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2012 California Biomed Industry Report 1

California Biomedical Industry 2012 Report

Hardcopy report available for printing.

BayBio and CHI-California Healthcare Institute again have collaborated with PricewaterhouseCoopers (PwC) to produce a comprehensive snapshot of the biomedical industry in California. The 2012 California Biomedical Industry Report quantifies the life sciences industry’s contributions to the state’s economy, employment and public health. It further discusses the ongoing economic and regulatory pressures on the sector – and their potential detriment to sustained innovation and to California’s position as a world leader in biomedical discoveries and product development.

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California Biomedical Industry 2012 ReportLetter from the Governor

Letter to Stakeholders

California Biomedical Industry Defined

EmploymentJobs, Wages, Trends, View from the Ground, CEOs and Workforce issues

InvestmentThe Life Sciences Business Model—Then and Now, Venture Capital, Capital Markets, Mergers and Acquisitions, View from the Ground, VCs: Investors Signal Continued Interest

Productivity

Federal Funding of California Investment

Additional content contained inside Legislator Profiles

California Biomedical vs. Other High-Tech Industries

BioCentury Publications Back to School Recap

Entrepreneurs Survive, Thrive During Economic Downturn

Alternative Funding Strategies

Special Sections with research updates, Q&As with experts and product profiles: Regenerative Medicine, Personalized Medicine, Mobile Health

Science WoRx Profile

Methodology

Product Development, FDA Approvals, View from the Ground

Grants from the National Institutes of Health, Small Business Administration Programs, American Recovery and Reinvestment Act

www.chi.org

www.pwc.com

www.baybio.org


Letter from the Governor

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Letter to stakeholders

From left to right:

David L. Gollaher, Ph.D., President and CEO, CHI-California Healthcare Institute Gail Maderis, President and CEO, BayBio Tracy Lefteroff, Partner, National Life Sciences, PricewaterhouseCoopers LLP

This report presents a group portrait of California’s biomedical industry. From an economic perspective, it is an impressive picture, encompassing some 267,271 jobs statewide that pay an average of $76,495 a year. And the range of employment is remarkably diverse: research scientists in university laboratories, biotechnology entrepreneurs, software engineers, pharmaceutical sales and marketing professionals, high-tech manufacturers, and many others. What they have in common is a commitment to innovation, to discovering and producing new diagnostics, treatments and cures for the diseases that afflict humanity.

Yet, while California has for a generation led the nation, and the world, in biomedical research and development, there is no question that the long financial crisis that began in 2007 with the collapse of the housing bubble, and the subsequent recession, pose serious challenges for our industry’s future. For two years now, after two decades of strong increases, employment has flattened and slightly declined.

The real problem, which became evident in 2011, is that today’s financial crisis is not a conventional recession with the economy bouncing back and quickly regaining lost ground. The European sovereign debt crisis has revealed the extent to which the global economy was overleveraged. Contagion spread from Greece to Spain to Italy, prompting many analysts to wonder whether the euro could survive. So far, the response of European leaders has been to impose austerity on nations with high budget deficits, though it remains unclear how these measures will restore growth.

At the same time, the United States as a nation, and California as a state, have struggled with the twin problems of massive public-sector debt and high unemployment. The beginning of 2012 saw some positive indications for job creation: national unemployment dropped to 8.5 percent, and California’s rate, which topped 12.5 percent, fell to 11.3 percent. Even so, there are 6.6 million fewer jobs in the U.S. than there were four years ago, and 23 million Americans who want to work full time remain jobless. Indeed, the U.S. needs to create at least 150,000 jobs a month just to stabilize unemployment.

Since employment growth is what fuels the overall economy, it logically should be the main focus of U.S. policy. But policy has been subjugated to politics, and the result has been gridlock. Last year’s debt ceiling debacle and failed deficit-reduction “super committee” exemplified the gulf between the urgency of the nation’s economic problems, on the one hand, and the ability of Congress effectively to address them, on the other. A January 2012 ABC/Washington Post poll found that the approval rating for Congress dropped to just 13 percent, an historic low and virtually the same as the Field Poll’s finding for the California Legislature.

Against this pervasive anxiety about whether America is capable of solving our most pressing economic and social problems, a close look at California’s biomedical industry suggests reasons for optimism. After all, biotechnology was born in the 1970s, in the wake of Vietnam, Watergate, stagflation, the energy and Iran hostage crises – a time when national pessimism ran even deeper than it does nowadays.

In our search for green shoots, the place to start is with science. For the foundation of California’s remarkable success in spawning biomedical companies is its unique combination of public and private research institutions, from the University of California (UC) to Stanford, USC, Gladstone, Scripps, Salk, Sanford-Burnham and scores of others. Following the Human Genome Project, as CNN’s Sanjay Gupta put it, “man’s knowledge of man is Last viewedHome






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undergoing the greatest revolution since Leonardo.” And the promise of genomics for personalized medicine is matched in many other fields like robotics, wireless communications, and nanotechnology which have the potential to transform how we diagnose and treat disease.

From the perspective of policy, it is critical to note the pivotal role of public investment in science and education. Funding from the National Institutes of Health (NIH) has fueled thousands of basic inventions that have attracted the private-sector capital necessary to develop novel drugs, devices and diagnostics. This powerful relationship between government investment in basic research and private-sector job growth is one of America’s greatest successes, and one that other nations are actively trying to emulate.

Equally important has been California’s commitment to higher education. The extraordinary combination of UC, California State University, and the California Community College system has formed a robust talent pipeline, producing both the scientists who create intellectual property and the diverse workforce essential to staffing companies. Perhaps the greatest worry underlying concerns about the future of our state’s biomedical industry is whether California can sustain its support of research and education to compete effectively in the 21st century. In the long term, nothing else is so important for the state’s health and competitiveness.

Still, translating research from the laboratory bench to the bedside is expensive and the biomedical industry has experienced severe constraints in raising fresh capital. Part of the problem has been the recession, along with extreme volatility in the financial markets and investors’ heightened aversion to risk. But risk is a relative term, and three major areas reflecting government policy are compounding investors’ apprehensions.

• Regulatory risk at the U.S. Food and Drug Administration. A 2011 report from the California Healthcare Institute and Boston Consulting Group documented declining performance at the FDA. Unexplained regulatory delays, unclear standards for what clinical data are necessary for product approval, and inconsistent communications – these factors have discouraged investments in biotech and device startups. In fact, several major California venture capital firms have either moved out of investing in life sciences companies altogether or sharply reduced their asset allocations.

• Constrained coverage and payment for innovative products. The continuing healthcare cost crunch, beginning with federal efforts to contain the escalation of Medicare spending, is increasing pressure on drug and device margins. A number of government initiatives, including comparative effectiveness research and the Independent Medicare Payment Advisory Board,

are raising new concerns about coverage and payment for medical technologies.

• Implementation of the Affordable Care Act. While the Supreme Court has agreed to decide constitutional challenges to healthcare reform legislation before the 2012 election, many aspects of the new law are being implemented with direct consequences for the biomedical industry. These include new taxes on drug and devices, the establishment of healthcare insurance exchanges (with California leading the way), and a great expansion of Medicaid to cover the uninsured.

In the face of these challenges, our California companies are adaptive and resourceful. Increasingly, they are looking beyond California’s and our nation’s borders to countries with more certain regulatory pathways, regions with financial incentives and easier access to capital, and expanding markets. Despite our tremendous assets in research, talent and capital that so far have secured California’s leadership in the biomedical industry, we are at risk of losing our lead in an increasingly competitive global economy.

If there ever was a time when the biomedical industry could ignore Washington and Sacramento, it is not now. Policies in these and other areas will have profound effects. In the end, though, our industry has a powerful, hopeful message to convey. Our companies, in equal measure, contribute to human health and to the wellbeing of the economy. And if the precise outlines of new political solutions to our seemingly intractable problems are not yet clear, history suggests that Americans possess an amazing ability to rise to the occasion, to instigate change when they have exhausted all the alternatives.

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California Biomedical Industry Report HighlightsNumber of California biomedical companies: 2,323

Total estimated revenue: $115.4 billion

Total estimated employment: 267,271

Total estimated wages and salaries: $20.4 billion

Average annual biomedical industry wage: $76,495

Total NIH grants awarded: $3.2 billion

Total estimated venture capital investment in California biomedical companies: $2.7 billion

Total biomedical exports: $18.6 billion

California’s biomedical industry embodies the state’s distinguishing strengths.

Here is the manifestation of the Golden State’s ingenuity and entrepreneurial spirit. Life sciences breakthroughs frequently have emerged from within California’s borders, and the biotechnology sector was conceived here. Today, the newest scientific and technological disciplines, such as personalized medicine, regenerative medicine, mobile health, and nanotechnology, are being driven by research, discoveries and developments within the state’s laboratories – both public and private.

Look no further than California’s biomedical industry for evidence of the unmistakable impact the University of California and California State University systems have. From the University of California have come graduates and postdoctoral fellows eager and prepared to found companies and to translate their discoveries and inventions into therapies for unmet medical needs. The California State University System and community colleges, often with the help of the state’s biomedical companies, have created curricula and facilities to train students to provide the technical and specialized expertise to bring new ideas to fruition – and make them accessible to patients and caregivers around the globe. Generations of investment into California’s primary, secondary and higher education institutions have provided vital support to the growth of the biomedical industry and to its future potential.

Today, the industry employs nearly 270,000 Californians. It relies on cross-functional teams of scientists, engineers, mathematicians, statisticians, practitioners, process development specialists, general and administrative professionals, and manufacturing personnel. Not just “white coats,” the biomedical industry is staffed by workers across the socioeconomic scale with education levels ranging

from high school diploma, some college, all the way to medical and doctoral degrees. In 2010, the industry paid its California-based personnel more than $20 billion at an average annual salary of more than $76,000.

The California biomedical industry generated revenues of approximately $115.4 billion in 2010. Its researchers and entrepreneurs garnered $3.2 billion in National Institutes of Health (NIH) grants and $2.7 billion in venture capital investments. These funds have bankrolled biomedical inventions, leading to better care, longevity and quality of life for people the world over. These dollars have been put to work within California, to pay Californians now and to grow companies that will employ Californians in the future.

Biomedical salaries and investments also increase tax revenue for the local and state governments, further helping to drive the world’s eighth largest economy. The state of California continues to struggle with the country’s second-highest unemployment rate and a massive budget deficit. Governor Brown announced in December that California tax revenue will fall short of his earlier projections, triggering painful budget cuts to schools, colleges and services. The governor said revenue is projected to fall $2.2 billion short prompting about $1 billion in cuts.

California’s financial predicament would be lessened with a jolt of new job creation and economic growth. Up until the financial crisis of 2008, creating new jobs as well as technologies was a strong suit of the state’s biomedical industry. As data in this report indicate, the industry has endured the downturn relatively well in comparison to other industries and sectors. Its infrastructure remains mostly intact and could be reinvigorated to contribute even more.

Legislator Profile - Lucille Roybal-Allard

Legislator Profile - Dr. Richard Pan

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Industry SectorsThe biomedical industry encompasses all life sciences based research and commercial organizations that are pursuing innovative research and technological development to benefit human health.

Basic research in California’s universities and public and private research centers adds to the body of scientific knowledge. In addition to training young technical specialists and providing space, equipment and resources for ongoing research, these institutions fuel innovation via technology transfer and the formation of spin-off companies.

Biopharmaceuticals is the product category that includes human therapeutics – drugs – whether small-molecule chemical compounds, biologics (genetically engineered proteins) or cell therapies.

Diagnostics are technologies – from simple home test kits to genomic sequencing equipment – that characterize patients’ conditions. These products are essential in providing correct diagnoses and informing treatments for the best possible outcomes.

Medical technology or “medtech” includes a broad range of devices and tools that improve human health and mobility. The sector produces everything from clinicians’ instruments to patients’ monitoring devices to orthopedic implants.

Research tools companies are a subset of the medical technology segment. These firms design, develop and produce the equipment and supplies essential to others’ research and development programs. Although not separately tracked in the datasets in this report, the tools segment of the biomedical industry is a growing and important part of California’s role as a leader in innovation.

Laboratory services include the testing of patients’ or research samples with precisely calibrated and strictly regulated equipment and procedures to ensure accurate results.

Wholesale trade companies manage the import, export and exchange of pharmaceuticals, medical devices, diagnostics and research reagents and other supplies in the global market.


In the year’s final quarter came announcements that a half dozen of the industry’s leading investors were no longer able or willing to raise biomedical funds. A number of companies announced downsizings or closures — including one of the most advanced embryonic stem cell firms, Geron, which shuttered its development programs. On a macroeconomic level, the European economic crisis unsettled governments and investors alike. And, in the U.S., the “Super Committee” failed to reach consensus on a deficit reduction plan, prolonging the anxiety for the future of research and other funding that could sustain California and U.S. competitiveness in biomedical innovations.

California’s biomedical industry is balanced on a precipice. Whether it is able to regain its footing and traction will depend on how well the industry and policy makers can work together to address the largest threats to biomedical innovation: access to capital, a burdensome and unclear regulatory environment and resulting lack of innovation and productivity.

Industry SectorsThe biomedical industry encompasses all life sciences based research and commercial organizations that are pursuing innovative research and technological development to benefit human health.

Basic research in California’s universities and public and private research centers adds to the body of scientific knowledge. In addition to training young technical specialists and providing space, equipment and resources for ongoing research, these institutions fuel innovation via technology transfer and the formation of spin-off companies.

Biopharmaceuticals is the product category that includes human therapeutics – drugs – whether small-molecule chemical compounds, biologics (genetically engineered proteins) or cell therapies.

Diagnostics are technologies – from simple home test kits to genomic sequencing equipment – that characterize patients’ conditions. These products are essential in providing correct diagnoses and informing treatments for the best possible outcomes.

Medical technology or “medtech” includes a broad range of devices and tools that improve human health and mobility. The sector produces everything from clinicians’ instruments to patients’ monitoring devices to orthopedic implants.

Research tools companies are a subset of the medical technology segment. These firms design, develop and produce the equipment and supplies essential to others’ research and development programs. Although not separately tracked in the datasets in this report, the tools segment of the biomedical industry is a growing and important part of California’s role as a leader in innovation.

Laboratory services include the testing of patients’ or research samples with precisely calibrated and strictly regulated equipment and procedures to ensure accurate results.

Wholesale trade companies manage the import, export and exchange of pharmaceuticals, medical devices, diagnostics and research reagents and other supplies in the global market.

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Employment

Source: Bureau of Labor Statistics Quarterly Census of Employment and Wagesand Company Specific SEC filings.

Sacramento County: 2,990 1.1%

Bay Area: 51,255 19.2%

Ventura & Santa Barbara Counties: 9,463 3.5%

Los Angeles County: 42,383 15.9%

Orange County: 30,092 11.3%

San Diego County: 27,510 10.3%

Riverside/San BernardinoCounties: 6,338 2.4%

The biomedical industry’s importance as an engine to provide work and income for hundreds of thousands of Californians cannot be overstated. Nor can it be allowed to sputter. Approximately 55 percent of the state’s general-fund revenue is collected in income tax, and the state entered 2012 facing an estimated $13 billion shortfall for the next 18 months. The shortages threaten another wave of substantial cuts to education and other services in a series of austerity measures ushered in by the financial crisis of 2008.

The life sciences clusters disperse jobs throughout the state and represent some of the country’s – and the world’s – most fertile environments for biomedical research and development.

Dependable high-level incomes feed more than state coffers, however. Jobs enable workers to purchase the goods and services they need, putting others back to work, too. Secure incomes engender the confidence to sign a 30-year mortgage, to remodel an existing home, to bolster a neighborhood, bringing relief to the long suppressed housing, construction and financial services markets. Moreover, productive employment reenergizes the individual and collective consciousness, both.

Turning the California jobs picture a more rosy hue continues to be a challenge. As of November 2011, the U.S. unemployment rate stood at 8.6 percent, as low as it had been since the spring of 2009 and markedly lower than the 9.8 percent level of November 2010. California still struggles, though. With a jobless rate of 11.3 percent in November 2011, the state is home to more than 2 million unemployed workers. Only Nevada, with a 13 percent unemployment rate, ranks lower.

In 2010, the biomedical industry employed slightly more than 267,000 Californians, primarily within the state’s key biomedical “clusters,” or the life sciences ecosystems that have evolved around the world-class research centers on the UC and CSU campuses and in private institutions. In addition to nurturing researchers’ studies, these institutions have encouraged a stream of entrepreneurs who have founded companies to commercialize their discoveries and inventions.

The California biomedical industry’s strength focuses on translating basic research and discoveries into products that serve patients and their caregivers.

40.2%107,467

30.9%82,621

14.8%39,603

11.8%31,432

2.3%6,148

Medical devices, instruments & diagnostics

Biopharmaceuticals

Academic research

Wholesale trade

Laboratory services

Source: Bureau of Labor Statistics Quarterly Census of Employment and Wages and Company Specific SEC filings.

California biomedical employment by sector

Note: Regional numbers do not add up to the total because of changes made at the Bureau to avoid identification through numbers reported.

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California biomedical job losses precipitated by the financial crisis of 2008 have set the industry back to 2006 employment levels.

267,271

267,772

273,559

270,791

267,001

Source: Bureau of Labor Statistics Quarterly Census ofEmployment and Wages and Company Specific SEC filings.

2006

2007

2008

2009

2010

California biomedical employment by year

Growth in the biopharmaceutical and wholesale trade sectors helped offset losses elsewhere, netting out to essentially flat industry growth since 2006.

California biomedical employment by year and growth rate

Biomedical sector 2006 2010

Average annual

growth rate

Academic research 40,550 39,603 -0.59%

Biopharmaceuticals 77,091 82,621 1.75%

Laboratory services 6,215 6,148 -0.27%

Medical devices, instruments and diagnostics

112,533 107,467 -1.15%

Wholesale trade 30,612 31,432 0.66%


WagesWhile the California biomedical industry recently has not kept pace with its earlier ability to generate new jobs, it has increased the average wages of its workers. In 2010, California employees in life sciences organizations earned a total of $20.4 billion. The average annual wage for the industry across the state in 2010 was approximately $76,500, up nearly 6 percent from about $72,300 in 2009.

Employees in California’s biomedical clusters commanded varying levels of compensation. From manufacturing to development to pure research, the employee pool builds a healthy economic footprint for any community. Biomedical workers in San Francisco averaged more than $109,000 annually, while those in Riverside and San Bernardino counties collected an average of approximately $51,000 per year.

Differences in salaries among biomedical workers in California can be attributed to such factors as the cost of living in their respective communities as well as varying concentrations of different types of biomedical industry jobs.

California biomedical average wages by cluster

Bay Area $109,372

Sacramento County $96,795

San Diego County $96,153

Orange County $87,531

Ventura & Santa Barbara Counties $80,326

Los Angeles County $68,995

Riverside & San Bernardino Counties $50,942


JobsCompared to the country’s and the state’s workforces as a whole, California’s biomedical industry employment level has remained relatively stable. Yet after years of steadily increasing its payrolls to a peak level in 2008, the biomedical industry lost nearly 6,500 jobs. The contraction has returned overall totals to 2006-2007 levels.

Stated differently, the recent contraction has resulted in flat cumulative growth from 2006 through 2010 in California’s biomedical industry. Employment gains in the biopharmaceuticals and wholesale trade segments were offset by losses in academia, laboratory services and the medical devices, instruments and diagnostics sectors. At less than 2 percent, the respective losses and gains reflect the overall “ride-it-out” strategy of the industry in dealing with its current economic challenges.

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In a time of great economic uncertainty, compensation varied among industry’s sectors, as well. At an average of about $106,000 in 2010, biopharmaceutical companies paid the industry’s highest annual wages. Biopharmaceutical and wholesale trade salaries increased approximately 6 percent and 5 percent, respectively, in 2010 over 2009. Laboratory services employees realized the highest jump in average wages of 9 percent in 2010 as compared to 2009. And despite the unprecedented budgetary pressures on California’s higher education programs, academic researchers’ salaries increased 6 percent from 2009 to 2010.

The California biomedical industry sustains well-paying jobs across a number of sectors, with biopharmaceutical positions averaging the highest.

