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Press Release · April 27, 2005

Biotech Exodus From California To Other States Unlikely

Despite Higher Costs, Golden State Meets Unique Industry Needs

SAN FRANCISCO, California, April 27, 2005 — Despite the mounting debate over whether California’s high costs are driving away business, the state is not likely to lose its dominance in one of today’s most potentially lucrative industries – biotechnology. Although nearly every state in the nation has developed policies or incentive programs to attract biotech firms, the industry’s very distinct and complex requirements are met in California – and for the present, according to a study released today by the Public Policy Institute of California (PPIC), that’s not likely to change.

California, home to over one-quarter of the nation’s biotech firms, which account for 53 percent of the industry’s revenue, has a crucial advantage that is difficult to replicate: a high proportion of world-renowned research universities. According to the study, Ph.D. scientists working at universities or research institutes have founded nearly half (47%) of the venture-backed biotech start-ups in the United States. Moreover, two-thirds of those scientists chose to start their firms in the same state where they were conducting research. A full 82 percent of California’s “professorial entrepreneurs” stayed in the Golden State to found their companies.

The importance of being in close proximity to pioneering biological, chemical, and medical research hasn’t diminished since the industry was first founded on technology invented by two scientists, according to the study. “Academic research is the very source of biotech innovation and creation – and this transfer of knowledge from campuses to business tends to take place locally,” says PPIC research fellow Junfu Zhang, who coauthored the report with PPIC research associate Nikesh Patel. “It is essential to consider academia when assessing where industry strongholds will develop.”

Furthermore, it is start-up firms that create the largest share of biotech jobs. Since 1992, over half (52%) of the state’s total biotech job growth has come from start-up companies, while a negligible share (0.6%) has come from established firms moving into the state. But what about those moving out? Between 1990 and 2001, more firms left than moved in; yet, the overall employment effects were not negative – California lost 815 biotech jobs from exiting firms but added 1,739 jobs from firms moving in. To give even more perspective, the number of jobs added from start-ups during this period was 23,047. “As long as scientists continue to create new firms, and our rich academic environment persists, it’s difficult to see California losing its edge or suffering a flight of biotech companies,” says Zhang.

Then, there’s the money. California’s especially strong tradition of venture capital investment – something critical to biotech – manifested itself politically last November when voters passed Proposition 71, a $3 billion bond to fund stem cell research. According to the study, The Dynamics of California’s Biotechnology Industry, the amount dwarfs what any other state could hope to pledge and has set the stage for California as an industry leader for a long time to come.

The Public Policy Institute of California is a private, nonprofit organization dedicated to improving public policy in California through independent, objective, nonpartisan research on major economic, social, and political issues. The institute was established in 1994 with an endowment from William R. Hewlett.