focus: Therapeutics Lead

Respondents were asked to self-identify their companies as: Therapeutics, Diagnostics, Therapeutics/Diagnostics, Medical Devices, Research Tools, Digital Health, Drug Delivery, Agricultural/Industrial Bio, Services or Other.

Sectors by Survey
Figure 3

Not surprisingly perhaps given the preponderance of mature therapeutic companies in the Bay Area, the plurality of startup respondents are in Therapeutics at 36%, representing an estimated 218 companies in the full cluster, followed by Medical Devices at 19% (~115 companies), Research Tools at 11% (~67) and Digital Health at 9% (~55). (Figure 3)

Sub-Area Focus

Health Indications
Figure 4

Within the therapeutics space, oncology is the leading indication, represented at 17%, followed by CNS (11%), immunology (10%) and infectious disease (9%). Among medical device companies, oncology is also the dominant disease area represented, at 41% of respondents, followed by gastroenterology (11%) and cardiovascular (7%). Companies in the research tools space self-identified primarily as drug discovery platforms (34%), followed by tools related to oncology (17%). A majority of companies in the digital health arena are solving diagnostic challenges (22%), followed by a nearly even split among bio-sensing, monitoring and clinical decision-making support tools, each representing approximately ~15% of digital health startups. (Figure 4)

Impact

In spite of their early development stage and the challenges in navigating an uncertain financial and regulatory climate, Bay Area life science startups are attracting significant public and private dollars to the state, driving innovation and creating jobs.

Of the 137 respondents, 115 reported financial data. These companies have pulled in a total of $360M: $277M (77%) in private funds and $83M (23%) in public funds.

Fundraising Snapshot:

Venture Capital Reigns Supreme

  • Total Funding Raised: $360M
    • 77% Private
    • 23% Public
    • Private Funding: $277M
      • 34% Venture Capital ($94M)
      • 24% Angel ($66M)
    • Public Funding ($83M)
      • 87% Government Grants ($72M)

Private Funding

Of those startups who have received private funding, 15% (17 companies) have raised $94M in venture capital funding, and 23% (27 companies) have raised $66M in angel funding. A majority of respondents (57%, 66 companies) received funding from friends and family totaling $44M; 37% (43 companies) received seed funding totaling $41M, and other private sources of funding made up $35M for 14 companies (12%). Seventy-five companies (65%) had secured a combination of funding sources, while 41 (35%) were reliant on a single source.

Of the 11% of respondents at the commercial stage who provided financial data, each had secured some form of private funding and 25% had also secured at least one form of public funding. Forty-two percent reached this stage without the assistance of angels or VCs, while 58% were enabled by at least one of these types of investments. Those who reached commercialization without angel or venture capital support were in Digital Health, Medical Devices or Services. Seventy-five percent of commercial-stage companies were funded by friends and family money, a higher percentage than those at earlier stages.

Public Funding

Of the companies who have received public funding, 39% (45 companies) have pulled in a collective total of $73M in SBIR, STTR and DOD grant funds.  Foundations have provided $3.3M of funding to 10% (11) of companies. Eleven companies have drawn an additional $7.5M from business plan competitions and collaborations/partnerships. Of the companies that successfully obtained grant funding, 75% (36 companies) did not obtain angel or VC money as well.

Overall, venture capital remains the largest single source of funds: 26% of the total funding across all developmental stages came from venture, followed by government grant funding at 20% and angel at 18%.  Friends and family, seed funds and other private funds each accounted for about 11% of total funding.  Foundations and other public funds accounted for very small amounts by comparison at .9% and 2% respectively. (Figure 5)

Who's eating the menu
Figure 5

Looking at funding by sector, 1/3 of the reported funds raised by respondents went to companies developing therapeutics, 22% was dedicated to medical devices and 14% to digital health. All other categories were in single digits. (Figure 6)

funding sectors
Figure 6

Patents

Bay Area life science startups are key drivers of innovation in the industry, translating research into commercial assets. The respondents reported having collectively filed 468 patents, of which 158 had been granted. Therapeutics companies reported the greatest number of patent filings (190 filed, 85 granted), followed by Medical Devices (80 filed, 42 granted), Research Tools (80 filed, 19 granted), Digital Health (31 filed, 5 granted), Drug Delivery (30 filed, 1 granted), Diagnostics (20 filed, 1 granted), Service Companies (19, 2) and AgBio/Industrial (18, 3). (Figure 7)

patents filed granted
Figure 7

Regulatory Pathway

For companies in the therapeutics space, the regulatory pathway for 82% is to file a BLA or NDA; 18% planned a 505(b)2 route. In the device area, 77% expect to file under 510(k), while 23% will require a PMA.

