California’s Biomedical Industry is Poised

Eighty percent of biomedical company CEOs in California report that their companies have been courted by other countries, state governments or regional economic development associations in the past year, according to survey findings included in the 2011 California Biomedical Industry Report, published today by the California Healthcare Institute, BayBio and PwC. Yet the survey found surprising consensus of confidence in the state’s ongoing attractiveness to the biomedical industry, with many CEOs planning to increase jobs, manufacturing, research and development operations within California versus elsewhere.

Still, the danger for the U.S. and California is that other parts of the world are quickly catching up, warns the report. The survey of CEOs found that the unique ecosystem that has helped to build California’s leadership in biomedical technology innovation may be fragile and short-lived unless both government and industry adapt to new challenges.

  • Sixty-seven percent of CEO respondents said that within five years, another country could conceivably recreate the ecosystem that has made the U.S. the leading biomedical region in the world.
  • Sixty percent believe that another state could recreate the ecosystem that has made California the leading biomedical region in the U.S.

The 105-page report provides insight into California’s rise to global leadership in the biomedical industry and the impact of the industry’s presence on the state.  California is home to the biggest concentration of biomedical companies, researchers, entrepreneurs, suppliers, venture capitalists and workers in the world.  Despite increased competition and proliferation of biomedical and medical technology innovation overseas, California remains the industry’s global leader and it stands to grow even larger as the U.S. epicenter of biomedical innovation. At the forefront of new developments in biologics, the fastest growing segment of the global biopharmaceutical industry, California has the largest clustering of companies and more products in clinical development than any state in the U.S. or any other country in the world.

Confidence in California and the outlook for the industry is evident in the findings of the reports’ CEO survey:

  • For the first time in the report’s 17-year history, nearly twice as many biomedical CEOs said they intend to increase manufacturing within California (41 percent) versus outside the state (21 percent) over the next two years.
  • Sixty-eight percent of CEOs said they expected to expand the overall size of their workforce within California, while only 31 percent planned to increase workforce levels outside the state.
  • Seventy-eight percent of CEOs surveyed said that they maintained or expanded R&D operations within California over the past year, and 88 percent plan to do so over the next two years, with the majority of those (62 percent) saying that they expect to expand R&D within California.
  • The key reasons cited for locating in California were the availability of a highly skilled, entrepreneurial workforce and California’s culture of innovation, anchored by leading research universities.
  • While relocating out of state was not a strategy cited by CEOs surveyed, when asked about the most attractive U.S. biomedical markets outside California, 76 percent named Greater Boston followed distantly by North Carolina (31 percent), Minneapolis-St. Paul (25 percent) and the Washington-DC corridor (20 percent).

 “The most resilient of the state’s high-tech industries after the economic downturn, the biomedical industry is poised to lead California’s economic recovery,” said David Gollaher, CEO of California Healthcare Institute.  “Yet the pace of the industry’s progress could be slowed by cost pressures, declines in venture capital funding, particularly for early stage developments, and regulatory inefficiency and uncertainty at the FDA.”

Biomedical Industry in California

According to the 2011 report, the biomedical industry directly employs 268,000 people in California, a workforce second only to the state’s information technology sector, and approximately twice the size of the motion picture industry. The biomedical sector supports another 783,000 people – 13.8 percent of the state’s total workforce – who hold biomedical industry-related jobs across diverse sectors.  The biomedical industry accounts for approximately $59 billion in direct wages and $86 billion in related personal income that contribute to California’s tax base.

Large, diverse and distributed throughout the state, California’s biomedical industry is concentrated primarily in four clusters around academic research centers in San Francisco, San Diego, Los Angeles and Orange County and surrounding counties of Riverside & San Bernardino, Sacramento, Ventura and Santa Barbara.  Approximately 40 percent of jobs are in the medical devices, instruments and diagnostics sectors, 30 percent in biopharmaceuticals and 16 percent in academic research.

While employment levels in biomedical industry fared better than most other industries, they have felt the effects of the economic downturn and changing dynamics of the healthcare market.

  • For the first time in five years, in 2009 biomedical employment declined in California by nearly 6,000 jobs.
  • Still, cumulative growth over the past five years remains positive. Between 2005 and 2009, the biomedical industry added nearly 12,000 jobs in California, with academic research and biopharmaceuticals growing at an average annual growth rate of more than 2.3 percent and wholesale trade by 1.5 percent. The two sectors where employment has declined are in laboratory services and medical devices.
  • Employment declines varied by cluster.  Biomedical industry employment in San Diego and Sacramento counties continues to grow, offsetting losses in the Bay area and Riverside and San Bernardino counties.

Access to Capital

Another year of declines in venture capital funding, the lifeblood for the country’s innovative new companies, could significantly threaten the future of the biomedical industry. California companies attract more venture capital investment in life sciences than any other state, divided between biotechnology and medical device companies.