0 20000 40000 60000 80000 100000 120000

California biomedical average wages by sector, 2010

Biopharmaceuticals

Wholesale Trade

Medical Devices, Instruments & Diagnostics

Laboratory Services

Academic Research

$105,998

$83,511

$59,182

$61,961

$58,612


TrendsThe data in this section, with numbers through March 2011 for several measures, suggest most of the sectors within the biomedical industry may have begun to find traction by the first quarter of 2011. Although, the industry added nearly 4,000 new jobs in the 12 months starting with March 2010 , the U.S. debt ceiling and tremors from the European financial crisis continued to affect the industry.

The biopharmaceuticals sector has shown growth in two of the three years for a total gain of more than 1,000 jobs. Medical devices has trended the other way, losing significant positions in the two earlier periods for a net loss of approximately 2,600 jobs.

California’s biomedical industry showed signs of new growth into early 2011.

Change in California biomedical employment by sector

Biomedical sectorMarch 2008 to

March 2009March 2009 to

March 2010March 2010 to

March 2011

Net change March 2008

to March 2011

Academic research 141 -4,572 1,309 -3,121

Biopharmaceuticals -85 750 375 1,040

Laboratory services -20 843 -57 766

Medical devices, instruments & diagnostics

-2,058 -1,744 1,174 -2,628

Wholesale trade -921 -331 1,158 -94

Total net change -2,943 -5,054 3,959 -4,037

As with the sectors within the industry, staffing trends differed among the California biomedical clusters. Although the overall biomedical industry in California saw a decline in jobs between 2009 and 2010, San Diego and Orange Counties both experienced substantial gains. San Diego County experienced a 14 percent increase in biomedical employment, while Orange County saw growth of 8 percent.

The San Francisco Bay Area continues to command the highest number of biomedical industry employees in the state, but Orange County and San Diego have enjoyed recent growth.

California biomedical employment by cluster

Cluster 2009 2010 Net Change

Bay Area 51,945 51,255 -1.3%

Los Angeles County 43,923 42,383 -3.5%

Orange County 27,884 30,092 7.9%

Riverside & San Bernardino Counties 6,560 6,338 -3.4%

Sacramento County 3,031 2,990 -1.4%

San Diego County 24,157 27,510 13.9%

Ventura & Santa Barbara Counties 9,683 9,463 -2.3%

Source: Bureau of Labor Statistics Quarterly Census of Employment and Wages and Company Specific SEC filings. Last viewedHome



California Biomedical Industry DefinedEmployment

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In the 12 months ended March 2011, the highest rate of growth was seen in Riverside and San Bernardino counties, with Orange County continuing to generate new jobs. The San Francisco Bay Area and San Diego each recorded more than 1,000 new positions whereas Sacramento pared nearly 250 from its biomedical payrolls.

Significant biomedical industry job growth in Riverside and San Bernardino counties is positive news for an area hard hit by the housing crisis.

Change in California biomedical employment by cluster (March 2010–March 2011)


California

Riverside & San Bernardino Counties

Orange County

Bay Area

San Diego County

Ventura & Santa Barbara Counties

Los Angeles County

Sacramento County

-500 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000


It is important to note, however, that the biomedical industry jobs are highly specialized and distributed the length of the state. The numbers preceded by minus signs in these tables represent thousands of individuals and families whose lives have been disrupted in the search for a new job and the hard decisions that accompany change.

The unpredictability about access to capital, an unclear and burdensome regulatory process, productivity and reimbursement policies are making it difficult for life sciences organizations and investors to calculate their remaining development costs and the potential returns on investment. Nonetheless, companies within the state’s biomedical industry continue to work toward their development and commercialization goals.

According to the 2012 CEO Survey, a joint project of the CHI, BayBio and PwC, more respondents held their operations steady or expanded during the year than reduced operations. The finding held true for all operational categories from general and administrative (G&A) and total workforces to research and development (R&D) and manufacturing. Both the highest growth and the largest cuts were recorded in R&D, an apt indicator of the uncertainty in the industry regarding the feasibility of commercializing early stage discoveries.

CEO Survey: Have the following activities expanded, held steady or reduced for the company’s operations inside California in the past year?

Have the following activities expanded, held steady or reduced for the company’s operations inside California in the past year?

R&D

Manufacturing

General and Administrative

Expanded

Reduced

Held steady

Workforce (Staffing)

37 60 55 40

20 20 15 18

43 20 30 42

Among the companies that expanded their in-state operations, the largest percentage (66 percent) credited California’s culture of entrepreneurship and innovation for that decision. The state’s skilled workforce came in a close second with 65 percent. Many also are staying and growing here because this is where their companies were founded. These responses are consistent with those of previous years’ surveys.

See how the biomedical industry compares to other industries.

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California 3,959

Riverside & San Bernadino Counties 3,703

Orange County 3,362

Bay Area 1,370

San Diego County 1,107

Ventura & Santa Barbara Counties 101

Los Angeles County -54

Sacramento County -245


View from the Ground

CEO Survey: Which of the following are the top five factors influencing your decision to locate or expand your operations inside California?

Among companies that reduced operations in California over the past year, 32 percent cited “cost-cutting initiatives” as their motive. The other top ranked reasons were “overall business climate/cost of doing business” at 31 percent and “expanded operations outside of California” for 21 percent.

Which of the following are the top five factors influencing your decision to locate or expand your operations inside California?

Access to leading research universities

Access to pharmaceutical, biotech, deviceand diagnostics companies

Skilled workforce

Cost of living

Quality of life

Cost of doing business

Tax incentives

Alliance with other leading California industries

Access to funding or capital

Pro-business environment or commitmentto the industry

State commitment to education funding

History of founders/California is where thecompany was founded

Culture of entrepreneurship or innovation

Other

Frequency as a Percent

0 10 20 30 40 50 60 70

CEO Survey: Select the reasons why the company’s operations have reduced inside California in the past year.

Over the past year, the survey respondents reported significant expansions in their out-of-state and foreign operations. Research and development, manufacturing and overall workforces were expanded by at least 39 percent of the respondents’ companies.

Select the reasons why the company’s operations have reduced inside California in the past year

Moved existing operations outside of California

Expanded new operations outside of California

Sold or consolidated a portion of the business

Business slowdown or decline

Lack or loss of private funding (VC, Bank Loans, etc.)

Cost cutting initiative

Lack of tax incentives or unfavorable tax environment

Other regions offering free or less expensiveland/infrastructure for expansion

Overall business climate/cost of doing business

Attractive state funding grants, or investments elsewhere

Qualified workforce elsewhere

Cost of living

Other


0 10 20 30 40 50 60 70

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CEO Survey: Have the following activities expanded, held steady or reduced for the company’s operations outside California in the past year?Do you anticipate that the following activities will expand, hold steady or be reduced for the company’s operations inside California in the next two years?

Research and Development

Manufacturing


0 20 40 60 80 100

Workforce (staffing)

Will expand Will hold steady Will reduce


When asked about their companies’ two-year plans, respondents expect renewed growth for their California operations and continued growth for their out-of-state operations. The largest anticipated additions for the companies are in in-state research and development and out-of-state manufacturing – at 57 percent and 56 percent, respectively. These findings reflect California’s desirability as a research and innovation hub as well as the state’s ongoing loss of manufacturing jobs.

Respondents expect reductions at their firms in the next two years to hit their California facilities the hardest. Expectations of cuts to out-of-state operations run in the single digits across all operation functions, whereas nearly 20 percent expect cuts in their California manufacturing, G&A staff, and total workforces. Research and development groups are expected to be reduced by 13 percent of the respondents.

CEO: Survey: Do you anticipate that the following activities will expand, hold steady or be reduced for the company’s operations inside California in the next two years?Do you anticipate that the following activities will expand, hold steady or be reduced for the company’s operations inside California in the next two years?


Manufacturing


0 20 40 60 80 100




CEO Survey: Do you anticipate that the following activities will expand, hold steady or be reduced for the company’s operations outside California in the next two years?

Do you anticipate that the following activities will expand, hold steady or be reduced for the company’s operations outside California in the next two years?


Manufacturing


0 20 40 60 80 100




Other states and countries are competing for California biomedical operations, training opportunities and jobs. Of the respondents to the CEO Survey, nearly 78 percent said that their firm had been courted by other countries and/or states within the past year. And respondents have considered relocating, at least enough to have opinions about which other states or metropolitan areas offer the most attractive attributes. Nor are biomedical companies restricting their options to the U.S. Respondents’ companies already maintain operations in every corner of the world.

CEO Survey: Which of the following do you consider to be the most attractive biomedical markets for research and development innovation in the U.S. outside of California?

Which of the following do you consider to be the most attractive biomedical markets for research and development innovation in the US?

Greater Boston

Minneapolis-St. Paul

North Carolina

Washington DC Corridor

Phoenix

New York

Washington

Other

0 10 20 30 40 50 60 70 80 90 100

Res

pon

se


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Greater Boston 74

North Carolina 31

Minneapolis-St. Paul 27

Other 16

Washington DC Corridor 12

Washington 9

New York 5

Phoenix 3


CEO Survey: Where outside the U.S. has the company expanded for each of the following?

Enormous investments of vision, time, energy and money built California’s industry-leading biomedical infrastructure. The strength and stability of that ecosystem is demonstrated by the number of jobs retained through a significant economic downturn and the intent of the industry’s leading innovators to continue to grow their California operations. Still, the state’s expansive and interconnected community of researchers, entrepreneurs, employers, investors and suppliers currently is not producing to its potential. The longer these resources are underutilized, the more quickly – and irrevocably – they will dissipate.

CEOs and Workforce IssuesSparking an interest in science and math among California’s youth is a mission supported by the state’s biomedical company CEOs, who see a need for better computer and reading and writing skills, as well. The majority (66 percent) of the respondents in the recent survey felt that California’s workforce would best benefit from improvements in Kindergarten through 12th grade education.

Respondents cited the “skilled workforce” as the leading advantage of building biomedical companies in California, yet rated the specific skills of the emerging labor pool only as “adequate.” Workers were judged highest on computer skills. For math, science, and reading and writing skills, respondents rated workers predominantly in the middle of the scale. Of the four categories, reading and writing was skewed furthest toward “inadequate.”

Although biomedical companies appreciate California’s innovation clusters, which are built around academic centers, respondents rated California’s workforce to be least prepared for conducting research. Respondents also pinpointed manufacturing as a weak capacity for the state’s workforce. That is unfortunate given that manufacturing would support an additional tier in the employment pyramid.

CEO Survey: Rate the following areas in the adequacy of California’s emerging workforce. Rate the following areas in the adequacy of California’s emerging workforce

Math

Science

Computer skills

Reading and writing

1 Completely Inadequate

2

3

0 20 40 60 80 100

4

5 Completely Adequate


CEO Survey: Of the following choices, select the primary capacity that the workforce in California is least prepared.

Of the following choices, select the primary capacity that the workforce in California is least prepared

Manufacturing19.2%

Vocationaltraining18.2%

Research32.3%

Compliance8.1%

Regulatory18.2%

Qualityassurance4.0%

South America 8% R&D 1% Manufacturing 2% G&A 1% Workforce 3%

Western Europe 45% R&D 12% Manufacturing 10% G&A 10% Workforce 13%

Middle East 1% R&D .5% Manufacturing .5% G&A - Workforce -

India/South Asia 9% R&D 2% Manufacturing 4% G&A 1% Workforce 2%

Australia 7% R&D 2% Manufacturing 1% G&A 2% Workforce 2%

Eastern Europe 5% R&D 1% Manufacturing 1% G&A 1% Workforce 2%

China/East Asia 24% R&D 7% Manufacturing 9% G&A 4% Workforce 4%

Science WoRx, a program Astellas Pharma developed to spark the interest of students and teachers in science.

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South America 8% R&D 1% Manufacturing 2% G&A 1% Workforce 3%

Western Europe 45% R&D 12% Manufacturing 10% G&A 10% Workforce 13%

Eastern Europe 5% R&D 1% Manufacturing 1% G&A 1% Workforce 2%

China/East Asia 24% R&D 7% Manufacturing 9% G&A 4% Workforce 4%

Middle East 1% R&D .5% Manufacturing .5% G&A - Workforce -

Australia 7% R&D 2% Manufacturing 1% G&A 2% Workforce 2%

India/South Asia 9% R&D 2% Manufacturing 4% G&A 1% Workforce 2%


Investment

The Life Sciences Business Model – Then and Now

With the contraction in the economy, and resulting challenges to raising capital, the life cycle of the biomedical startup company has changed markedly:

1980s-early 2000s Post-2008

Biggest Challenge Proving the science. Funding the science.

Seed Money Entrepreneur obtains financing from private investors (friends, family, “angels”) to set up company.

Entrepreneur seeks government grants, asks friends or family for funding, or taps personal savings.

Early Development With an objective of one day completing an initial public offering (IPO), the entrepreneur assembles a full, in-house team. Entrepreneur seeks venture capital (VC) investment. The VC receives an equity stake in the company, which receives VC cash to advance the product to market.

Hoping to eventually be acquired or to license or sell the technology to a larger, established company, the entrepreneur structures a lean, mostly virtual operation. Expenses are kept low through shared and bartered space, equipment and services.

Clinical Development The VC guides the company toward an IPO, bringing in follow-on funding to take the product through clinical trials.

Entrepreneur seeks additional grants, VC funding, a licensing agreement with a pharma or biotech company or a buyer for the firm, which remains small and mostly virtual. Entrepreneur advances product through the risky development stages until another pharmaceutical, biotech or medical technology company is willing to license or purchase it.

Commercialization In the ideal scenario, the product is approved and proves successful in the marketplace.

The licensee or purchaser leverages its functional departments and resources to get the product approved and launched into the marketplace.

Restart The company uses its profits to develop and commercialize additional inventions or discoveries.

The entrepreneur uses licensing proceeds to advance another discovery – or may decide to seek an entirely different outlet for his or her energies.

Biomedical companies are high-cost, high-risk ventures. They require specialized equipment, highly controlled workspaces and skilled staff. In pursuing breakthrough new technologies and therapeutics to address unmet medical needs, they are by definition working in unknown areas; whether or not they can decipher the biology and make science work to benefit patients is an exhilarating challenge. Yet pursuing the science is only half of the task: proving that the new product is both safe and effecitve is every bit as daunting.

The path through these inherent unknowns is long and extraordinarily expensive. While putting a number on the average cost of developing a new drug continues to be difficult and controversial, it is in the hundreds of millions to billions of dollars.

Companies might and often do spend a substantial amount of the projected total to figure out that their drug or device or diagnostic does not perform as hypothesized. With high failure rates comes the certainty that only a small percentage of products ever recoup their investments.

In the current economic environment, in which wealth has been lost and confidences shaken, finding funding for high-risk, frequently low-return projects becomes even more tortuous than in better times. Many investors are moving their money to more predictable industries, where the time-to-market is measured in months; where the end consumer can easily buy and pay for the product; and where a small investment could yield lucrative returns.

The traditional IPO markets, which stalled in 2009, picked up some steam in 2010. However, such exit strategies are not possible for many investors and biomedical firms. Alternatively, the growing trend of staged partnering deals in mergers and acquisitions has also shifted the approach to funding biomedical investment. Because many venture capital funds have not been able to generate reasonable returns for the risks they have taken on – and cannot assure their limited partners that the immediate future will bring improvements – many are stepping away from the biomedical industry altogether.

Survey results published by the National Venture Capital Association (NVCA) in October 2011 document the emigration of life sciences VCs. Of the 150 firms surveyed, 39 percent reported decreasing their investments in biomedical companies over the last three years. The same percentage expected to further decrease these investments over the next three years, some by greater than 30 percent. According to NVCA, this is twice the number of firms that plan to increase healthcare investments.

The trend is quite evident in California. In the last quarter of 2011, Palo Alto-based Prospect Venture Partners said it was unable to raise enough capital to execute on its strategy for another healthcare fund and would not be making new company investments with its existing funds. Versant Ventures, a high-profile Menlo Park-based fund with $1.6 billion under management in healthcare companies, announced it was downsizing , and Highland Capital Partners cut back its healthcare practice. Menlo Park-based Morgenthaler Ventures merged its life science investing team with that of Boston’s Advanced Technology Ventures into a new independent biotech fund. And Scale Venture Partners of Foster City announced it was ceasing new healthcare investments altogether, while The Column Group of San Francisco will no longer invest in new startups.

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As demonstrated by these latter announcements, the traditional venture capitalists who are sticking with the industry are becoming even more circumspect and disciplined in their investments. Larger pharmaceutical and medtech players, faced with financial hardships of their own, also are becoming more discriminating and less prolific in acquiring products and companies.

The data presented in this section provides a snapshot of the biomedical investment terrain in 2010 and through the first three quarters of 2011. With fourth quarter announcements such as those from VCs detailed above, however, it is difficult to gauge whether the industry is finding financial traction or moving toward a new trough.

Venture CapitalBiomedical innovation is dependent on venture capital. In 2010, VC investments in the U.S. totaled nearly $23.4 billion. That total was a marked improvement from $17.7 billion in 2009. Based on the first three quarters, expectations are that 2011 numbers would surpass 2010 levels. In all three years, about half of the national total was put to work by California companies – a rate that has remained stable for since 2006. California’s share of national VC investment has been fairly steadily increasing since 2003.

California companies earned half of all U.S. venture capital in 2010 and 2011. Combined, biotechnology and medical device firms here claimed nearly a quarter of the country’s VC funding.

Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters. * Includes data through 3rd quarter of 2011.

In California, nearly $11.7 billion was invested in 2010, and the first three quarters of 2011 suggested even higher levels would be attained by year’s end. While marking a substantial increase over 2009, California’s VC funding stands at levels comparable to 2005-2006. Dismissing 2000’s phenomenal numbers – marking the zenith of the dot-com era – California has averaged $11.5 billion in VC investments annually.

California companies have drawn billions of investment dollars into the state, year over year.

Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters. * Includes data through 3rd quarter of 2011.

Life sciences companies took the largest share of California’s VC investments in 2010, as they have historically. Through the first nine months of 2011, however, the state’s software industry enjoyed new growth and surpassed the state’s biotechnology, medical devices and diagnostics sectors in money raised.

US Venture Capital to California Firms, Total and by Life Science Sectors

Percentage of CA VC inMedical Devices

2010

Percentage of VC in California

Percentage of CA VC inBiotechniology

2011*

0% 20% 40% 60% 80% 100%

U.S. VC Investment ($M)2010 $23,3642011* $21,244

Venture Capital Investment in California ($M), by Year

Investment in Millions

2000

$0 $10000 $20000 $30000 $40000 $50000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011*

2,361 / 2,935

1,295 / 1,527

930 / 1,075

939 / 1,140

1,051 / 1,241

1,131 / 1,322

1,294 / 1,564

1,376 / 1,663

1,340 / 1,626

958 / 1,137

1,385 / 1,389

1,098 / 1,098

Com

pan

ies

/ D

eals

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California’s life sciences industry continues to be a leader among the state’s most innovative industries in securing venture investment capital.

Top five industries in California by VC investment

Industry 2010 2011*

Software $2,408,387,400 $2,629,689,800

Life Sciences $2,700,155,000 $2,454,315,900

Industrial/Energy $2,052,076,000 $1,281,435,900

Media & Entertainment $890,037,200 $990,798,300

IT services $751,134,200 $865,199,800

As in the past, California companies secured the largest share of U.S. life sciences venture capital. The total typically has been approximately 40 percent higher than the VC funding garnered by Massachusetts companies.

California, in comparison to other states, historically has captured the most venture capital.

Venture Capital investment in life sciences by state ($M)

State 2009 2010 2011*

California $2,598 $2,700 $2,454

Massachusetts $1,049 $1,111 $957

Texas $128 $214 $347

New Jersey $359 $235 $307

Virginia $42 $68 $165

North Carolina $223 $199 $148

Minnesota $181 $133 $127

Ohio $44 $82 $119

Pennsylvania $215 $263 $105

New York $98 $60 $102

Sources: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters. *Includes data through 3rd quarter of 2011.

