When we envision Southern California, we usually think about sun-drenched beaches, surfing, Hollywood, Beverley Hills, Rodeo Drive, and the seaside resorts of La Jolla and Newport Beach. It may surprise many to know that the region also has one of the largest life sciences industry clusters in the world. The region stretches south from Orange County with its innovation hubs centered in the cities of Irvine and Mission Viejo down to San Diego County’s Torrey Pines Mesa, Carlsbad and UC San Diego. ( Biocom 2012; Southern California Economic Impact Report)
The region’s first biotech company, Hybritech, was established by scientists from UC San Diego. Hybritech’s renowned product, the PSA test, is a revolutionary diagnostic test for prostate cancer. The company was subsequently acquired by the pharmaceutical giant Eli Lilly for $400 million in 1986. This sizeable infusion of cash helped the early entrepreneur’s of Southern California to start the first generation of biosciences firms in the region. San Diego’s biggest biotech drug success story was Idec. The company is now part of Biogen-Idec.
The story of creation of the medical devices industry in Orange County, mostly concentrated in the cities of Irvine, Mission Viejo and Santa Ana, is akin to the development of the life sciences industry in San Diego County. Engineers and scientists initially attracted to the county for work on military research and manufacturing transferred their knowledge and know-how into developing medical devices with considerable support from scientists and engineers at UC Irvine. Founded in the 1950s, Edwards Life Sciences of Santa Ana became the medical devices anchor firm in the county. At about the same time, an eye drug company, Allergan, entered the emerging field of cosmetic biotechnology with the acquisition of rights to Botox.
Over the last several years, the life sciences industry is beginning to take root in neighboring Riverside County. Attraction factors include affordable housing, the presence of UC Riverside, and access to a well-trained workforce. Abbot Vascular and several other medical devices companies form the core of the life sciences hub in the county. The completion of the UC Riverside School of Medicine in 2013 will provide an added boost to the advancement the county’s Life Sciences Industry. Nearby Imperial County, known for agriculture and agribusiness for decades is also beginning to develop a life sciences industry cluster comprising industrial biotechnology and biofuels.
Job growth in life sciences has been impressive in the four-county region. In 2011, this sector employed a total of nearly 97,000 people with average salaries ranging between $54,142 and $116,462 – well above the national average. The medical devices and diagnostics sector with 33,871 workers had the dominant share of jobs followed by research and lab services with 31,394 jobs. The remaining jobs were in Biopharmaceuticals and foreign trade. The counties of San Diego and Orange lead the region each with 41,000 jobs. In addition, nearly 31,000 jobs were created in supporting industries. These include accounting, Insurance, legal services, recruitment and administrative services, financial services, marketing, advertising and communications services.
The economic resilience of the life sciences industry in Southern California has been impressive. The industry weathered the Great Recession of 2007-2009 relatively well. Job growth in the industry continued while employment declined in most industries in the region and the nation.
Underlying the impressive economic performance of the Southern California life sciences industry lies a healthy innovation ecosystem. (Mary Walshok, Tapan Munroe, Henry Devries, Closing America’s Job Gap ,W Business Books,2011;Tapan Munroe with Mark Westwind, What makes Silicon Valley Tick? Nova Vista Publications, 2009) Like most living ecosystems, survival is the outcome of the interplay of a number of key elements of the ecosystem. An innovation ecosystem is a dynamic and adaptive “organism” that creates, consumes, and transforms ideas into products via the formation of new firms. The foundational element in the innovation ecosystem is research universities – the primary source of knowledge, ideas, and innovation. Research universities also provide education and training for the region’s workforce. In addition, they provide access to sophisticated labs and equipment as well as to faculty expertise. University faculty members, and their talented graduate students, often help in the formation of startup businesses. Increasingly the Major research universities in California are becoming entrepreneurial. They include the ten campus UC system, Stanford University, and Cal Tech in Pasadena.
With knowledge and innovation as the primary drivers of economic growth and job creation, world-class centers of knowledge and discovery are key elements of an innovation economy. The four-county Southern California region is well-endowed with these vital assets. The region is host to three University of California campuses: UC San Diego, UC Irvine, and UC Riverside. San Diego County is the flagship of the region and continues to flourish primarily because of the presence of its world-class research university and fifty-three free-standing research institutes such as the Salk Institute of Biological Studies.
Another key element of the innovation ecosystem is investment capital. If ideas and solutions are the soul of innovation, then money is the life blood. Access to seed capital from angel investors at the start-up stage and follow-up financing from venture capital firms for expansion are both critical success factors for today’s technology firms. Angel and venture capital is private investment money crucial for transforming basic research into commercial products that drives the commercial growth of the life sciences industry. An important source of capital for the life sciences is the taxpayer-supported National Institute of Health (NIH) funding, primarily devoted to basic research. Other uses of NIH grants include training and teaching programs.
The top ten recipients of NIH grants in 2011 included the following institutions: UC San Diego, Scripps Research Institute, UC Irvine, Sanford-Burnham Medical Research Institute, and the Salk Institute for Biological Sciences, San Diego State University, La Jolla Institute of Allergy and Immunology, Loma Linda University, Veterans Medical Research Foundation-San Diego, and the Ludwig Institute for Cancer Research. Together, they received 94% of the NIH grants in 2011.
Between 2007 and 2010, venture capital investments in the Southern California life sciences industry declined from $1.1 billion to $535 million as a result of the Great Recession of 2007-2009. This trend continued into 2011 because of market and regulatory uncertainties. On the other hand, NIH grants made to the region’s universities, hospitals, and small businesses for basic research in 2011 increased to $977 million compared to $966 million in 2010. San Diego County received the largest share – 85% of the NIH grants. San Diego remains the number one recipient of funding for biotechnology in the US. However, the declining trend in VC funding for life sciences is a matter of concern for future growth of life sciences startups in the region.
The conclusions from an examination of the Southern California’s innovation ecosystem analysis include:
- The Southern California life sciences industry is well-diversified ranging from biopharmaceuticals to medical devices and diagnostics.
- The region has an extraordinary concentration of research institutes anchored by world-class entrepreneurial research universities. This is an unbeatable asset for the life sciences innovation economy of Southern California. It provides nimbleness and resilience – fast response to emerging scientific and technological developments such as gene sequencing as well as rapidly changing market force. Throughout the Great Recession of 2007-2009, the region’s life sciences industry continued to add jobs while the rest of the nation shed jobs.
- The region’s life sciences industry has a large positive economic impact on the region by creating large number of well paying jobs in supporting industries.
- The BIOCOM 12 report forecasts that by the year 2013 there will be 70% more jobs in the life sciences industry in the region than the national average. It also concluded that 94% of the job growth in the past two years can be attributed to the region’s competitive advantage in several factors that include the presence of world-class research universities, financial support for research and development and business startups, a well-trained work force with strong science, technology, engineering and math (STEM) skills, and a high-quality of life in the coastal regions of Orange and San Diego counties.
Tapan Munroe. June 19, 2012