According to the PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report with data provided by Thomson Reuters, California life sciences companies attracted $2.5 billion in venture capital funding in 2010, down from $2.7 billion in 2009 but still more than any other high-tech sector in the state.

“The demand for innovative pharmaceuticals, diagnostics and devices are expected to grow as healthcare delivery becomes more outcomes-focused and medicine becomes more personalized and targeted,” said Tracy Lefteroff, National Life Sciences Partner at PwC U.S.  “This represents a tremendous opportunity for the investment of private capital, but companies will need to work more collaboratively with the public sector, the investment community and other health sectors to minimize risks and maximize return in the new healthcare landscape.”

Lower risk tolerance among venture capitalists is reflected in their funding trends.  Whereas venture capitalists historically have funded device, diagnostics and pharmaceutical R&D firms from start-up through development and commercialization, trends indicate that venture capitalists have shifted their support to companies in late-stage development.

Respondents to the CHI/BayBio/PwC Survey anticipate that the next two years will find them in a holding pattern at best, navigating risks with a great deal of uncertainty about the future.

  • More than two-thirds of CEOs surveyed (69 percent) reported that R&D projects had been delayed, and the number one reason cited (44 percent) was “lack of funding.”
  • Forty-eight percent of respondents said they were somewhat or very likely to participate in a merger or acquisition over the next year while 51 percent said they were very or somewhat unlikely to do so.
  • Only 9 percent of respondents said they were likely to participate in a sale or divestiture in the coming year.

Opportunities and Barriers to Growth

With the economy and biomedical industry funding environment showing some initial signs of recovery, the 2011 CEO survey sought entrepreneurs’ thoughts on sustaining growth.  Workforce development surfaced as the single most important issue among survey respondents. Failure to encourage workforce development and growth was cited by CEOs as the greatest threat to the future of California’s biomedical industry.  Nearly half (47 percent) of respondents ranked “an unprepared workforce” among the top three threats to the industry.

  • Among issues deemed either somewhat or extremely important to keeping biomedical research, innovation and investment in California, the elimination of duplicative regulation by state and federal regulators was cited by 80 percent of respondents, workforce development was cited by 67 percent, and R&D tax credits were cited by 67 percent.
  • Other high ranking threats point to the complexity of thriving in the life sciences sectors as companies adapt to changing rules and regulations. Thirty-six percent of respondents said that lack of data to demonstrate product safety and effectiveness is a top threat to their business.   And 35 percent said that liability of products on the market is a threat.
  • Survey respondents also ranked federal policy issues as somewhat or extremely important to their operations.  Eight-four percent of respondents believe that the FDA regulatory approval process has slowed the growth of their organizations.
  • More than three-quarters of respondents predict that the cumulative impact of changes in the healthcare marketplace, driven largely by health reform, will decrease their profit margins and 54 percent believe that the pace of innovation will slow.

“We challenge California’s leadership to pledge support for the life sciences community through legislation, regulation and support for state-level investment, particularly policies which support innovation,” said Gail Maderis, president and CEO of BayBio. “The life sciences community urges the state’s leadership to support core state programs that will drive innovation over the next 10 to 15 years.  We look forward to working with our companies, investors and elected officials to continue bringing a robust pipeline of therapies to the patients who need them.”

A full copy of the 2011 California Biomedical Industry Report is available at,



CHI and BayBio worked with PricewaterhouseCoopers LLP to collect and administer data for the 2011 CHI/BayBio/ PwC California Biomedical Industry Survey.  The survey was conducted in November 2010 and targeted approximately 100 of the largest companies that conduct business in California in the areas of pharmaceuticals, biotechnology, medical devices, diagnostics or medical equipment.

About the California Healthcare Institute

CHI represents more than 275 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 Follow us on Twitter @calhealthcare and Facebook.

About BayBio

BayBio is Northern California’s life science association, supporting the regional bioscience community through advocacy, enterprise support, and the enhancement of research collaboration. Its members include organizations engaged in, or supportive of, research, development and commercialization of life science technologies. Online at

About PwC’s Pharmaceutical and Life Sciences Industry Group

PricewaterhouseCoopers Pharmaceutical and Life Sciences Industry Group ( or provides assurance, tax and advisory services to proprietary, generic and specialty drug manufacturers, medical device and instrumentation suppliers, biotechnology companies, wholesalers, pharmacy benefit managers, contract research organizations, and industry associations. The firm is dedicated to delivering effective solutions to the complex strategic, operational, and financial challenges facing pharmaceutical, biotechnology and medical device companies. Follow PwC Health Industries at

About the PwC Network

PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See for more information.

¬© 2011 PwC. All rights reserved. “PwC” and “PwC US” refer to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate and independent legal entity.