Venture capital investments in California’s life sciences companies have been weighted more heavily toward biotechnology every year since at least 2000. The 2011 data available so far suggests that the medical devices sector is poised to surpass biotechnology in terms of VC funding. The shift is precipitated by fewer deals across both sectors. Biotechnology companies’ rounds of financing are typically quite large; fewer of those make a noticeable difference in the data.

California’s share of life sciences venture capital investments has been fairly evenly divided between biotechnology and medical device firms.

Venture capital investment in life sciences by sector, 2009–2011

Dol

lars

in b

illio

ns

Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree(tm) Report based on data from Thomson Reuters. * Includes data through 3rd quarter of 2011.

Total Biotech Medical Devices

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

2011*20102009

Venture capital firms have invested more than $2 billion per year in California’s life sciences companies for the past dozen years. In 2010, financiers invested $2.7 billion in Golden State companies, for a slight increase over 2009, and early data show that 2011 will record further growth. For the first year of the 12,

however, medical technology investments are on track to finish higher than those for biotechnology.

Venture capital investment in California life sciences peaked in 2007 and may be on a growth trend following the aftermath of the 2008 financial crisis.

California venture capital investment in life sciences over the past 12 years ($M)

Year Biotechnology Medical Devices Total (Life Sciences)

2000 $1,776 $1,169 $2,945

2001 $1,381 $937 $2,318

2002 $1,262 $891 $2,153

2003 $1,430 $832 $2,261

2004 $1,540 $992 $2,533

2005 $1,775 $1,087 $2,862

2006 $1,724 $1,337 $3,061

2007 $2,409 $1,828 $4,237

2008 $1,970 $1,724 $3,694

2009 $1,410 $1,233 $2,643

2010 $1,481 $1,219 $2,700

2011* $1,209 $1,245 $2,454

* Data for 2011 only represents the first 3 quarters Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters.

Dissecting investments by stage of product development reveals an interesting insight into the different development cycles of biotechnology and medical device products – and investors’ confidence in the products’ returns. Historically venture capitalists have funded device, diagnostics and pharmaceutical R&D firms from startup through development and commercialization.

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At the end of 2010, however, VCs’ U.S. investments were not rewarding all project stages equally. On the biotechnology side, there was a decisive shift toward later stage projects: in the first nine months of 2011, the category had received more money than it had garnered in all of 2010. Medical technology companies across the country, in contrast, recorded the biggest increases in early stage projects.

Overall, VCs are weighting their U.S. biotechnology support – both in total dollars and numbers of transactions – toward later development stages. The medical device sector saw a steep decline in start-up/seed stage financing in the first three quarters of 2011 as compared to 2010. This slowdown may foreshadow lean capital years ahead. With investors unable to find exits from their portfolios and forced to support companies longer, they are, in turn, unable to invest in early stage companies. If so, 2012 and 2013 could mark a critical turning point for the U.S. biomedical industry.

U.S. biomedical companies secured less start-up and seed stage financing in the first three quarters of 2011 as compared to 2010.

U.S. biotechnology venture capital by stage

Start-up/seed stage

Early stage

Expension stage

0 $500 $1000 $1500 $2000 $2500 $3000

Later stage

2010 2011* Numbers in bars represent number of deals

106 55

208 142

85 51

84 72

Millions

*Data for 2011 only represents the first 3 quarters. Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters.

Investment trends among California-based biomedical companies are not as clear cut as with the country’s biomedical sectors. In the first three quarters of 2011, the state’s biotechnology sector investments appeared to sag in the middle – with start-up and seed money poised to surpass 2010 investments. Later stage projects already had received more in 2011 than in the previous year.

In contrast to biotechnology trends, the medtech numbers show a significant decline in start-up stage investments among California firms, yet early stage projects saw increased funding. Two factors may be driving the trend. First, VCs are following their investments through the development process; promising seed stage investments from the past few years now are securing added funding to reach the next milestone or development stage. Second, fewer companies are being formed, providing fewer seed-stage investments opportunities.

U.S. medical devices venture capital by stage

Start-up/seed stage

Early stage

Expension stage

0 $500 $1000 $1500 $2000 $2500 $3000

Later stage


56 19

102 92

89 60

102 81

Millions

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California biotechnology companies continue to secure funding across the development process, while the state’s medical device firms may find seed stage funding more difficult to raise.

California biotechnology venture capital by stage

Start-up/seed stage

Early stage

Expension stage

$0 $500 $1000 $1500 $2000 $2500 $3000

Later stage

26 24

72 47

35 22

29 21

Millions

California medical devices venture capital by stage

Start-up/seed stage

Early stage

Expension stage

0 $500 $1000 $1500 $2000 $2500 $3000

Later stage


17 4

34 36

34 23

47 27

Millions

*Data for 2011 only represents the first 3 quarters. Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters.

Capital MarketsIn the past, a viable and often pursued exit strategy for venture capitalists was to complete an initial public offering, or IPO for portfolio companies and turn ownership over to the public markets. That option evaporated with the recession of 2008, so that in 2009 there were no biomedical IPOs completed.

Combined, 2010 and 2011 saw 23 such transactions in the U.S. Included from the Bay Area were Anacor Pharmaceuticals of Palo Alto; Anthera Pharmaceuticals of Hayward; AcelRx Pharmaceuticals of Redwood City; Fluidigm of South San Francisco; Complete Genomics of Mountain View; and Pacific Biosciences of Menlo Park. San Diego’s Pacira Pharmaceuticals, Inc. and Zogenix, Inc. also were part of the group.

These newly public companies have not performed well. As of mid-December 2011, the group was down on average 17 percent since their offerings, with 14 of them 61 percent below their IPO price. Nonetheless, a number of additional biomedical companies are lining up to explore or expedite IPOs in 2012, a move that investors in the space will be watching closely.

Mergers and Acquisitions

Beyond IPOs, venture capitalists and entrepreneurs frequently sell companies to realize the returns on their capital and other invested resources. Yet, like the capital markets, the potential buyers of biomedical products and technologies also are facing severe financial constraints and must spend their assets wisely. Only the companies with solid prospects are being sold, although that tier is commanding fair values for their technologies, products and/or operations.

Within the past 12 years, 2006-2009 marked the peak in M&A activity in California’s biomedical industry, reaching approximately 100 transactions in 2007 and 2009. Since then, such agreements have declined by nearly 25 percent. The decrease reflects the care with which purchasers are approaching their investments and the select number of companies with desirable assets.

Mergers and acquisitions continue at a steady pace among California biomedical companies.

California biomedical M&A transactionsYear Biopharmaceuticals Medical Devices Biotech Diagnostics Wholesale Trade Total

2000 32 21 0 3 1 57

2001 25 33 0 5 1 64

2002 35 20 0 2 0 57

2003 42 28 0 3 1 74

2004 61 18 0 2 0 81

2005 45 26 0 6 1 78

2006 43 38 0 7 1 89

2007 51 42 0 6 0 99

2008 51 26 2 10 0 89

2009 60 37 0 3 0 100

2010 37 30 0 7 0 74

2011* 30 28 0 5 2 65

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• Daiichi Sankyo Co Ltd of Japan merged with Plexxikon Inc., a Berkeley-based biopharmaceutical company, for $935 million in 2011.

• Medtronic Inc. of Minneapolis, MN, acquired the 88.7 percent interest that it did not already own in Ardian Inc., a Mountain View-based manufacturer of medical devices, for $800 million in cash and profit-related payments in 2011.

• Bristol-Myers Squibb Co. of New York City acquired the entire share capital of Amira

California biomedical merger and acquisition transactions for which terms were announced, by year

Biopharmaceuticals Medical Devices Biotech Diagnostics Wholesale Trade Total

YearM&A

Deals

M&A Dollars ($Mil.)

M&A Deals

M&A Dollars ($Mil.)

M&A Deals

M&A Dollars ($Mil.)

M&A Deals

M&A Dollars ($Mil.)

M&A Deals

M&A Dollars ($Mil.)

M&A Deals

M&A Dollars ($Mil.)

2000 22 $3,513 18 $2,772 0 $0 0 $0 0 $0 40 $6,285

2001 20 $11,754 24 $7,257 0 $0 3 $265 1 $6 48 $19,282

2002 26 $9,270 12 $1,131 0 $0 0 $0 0 $0 38 $10,401

2003 24 $3,899 14 $744 0 $0 1 $886 0 $0 39 $5,529

2004 33 $7,289 11 $5,411 0 $0 0 $0 0 $0 44 $12,700

2005 26 $3,108 16 $5,496 0 $0 1 $155 1 $14 44 $8,773

2006 26 $14,033 24 $7,513 0 $0 3 $576 1 $166 54 $22,287

2007 30 $4,455 28 $12,675 0 $0 6 $201 0 $0 64 $17,331

2008 29 $2,125 15 $7,297 2 $434 4 $84 0 $0 50 $9,940

2009 38 $56,542 19 $5,383 0 $0 3 $51 0 $0 60 $61,976

2010 20 $5,984 16 $2,521 0 $0 0 $0 0 $0 36 $8,505

2011* 17 $8,839 10 $1,585 0 $0 2 $358 1 $11 30 $10,792

* Through 12/19/2011 Source: Thomson Reuters Financial

Pharmaceuticals Inc., a San Diego-based manufacturer of pharmaceuticals, for $475 million.

• New Jersey-based Par Pharmaceutical Cos Inc., through its Admiral Acquisitions Corp., acquired Anchen Pharmaceuticals Inc., an Irvine-based manufacturer and wholesaler of specialty pharmaceutical products, for $410 million in 2011.

• Massachusetts-based Boston Scientific Corp. acquired the remaining 86 percent interest in Sadra Medical Inc., a Los Gatos, Calif.-based manufacturer of aortic valve replacements, for $386 million in 2011.

Of the 74 California M&A transactions reported in 2010, terms were disclosed on only 36. Those transactions alone were valued at $8.5 billion. The 30 detailed announcements of M&A agreements through Dec. 19, 2011 provided a total dollar amount of $10.8 billion. Approximately $5.9 billion of that total was generated in a transaction in which Amgen repurchased a significant portion of its outstanding stock, so it is not yet clear if there will be significant differences in M&A activity year-over-year.

The top six M&A transactions of 2010 and through December 19, 2011 included three medical device agreements; the remaining transactions were biopharmaceutical company related deals. As described by Thomson Reuters Financial, the transactions included:

• Celgene Corp of Summit, NJ, acquired Los Angeles-based biotechnology company Abraxis BioScience Inc., for a total value of $3.6 billion in 2010.

• Ethicon Inc., a Somerville, NJ-based unit of Johnson & Johnson, merged with Acclarent Inc., a Menlo Park-based manufacturer, developer and wholesaler of surgical devices, for an estimated $785 million in 2010.

• Abbott Laboratories of Abbott Park, IL, acquired the entire share capital of Facet Biotech Corp., a Redwood City-based biotechnology company, for approximately $719 million in 2010.

• Novartis AG of Switzerland acquired the entire share capital of Corthera Inc., a San Mateo-based biopharmaceutical company for an estimated $620 million in 2010.

• Sanofi of France acquired TargeGen Inc., a San Diego based biopharmaceutical company, for $560 million in 2010.

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Even if cutting expenses took a lower profile in this year’s CEO Survey, respondents are exploring every resource to fund their ongoing operations. In 2011, respondents relied most on angel investors/self-funding and government grants, both coming in at 26 percent. Venture capitalist investment was accessed by 25 percent of the respondents. Only 6 percent successfully tapped the capital markets for funding, while 4 percent were supported by non-governmental organizations (NGOs) or disease foundations.

Looking ahead, 44 percent plan to complete a corporate partnering or licensing agreement in 2012. Government grants and corporate venture funding are in the sights of 30 percent of the companies, with venture capitalist funding a hope for 28 percent. Respondents remain least confident in their ability to go back to the capital markets, with only 7 percent anticipating an IPO or follow-on offering.

CEO Survey: Which of the following finance sources did you utilize last year and plan to use in the coming year?Indicate which of the following finance sources you utilized last year and which you plan to use in the coming year:

0 10 20 30 40 50

Corporate venture

Corporate partnering/licensing

NGOs/Disease foundations

Government grants

IPO or follow-on public offering

Other

Last 12 month

None

Angel investors/self funding

VCs

Next 12 month


View from the GroundEvery segment of the biomedical industry is aware of how difficult it is to raise capital in the current environment and how tentative any perceived uptick in prospects could prove to be. The uncertainty of funding – combined with the escalating costs of product development and lack of clarity around regulatory approval processes and future reimbursement practices – has companies proceeding cautiously.

Respondents to the 2012 CEO Survey reflect the duck-and-cover instincts of many entrepreneurs today, including in the biomedical industry. For example, more than 74 percent of respondents said that their company had delayed a research or development project in the past year. That compares to 69 percent of the responding companies reporting delayed projects in 2010. The overriding reason, at just over 40 percent, was cited as “funding not available.”

CEO Survey: Why did the company delay the research or development project?Why did the company delay the research or development project? �(Respondents were allowed to choose multiple responses)

Funding not available

Regulation (FDA, EPA, SEC)

Change in corporate priorities or strategy

Other

Layoffs

Closed facility

40.2%

27.8%

25.8%

7.2%

4.1%

0


Because the surveys did not involve the same respondents, it would be inaccurate to draw hard conclusions by comparing the responses, year-over-year. It is interesting, however, to note that none of the 2011 responding firms cited “closed facilities,” whereas 2 percent did in 2010. “Layoffs” were cited for project delays by 11 percent of the respondents in 2010, and only 4 percent in the most recent survey.

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Last 12 Months

Next 12 Months

None 20 20

Angel investors/self funding 27 26

VCs 23 27

Corporate venture 24 29

Corporate partnering/licensing 24 46

NGOs/Disease foundations 4 11

Government grants 27 32

IPO or follow-on public offering 7 8

Other 22 25


VCs: Investors Signal Continued Interest

For all of the disheartening announcements of venture funds drying up or being redirected to other industries, later stage projects or both, there were also positive developments late in 2011. Third Rock Ventures, a Boston-based venture firm, is continuing to raise money and is funding early stage startups in some of medicine’s most challenging indications. Burrill & Company, based in San Francisco, recently closed its fourth fund at $300 million.

And Sofinnova Ventures, based in Menlo Park, raised a $440 million biotech-only fund. The firm, which now has a total of $1.4 billion under management, has shifted investments from technology and pharmaceuticals to focus entirely on drug development. According to a recent Xconomy article, Sofinnova plans to invest in programs spun out when Big Pharma companies downsize or re-prioritize their research portfolios. These programs not only are primed to enter the second or third phase of clinical trials but also bring with them intellectual property and senior management.

Other established, long-time players remain committed to the biomedical industry, albeit with stricter investment criteria. They are seeking emerging companies whose products promise “clinical efficacy, capital efficiency and evidence of real value to patients, payers and providers,” as Lisa Suennen, co-founder and managing member of Psilos Group, articulated it in a recent blog.

Kevin Kinsella, Managing Director of Avalon Ventures in La Jolla, said to consider biopharmaceutical startups, his firm would expect novel, credible molecules and solid intellectual property provenance. The molecules should have shown promising preclinical results and be on track to announce further results in the near term. Plus, the programs need to be straightforward so as not to require an inordinate amount of money to complete the remainder of their development processes.

Some investors, however, are devising new ways to seize the opportunities in this challenging terrain. Corey Goodwin, Ph.D., a renowned researcher and entrepreneur in his own right, recently co-founded venBio in San Francisco. The firm recently raised $180 million in capital – from the coffers of three life sciences companies.

a merger or acquisition? a sale or divesture?

Very unlikely Somewhat unlikely Somewhat likely Very likely

21%14%

17%

48%

34%

6%

32%

28%

Approximately 20 percent of respondents did not access finance sources in 2011 or anticipate doing so in 2012. Similarly, 22 percent and 25 percent selected “other” as funding sources for 2011 and 2012, respectively. The category includes product profits, contract research and milestone payments from previous licensing agreements. “Other” also encompasses mergers and acquisitions and divestitures.

Approximately 62 percent of the survey participants indicated that their company was somewhat or very likely to take part in a merger or acquisition in 2012. As for divestitures, the respondents’ expectations – at 66 percent – are that such transactions are very or somewhat unlikely for their firms.

CEO Survey: Over the next 12 months, how likely is your organization to take part in:

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Goodman explained that pharmaceutical and large biotechnology companies have set up their own investment arms, amassing a significant amount of money to support discovery and development programs that could supplement their pipelines. Most are constrained, however, by relying on their internal R&D decision makers to direct their investment funds as well as the company pipelines.

In making R&D and business development decisions, the internal team weighs the benefits and effects on its research teams, related programs, and the overall R&D pipeline. But those factors should have little or no bearing on external investments, Goodman said. Investment decisions need to be made with the objectives of delivering a return, encouraging innovation, and possibly identifying new technologies, therapeutics or companies for future acquisitions. Goodman believes that corporations would realize the best returns on their investments – and more diversification among their total holdings – if their funds were managed by external experts. That is what venBio does.

“We were the first new, first-time biomedical fund to be raised since 2007,” he said. He added that he and his partners currently are evaluating potential investment opportunities. “There is only one rule: The program we find should be unencumbered, at least in the U.S.” He said that venBio is not an option fund; portfolio companies will not be obligated or limited by the life sciences corporations behind the investments. The fund can and will consider private and public startups anywhere in the world, Goodman said, with an emphasis on therapeutics, although they may consider devices and diagnostics if the fit is right. “The sweet spot will be investments where Series B or C financing will get the company to proof of concept,” Goodman said.

Another venture capital firm that is changing its approach to thrive in the current economic and regulatory environment is CMEA Capital of San Francisco. The firm is testing a new investment structure that it calls Velocity Pharmaceutical Development. Having carved out $20 million from its current fund – with plans to add significantly more through new rounds of fundraising – the firm intends to acquire drugs and test them in further clinical studies. It expects to sell the compounds to drug companies that need later-stage products to fill their pipelines. By investing in individual drugs, instead of companies, CMEA seeks to lower costs and improve returns.

Lowering costs and improving returns is what all the innovators and participants in California’s biomedical industry would like to accomplish. Unless and until the challenges that are dampening R&D productivity are addressed, however, venture capital is expected to remain tight.

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Productivity

As a measure of an organization’s efficiency, “productivity” is the ratio of what is made over all that is required to make it. Workers routinely gauge their productivity by how much they are paid per hour – how much time is required to generate the income they want or need. A manufacturer calculates costs per widgets, and nations quantify standard of living by gross domestic product per capita.

By every measure, productivity in the biomedical industry is marginalized. Investors are hard pressed to realize returns that justify the resources devoted and risks undertaken to finance life sciences companies. Startups, and even more established firms, are struggling to amass the resources necessary to reach the next milestone, much less to launch products. Researchers are working hard to obtain the grants or space they need to further their investigations. And patient advocates and taxpayers alike are frustrated with how few new therapies are being introduced, especially given the time and money that have been applied.

As productivity declines, the wheels of innovation slow. If products in late stages of development cannot advance to market, breakthrough new explorations cannot enter the pipeline. If academic staff that would have launched their own companies in better times cannot spin out of their universities or research institutions, younger scientists are unable to advance their careers within. Mid-career professionals at biomedical companies cannot take charge if the executives postpone retirement – and may find themselves ousted altogether when firms collapse their hierarchies to stretch their limited resources further.

Much depends on the life sciences ecosystem’s ability to address the blockages to resumed productivity in the industry. Fortunately, much is already being undertaken, as detailed in other sections of this report. The key players in the industry are all promoting translational research and working together to more efficiently move discoveries from the lab to the market. Joint projects sponsored by governmental agencies are underway to streamline and accelerate drug discovery, increase manufacturing and distribution efficiencies, and to better monitor, prevent and treat conditions and diseases that threaten to bankrupt the country’s healthcare system. Universities and research centers and companies are working together to simplify technology transfer. And incubators and venture capitalists are enabling startups to jumpstart their development processes in the most cost effective ways.

