Biotech Blossoms : Industry Hiring Is Up 18% Despite Statewide Slump
Despite a future clouded by the uncertain path of national health care reform, California’s biotechnology industry is currently one of the few healthy segments of an otherwise ailing state economy, according to a new study.
For the first half of this year, biotech jobs increased 18% on an annualized basis and the number of new firms rose 17%, results of a survey by the Palo Alto-based life science unit of the Ernst & Young accounting firm show.
Moreover, the number of biotech jobs in the state has risen 50% since 1990, contrasted with a 4.3% decline in statewide employment over the same period.
Although biotech jobs represent a fraction--just one-third of 1% of the state’s 12 million non-agricultural jobs--such jobs tend to be highly skilled, high-paying positions. Thus a growth trend in the segment is welcome news to those who fear that the state’s prolonged recession is tilting the job base away from skilled jobs, represented by declining industries such as aerospace, toward low-wage manufacturing and service jobs.
In addition to creating skilled jobs, biotech “is an area where we have a major international (competitive) advantage and in California we have a lot of firms. There’s been growth in employment but also a tremendous explosion of scientific knowledge,” said Joel W. Hay, a health economist and associate professor at the University of Southern California’s School of Pharmacy.
The ongoing industry expansion comes despite the pall that health care reform has cast over the entire field. Fears that drug price controls and other restrictive measures might be a part of the reform package have already caused a few California biotechnology companies to scrap stock offerings, delay research and freeze or cut jobs.
Health care reform’s impact on access to investment capital remains the industry’s major concern, because most companies have not yet put enough products on the market to sustain their huge research and development costs.
As an industry, biotechnology lost $3.4 billon in 1992, up from $2.2 billion the previous year.
Despite such negative signs, new jobs and start-ups of biotechnology companies in the state will match or exceed last year’s banner performance, said Kenneth B. Lee, national director of Ernst & Young’s life science unit. That’s encouraging at a time when many companies in other industries are either closing shop or leaving the state, Lee said.
Currently, California--with firms concentrated in the San Francisco Bay Area and San Diego, Los Angeles and Orange counties--claims a disproportionate share of the nation’s biotech industry. About 38% of all biotech jobs and nearly 30% of the firms are based in California.
Lee said he expects the number of firms based in California to grow 17% by the end of the year.
Among the companies adding jobs is Chiron of Emeryville, which last week received word that the federal Food and Drug Administration had approved the market introduction of Betaseron, a therapeutic drug to combat multiple sclerosis that Chiron co-developed with Berlex Laboratories.
Betaseron’s annual sales may reach $300 million in 1995, and Chiron said Monday that it plans to boost its payroll to 2,200 by December, up from 1,867 at the end of 1992, to help meet the demand.
But successful new products are not the prime force behind biotech’s continued expansion. In fact, 1993 has been a relatively disappointing year for new biotechnology drug approvals. Three highly touted anti-sepsis drugs failed to gain FDA approval, including one developed by Xoma of Berkeley.
The real key to biotechnology’s expansion in California and the United States is that venture capital--the private investment funds that come mainly from huge institutional investors and from wealthy individuals--continues to pour in.
Despite mounting product development costs and unfavorable economic trends, venture capitalists are still confident about biotechnology’s prospects for inventing blockbuster--”magic bullet”--drugs that will ultimately cut medical costs and save lives, said Richard S. Schneider, general partner of Costa Mesa-based Domain Associates. Schneider’s firm has provided financing to Amgen, Immunex, Gensia Pharmaceuticals and 45 other companies.
“There is a lot of money available for biotech,” Schneider said. “Public money comes and goes, and clearly the disappointments (over anti-sepsis drugs) this year have had a big impact. But we think that the improved quality of life and economic benefits that biotech drugs can provide are going to be major drivers in any health care reform package.”
Some individual companies are still struggling for capital, however.
San Diego-based Cytel, for example, plans to reduce its employment to 130 by the end of this year, down from 170 in late 1992, because the company has been unable to raise capital, Chief Executive Jay Kranzler said.
“We have focused our efforts internally on the development side and curtailed research simply because it is absolutely critical that we control the few variables we can control, to make our money last as long as it possibly can,” Kranzler said.
Industry observers have predicted that mergers of financially weak biotech companies with larger, stronger ones will accelerate later this year, as will investments in U.S. biotech firms by European and Japanese drug firms.
To dissuade the Clinton Administration from imposing price controls, a group of 18 California biotechnology executives and investors met with Vice President Al Gore at a hotel near San Francisco’s airport last month to plead their case.
“Our message was that our industry is extremely dependent on capital markets for funding our research and development and that we are fragile as a result of that,” said David Robinson, chief executive of San Diego-based Ligand Pharmaceuticals, who attended the meeting. Gore was sympathetic, he said.
“We’re guardedly hopeful. Our message was appreciated and heard very clearly. Gore understands the fragility of biotech, and he said he would personally carry the message back to the right people working on the bill.”
“But if the Administration imposes price controls on our products, no amount of good intentions will help this fledgling industry,” Robinson said.