Employment

In another important economic indicator, the surveyed Bay Area life science startups are providing some form of employment for 1233 people: 638 full-time, 168 part-time, and 427 consultants. Though comprising only 36% of respondents, therapeutics companies are the largest employers, accounting for 52% of the total number of reported employees. Medical device companies employ 17% of the workforce, digital health account for 9%, with the remainder spread among the rest of the startup community. (Figure 8)

employment sectors
Figure 8

JOB ENGINES

The startups surveyed provided employment for 1233 people:
638 Full-time | 168 Full-time | 427 Full-time

women c suite

In a key finding, we note that 47% of respondents have a woman in the C-suite, significantly higher than the industry at large.3

CONCLUSION

If we assume that the 137 survey respondents are a representative sample of the estimated approximately 600 life science startups in the Bay Area, we can extrapolate findings to suggest that the Bay Area entrepreneurial ecosystem as a whole has accumulated an estimated $1.9 Billion in funding, created almost 5500 jobs, and has filed over 2000 patents, with approximately 750 granted. While definitive numbers are inconclusive given this fluid, under-the-radar segment of the industry, there is no question that these young companies are having a strong positive impact on California’s economy. These startups need the help of the entire ecosystem – legislators, pharma, investors, trade associations and other stakeholders – to commercialize their innovative discoveries.

Fortunately, life science startups can tap into a number of robust supports in the region given the myriad incubators, accelerators, innovation hubs and other entrepreneur support programs that make up the Bay Area ecosystem: QB3’s Start-up In a Box, JLABS’ “Meet With” series, the IndieBio and Illumina Accelerators, Bayer’s CoLaborator, Breakout Labs, the rigorous entrepreneurial programs coming out of UC and Stanford, and CLSI’s own Fellows All-Star-Team (FAST) Advisory Program, to name just a few. The ability of young companies to share affordable space, equipment and supplies, to tap into the mentoring of many experienced professionals who volunteer their time, and to meet with prospective investors and partners are all features of a strong entrepreneurial ecosystem that is underscoring the strength of our industry’s innovation pipeline.

OUR THANKS

The California Life Sciences Institute (CLSI) would like to thank the many people and organizations that have helped us put this survey and report together. A committee comprised of representatives from QB3, Silicon Valley Bank, Stanford and UCSF’s Center for Digital Health Innovation helped us plan the survey in early 2015. Both Adriana Tajonar and Noore Kadri (formerly & presently of QB3, respectively) and JC Simbana and Anjan Narain, of Silicon Valley Bank, helped us develop the basic survey architecture, and – along with Chelsea Hewitt and James Viola of JLABS – helped with its dissemination. We are indebted to Leah Jordan, of CLSI, and Julie Harness, CEO of Cybelle Biosciences, for their many hours of work assembling and analyzing the data. We would also like to thank the former Bay Area Bioeconomy Initiative, under the auspices of Dr. Una Ryan, for supporting this effort. Finally, and most importantly, we salute the CEO’s and other company principals who responded to this survey and who daily work to drive forward the science that is saving lives and addressing some of the globe’s most pressing challenges.


References

1 This represents the just over 600 pre-series A companies that CLSI has been able to identify, 450 for whom we have contact details and were able to disseminate the survey. The growing number of digital health startups that exist in the cluster, for which we currently have limited information, are likely underestimated. They nevertheless constitute an increasingly important segment of the Bay Area life sciences cluster.

2 Of the responses to this question, some companies indicated more than one stage of development.

3 According to an August 7, 2015, article in Nature Biotechnology (Old Boys Biotech), women hold only 16% of senior management positions in Pharma, and 17.9% in the top 10 highest-valued Biotech companies. This is consistent with findings of an analysis of 1491 companies within Europe and the US (Diversifying the Outlook, the X&Y of Biotechnology Leadership, October 2014), which demonstrated that women hold Directors and Leadership team positions at 19.2% and 13.9%, respectively, in large biotech.