Of key importance is the need to reestablish predictability in the U.S. regulatory approval process, namely the procedures and criteria of the FDA. The agency and members of Congress are becoming more aware of the role the FDA plays in biomedical innovation, and are starting to work toward refining the existing procedures. The 2012 presidential election, ongoing European financial crisis and the continuing U.S. budgeting disputes will demand lawmakers’ attention for the coming year. Yet repairing the industry-FDA partnership would further competitiveness and job creation, two critical components in addressing the country’s financial ailments. As important, restoring consistency and order in

the approval process would also help ensure that companies seek U.S. approval for products, speeding the availability of breakthrough therapeutic compounds, devices, diagnostics and procedures for American patients and their physicians.

Product Development The clearest measure of productivity in any industry is how many new products it has in the pipeline. Even as California’s biomedical innovators and companies are working to adapt to or change the new financial and regulatory constraints they find themselves facing, they do continue to move products through the development processes.

In 2010, U.S. biomedical companies had 5,057 new products in development from discovery through market introduction, according to BioCentury findings. California companies accounted for 1,365, or 27 percent, of those.

California biotechnology and medical device companies are responsible for 27 percent of the products in the nation’s biomedical pipeline.California biotechnology and medical device companies are responsible for 27 percent of the products in the nation’s biomedical pipeline.

Source: BCIQ: BioCentury Online Intelligence

CA US

0

20

40

60

80

100

Mar

kete

d

Ap

pro

ved

Reg

istr

atio

n

Pha

se II

I

Piv

otal

Pha

se II

/III

Pha

se II

Pha

se I/

II

Pha

se I

Pilo

t

Pha

se 0

IND

Pre

clin

ical

Dis

cove

ry


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California companies have pipeline products in all stages of development.California companies pipeline products in all stages of developement.


Marketed

Approved

Registration

Phase IV

Phase III

Pivotal

Phase II/III

Phase II

Phase I/II

Phase I

Pilot

Phase 0

IND

Preclinical

Discovery

0 50 100 150 200 250 300 350

A closer look at potential new products that have entered the “valley of death” – that translational development process between the bench and the bedside – reveals that U.S. companies are putting their resources behind 2,463 projects. California companies have 699 products in process from the investigational new drug (IND) filing to the end of Phase III clinical trials. In that measure, California accounts for more than 28 percent of the country’s biotechnology pipeline.

Pipeline projects are targeting a wide range of medical conditions, as well. Far and above the most studied area involves treatments for cancer. Neurological conditions and infectious diseases ranked second and third, respectively. All three are umbrella terms for a vast array of diseases that are deadly and/or debilitating, difficult to treat, and have an age-related component. These are indications that will continue to grow in importance and urgency as the population ages.

BioCentury counts 155 new California-connected compounds and products in Phase III testing, registration or having been approved but not yet launched. Beyond foreshadowing a strong performance for the industry in 2012, that finding

also reflects the depth and strength of California’s biomedical community. Life science pursuits have proven fruitful for innovators and entrepreneurs here and, with the infrastructure in place, the industry has the promise to be a key component of the state’s industriousness going forward.

California companies are developing pipeline products for the full spectrum of indications.California companies are developing pipeline products for the full spectrum of indications


Dis

ease

cat

agor

y

0 50 100 150 200 250 300

CancerNeurologyInfectious

Diagnostic

Endocrine / MetabolicAutoimmune

Cardiovascular

OpthalmicInflammation

HematologyDermatology

Musculoskeletal

Pulmonary

OtherGastrointestinal

TransplantGenitourinary

Renal

Hepatic

Dental

Food & Drug Administration ApprovalsAmong the new pharmaceuticals, diagnostics and medical devices approved by the U.S. Food & Drug Administration (FDA) in 2011 have been a number with California connections. They include:

• Xpert Clostridium difficile/Epi assay, which is intended to aid in the diagnosis of C. diff. infections – Cepheid, Sunnyvale

• Edwards SAPIEN Transcatheter Heart Valve, which helps to restore normal blood flow in the heart of patients with senile aortic valve stenosis who need open-heart surgery to replace damaged valve, but for whom a procedure is too risky – Edwards Lifesciences, Inc., Irvine

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• Edwards SAPIEN Transcatheter Heart Valve, which helps to restore normal blood flow in the heart of patients with senile aortic valve stenosis who need open-heart surgery to replace damaged valve, but for whom a procedure is too risky – Edwards Lifesciences, Inc., Irvine

• Actemra (tocilizumab) for the treatment of systemic juvenile idiopathic arthritis – Genentech, South San Francisco

• Aptima HPV Assay, or test, that detects 14 high-risk HPV strains associated with cervical cancer and precancerous lesions – Gen-Probe Inc., San Diego

• Complera (emtricitabine/rilpivirine/tenofovir disoproxil fumarate) for the treatment of HIV-1 in treatment-naïve adults – Gilead Sciences, Inc., Foster City

• Zelboraf (vemurafenib) for the treatment of patients with BRAFV600E mutation-positive inoperable or metastatic melanoma as detected by the FDA-approved cobas BRAF V600E test. Zelboraf is an oral drug that selectively targets this BRAF mutation that is present in about half of all cases of melanoma – Roche/Plexxicon Inc., Berkeley

• Cobas HPV test, the only FDA-approved cervical cancer screening test that allows HPV 16 and 18 genotyping concurrently with high-risk HPV testing – Roche Molecular Systems Inc., Pleasanton

• t:slim Insulin Delivery System, which is the smallest insulin pump system and first-ever with a touch screen – Tandem Diabetes Care, San Diego

View from the GroundTo determine the issues of most concern to the California life sciences company CEOs, the 2012 survey sought their thoughts on a number of threats to the industry’s growth. Respondents were asked to rank a set of issues on a scale of 1-to-10, where 10 was the most threatening.

The issue selected as a “10” most frequently (at 56 percent) was “FDA regulatory environment.” In contrast, “access to capital” was judged the most threatening by 39 percent of respondents for a distant second place. Combined, 86 percent of the respondents ranked the FDA regulatory environment to be a threat at the 8-10 range, as compared to 70 percent who perceived lack of funding at that level.

The issue chosen third most frequently among those who ranked it a 10 was “lack of innovation and research and development productivity.” The issue was perceived as the leading threat in last year’s survey. In the combined 8-10 rankings, “intellectual property protections” (52 percent) and “government intervention” (51 percent) were essentially tied for third most threatening.

CEO Survey: Prioritize the greatest threats to the industry’s growth in the next five years.

The survey further queried entrepreneurs about the issues most critical to the continued vibrancy of the biomedical industry in California. Access to capital, at

Lack of innovation/R&D productivity

Lack of data/Ability todemonstrate effectiveness

Healthcare reformimplementation

Access tocapital

Product liability

Intellectual propertyprotections

Unprepared workforce

FDA regulatoryenvironment

Governmentintervention

Pricing pressure

Mostthreatening

Leastthreatening

9 8 7 6 5 4 3 2

List of FDA Approved Products for 2011

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73 percent, was the ranked “extremely important” by the most respondents. Sixty percent of the participants rated tax incentives for innovation as a critical policy issue, and 51 percent selected corporate taxation as a key consideration in keeping biomedical research, innovation and investment in California.

CEO Survey: Rate the influence each of these state policy issues has on the industry’s ability to keep biomedical research, innovation and investment in California.

In regard to environmental regulations, manufacturing restrictions were deemed most important to respondents. Forty-three percent ranked them “extremely important” and 46 percent more said they are “somewhat important.” Chemical bans and product stewardship were ranked at least “somewhat important” by more than half of the participants at 52 percent and 54 percent, respectively.

CEO Survey: Rate the influence each of the state environmental regulations on the industry’s ability to keep biomedical research, innovation and investment in California.

When asked about tax incentives, 62 percent of the respondents to the CEO survey ranked the R&D tax credit as “extremely important.” Nearly 96 percent felt the issue was somewhat or extremely important. The treatment of net operating losses finished second with nearly 50 percent calling it “extremely important.” In contrast, 17 percent of respondents deemed a single sales factor to be “not at all” important.

CEO Survey: Rate the influence of each of the state tax incentives for innovation on the industry’s ability to keep biomedical research, innovation and investment in California.

As in the question regarding threats to the growth of the biomedical industry, respondents spotlighted FDA regulatory processes as a federal policy issue that has extraordinary influence on research, innovation and investment in California. Ninety-two percent of the respondents ranked it as “extremely important,” with coverage and reimbursement policy coming in 11 percentage points lower. Only science funding did not show strongest in “extremely important,” but 88 percent ranked it as somewhat or extremely important.

Rate the influence of each of the state tax incentives for innovation on the industry’s ability to keep biomedical research, innovation andinvestment in California.

0 20 40 60 80 100

R&D taxcredit

Net operatingloss

Singlesales factor

Not at all

Somewhat important

Extremely important


Rate the influence each of these state policy issueshas on the industry’s ability to keep biomedicalresearch, innovation and investment in California.

Not at all

Somewhat important

Extremely important

0 20 40 60 80 100

Access to capital

Tax incentivesfor innovation

Corporate taxation

Workforcepreparedness

Duplicative regulation


Rate the influence each of the state envoronmentalregulations on the industry’s ability to keep biomedical research, innovation andinvestment in California.

0 20 40 60 80 100

Productstewardship

Manufacturingrestrictions

Chemicalbans

Not at all

Somewhat important

Extremely important


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CEO Survey: Rate the influence each of these federal policy issues has on the industry’s ability to advance biomedical research, innovation and investment in California.

Of the federal tax and finance measures most likely to affect the biomedical industry, respondents selected the R&D tax credit as the most critical, just as they did at the state level. In fact, 56 percent rated it as “extremely impactful” and 96 percent said it was somewhat or extremely impactful. All of the topics were rated at about 80 percent or more for somewhat and extremely impactful. The lowest ranked, repatriation, received a designation of “not at all” impactful from 21 percent of the respondents.

CEO Survey: Rate the influence of each of these federal tax and finance issues has on the industry’s ability to keep biomedical research, innovation and investment in California.

Following up on the strong responses earlier, the survey included more detailed questions about the FDA regulatory process and California’s competitiveness. Most respondents said that they believed the FDA regulatory approval process had slowed the growth of their organization – 81 percent agreed or strongly agreed. Asked a different way, only 3 percent felt strongly that the FDA’s approval process is the world’s best.

As for continued competitiveness, respondents said it was conceivable that other countries could replicate the innovative ecosystems that currently support the biomedical industry in the U.S. – and that other states could recreate California-like clusters within their borders. Seventy-six percent agreed or strongly agreed that other states might be up to the task, and 81 percent expected the same of other countries.

CEO Survey: Select the extent to which you agree to each of the following statements.

Healthcare reform, which will be a key plank in both parties’ presidential campaign platforms, remains a focal point for biomedical company CEOs as well. Seventy-nine percent expect decreases in profit margins over the next five years through healthcare reform, with 26 percent expecting large decreases.

The second most resounding response regarded mergers and acquisitions, with 69 percent of participants expecting slight to big increases. Given how many of the same surveyed CEOs hope to raise money through such transactions in the coming year, this is regarded as a positive consequence of healthcare reform.

Not at all

Somewhat important

Extremely important

Rate the influence each of these federal policy issueshas on the industry’s ability to advance biomedicalresearch, innovation and investment in California.

0 20 40 60 80 100

Science funding(e.g., NIH)

Tax andfinance issues

Coverage andreimbursement policy

Internationalintellectual property/

patent laws

FDA regulatoryprocesses


Not at all

Somewhat important

Extremely important

Rate the influence of each of these federal tax andfinance issues has on the industry’s ability to keepbiomedical research, innovation and investmentin California

0 20 40 60 80 100

Repatriation

Sarbanes Oxley

PharmaceuticalManufacturer

and/or Medical DeviceManufacturer Excise Tax

Government fund

Therapeutic discoveryproject credit

R&D tax credit


Select the extent to which you agree to each of the following statements.

The U.S. FDA regulatory approval process is the best in the world.

The current FDA regulatory approval process has slowed the growth of our organization.

Within five years, another state could conceivably recreate the ecosystem that has made CA the leading biomedical region in the world.

Within five years, another country could conceivably recreate the ecosystem that has made the U.S. the leading biomedical region in the world.

0 20 40 60 80 100

Stronglydisagree

Disagree

Agree


Stronglyagree

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Respondents expect competitiveness to be negatively impacted – 65 percent and 61 percent of respondents predict declines in U.S. and California competitiveness, respectively. Similarly, 65 percent anticipate that pace of innovation will slow with 32 percent expecting a big decrease and 33 percent predicting a slight decrease.

At the same time, however, 49 percent expect some increases in the growth of personalized medicine. California and the U.S. are leaders in this emerging new field. It is also a discipline that will depend on the best that diagnostics, biologics, medical device and digital health companies together can produce. Further, the science has the potential to streamline clinical trials and provide higher success rates in targeted populations. Not only sustaining but increasing expertise and dominance in personalized medicine has the potential to streamline clinical trials and provide higher success rates in targeted populations.

Indicate the impact you expect U.S. healthcare reform will have on the biomedical industry as a whole over the next five years.

0 20 40 60 80 100

Alliances between biomedical and other industries

Cross-sector collaboration

California's competitiveness

U.S. competitiveness

Mergers & acquisitions activity

Growth of personalized medicine

Pace of innovation

Workforce size

Revenue

Profit margins

Market size

Big decrease

Slight decrease

No change

Slight increase

Big increase


CEO Survey: Indicate the impact you expect U.S. healthcare reform will have on the biomedical industry as a whole over the next five years.

Entrepreneurs can Survive, Thrive during Economic Turndown

Regenerative Medicine

Personalized Medicine

Mobile Health

Special Sections:

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Federal Funding of California Innovation

Bridging the gap between basic research to a therapeutic compound or device is always more difficult than it sounds. It turns out that delivering personalized medicine requires much more than the full sequencing of the human genome, no matter how Herculean an accomplishment that was. Funding embryonic stem cell research is the first step in regenerative medicine, not the final missing element. Enabling even the most exquisite bionic limb to follow the instructions encoded in human nerve endings and muscles is a quest that has been enmeshed in testing and prototyping for decades.

Because it is so expensive to underwrite basic science until all of the requisite bits of knowledge converge into the next incremental step toward an artificial heart or lung transplant or cancer vaccine, the task has fallen to governments. In the developed world, governments support research funding to levels averaging between 1.5 percent and 3 percent of their gross domestic products (GDP). In the U.S., the government – primarily through the National Institutes of Health (NIH) – pays for an estimated 36 percent of the country’s medical research.

It is, as critics charge, difficult to determine the return taxpayers realize on such funding. The biggest challenge to calculating an answer is that the dollars keep working far beyond the initial laboratory to which they were awarded. University-driven research can pinpoint promising targets for treating or curing diseases, explain how diseases or the human body work, or inspire new solutions to previously intractable problems. Because the answers university-based researchers uncover frequently are published – and available to everyone – the NIH-funded research can inform clinician and patient decisions that improve care. They may enable manufacturers to develop or re-engineer products to better address unmet medical needs.

Insights into long-term consequences of biological processes also inform preventive care practices and public health policies. It is important to recognize that medical research does not only illuminate the questions of human biology and the therapeutic approaches to addressing diseases and other conditions. Through research, innovators also improve medical practices. Given the economic challenges of providing healthcare – especially in a society with an aging population – improved care and outcomes alone justify the use of public funding for university research.

Nor does the effect of federal funding end with the full use of the specific scientific discovery it engendered. Government grants go to university faculty, post-doctoral fellows and graduate students, primarily. The money, therefore, ensures the opportunity for young researchers to complete their training and pursue their passions – experience that serves as the foundation for long and productive careers, both within academia and in private or commercial settings, too. Often NIH-funded scientists or engineers or mathematicians build their career paths from scratch by founding their own companies. Startup firms, in turn, create jobs, produce new therapeutic products, and pay taxes and salaries. Whether they become leaders of industry or within universities, NIH-supported researchers inspire the next waves of scientists and technicians to pursue biomedical careers as well.

Grants from the National Institutes of HealthThe NIH is made up of 27 institutes and centers. Each is charged with a specific research agenda, often focusing on particular diseases or body systems. Together, their goal is to strengthen the country’s research capacity, broaden its research base, and inspire a passion for science in current and future generations of researchers.

Beginning in the 1950s, the NIH has supported research via grant funding. Today, more than 80 percent of the NIH’s budget supports more than 300,000 research personnel at over 3,000 universities and research institutions. These biomedical researchers continue to play a crucial role in enabling and making important discoveries to improve health and save lives. In fact, more than 130 Nobel Prize winners have been NIH support recipients.

Successful biomedical research depends on the talent and dedication of the scientific workforce. In recent years, the NIH has actively encouraged cross-functional research teams working toward translating bench-scale discoveries into therapies, devices, diagnostics or other approaches to improve human health. Such collaborations leverage the expertise of experts from the fields of medicine, engineering, math and information technology.

California researchers depend on NIH grants for much of their work. Such funding peaked in 2004 at $3.6 billion. At nearly 8 percent below the 2004 record, 2011 marked a slight decrease from 2010.


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Every year, all of the 50 states receive some NIH funding, with California averaging about 15 percent of the total. The pattern remained the same in 2011, when the state claimed 15.2 percent of the overall funding.

California’s share of total U.S. NIH grant funding typically exceeds 15 percent, the highest among the 50 states.California’s share of total US NIH grant funding

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

15.3%15.0%

15.3%15.6%

16.0%

14.3%

15.1% 15.0% 15.1% 15.1% 15.1%

Source: National Institutes of Health, Office of Extramural Research.Note: Data excludes R&D contracts and projects funded by the American Recovery and Reinvestment Act.

Sha

re o

f US

NIH

Fun

din

g

2011

15.2%

Research projects claim the bulk of California’s NIH awards. In 2011, a total of $3.2 billion was awarded to 6,366 applicants. The majority of the remainder of the NIH funding that year supported programs to train faculty and staff to teach future generations. In 2011, California institutions received $119 million for 308 training grants ($98 million) and 483 fellowships ($21 million). These monies are critical to the ongoing training of faculty for tomorrow’s medical science programs.

In years past, NIH funding has also gone to California in the form of construction grants. In 2009, California received $1 million in such grants; no construction grants were awarded to California institutions in 2010 or 2011.

California has secured more than $3.1 billion of NIH funding annually since 2003.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010$0

$500

$1000

$1500

$2000

$2500

$3000

$3500

$4000

Source: National Institutes of Health, Office of Extramural Research.Note: Data excludes R&D contracts and projects funded by the American Reinvestment and Recovery Act.

Cal

iforn

ia’s

NIH

Fun

din

g (

Mill

ions

)

California’s NIH funding by fiscal year, in millions of dollars

2011

California continues to secure the largest share of NIH funding in comparison to other states. In 2011, California’s more than $3.3 billion in NIH grants surpassed Massachusetts’ total of $2.4 billion by approximately 36 percent.

California heads the list of top-10 NIH grant funding recipient states, and always has.Organizations in California that recieve NIH funding, FY 2010

CA

MA

NY PA TX MD

NC

WA IL

OH

$3,332

Source: National Institutes of Health, Office of Extramural Research.Note: Data excludes R&D contracts and projects funded by the American Recovery and Reinvestment Act.

$3,326

$1,078

$1,034

$1,019

$1,032

$932

$943

$847

$838

$733

$739

$662

$653

$1,406

$1,399

$2,447

$2,426

$2,001 $1,976

2010 2011*

Mill

ions

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Most of California’s NIH funding underwrites research projects, yet the amount that supports training and fellowships is critical, too.

California’s NIH grants by type

FY 2010 FY 2011

Grant Type

Dollar Amount

(millions)Grants

Awarded

Dollar Amount

(millions)Grants

Awarded

Total $3,332.4 7,139 $3,325.9 7,177

Research grants $3,206.2 6,330 $3,201.1 6,366

Training grants and fellowships

$118.3 783 $119.0 791

Training grants $97.5 302 $97.5 308

Fellowships $20.8 481 $21.4 483

Construction grants

$0.0 0 $0.0 0

Other awards $7.8 26 $5.8 20

Source: National Institutes of Health, Office of Extramural Research.

Note: Data excludes R&D contracts and projects funded by the American Recovery and Reinvestment Act.

Both nationally and in California, training grants and fellowships have averaged 3.5 percent of the total NIH funding over the past 11 years. In 2011, they comprised 3.5 percent of the U.S. and 3.6 percent of the California totals. Although the latter numeral is a tenth of a percent lower for California than in 2010, it is in line with expectations and past awards.

At more than $3 billion, NIH training grants and fellowships provide much-needed funding to California’s higher education institutions.

NIH grants, total and training, fiscal years 2000 to 2011

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

United StatesTotal grants

$14,721 $16,701 $18,947 $21,669 $22,552 $23,117 $20,813 $21,067 $20,876 $21,483 $21,846 $21,931


$546 $593 $657 $722 $749 $765 $758 $778 $776 $780 $778 $772

Training as a percent of US total

3.7% 3.6% 3.5% 3.3% 3.3% 3.3% 3.6% 3.7% 3.7% 3.6% 3.6% 3.5%

CaliforniaTotal grants

$2,248 $2,497 $2,905 $3,386 $3,613 $3,301 $3,143 $3,163 $3,151 $3,214 $3,332 $3,326


$83 $89 $97 $108 $114 $116 $111 $118 $117 $120 $118 $119

Training as a percent of US total

3.7% 3.6% 3.3% 3.2% 3.2% 3.5% 3.5% 3.7% 3.7% 3.7% 3.6% 3.6%

Source: National Institutes of Health, Office of Extramural Research. Note: Data excludes R&D contracts and projects funded by the American Recovery and Reinvestment Act.

All but two of the top 10 California institutions receiving NIH grants in 2011 were universities – including seven of the 10 UC campuses. Although the institutions named in the list have remained consistent over the years that this report has been produced, there were some changes in the order after 2009: UCSD and UCLA traded positions as did UCI and UC Berkeley.

Of the top 10 recipients in 2011, three are in or near San Diego. Those three (UC San Diego, the Scripps Research Institute and the Sanford Burnham Medical Research Institute) make the 53rd Congressional District the largest beneficiary of NIH funding in the state.

List of UC, CSU campuses, and Research Institutions

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Top 10 Organizations in California Receiving NIH FundingOrganizations in California that recieve NIH funding (by Congressional District) ($M)

UC San Francisco (CD 12)

UC San Diego (CD 53)

UC Los Angeles (CD 30)

Stanford University (CD 14)

The Scripps Research Institute (CD 53)

UC Davis (CD 1)

USC (CD 33)

UC Berkeley (CD 9)

UC Irvine (CD48)

SBMRI (CD 53)

$475

$396

$357

$332

$205

$199

$188

$120

$120

$74 Sanford-Burnham Medical Research Institute

Source: National Institutes of Health, Office of Extramural ResearchNote: Data excludes R&D contracts and projects funded by the American Recovery and Reinvestment Act.

Millions

Small Business Administration programs

Government funding to fuel the state’s biomedical industry also comes from the U.S. Small Business Administration’s (SBA) Office of Technology. The SBA’s two grant programs were implemented to increase the competitiveness of small, high-technology firms and to encourage commercialization of promising new technologies.

The first, the Small Business Innovation Research (SBIR) program, is in the process of being reauthorized by Congress. Through the program, the 11 federal agencies with the largest outside research budgets are required to spend at least 2.5 percent of this money with small businesses. An agreement reached within the Senate and U.S. House of Representatives in December 2011 would increase that share to 3.2 percent over the next six years.

Currently, firms that are 51 percent or more owned by venture capitalists do not qualify for SBIR grants. The new legislation, if ratified by Congress and signed by the president, would allow the NIH, the Department of Energy and the National Science Foundation to award up to 25 percent of their SBIR funds to VC-owned firms. That share will be 15 percent at other agencies.

The reauthorization would also increase the SBIR awards from $100,000 to $150,000 in Phase I. The initial phase tests the new technology or discovery for feasibility and commercial potential. Phase II grants, which fund additional R&D if warranted by Phase I results, would increase from $750,000 to $1 million. The deal also would allow agencies to award additional Phase II grants for the same project if it is especially promising.

California companies have been successful in obtaining the highly competitive awards, and, in 2010 again took the largest share of the grants. California entities received SBIR awards totaling more than $100 million. That total amounted to 26 percent of the collective funds received by the top 10 recipient states.

California receives the largest share of SBIR grants, which were designed to help innovators commercialize their discoveries and put science to work for patients.California receives the largest share of SBIR grants, which were designed to help innovators commercialize their discoveries and put science to work for patients.

Source: National Institutes of Health, Office of Extramural ResearchNote: Data excludes R&D contracts and projects funded by the American Recovery and Reinvestment Act.

New Jersey

Ohio

Colorado

Pennsylvania

Wisconsin

North Carolina

Maryland

New York

Massachusettes

California

Tota

l SB

IR F

und

ing

FY

201

0

$100.6

$72.1

$43.7

$40.9

$25.9

$23.9

$20.3

$19.8

$19.7

$19.6

Millions

A similar but smaller program – the Small Business Technology Transfer (STTR) grants – reserves 0.30 percent of the funds of federal departments and agencies with annual extramural research budgets exceeding $1 billion for awards to small U.S. high-tech firms. These awards fund cooperative R&D projects involving small business and a nonprofit research institution.

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The SBIR and STTR dollars remain critical for the development of new biomedical products, especially in the current economic climate.

American Recovery and Reinvestment Act FundingThe American Recovery and Reinvestment Act of 2009 (ARRA) was a U.S. economic stimulus package that was enacted in February 2009 in response to the financial crisis. Its primary objective was to save existing jobs and create new ones. Because the NIH had a well-regarded and effective granting system in place, many of the ARRA science funds were awarded through the institutes. The NIH directed $8.2 billion in funding to support scientific research, funds that included extramural grants at universities and other research institutions.

According to a November 2011 report issued by the U.S. Government Accountability Office (GAO), ARRA funding has created about one full-time equivalent position for each of the 21,500 grants NIH awarded since the bill’s enactment. Further, the GAO extrapolated that by funding research teams, the program has created or supported up to 54,000 jobs. Most of those, about 58 percent, were filled by scientists with information technologists, postdocs and other support staff filled remaining positions. Californians clearly filled a number of those jobs as the state’s researchers secured the largest share of the NIH ARRA grants.

NIH grants funded by the American Recovery and Reinvestment Act of 2009

Recovery Act Projects (FY 2009)

Funding (FY 2009)

Recovery Act Projects (FY 2010)

Funding (FY 2010)

California 1,704 $635,944,211 1,217 $689,033,590

Share of National Grants 13.2% 14.6% 13.8% 14.9%


California researchers received the largest number of ARRA grants both in numbers of projects funded and dollars awarded.

NIH grants funded by the American Recovery and Reinvestment Act of 2009

Recovery Act Projects (FY 2010) Funding ((FY 2010)

California 1,217 $689,033,590

Massachusetts 844 $486,212,003

New York 827 $435,947,609

Pennsylvania 549 $284,792,138

Texas 460 $227,599,055

Maryland 326 $178,715,418

Washington 293 $169,301,520

North Carolina 358 $166,865,457

Illinois 312 $149,465,066

Ohio 299 $134,197,614


Government funding provided the foundation for the California biomedical industry, which is recognized as a center of innovation the world over. Through NIH and other research grants, the state built its current infrastructure, capacity and potential to continue to make fundamentally important advances that will save lives, improve outcomes and enhance the quality of life for patients and their caregivers. Sustaining long-term government support of biomedical research should be viewed as a priority by California’s biomedical industry, political leaders and all of the people they serve.

The CHI Methodology

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2012 California Biomed Industry Report

CHI-California Healthcare InstituteCHI-California Healthcare Institute is a non-profit public policy research organization for California’s biomedical R&D industry. CHI represents leading medical device, biotechnology, 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.

California Healthcare Institute 888 Prospect Street Suite 220 La Jolla, CA 92037 Phone: (858) 551-6677 www.chi.org

PricewaterhouseCoopers Pharmaceutical and Life Sciences Industry Group PricewaterhouseCoopers Pharmaceutical and Life Sciences Industry Group (www.pwc.com/pharma or www.pwc.com/medtech) 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. More than 163,000 people in 151 countries across our network share their thinking, experience, and solutions to develop fresh perspectives and practical advice.

Tracy Lefteroff, Partner PricewaterhouseCoopers LLP 10 Almaden Blvd. Suite 1600 San Jose, CA 95113 Phone: (408) 817-3700

Report authorsDavid L. Gollaher, Ph.D. President and CEO California Healthcare Institute

Tracy T. Lefteroff National Life Sciences Partner PricewaterhouseCoopers LLP

Gail Maderis President and CEO BayBio

Project Team

Nicole Beckstrand California Healthcare Institute

Travis Blaschek-Miller BayBio

Ousmane Caba PricewaterhouseCoopers LLP

Munreet Nijjar PricewaterhouseCoopers LLP

Writing

Christi Whittemore Stellar Road Copy Works

Economic Analysis

Jack Rodgers PricewaterhouseCoopers LLP

Kristen Soderberg PricewaterhouseCoopers LLP

Attila Karacsony, Director PricewaterhouseCoopers LLP 400 Campus Drive Florham Park, NJ 07932 Phone: (973) 236-5640

BayBioBayBio is Northern California’s life science association. We support the regional bioscience community through advocacy, enterprise support, and enhancement of research collaboration. We maintain Northern California’s leadership in life science innovation by supporting entrepreneurship, science education and life science career development through the BayBio Institute. Our members include organizations engaged in, or supportive of, research, development and commercialization of life science technologies.

BayBio 400 Oyster Point Blvd., Suite 221 South San Francisco, CA 94080 Phone: (650) 871-7101 www.baybio.org

©2012 CHI-California Healthcare Institute. All rights reserved. Published by CHI-California Healthcare Institute, 888 Prospect Street, Suite 220 La Jolla, California 92037. No part of this book may be reproduced, stored in the retrieval system and transmitted in any form or by any means, electronic, mechanical, photocopying, microfilming, recording and otherwise without the permission of the copyright holder.

©2012 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to [insert legal name of member firm], which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. MW-12-0125 jat

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Legislator Profile

Congresswoman Lucille Roybal-Allard

D-34th District, Downtown Los Angeles and Suburbs

Members of Congress often interact with their constituents, but rarely do these meetings lead to lifelong inspiration. For Representative Lucille Roybal-Allard, however, two young girls from her home district in California have had a profound impact on her life.

Cynthia (age 15) has scleroderma, a chronic connective tissue disease that causes skin to harden and become extremely sensitive to heat and cold. Cynthia must often wear gloves because her hands intensely react when they are cold. Congresswoman Roybal-Allard first met Cynthia when she came to Washington to testify before the Labor HHS Education Appropriations Committee about the need for scleroderma research in the spring of 2008.

For Mikayla (age 12), juvenile rheumatoid arthritis (JRA) is only one part of a very busy life. The congresswoman became friends with Mikayla when she came to lobby for arthritis research several years ago, and last year invited the young advocate to testify before the LHHS Appropriations Subcommittee. This past summer the medication Mikayla had been prescribed failed and she was bedridden for several months, highlighting the need for additional research and improved treatments for JRA patients.

The courage of Cynthia and Mikayla in the face of their ongoing struggles with chronic diseases was an inspiration for Rep. Roybal-Allard to become a champion for increased biomedical research funding. According to the congresswoman, the pain and suffering these girls and their families face is just one of the reasons she fights for them. She also believes that we as a nation pay a price, not just in medical costs, but in having these vibrant young girls sidelined with illnesses.

“I think that whenever we lose the talents and abilities of any young person, it isn’t just that person who loses, it’s also our society as a whole,” Rep. Roybal-Allard said. For this reason, Rep. Roybal-Allard has been a long-time champion for the National Children’s Study, a multi-year and multi-site research study that will look at the effects of environmental, cultural, family and genetic influences on the health and development of more than 100,000 children across the U.S., following them from before birth until age 21.

“We don’t have the answer as to why some diseases impact a particular ethnic population versus another,” says Rep. Roybal-Allard, pointing to issues the National Children’s Study is working to uncover. “And we need to find those answers, not only to prevent human suffering but also to improve the health and prosperity of all our minority communities.” According to Rep. Roybal-Allard, the National Children’s Study is one more way that the NIH is determining the national agenda for medical research.

It is for these reasons and more that Rep. Roybal-Allard supports increased funding for NIH. The congresswoman strongly believes that the NIH plays a critical role in developing lifesaving diagnostic tests, treatments and medications to fight the diseases that threaten the health of our nation. But she also sees NIH as key in developing the critical next generation of research scientists. She continued, “Unless we invest in research, our brightest young minds will choose other careers or other countries in which to fulfill their science dreams. We as a country simply cannot afford to fall behind in our research capabilities and capacity.”

This profile was first published in Profiles of Promise. It and other articles about members of Congress who support biomedical innovation can be accessed at www.profilesofpromise.com.

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Legislator Profile

Assemblyman Richard Pan, M.D.

D-5th District, Placer and Sacramento Counties

Legislators profiled for this report typically found their passion for supporting biomedical research and life sciences while serving their constituents. Richard Pan, M.D., however, knew from an early age that he wanted to be a physician; practicing medicine led him to public service.

Between his second and third years of medical school at the University of Pittsburgh, he worked in a community health center in York, PA. “The director of the clinic took me along with him to city meetings,” Pan recalled, “so I got a broader view of how the community influences health.” Specifically, he grew interested in access to and parity in healthcare, especially for children.

Following medical school, Pan became a pediatrician and professor at the UC Davis Children’s Hospital, where he led the pediatric residency program. There he incorporated aspects of his own experience into the curriculum by founding the program now known as Communities and Health Professionals Together. The nationally recognized program partners resident physicians with community associations to improve community health.

He also has been instrumental in the establishment and accomplishments of the Sacramento Health Improvement Project, a coalition of physicians, hospitals, clinics and community activists working to strengthen the healthcare safety net in Sacramento County; the Sacramento First 5 Commission, which supports programs for children up to five years old; and Healthy Kids Healthy Future, a regional administrative agency that obtained healthcare coverage for over 65,000 children in five counties around Sacramento.

In 2010, Pan was elected to the California Assembly. “I mostly ran because I saw what politics meant to people’s health and to community health,” he said. He is now seeking reelection because, “There are a lot of challenges facing the state and country. Being in the Assembly enables me to help work on them.” His leadership positions on community health related committees are a good start. He is vice-chair of the California Assembly Veteran’s Affairs Committee and serves on the committees on Health, Aging and Long-Term Care, and Accountability and Administrative Review. He also is chair of the Select Committee on Healthcare Workforce and Access to Care.

He said that he hopes that his perspectives as a physician – he continues to practice in the pediatric clinic at EFFORT Oak Park Community Clinic that he established – and father of two informs his policymaking. One of his objectives is to educate his peers and his constituents about the value of the work the life sciences industry is doing in California.

“People think about ‘public health’ as a macro concept, but do not always see the connection to biomedical research,” Pan said. He recalled that when he was a resident at Massachusetts General Hospital, the drug servactant was an experimental agent for use in cases of premature births. “When I started,” he said, “babies born at 25 weeks [gestation] died. Now we’re routinely saving those babies… It’s amazing to me how quickly advances have been made and how many lives have been impacted by the biomedical industry.”

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California Biomed vs. Other High-Tech Industries

California Biomedical Employment vs. Other High Tech Sectors

Source: Bureau of Labor Statistics Quarterly Census of Employment and Wages; Company Specific SEC filings.

Biomedical

Computer & Internet Related Services

Motion Pictures

Computers and Peripheral Equipment

Telecommunications

Aerospace Manufacturing

267,271

263,271

146,950

144,526

97,156

68,699

To put the importance of the biomedical industry’s employment to California in perspective, it is informative to compare it to the other innovative and high-tech sectors for which the state is known: the “dot coms,” IT, telecommunications, aerospace and motion pictures. Of these, the biomedical industry is the largest employer. Combined, the computer-related categories employ nearly 408,000 people, placing the life sciences industry in solid standing as the second largest high tech employer in the Golden State.

Through the recession, biomedical employment numbers have also been the most resilient among the high-tech industries. From the end of 2008 through 2010, the biomedical industry lost nearly 6,300 jobs, or 2.3 percent of its workforce. That was almost half of the percentage of jobs lost within the computer and Internet related services sector, and a fraction of the losses within the state’s telecommunications industry.

The biomedical industry’s average annual wage of about $76,000 is the lowest among the state’s high tech industries. The low ranking may reflect the high representation of academic researchers within the biomedical industry, an attribute that strengthens the life sciences sectors and differentiates it from its other high-tech peers.

California’s life sciences companies employ a substantial number of the state’s high-tech professionals.

Over the years immediately following the financial crisis of 2008, California’s biomedical industry lost the lowest percentage of jobs among its high-tech industry peers.

Change in Employment Among California’s High-Tech Industries

2008 2009 2010Change 2008–10

Change 2009–10

Biomedical 273,559 267,772 267,271 -2.3% -0.2%

Computer and Internet Related Services 275,615 259,616 263,271 -4.5% 1.4%

Aerospace Manufacturing 73,135 70,783 68,699 -6.1% -2.9%

Computers and Peripheral Equipment 159,306 146,759 144,526 -9.3% -1.5%

Motion Pictures 163,392 148,298 146,950 -10.1% -0.9%

Telecommunications 117,539 110,240 97,156 -17.3% -11.9%

Source: Bureau of Labor Statistics Quarterly Census of Employment and Wages; Company Specific SEC filings.

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The biomedical, computer and peripheral equipment and aerospace manufacturing industries may be on the rebound as all added employees.

Change in California Biomedical vs. Other High-Tech Employment Sectors

Sector March 2009 to March 2010 March 2010 to March 2011

Aerospace manufacturing -3,750 3,285

Biomedical -5,054 3,959

Computer and internet related services -4,786 -1,220

Computers and peripheral equipment -9,200 6,034

Motion pictures -4,554 -4,456

Telecommunications -14,672 -3,961


The average wage in California’s biomedical industry is significantly higher than the median household incomes (2009) of $59,000 in California and $50,000 in the U.S.

Average wages and salaries of California’s biomedical industry vs. other high tech industries (2010)

Aerospace manufacturing $91,036

Biomedical $76,495

Computer and internet related services $121,895

Computers and peripheral equipment $136,136

Motion pictures $89,312

Telecommunications $82,099


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For Astellas, science is not only the foundation of its business, it’s their passion. As a research-based pharmaceutical company, they are committed to playing an active role in science education. They strongly believe that by doing so they can help drive medical innovation in the future.

Astellas understand that the future of innovation lies in our children and that a child’s interest in science is sparked in the classroom. They also recognize that America’s science teachers are key in igniting this spark and that it is their commitment that compels a child’s desire to pursue their interest further. In fact, many of Astellas’ own employees attribute their passion for science to dedicated science educators.

To address the unmet need among science teachers and their students, Astellas created Science WoRx, a local mentoring program and online resource network for science teachers. The program focuses on instilling an understanding of science’s role in human health and medicine, and is designed to inspire the next generation of scientists and support science teachers’ needs both in and outside the classroom.

In addition to the Science WoRx program, Astellas sponsors several science teachers to participate in the NSTA’s New Science Teacher Academy, a professional development initiative that aims to promote quality science teaching.

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BioCentury Publications back to School Racap

BioCentury Publications, Inc. is internationally recognized as the leading provider of value-added information, analysis and data for biotechnology and pharmaceutical companies, investors, academia and government on the strategic issues essential to the formation, development and sustainability of life science ventures.

BioCentury employs a fully integrated multimedia platform — including publications, video, online data solutions and conferences — to provide its audience with authoritative and up-to-date intelligence about corporate strategy, partnering, emerging technology, clinical data, public policy and the financial markets.

The following article is used with permission from BioCentury and originally published on Monday, September 5, 2011.

The situation

It does not take a Tea Party hobbit to see the signs of despondency.

The 3Q11 economic numbers show the potential for a second dip recession. Profligacy by governments and thoughtless leveraging of household balance sheets mean that everything and virtually everyone will be rebasing for years to come.

Rebasing means entire industries will shrink, along with their growth rates and anticipated returns on investment. Biotech, pharma and their investors won’t be excluded.

The global rebasing doubly amplifies the price of the lack of productivity in drug development. A solution to the productivity problem already was essential to maintaining biopharma’s ability to compete for capital against social media or “the next big thing.”

Now time really has run out. The old return mechanics for risk capital are over (maybe they were ephemeral in the first place). The revenue trajectory has flattened. The patent cliff has arrived. And even though the aging of the baby boomers guarantees unrelenting demand for healthcare, the means to pay for it have shriveled.

The doomsday crowd sees big pharma downsizing jobs and R&D, Darwinian culling of the biotech herd and transformational science left dying on the vine. In this setting, self-preservation takes precedence over leaps of faith. The appetite for risk falls.

But this does not mean biopharma’s innovators, experimenters and tinkerers have given up. For starters, they can see the upside signals in the industry’s fundamental indicators: ambitious newcos, pharma’s post-patent cliff pipeline, and positive data on the economics of expanding access to drugs (see

Back to School Issue: Innovation & collaborationSince the economic downturn of 2008, doom has become ingrained in the biopharma narrative.

According to the mantra, budgets for great science have flatlined. New startups can’t find VC money to translate great science because VCs cannot find new risk capital. And VCs can’t get exits because IPOs have dried up and it’s a buyer’s market for trade sales. For biotech, “risk-sharing” pharma deals mean “back-loaded.” Pipelines are shrinking as R&D downsizes. Breakthrough drugs can’t get approved by risk-averse regulators in a hostile political climate. And public and private cost controls are killing reimbursement as drug companies increasingly are relegated to “vendor” status in the healthcare system.

Have we left anything out?

The 19th annual Back to School issue says it’s time to end the ritual complaining. The industry is not doomed - it is in fact busy restructuring for the future.

The question is what must come out of this process.

For 2011, Back to School argues that rebasing the biopharma space can result in better engines of value creation for patients and shareholders. But only if truly fresh thinking is allowed to replace old expectations and habits.

Indeed, the signs of fresh thinking are all around. It is only a matter of time until it is woven into a framework for the next decade.

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“Pharma Phoenix,” A12; “Innovation Bandwagon,” A13; and “Pharmacoeconomics,” A14).

These brighter signs should not blunt the passion for transformation, even if they buy time for the biopharma world to build its new structure. The drive to innovate is compulsive. The innovators and experimenters do not ask for permission to test their ideas, nor do they spend time with the naysayers. There is too much to do.

The framework they are building is beginning to emerge. For 2011, Back to School identifies some of these building blocks. The accompanying short essays by an international group of key opinion leaders identify others.

Not all the ideas are new. But their timing may be better now. In total, they point to the industry’s structure for the rest of the decade.

The path forward

Twelve years ago, Back to School examined the requirements to sustain the biotech industry.

“According to the conventional wisdom,” Back to School said at the time, “there are still too many companies, they are too narrowly focused, the financing window is closed, there are fewer good startup ideas, and big pharma is learning the biology-based discovery game” (see “Structure 2000,” BioCentury, Sept. 7, 1999).

In a nutshell, “Structure 2000” focused on the technology, finance and project decisions that were required to keep a steady flow of biotech companies entering the mid-cap space - then defined as $300-$800 million in market cap - and onward into the top tier.

Many of the themes in Structure 2000 ring true today.

One is the notion that an increased mortality rate among flawed companies and improvident VCs would leave better companies providing better returns on investment.

Moreover, even 12 years ago, KOLs could foresee the role of the biggest companies in harvesting winning products and technologies, and the rise of corporate strategic investing.

But while Structure 2000 was inward looking and focused on biotech, the structure for 2012 and beyond includes the entire biopharma space and will be significantly shaped by a widening web of players - by research institutions, government, patients and payers, not just shareholders.

It will require an already heavily partnered industry to be even more broad-minded about how collaborations must be at the center of value creation. This will be a recurring theme throughout the rest of Back to School for 2011:

The precompetitive space is being expanded by public and private actors so that scarce resources can be pooled to elucidate disease more efficiently.

In the competitive arena downstream, companies are acknowledging that value must be made more visible to shareholders. Rather than waste another decade on mindless aggregation, brave companies will be putting their P&Ls on new, more appealing growth curves.

In the regulatory space, new thinking about public-private collaboration can be amplified to enable clinical development to be more cost-efficient while addressing public health priorities.

In the payer space, new collaborations are showing where biopharma companies and benefits providers should be mutually focused on to create value for patients and shareholders.

All along the way, the new ideas for organizing value creation will suggest ways to organize capital pools throughout the value chain.

The precompetitive space is being expanded by public and private actors so that scarce resources can be pooled to elucidate disease more efficiently.

If it takes 15 years to go from gene to bedside, then a 10% reduction in the entire value chain gains only a year and a half. A 20% reduction - which seems implausible - gains only three years. And a 30% reduction - a preposterous objective at this point - still means it will take more than a decade to go from bench to patient.

At an industrial level, this arithmetic is made even worse by the number of independent efforts to solve translational problems that by their nature have a low probability of success. This results in something BioCentury calls the “duplication of futility.”

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For example, it would be interesting to know just how much money companies have invested to find out that gamma secretase doesn’t appear to be a good target in Alzheimer’s disease.

Likewise, it would be interesting to speculate just how much further along the industry would be in its understanding of whether raising HDL is a good idea if this work had gone on in the precompetitive space rather than at individual companies.

Or - in today’s quick-kill culture - would such an idea be discarded after one failure? Right now, no one knows, but it is hard to argue that shared knowledge won’t provide faster, cheaper, better answers.

In a 2002 essay called “Bring Back Medicine,” BioCentury predicted that reductionist biology was going to disappoint drug developers, because the approach did not address the reality of disease.

At the time, BioCentury argued, “the productivity bottleneck will prove to be less technological than attitudinal, with the winners being those able to develop the necessary transformational thinking to bring clinical medicine - patient observations and functional outcomes - into play as the key driver of the target-based discovery process” (see “Bring Back Medicine,” BioCentury, June 19, 2002).

Ten years later, Back to School suggests the prediction has not been so far off. Indeed, the marketplace has made it quite clear: The healthcare system requires drugs that produce predictable clinical outcomes that are relevant to patients, physicians and payers.

But while academia and industry have identified thousands of targets, they have not created many drugs. Chas Bountra, chief scientist at the Structural Genomics Consortium (SGC), estimates the industry gets only 3-5 drugs targeting novel mechanisms per year.

The bottom line: There has to be a better way to sort through the chaff to get to the wheat.

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FDA - Approved Products 2011

Drug Company Indication

Cardiology/Vascular Diseases

Edarbi (azilsartan medoxomil) Takeda For the treatment of hypertension

Xarelto (rivaroxaban) Bayer For the prophylaxis of deep vein thrombosis during knee or hip replacement surgery

Dermatology/Plastic Surgery

Gralise (gabapentin) Abbott For the treatment of postherpetic neuralgia

Sylatron (peginterferon alfa-2b) Merck For the treatment of melanoma

Zelboraf (vemurafenib) Roche For the treatment of BRAF + melanoma

Endocrinology

Afinitor (everolimus) Novartis For the treatment of advanced pancreatic neuroendocrine tumors

Juvisync (sitagliptin and simvastatin) Merck For the treatment of type II diabetes

Sutent (sunitinib malate) Pfizer For the treatment of pancreatic neuroendocrine tumors

Gastroenterology


Sutent (suitinib malate) Pfizer For the treatment of pancreatic neuroendocrine tumor

Victrelis (boceprevir) Merck For the treatment of chronic hepatitis C genotype 1

Hematology

Xarelto (rivaroxaban) Bayer For the prophylaxis of deep vein thrombosis during knee or hip replacement surgery

Immunology/Infectious Diseases

Arcapta (indacaterol maleate inhalation powder) Novartis For the treatment of airflow obstruction resulting from chronic obstructive pulmonary disease

Complera (emtricitabine/rilpivirine/tenofovir disoproxil fumarate) Gilead For the treatment of HIV-1 in treatment-naive adults

Gralise (gabapentin) Abbott Laboratories For the treatment of postherpetic neuralgia

Victrelis (boceprevir) Merck For the treatment of chronic hepatitis C genotype 1

Musculoskeletal

Actemra (tocilizumab) Genentech For the treatment of systemic juvenile idiopathic arthritis

Neurology

Gralise (gabapentin) Abbott For the treatment of postherpetic neuralgia

Horizant (gabapentin enacarbil) GlaxoSmithKline For the treatment of restless legs syndrome

Oxecta (oxycodone HCl) Pfizer For the management of acute and chronic moderate to severe pain

Oncology


Sutent (sunitinib malate) Pfizer For the treatment of pancreatic neuroendocrine tumors

Sylatron (peginterferon alfa-2b) Merck For the treatment of melanoma

Xalkori (crizotinib) Pfizer For the treatment of ALK+ non-small cell lung cancer

Zelboraf (vemurafenib) Roche/Plexxicon For the treatment of patients with BRAFV600E mutation-positive inoperable or metastatic melanoma as detected by an FDA-approved test. Zelboraf is an oral drug that selectively targets this BRAF mutation that is present in about half of all cases of melanoma.

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Drug Company Indication

Pediatric/Neonatology


Pharmacology/Toxicology

Oxecta (oxycodone HCl) Pfizer For the management of acute and chronic moderate to severe pain

Pulmonary/Respiratory Diseases

Arcapta (indacaterol maleate inhalation powder) Novartis For the treatment of airflow obstruction resulting from chronic obstructive pulmonary disease

Rheumatology


Vysis CLL FISH Probe Kit ABBOTT MOLECULAR INC. Determines prognosis of patients with chronic lymphocyte leukemia

I-Stat 1 Wireless Blood Analyzer ABBOTT POINT OF CARE INC. Allows real time transmission of diagnostic test results directly from the patient bedside

Xpert C. difficile/Epi assay CEPHEID Test is intended to aid in the diagnosis of CDI

Aptima HPV Assay GEN-PROBE INCORPORATED Test that detects 14 high-risk HPV strains associated with cervical cancer and precancerous lesions

ROCHE FLUDI METHAMPHETAMINE ROCHE DIAGNOSTICS Cleared for use as part of Intercept Oral Fluid Drug Testing System

ORAL FLUID PHENCYCLIDINE ROCHE DIAGNOSTICS Cleared for use as part of Intercept Oral Fluid Drug Testing System

ROCHE ORAL FLUID COCAINE ROCHE DIAGNOSTICS Cleared for use as part of Intercept Oral Fluid Drug Testing System

ROCHE ORAL FLUID AMPHETAMINE ROCHE ORAL FLUID DAT QUAL CAL B ROCHE ORAL FLUID DAT CONTROL SET B AND ROCHE ORAL FLUID

ROCHE DIAGNOSTICS Cleared for use as part of Intercept Oral Fluid Drug Testing System

Cobas HPV test “ROCHE MOLECULAR SYSTEMS INC.”

Only FDA-approved cervical cancer screening test that allows HPV 16 and 18 genotyping concurrently with high-risk HPV testing

Other

Edwards Helps to restore normal blood flow in the heart in patients with senile aortic valve stenosis who need open-heart surgery to replace damaged valve, but for whom a procedure is too risky

Abbott Evaluates the treatment of an individual infected with hepatitis-C virus

St. Jude Medical Aortic valve replacement that encourages adequate blood flow

Medtronic Helps to treat chronic fecal incontinence in patients

Tandem Diabetes Care Smallest insulin pump system and first-ever with a touch screen

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Special section: Regenerative Medicine

Stem cells are biological building blocks that have the remarkable potential to develop into many different cell types in the body during early life and growth. They serve as a sort of internal repair system, dividing essentially without limit to replenish other cells as long as the person or animal is alive. When a stem cell divides, each new cell has the potential either to remain a stem cell or become another type of cell with a more specialized function, such as a muscle cell, a red blood cell, or a brain cell.

Stem cell researchers use a several different types of stem cells in their work. These include:

• Humanembryonicstemcells(hESC),whicharederived from the inner cell mass of the blastocyst, or the bundle of about 150 cells that is produced over approximately five days after an egg is fertilized.

• Inducedpluripotentstemcells(iPSC)arespecializedadult cells that can be reprogrammed genetically to assume a stem cell-like state.

• Parthenogenicstemcellsareproducedbyartificiallyactivating an egg, so that it begins to divide as if it has been fertilized.

• Somaticstemcells,alsoknownasadultstemcells,are undifferentiated cells found throughout the body after embryonic development. These cells multiply by cell division to replenish dying cells and regenerate damaged tissues.

Inthelab,thesecelltypesarebeingusedinstemcell research to better inform science about human development, diseases and conditions, and longevity. A key objective for academic researchers, biomedical companies, life sciences investors and healthcare practitioners is that stem cell research will yield regenerativemedicine(alsocalledcell-basedtherapies).For that, scientists must figure out how to induce stem cells to differentiate into the specific cell type required to repair damaged or destroyed cells or tissues.

Source:NationalInstitutesofHealthwebpage,StemCellBasics

Stem cell research could be viewed as the petri dish for California’s biomedical industry. In regenerative medicine are all the hallmarks that make the state exceptional as an innovation hub. The investments into the promising field have included the voters’ approval of the California Institute of Regenerative Medicine (CIRM) and the authorization to it to issue $3 billion in grants funded by bonds over 10 years. Using seed money from CIRM and other sources to generate matching donations, the state’s academic and private research centers have erected significant, world class research facilities throughout the state.

Researchers have tapped grants from CIRM, NIH and other sources to undertake a dazzling array of projects that are exponentially expanding the body of knowledge about stem cells, their capabilities and their uses. These pioneers are putting their discoveries to work with significant advances being made in disease diagnosis and understanding. As is the California way, commercial enterprises focused on regenerative medicine also have been established near the stem cell research centers to commercialize early discoveries.

Among the earliest, Geron Corp. of Menlo Park, advanced the first embryonic stem cell-based experimental therapy into clinical trials in 2010. In addition to its scientific achievement, Geron’s effort required years of painstaking work with the FDA to develop the regulatory framework for a type of therapeutic approach the Agency had never seen before. Geron’s costs for the completing its investigational new drug application (IND) alone has been estimated at $45 million.

“The contribution of Geron’s spinal cord injury program to the stem cell field cannot be overstated,” according to Hans S. Keirstead, Ph.D., chairman of California Stem Cell Inc. and co-director of the Sue and Bill Gross Stem Cell Research Center at UC Irvine. “As the first such stem cell program approved by the FDA, it established precedent for the field and allowed all others to follow at reduced risk to sponsor companies.”

The emerging new sector remained an emblem of promise through the dark days of the recession. So Geron’s November 2011 announcement that it was ending its stem cell research programs was disappointing at best. The company, with dwindling financial resources, decided to focus on its non-stem cell cancer programs. Those Phase II programs could produce milestone events by mid-2013. The decision resulted in the cutting of 66 jobs, or about 38 percent of Geron’s workforce. The company also hoped to be able to sell its stem cell R&D assets, which also include embryonic stem cell treatments using cardiac cells for heart disease, a type of pancreas cells for diabetes, cartilage cells for cartilage repair and immune system cells called dendritic cells for immunotherapy treatments.

In the days after the announcement and the months since, however, the news has been taken in stride. Observers note that spinal cord injury was an ambitious target, and one that proved extraordinarily expensive. (Geron reportedly was spending $25 million annually toward the program.) Because the project was mothballed for business reasons, it does not reflect on the quality of Geron’s science or on the potential of other technologies in development. Investors remain receptive and ready to invest in clear scientific propositions and are not erasing stem cell research from that list.

The development does suggest that timelines for regenerative medicine development will be longer than anticipated. That is especially disappointing for the patients and patient advocates who supported Proposition 71 as a direct route to new treatments for the most intractable diseases like Alzheimer’s, schizophrenia, amyotrophic lateral sclerosis (ALS) and Parkinson’s disease.

Others point out that incredible progress has been made. “In terms of pace for creating the advent of medications, seven or eight years is not a long time,”

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said Gary Rabin, chairman and CEO of Advanced Cell Technologies (ACT), headquartered in Santa Monica. His company is among those that have stem cell-based development products in clinical trials.

The following highlights stem-cell related milestones reached by California investigators and organizations in 2011.

OngoingClinicalTrialsAlthough Geron is not enrolling new subjects in its spinal cord injury trial, it is continuing to monitor the four individuals who had been recruited before the November announcement. Those patients, one in California, had experienced a non-penetrating, paralyzing spinal cord injury within the 14 days prior to joining the trial. Each would be given an injection of oligodendrocyte progenitor cells into the site of their injuries. Those cells mature into oligodendrocytes that produce myelin, the insulating layer surrounding neurons. As of November, the company’s compound had been “well tolerated with no serious adverse events,” according to Geron’s press release.

Another California company is also evaluating the use of stem-cell based therapies in spinal cord injury. StemCells Inc. of Newark is conducting a Phase I/II study in Switzerland that is testing a therapy that uses neural stem cells. The company enrolled its first patient in September 2011, and is including spinal cord injury patients with injuries from three to 12 months old and who have no sensation or motor function below the site of the injury. The trial is designed to treat 12 patients in all to gather safety and efficacy data.

The only other company currently conducting embryonic stem cell clinical trials is ACT. The company is focused on commercializing its hESC-based retinal pigment epithelial (RPE) therapy for degenerative retinal disease, which includes diseases and conditions

such as macular degeneration and Stargardt’s disease. The company has initiated two Phase I/II clinical trials with its therapeutic.

Fate Therapeutics, Inc., which was founded in San Diego in 2007, is pursuing a therapeutic approach in which it uses a small molecule to treat umbilical cord blood and coax it to produce more blood-forming stem cells. These cells can be transplanted into leukemia and lymphoma patients whose blood cells have been destroyed by chemotherapy and radiation. Fate’s product aims to safely and effectively reconstitute these patients’ bone marrow and immune systems. Another application would help reduce the chance of organ transplant failure, get transplants to engraft sooner, and reduce the risk of a dangerous complication known as graft-versus-host disease. The company has several Phase I/II trials ongoing or completed and expects to advance to the next stage of clinical development in 2012.

CIRM-SupportedResearchOne of the grant types awarded by CIRM – the Disease Team Awards – required teams including basic scientists and clinicians from both industry and academia to show a roadmap for getting to clinical trials in four years. These collaborations speed the process of establishing clinical trials by ensuring that clinically relevant issues are considered early and by avoiding safety issues being discovered late in the process. Three of the 14 disease teams granted funding in October 2009 have already achieved major milestones.

At the University of Southern California, Paula Cannon, Ph.D., who is working with the team headed by John Zaia, M.D., of City of Hope, has published a proof-of-principle paper on the team’s effort to create blood-forming stem cells that can produce HIV-resistant T cells. Her team showed that, in mice, genetically modified human

blood-forming stem cells were able to form a new blood system that could control HIV infection.

“This hybrid of gene and stem cell therapy shows that it is possible to create HIV-resistant immune cells that can eventually win the battle against HIV,” said Cannon in a USC press release.

Karen S. Aboody, M.D., also of City of Hope, received FDA approval in June to begin a clinical trial with neural stem cells that act as carriers for an enzyme that converts a pro-drug to an active cancer chemotherapeutic agent. While the FDA approval came for a different agent and a different protocol than the one she proposed for the CIRM disease team, the cell type is the same, and this should greatly speed approval of the CIRM-funded clinical trial application. The CIRM regimen uses a more powerful chemotherapeutic agent.

A third team, led by Stanford’s Irving L. Weissman, M.D., is developing an antibody-based drug to treat leukemia. The drug binds to a protein that leukemia stem cells use to avoid being ingested and removed by the body’s immune system. This protein is found on some other cancer stem cells, including those for non-Hodgkin’s lymphoma. The team has reported that a test drug could cure non-Hodgkin’s in mice in 60 percent of cases.

According to the CIRM website, the organization through 2011 has granted or committed nearly $1.9 billion via 483 awards to further stem cell research. Although all of CIRM’s grants must go to California-based research institutions, the grantees are able to partner with researchers in other locales.

“Through wonderfully collaborative agreements, researchers here can secure California money and team with investigators in other countries or states, which have money of their own,” said Fred H. Gage, Ph.D. He is the head of the Laboratory of Genetics at the Salk

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Institute for Biological Studies, and Vi and John Adler Chair for Research on Age-Related Neurodegenerative Diseases and an Adjunct Professor in the Department of Neurosciences at UCSD. He also is president of the International Society for Stem Cell Research (ISSCR). He said that by enabling such leveraging of funds, CIRM has been a catalyst for increased innovation. “This [CIRM] is a great model. It’s worked. It is an example of how funding and supporting basic research reveals things that can have profound effects not just on research but on economies.”

OtherCaliforniaStemCellCompaniesSouth San Francisco-based iPierian is a biopharmaceutical company that is using iPSCs in its R&D programs. The company claims to be the first to apply cellular reprogramming and directed differentiation to cells derived from patients representing a broad spectrum of diseases. Focusing on neurological diseases – such as spinal muscular atrophy, ALS and Alzheimer’s disease – iPierian will apply its technology to recapitulate human disease in vitro, enabling the discovery of novel targets and disease-modifying therapeutics. The company intends to develop its own proprietary pipeline and collaborate with pharmaceutical and biotechnology industry partners.

California Stem Cell Inc. (CSC) of Irvine has developed proprietary methods to generate hESC lines, expand them to clinically and commercially useful numbers, and differentiate them at extremely high purity using fully-defined, proprietary media and good manufacturing practice (GMP) processes. CSC supplies its human cell populations to companies and institutions worldwide for use in the development of therapies, efficacy screening or the creation of toxicity profiles for candidate drugs, and experimental research tools. Internally, CSC is currently focused on

the development of stem cell based therapies for spinal muscular atrophy, ALS and metastatic cancers.

Cytori Therapeutics, Inc. of San Diego is a regenerative medicine products supplier. The firm’s primary innovation is a family of products designed for the extraction and concentration of stem and regenerative cells from adipose tissue or body fat, for potential treatment of heart disease. The company also has produced computerized medical devices, cell processing reagents, and novel clinical therapy approaches to put its products to use.

The“Collaboratory”At the end of November 2011, scientists and researchers from the Salk Institute, The Scripps Research Institute, the University of California San Diego, the Sanford-Burnham Medical Research Institute and the La Jolla Institute for Allergy and Immunology, began moving into the Sanford Consortium for Regenerative Medicine. The $127 million, 150,000-square-foot complex is the largest of its kind in California, and one of the most anticipated.

Housing 335 people and state-of-the-art scientific instruments and equipment, the facility has been nicknamed the “Collaboratory” for its emphasis on teamwork. The center’s interior features almost 3,000 square feet of glass so that scientists from different disciplines will regularly see one another. Laboratories are linked by informal meeting areas. And seating in the auditorium was limited to 150 in the belief that crowds bigger than that discourage people from socializing.

“It’s wonderful,” said Lawrence Goldstein, Ph.D., director of the UC San Diego Stem Cell Program. “It was designed from the ground up to stimulate interactions. The design is so

effective, he said, that “If you’re a shy person, you might find it a difficult place to work.”

The Collaboratory is one of a dozen new research institutions that CIRM has helped establish throughout California to promote the study of stem cells. The state agency provided $43 million in public funds for the project, with the member institutions raising the rest.

The FutureAlthough industry observers note that Geron’s exit from stem cell research has been a disappointment, they reiterate that one cancelled program cannot torpedo the already robust and accelerating stem cell research community in California and around the world. Setbacks are inherent in the scientific method. And, yet, successfully introducing a cell-based therapy to treat people who have few good options would reengage policy makers, investors and others whose support hastens biomedical advancements.

Rabin, ACT’s CEO, said, “There has not been a robust appetite for investing in stem-cell based programs from the government or the VCs or the public markets because it is a totally unproved market.” He said that the cost of capital for emerging companies has been very high. But, he added, “One success will open it up.” He joins other California-based researchers, entrepreneurs and agencies in being confident that the first major breakthrough could come from here.

“I’m wildly optimistic” about the future of stem cell research, Goldstein said. “Lots of things are going to pop in the next two or three years.” He said he sees a long and full future for the new science.

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Researcher Profile – Jeanne Loring, PhD, Scripps

Jeanne F. Loring, Ph.D., is a Professor of Developmental Neurobiology and the Director of the Center for Regenerative Medicine at the Scripps Research Institute in La Jolla. She has been working in stem cell research since the late 1980s and is an author of many technical papers and patents on her and her teams’ research. The recipient of numerous, prestigious awards, Loring also serves on many boards and panels that are focused on stem cell research and regenerative medicine. She participated in this Q&A via email from Japan in December 2011.

Q: We understand you’re in Japan. Can you share a little bit about what you’re working on?

A: The NSF (U.S. National Science Foundation), NIH, and NIST (National Institute of Standards and Technology) are conducting a world-wide survey of the state of stem cell engineering to help guide their funding decisions. I’m on their panel. Europe is next, in February.

Q: At the basic science level, what’s happening with stem cell research?

A: The hottest topics in stem cell research right now are creating disease models in culture, studies of the epigenomics and genomics of pluripotent stem cells as they grow and differentiate, microRNA studies, improving methods for making the cell types of interest – new reprogramming methods, direct transdifferentiation, better culture methods to get the cells we want, gene targeting, and the promise for improved drug development. Some examples include –

Disease in a dish: There is a big movement to capture genetic disease in a culture dish. People are making large collections of induced pluripotent stem cells (iPSCs) from patients – from 10 to hundreds of lines. Parkinson’s disease, Alzheimer disease, ALS, and many many others. The idea is that iPSCs may be a better way to understand genetic disease than the current best models – transgenic mice. Most labs are in the process of trying to find a phenotype in a dish that correlates with the disease, then studying it closely.

Genomics: When we look closely at the genomes of pluripotent cells, we see that they acquire changes during expansion and differentiation. This is because some changes, like duplications of oncogenes or deletions of tumor suppressors, give cells a growth advantage. This has raised concerns about the safety of cells used for transplantation. However, it is important to note that changes like these also occur in “adult” stem cells, so it is not a problem specific to embryonic and iPS cells.

Epigenomics: Pluripotent stem cells are a great system to study the control of turning genes on and off as cells proliferate and differentiate. For example can completely sequence the “methylomes” of undifferentiated and differentiated cells, determining exactly what parts of genes are methylated and demethylated as the cells change. This gives us awesome power to understand fundamental biology.

MicroRNA: Researchers are delivering microRNAs and microRNA inhibitors to cells to enhance reprogramming and direct cells along specific lineages.

Reprogramming: We’re still working on developing the perfect reprogramming methods; right now the focus is on efficient non-integrative methods.

Differentiation: There has been a lot of progress in development of reproducible methods for deriving specific cell types. Methods are more robust and simpler. Much of the variability that was thought to be intrinsic to certain cell lines has disappeared as methods improve.

Transdifferentiation: There is a lot of interest in directly turning one cell type into another, such as turning fibroblasts into heart cells, neurons, or blood cells, without first going through a pluripotent stage. We don’t know yet whether this will be a preferable approach or not- there are good arguments on both sides.

Gene targeting: Methods for homologous recombination, zinc finger nuclease- and talen-induced-gene modification, are improving rapidly. They hold the key for correcting (or inducing) disease-causing mutations in pluripotent cells. In theory, a patient’s skin cells could be made into iPSCs, their genetic mutation corrected, the cells differentiated into an appropriate cell type, and then cell therapy used to ameliorate the disease.

Improved drug development: One of the most important short-term applications for human iPSCs is in pharmaceutical drug development. For example, they can be used to develop a method to screen for toxicity of drugs that is caused by genetic/ethnic background. This would allow drugs to be tested on groups of people who would be least likely to have adverse side effects.

Q: What are some of the more exciting stem cell programs you and/or Scripps Research are involved with?

A: Well, all of the above, and in addition, using reprogramming methods in conservation of endangered species. We made iPSCs from a highly endangered primate, the drill, and a nearly extinct species of rhinoceros. We think that these

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cells can eventually be used in assisted reproduction to revitalize shrinking populations of endangered animals.

Q: With Geron’s announcement that it was shuttering its stem cell programs has come anxiety about the feasibility, risks and costs of developing stem-cell based therapies. What is your sense of how the research community is reacting to that news? What is your outlook regarding the science and its future?

A: Since I come from biotechnology, I understand the challenges for a biotechnology company to survive. Geron simply couldn’t afford to independently complete its clinical trials- investors are not willing to pay for long-term projects. The decision was made strictly for business reasons- in order for Geron to survive as a company, they had to drop the project that was using up most of its resources. Unfortunately, that was the stem cell program. I think that researchers were disappointed with the decision, but not discouraged.

Q: How do you see the current economic climate affecting innovation, particularly in stem cell discoveries?

A: It’s tough. When the NIH is cut back, it affects all scientific research, including stem cell research. We’re lucky to be working in California, where the stem cell field, at least, is doing well at the moment. Long-term, I’ve seen too many ups and downs to predict what will happen- or worry about it. We’ve persevered in good times and in bad, and we will continue to do whatever is possible with the budgets we can obtain.

Q: California has established an impressive ecosystem of facilities and researchers involved in stem cell research. Are you finding similar centers elsewhere in the world through your travels and collaborations? Are you concerned that California may not be able to maintain a leadership role in this exciting new field?

A: There are developing centers of excellence in stem cell biology in the US, especially in the Boston area, and in other countries. Japan is developing a program that is focused on cell therapy; Singapore is involved in stem cell genomics; China is investing in research in serveral key centers, as is Korea. Australia has excellent stem cell facilities and research. Israel is a leader in stem cell biotechnology. The EU is siting major centers for stem cell biology in Germany, The Netherlands, Switzerland, Sweden, France, and Spain, and other countries have smaller efforts. The type of research that is chosen is dependent on specific country’s regulations, which vary greatly.

California’s situation is unique, both in its timing (early) and investment (large for the number of researchers involved). I think we’ll have the edge for some time because of the wise investment CIRM has made in infrastructure and training. We’re producing the best young stem cell scientists here, and their influence will grow with time.

Q: What actions would you encourage policy makers to take now to better encourage and nurture stem cell research, translational research and product development in California?

A: We, and they, need to think of this as a long-term investment. Many people compare biological research to high tech; in that comparison, we are just beginning to work on the equivalent of silicon chips right now.

We need to keep in mind that the high tech industry took many years to develop, and most companies failed. We are impressed with moneymakers like Google or Apple, and forget that they are successful because of the chipmakers and the software developers who created the infrastructure. We don’t yet have the equivalent of the hardware and software that enabled their success.

We, and they, need to think of stem cells as a technology that will lead to huge successes in the future. Invest now in the infrastructure, the equivalent of silicon chips and servers and software, and it will pay off, a little in five years, more in 10, and hugely in 20. We don’t know yet what we will discover and what will be valuable to human health, but we do know that the past 10 years has brought us to the point where we can consider the applications I listed above. And we’re just getting started.

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Special section: Personalized Medicine

The hope that drove the completion of the 13-year, $3 billion Human Genome Project was the concept of “personalized medicine.” With the full genetic blueprint revealed, DNA tests could quickly be developed to help practitioners select the appropriate drugs at the correct doses to treat disease in each given patient. Similarly, tests could determine individuals’ risk for conditions like diabetes and cancer, allowing their physicians to recommend targeted screening or preemptive intervention. With the insights provided by the genome, drug developers could target their new medications to the subsets of patients most likely to benefit – and away from those at risk of adverse events. Such advances would dramatically improve medicine and healthcare – while lowering costs by eliminating ineffective treatments, reducing adverse drug reactions, improving outcomes and streamlining the development process.

The first step was to complete one genome map. Then researchers would sequence many genomes to find the subtle differences in them that trigger diseases. This work is underway and has proven straightforward in a few cases. For instances, researchers have identified some diseases, like Huntington’s, that are caused by mutations in a single gene.

Among the early success in the field are a number of genetic tests that have been commercialized to predict whether a medicine might be effective, ineffective, or toxic in certain individuals. For example, the cytochrome P450 genotyping test looks at the enzymes responsible for breaking down and eliminating more than 30 types of medications, including antidepressants, proton pump inhibitors, and anticoagulants. Because of their genetic makeup, some patients are not able to break these medications down fast enough. The medications can then build up in the body and cause severe side effects. Other patients’ bodies metabolize the medications before they have a chance to work. The CYP450 test, developed by Roche with microarray technology from Santa Clara-based Affymetrix, can identify people with these genetic variations so that doctors can make more-informed prescribing decisions, reducing the risk of adverse events and increasing the likelihood of treatment success. Several similar tests are available to give patients data to help them make treatment decisions regarding cancer (see sidebar).

In the oncology space, there are examples of drugs and their companion genetic tests being developed in tandem. In August 2011, Roche and Berkeley-based Plexxikon Inc., gained FDA approval for Zelboraf and the drug’s companion. Together, the products are the first FDA-approved treatment for BRAFv600E mutation-positive metastatic melanoma. Also in August 2011, the FDA approved Xalkori and its test, developed by Pfizer and Abbott Molecular Inc., respectively, for a type of late-stage lung cancer that expresses the abnormal ALK gene. The two drug/

test combinations are the first such approvals since the FDA approved Genentech’s Hercepten and its companion HercepTest in 1998.

Most genetic variation discovered to date accounts for a fairly small percentage of the overall risk of disease. It is possible that millions of genetic variations may exist, and isolating them all could take many years. Identifying them is difficult. Weighing which ones, or which combinations of them, are most predictive is harder. And developing and demonstrating a test that is predictive enough to inform sometimes life-or-death decisions is a Herculean task indeed.

Further, not all diseases and conditions are determined solely by one’s genes. Diabetes, heart disease, cancer and Alzheimer’s are thought to be caused by a combination of environmental as well as genetic factors, adding another layer of complexity to the quest for personalized medicine.

Without question, the biggest hurdle the emerging industry faced first was compiling a large enough dataset to pinpoint the genetic mutations that cause disease. By one estimate, there have been approximately 10,000 full genomes sequenced, a number said to be too low to yield statistically significant discoveries. And the cost of genomic sequencing has been prohibitively high for most researchers.

But over the past decade, California companies like Illumina, Life Technologies, Complete Genomics, and Pacific Biosciences have made impressive advances with sequencing instruments. In May 2011, Illumina announced that it now can sequence an individual’s entire genome, the complete 6 billion letter signature of DNA units, for $4,000 commercially and $2,000 for researchers. Life Technologies anticipates offering a $1,000 genome sequencer in 2013. Costs are likely to fall further than that.

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The drop in costs is enabling researchers to explore questions they could not have afforded just a few years ago. For instance, Mountain View-based Complete Genomics announced in October 2011 that it will work with Scripps Health in San Diego on a new study. The collaborators will sequence the genomes of 1,000 healthy people from the ages of 80 through 108. The trial, known as the “Wellderly Study,” is seeking the genetic keys to long, healthy lives.

At the same time that sequencing is getting better and costing less, leading developers in the information technology industry have designed and launched spectacular cloud databases and supercomputers such as IBM Watson to store and process large volumes of “big data.” These components will enable life science researchers to analyze large amounts of data in a short period of time. This is a critical advancement, as personalized medicine will not only consider the individuals’ genomes but, ideally, their lifelong electronic medical record. The genetic makeup of their particular diseases and the active ingredients in the proposed medications will also be collected. And all of these elements will be combined and compared against the comparable datasets for thousands of other patients with similar backgrounds, diseases and conditions. Most importantly, the data has to be translated into information that patients and their clinicians can use to make sound medical decisions.

“Right now, you can get your full genome sequenced,” said Kimberly J. Popovits, president and CEO of Genomic Health in Redwood City, “and it would fill a hard drive.” There’s no one who knows what to do with that information, she said. “My genome is only useful when I can compare it to others and learn from the overall dataset.”

With a large enough dataset, however, researchers have an increased chance of discovering the root genetic causes of currently undertreated and incurable diseases. Drug manufactures and diagnostics

developers will have new disease targets to develop products around. And doctors and patients will have the data they need to make better treatment decisions.

Popovits said that personalized medicine is where the information technology industry was when it was made up of mainframes. The first computers were massive machines, capable of some astounding operations. But computing did not become powerful – useful in a real world way – until consumers could use them to connect with others. Before desktop machines and the Internet, the technology was not relevant to everyday life.

Key players are working to ensure that a similar transition occurs quickly within personalized medicine. In November 2011, Dell announced it was donating its cloud-computing architecture to the Translational Genomics Research Institute (TGen). Capable of completing 8 trillion operations per second, the high-performance computing platform is to be used to accelerate the discovery of successful pediatric cancer treatments.

The planned TGen personalized medicine trials will focus on neuroblastoma, a cancer that attacks the sympathetic nervous system and affects heart rate, blood pressure and digestion. With tumors unique to each child, researchers need data that can provide information on how to attack individual tumors. According to Dell, cloud data could help reduce the trial and error needed to find a treatment.

No one is saying that ushering in personalized medicine is going to be easy. As with any new science, there will be missteps and dead ends. Especially in an emerging industry that depends on the convergence of disparate technologies and the participation of parties with very different objectives and constituents, there will be significant challenges to overcome. Among those that already are coming into play will be familiar to observers

of the biomedical industry: Who will pay for the development of personalized medicine? How will the new therapeutics, diagnostics and electronic data systems be approved? Who will own the intellectual property? And will developers be reimbursed?

Genomic Health’s Popovits is optimistic that the challenges will be addressed. She believes they must be. “In 2012, the U.S. government is going to spend $80 billion on cancer therapeutics – just cancer drugs.” That number does not include screenings, office visits or other treatments. “The average efficacy rate of cancer drugs is about 25 percent. So we’re going into 2012 knowing we’re going to waste $60 billion on drugs in this one year alone.”

Popovits asserts that genomics offers the opportunity to diagnose disease better and earlier and to treat it correctly the first time. She also said that payers see the value of genetic diagnostics. “A drug might only work in 10 percent to 15 percent of patients, but without a test, 100 percent of the patients will get that $50,000 drug.” Insurers certainly appreciate that running a $4,000 diagnostic is cost-effective if it enables the patient to select other therapies that will work better for him or her – saving the cost of the ineffective treatment and possibly avoiding expensive complications down the road.

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Genomic Health

Genomic Health is a molecular diagnostics company founded in August 2000 in Redwood City. From its inception, the company has been committed to improving the quality of cancer treatment decisions through the research, development and commercialization of genomic-based clinical laboratory services.

The firm’s president and CEO, Kimberly L. Popovits, explained that to achieve that goal, Genomic Health conducts sophisticated genomic research to develop clinically validated molecular diagnostics that can characterize the aggressiveness of each patient’s cancer and the likelihood of its recurrence. These answers – combined with the patient’s age, general health, comorbidities and other case-specific factors – can better inform treatment choices. More simply stated, knowing the cancer’s aggressiveness and recurrence probability can be the determining data in deciding whether to undergo chemotherapy treatment. Research has shown that the contribution of chemotherapy to five-year survival in adults was just over 2 percent of patients in the U.S.

To design and test their genetic tests, Genomic Health examines samples and medical outcomes of cancer patients diagnosed 10 or 20 years ago. After sequencing the genomes of the cancers, Genomic Health looks for molecular clues and patterns of gene expression that may explain different outcomes for patients with the same disease and comparable treatment regimens. These patterns are then incorporated into a diagnostic test. Once the prototype test is developed, the company runs a blinded clinical study against blood and tissue samples available through institutions and academic centers. (The samples are ones for which patient consent has been obtained and the records are cleansed of identifying information.) The test isolates a subset of samples that have the targeted characteristics. From there, the study is “un-blinded,” and investigators look at the subjects’ medical records to determine how accurately the test has selected the patients described in the study protocol.

To date, Genomic Health has introduced three cancer tests:

The Oncotype DX breast cancer test is the only multigene expression test commercially available that has clinical evidence validating its ability to predict the likelihood of chemotherapy benefit as well as recurrence in early-stage breast cancer. It is intended to be used by women with stage I or II, node-negative, estrogen receptor-positive (ER+) invasive breast cancer who will be treated with hormone therapy.

The Oncotype DX breast cancer test for DCIS (Ductal Carcinoma In Situ) and Pre-Invasive Breast Cancer is the first clinically validated genomic assay to provide an individualized prediction of the 10-year risk of local recurrence (DCIS or invasive carcinoma) to help guide treatment decision-making in women with ductal carcinoma in situ treated by local excision, with or without tamoxifen.

The Oncotype DX colon cancer assay provides an individual, numerical assessment of how likely colon cancer is to return in patients with stage II colon cancer following surgery to remove the tumor. The multigene expression assay examines the activity of specific genes within a patient´s tumor sample in order to provide individualized information to each person and their physician about the specific biological make-up of their colon cancer. Appropriate for people who are newly diagnosed with stage II colon cancer, the test is performed on tumor tissue removed during the original surgery. Because of this, the Oncotype DX assay does not require any additional surgery or procedures in order for a patient to get the test.

The company has additional breast and colon cancer tests, as well as programs for prostate, non-small cell lung and renal cancers plus melanoma, in its pipeline. A study involving more than 400 prostate cancer patients identified a large number of genes strongly associated with clinical recurrence of disease. Genomic Health is finalizing analytical methods to support a clinical validation study in prostate cancer in 2012 and plans to launch a test globally in 2013.

Developing a test that can address a critical dilemma in today’s standard of care in prostate cancer will require well-designed clinical studies with reproducible evidence and the ability to work with very small amounts of biopsy tissue. As with Genomic Health’s development of the Oncotype DX breast and colon cancer tests, the company expects to conduct multiple clinical studies to establish the clinical utility of its prostate cancer test.

Popovits said that the tests do not tell patients or their oncologists how to proceed. But they do provide vital information to better define the patients’ options, adding confidence to the hard choices in cancer therapies.

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Tools & Diagnostics CompaniesThe early challenge of personalized medicine was figuring out how to peak into molecular biology. Sequencing the genome was a huge hurdle and a fantastic accomplishment. Since 2003 medical device companies have developed several next generations of sequencing equipment. With each iteration, costs and speed have improved. Soon, the tools will be capable of sequencing an individual’s genome in a single day for $2,000. That compares to $3 billion and 13 years for the first full map.

A number of California companies have been at the forefront of this equipment revolution and have made instrumentation that is small and elegant for use in research labs both in private companies and public research centers. Among these Golden State innovators (in alphabetical order) are:

Gen-Probe Incorporated – Gen-Probe develops and manufactures molecular diagnostics used for diagnosing infectious diseases, screening donated blood, assessing immune response for transfusion, measuring components of the coagulation pathway, helping ensure transplant compatibility, and aiding biomedical research/drug development. Founded in 1983, Gen-Probe received the 2004 National Medal of Technology, America’s highest honor for technological innovation, for developing molecular assays and systems that help safeguard the blood supply. The company is headquartered in San Diego and employs approximately 1,300 people.

Illumina, Inc. – Illumina is a company incorporated in April 1998 that develops, manufactures and markets integrated systems for the analysis of genetic variation and biological function. Using its technologies, the company provides a line of products and services that serve the sequencing, genotyping and gene expression markets. Customers include genomic research centers, pharmaceutical companies, academic institutions, clinical research organizations and biotechnology companies. Its tools provide researchers with the

capability to perform genetic tests needed to extract medical information from advances in genomics and proteomics. The company is headquartered in San Diego and employs more than 2,100 people globally.

Life Technologies Corporation – Life Technologies, formed by the merger of Invitrogen and Applied Biosystems in 2008, manufactures both molecular diagnostic and research-use-only products to advance the fields of discovery and translational research, molecular medicine, stem cell-based therapies, food safety, animal health and 21st century forensics. Found in more than 90 percent of the world’s research labs, Life Technologies’ systems, consumables and services are designed to further scientific discoveries. The company is headquartered in Carlsbad and employs approximately 11,000 people in 160 countries.

Pacific Biosciences–PacBio designs, develops and commercializes innovative tools for biological research. The company has developed a novel approach to studying the synthesis and regulation of DNA, RNA and protein. The system enables real-time analysis of biomolecules with single molecule resolution, which has the potential to transform the understanding of biological systems. The firm is focused on the DNA sequencing market and has developed and introduced its third-generation sequencing platform. The platform has applications for clinical, basic and agricultural research, with potential uses in molecular diagnostics, drug discovery and development, food safety, forensics, biosecurity and biofuels. Founded in 2004, PacBio is based in Menlo Park and employs 337 people.

Life Science Professionals in High DemandClinical Laboratory Science (CLS) professionals are some of the most sought-after biomedical employees in California. CLSs perform diagnostic tests in hospitals, commercial reference laboratories and biotechnology companies. Laboratories that test patient samples must comply with federal regulations. In California CLSs must be licensed to practice, requiring specialized courses and a year of hands-on, clinical training.

The emergence of California’s molecular diagnostics and personalized medicine companies fuels an increasingly fierce competition to hire CLS professionals. The California Hospital Association reports 30 percent of licensed CLSs are eligible for retirement by 2015, even as the volume of diagnostic testing is growing. Hospitals estimate over 250 licensed CLS graduates are needed per year to replace retirees. Today companies and hospitals report it takes two to six months to fill open positions.

On the supply side of the workforce pipeline, recent budget pressures and retirements led clinical sites to cut student stipend support, reducing the number of training opportunities statewide. The same pressures stymied the expansion of educational programs across the state. A reinvigoration of the state’s network of employers, educational institutes, and clinical training affiliates resulted.

CSU Dominguez Hills (CSU DH) offers the only CSU program where a student can earn both a bachelor’s degree and complete the clinical internship during the senior year. In existence since 1974, the program now has 17 clinical affiliates and trains about 30 graduates per year. Nearly all, 96 percent, of CSU DH graduates are licensed in California upon graduation.

Other programs at CSU Channel Islands, CSU Sacramento, San Diego State University (SDSU) and Cal Poly Pomona offer CLS concentrations and serve as feeders to post-graduate training programs. Jane

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Bruner at CSU Sacramento, estimates that fewer than 50 percent land internships upon graduation, “due to the lack of clinical training spots in Sacramento proper. Entry into training programs has become very competitive based on grade point averages. Also, many students seem unwilling to travel far from home to train which reduces their access to training programs.”

San Francisco State University (SFSU), CSU Los Angeles and SJSU offer post-graduate CLS programs. CSU Los Angeles’ program is new; the first class started in September 2011. The campuses now have a network of over 60 accredited training affiliates statewide, from Orange County to Fresno to Santa Rosa. These three CLS programs alone expect to graduate 85 CLSs this year.

Altogether 400 generalist CLS licenses were issued in California in 2011. Approximately 200 were new graduates trained in California, a significant increase over previous years.

Sue Gayrard from the SJSU Clinical Laboratory Scientist Training Program, said, “Ninety-five percent of our CLS graduates are hired within two months of graduation from the program, most by the facility where they trained. I wish all employers knew of the benefits of becoming a training facility. At the end of

the internship year, employers will have top-notch, highly motivated young employees who have been trained by their own staff. Teaching at the bench also benefits the trainers. It renews knowledge and sharpens skills.”

To address the molecular diagnostics shortage specifically, CSU campuses partnered with BayBio, BIOCOM, accredited clinical training affiliates, and the California Community Colleges. Two coalitions, led by SJSU and SDSU, won federal and state grants in 2010 totaling over $10 million. As a result SJSU, CSU Los Angeles and Cal Poly Pomona developed new Clinical Genetic Molecular Biologist Scientist (CGMBS) programs. These post-baccalaureate programs lead to limited licensure relevant to the state’s molecular diagnostics employers.

SJSU and CSU Los Angeles’ first CGMBS students started in August 2011. SJSU students are working at Hunter Labs, Navigenics, Siemens Diagnostics, XDx or Veracyte. CSU Los Angeles students are working at City of Hope, US Labs, or Kaiser Permanente Regional Laboratories. CSU campuses continue to monitor workforce demand, recruit additional clinical training affiliates, and educate California’s next generation of clinical laboratory professionals.

Source: Susan Baxter, Ph.D., is Executive Director of CSUPERB, a role she has filled since March 2007. She is responsible for strategic planning and new initiatives related to the life sciences across the 23 campuses of the CSU system. She oversees and manages grants and awards programs for CSU faculty and students system-wide, organizes the annual CSU biotechnology symposium, develops new research and educational program opportunities, and serves as a liaison for the CSU with life sciences industry, government, philanthropic and educational partners. In addition she currently serves on boards at BIOCOM Institute, BayBio Institute, and the California Healthcare Institute. Before joining CSUPERB, Baxter served as chief operating officer at the National Center for Genome Resources, where she managed a portfolio of state- and federally-funded projects providing software for collaborative genome and population genetics research teams. Previously Baxter was vice president of research and genome analysis at GeneFormatics and a tenured researcher at the New York State Department of Health’s Wadsworth Center. Baxter began her career at Monsanto Agricultural Company where she received an Achievement Award for product development. Baxter completed postdoctoral training at University of Oregon, received her doctoral degree in chemistry from Northwestern University, and graduated with a bachelor’s degree in chemistry from the University of Virginia.

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Special section: Mobile Health (mHealth)

An emerging biomedical sector promises to change the paradigms by which our healthcare systems currently work. The space has tremendous potential and great promise. The first step to understanding it, however, may be figuring out what to call it.

mHealth or Mobile health - The delivery of healthcare services via mobile communication devices such as cell phones. Applications range from targeted text messages to promote healthy behavior to wide-scale alerts about disease outbreaks. The proliferation of cell phones across the globe, even in locales without basic healthcare infrastructure, is spurring the growth of mHealth in developing countries

Wireless health – The use of wireless technologies for personal health management and healthcare delivery. This category encompasses solutions that facilitate continuous access to healthcare information, expert advice, or therapeutic intervention enabled by ubiquitous telecommunication networks. Example applications include real-time monitoring, medication compliance and imaging.

Digital health – Consumer-based health and wellness innovations that use technology to improve health. In addition to diagnosing and battling disease, high-tech healthcare products and services will promote better managed healthcare, patient/doctor communication, shorter hospital stays and faster recovery time, lowered costs for health insurance, early prevention and detection, digital patient information records, medical attention over distances, and so much more.

Telehealth - Often used as a synonym for telemedicine, telehealth also includes non-clinical practices such as continuing medical education and nursing call centers. Telemedicine involves medical information exchanged from one site to another via electronic communication to improve patients’ health status. Videoconferencing, transmission of still images, and remote monitoring are all considered part of telemedicine. Telemedicine traditionally has been limited to fixed locations for reimbursement purposes and is often associated with extending the reach of physicians to rural or remote locations.

Source: West Wireless Health Institute and Digital Health Summit

The terms, “wireless health,” “digital health” and “mobile health” can be confounding. They are used interchangeably but are not synonymous. They sound simple and yet encompass so many different technologies and applications that they become mind boggling.

Thankfully, the emerging technology-driven health sector has a master translator at its forefront: cardiologist Eric Topol, M.D. In the keynote at CHI’s Take This Pill and Tweet Me in the Morning in August 2011, Topol demystified the space.

First he recounted some groundbreaking advances that have altered the world in our lifetime. The biomedical field has unveiled incredible breakthroughs in imaging, wireless sensors, information systems, and imaging devices. On a parallel track, technology and telecommunications firms have launched computers, the Internet, mobile phones and social networking. In the past 10 years alone, iPods, personal organizers, smart phones and tablets have become ubiquitous, often within weeks of their commercial launches. Because these new capabilities and devices have been so well received by consumers, they have altered the very way we view our world – and what we can expect of it.

They have, indeed, upended business models. The old order in publishing and motion pictures, music and the news media has been scrambled. Healthcare has been a slow adopter of the new technologies and capabilities, but the arena is ripe for an overhaul.

The U.S. currently spends almost $2.5 trillion annually on healthcare, with chronic disease accounting for 75 percent of that bill. Frighteningly, the three demographic groups most likely to experience chronic disease – the obese, the elderly and the poor – are increasing dramatically.

• Experts predict that by 2030, more than half of the U.S. population will be obese. Today, nearly 80 percent of all new diagnoses of Type 2 diabetes are directly attributable to uncontrolled obesity, and an estimated 25.8 million children and adults in the U.S. had diabetes in 2011.

• Americans over the age of 65 now comprise more than a third of our population, and their life expectancy is well into their 80s. Chronic disease prevalence increases substantially with age, as do co-morbidities. The elderly also face increased risk of depression and sleep disorders.

• According to data from 2010, 46.2 million people in the U.S. lived in poverty, the highest number in the 52 years for which the data has been published. A number of studies have linked poverty to higher levels of cancer, cardiovascular disease, diabetes and other diseases and conditions. Not coincidentally, the poor are least likely to have health insurance or to be able to afford healthcare services.

More than 100 million Americans are currently living with at least one chronic health condition. Innovations from the wireless space and medical devices sector promise new technologies, services and conveniences to help mitigate the impact of chronic disease and offset the financial, personal and public burden of this crisis. Wireless advances may also open up a brand new channel for encouraging healthful practices and delivering healthcare, while lowering healthcare costs for patients of all ages and socioeconomic status.

Wireless SensorsTopol illustrated the promise of wireless health with examples of ways it is already being used. He explained that a key component of the technology is wireless sensors. These are small devices – sometimes nano-scaled – that collect precise data via contact with the individual’s body. These have been wildly

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popular within the health and fitness market. Early examples were gadgets worn on wristbands or around the waist to indicate heart rate for real-time measurements. The products have evolved to collect, store and relay data. Nike manufactures shoes with sensors that provide GPS tracking, split times and other metrics to one’s computer or smartphone. The data can be shared with others and/or compiled to track the individual’s performance over time.

Similarly, the company Zeo markets a sleep monitoring headband that transmits data about how long and how well one has slept during the night. The resulting color-coded bar charts can be compared to an anonymous composite peer group – people of the same age, race and gender – or to a network of actual friends and family also using the device.

Other makers market similar smartphone-connected devices for measuring glucose levels, temperature, heart rate and other vitals. Topol noted that the Holter monitor, invented in 1946, has long been the standard in measuring heart activity over a sustained period. It employs six or eight electrodes taped or glued to the person’s torso with wires leading to a little box that is worn on a belt around the waist. They are uncomfortable and inconvenient – and since they cannot get wet – are limited to one or two days of monitoring at the most.

Heart specialists now routinely are using high-tech patches developed by iRythmn of San Francisco. The patch is a small ECG recorder that can provide continuous heart monitoring and recording for 14 days. The cardiologist can mail the device to the patient, who wears it for the prescribed time before mailing it back. Not only is the dataset more useful, the device’s ease of use eliminates two visits to the clinic, saving time for all involved.

In December 2011, San Diego-based CareFusion launched a wireless neurological device that captures brain wave data to diagnose and treat neurological conditions. Called the Nicolet EEG Wireless Amplifier, the device collects data that aids clinicians in their diagnosis and treatment of epilepsy, brain trauma, stroke, brain tumors, sleep dysfunction and clinical research.

With devices that connect sensors to smart phones, patients have the ability to get real time advice. Topol said that a patient experiencing palpitations or “missed” heartbeats, for example, can record the episode and relay it to a health advisor. Advisors could look at the data and save the person a trip to the emergency room – or call an ambulance and save a life.

Sensors also can be used in drug packaging or the medication itself to increase compliance. Topol said that more than 70 percent of patients do not comply with their medication regimens, which contributes to approximately 125,000 deaths each year.

ImagingIn 2016, the stethoscope – that iconic symbol of primary care – will turn 200 years old. But Topol will not be celebrating: He has already moved on. Why would anyone listen to a heart, he asks, when you can watch it instead? Topol uses a GE Vscan Ultrasound. Not only does it fit in his pocket better than the stethoscope, it enables him to see and save images of patients’ hearts within seconds. He said that the device is convenient within his practice, and offers huge benefits to paramedics in the field, to emergency room staff who need life-saving answers immediately, and to OB/GYNs checking fetal hearts.

Genomics Advances in genomic sequencing, as detailed in this report, have been phenomenal. Yet current sequencers are large instruments that cost hundreds of thousands of dollars to purchase and require expensive reagents to run. The next wave of sequencers are desktop varieties, and while they cannot yet perform full genome sequencing, they have much to offer for smaller practices and for specialty uses. They also foreshadow the day when smartphones – or a device of similar size – will come with a sequencing app. A similar instrument, Topol said, is currently in use for DNA testing.

ConvergenceThe advances in sensors, imaging and genomics make all kinds of personalized medicine options conceivable. For instance, Topol said, no technology currently in use can predict when arterial plaque might rupture, bringing on a potentially and frequently fatal heart attack. Yet when the plaque begins to crack, very distinct cells slough into the bloodstream. Topol suggested that one day physicians will sequence the plaque cells of each at-risk patient. Once the distinguishing factor of that cell is identified, a nano chip will be encoded with the tag and inserted into the patient’s body.

“It will work like the ‘check engine’ light in your car,” Topol said. When enough of the cells are detected, the sensor will signal you, via your cell phone, that you need to get to the hospital.

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Patient Advocate Profile — Eleanor Perfetto, M.D.

California native Ralph Richard Wenzel was born in San Mateo in 1943. He attended San Jose State and San Diego State and went on to become a professional football player. After four years with the Pittsburgh Steelers, Wenzel was a lineman for the San Diego Chargers in 1972 and 1973. He followed his National Football League days with high school and college coaching stints in South Dakota, North Carolina and Washington, D.C. Then, in his mid-50s, he developed mild cognitive impairment that worsened into dementia.

He was not alone among his teammates and peers in succumbing to Alzheimer’s-like dementia.

The underlying cause is a progressive, degenerative condition known as chronic traumatic encephalopathy (CTE), a major symptom of which is dementia. Not all players make it to their middle-aged years before the symptoms become apparent. Recent high-profile cases of depression, memory loss and suicidal behavior in men in their 30s and 40s have also been linked to repeated head blows and concussions – the kinds of injuries players of all types of contact sports frequently experience.

There is no positive aspect of this story for Wenzel. He was moved into an assisted care facility in 2007 when his wife, Eleanor Perfetto, Ph.D., was no longer able to care for him at home. When contacted for this report in the fall of 2011, she said that he was in the end stages of his disease, a scenario that is as hard for loved ones as for the patient himself.

Some good may have come from his story, however. Perfetto, who is senior director of evidence based strategies for Pfizer, joined with other NFL wives in pushing for financial assistance from the league for players such as their husbands. These men did not qualify for the NFL’s disability insurance plan, but thanks to the wives’ efforts, many now can receive long-term care assistance under the “88 Plan.” That was the jersey number for Baltimore Colts Hall of Fame tight end, John Mackey, whose wife spearheaded the advocacy effort on players’ behalf.

The assistance is critical, especially as former football players are atypical dementia patients. Unlike most octogenarians, these patients are large, relatively fit and well versed in blocking and tackling. Facilities equipped and willing to care for these men are both rare and expensive.

Perfetto continues to make public appearances at functions designed to educate other wives of the signs and symptoms of early onset dementia. Such knowledge may help women better assist their spouses in slowing

the progression of the disease and making longer term plans while still capable of sound decisions. Similar programs are working globally to reach soccer and hockey players as well as football players.

By raising awareness of the plight of yesterday’s athletes, advocates also are spotlighting the dangers to today’s young sports enthusiasts. The attention is coming none too soon: an estimated 250,000 concussions annually occur in U.S. high school football programs alone. The CDC estimates almost 4 million sports-related brain injuries occur each year, many going undiagnosed or untreated.

Redesigned helmets are gaining some attention for protecting young football players, although Perfetto doubts the approach will be sufficient. “I’m encouraged that someone’s paying attention to safety,” she said. “But there can be a false sense of security regarding helmets.”

She said the damage is not limited to collisions that result in concussions; the number of hits and the cumulative force of the impacts – all of which shake the brain within the skull – add up. “We need to strengthen the rules,” she said. “If players have been injured, they must be kept out of games and practice so that their brains have time to heal.” The District of Columbia and 31 states, including California, concur and have passed strong youth sports concussion safety laws since May 2009.

Perfetto does see a role for digital health in addressing the risks posed by contact sports. She mentioned technology that can be imbedded in helmets or other protective gear. The devices would measure and track the force of the impacts the player experiences in a game. Like a Geiger counter, these devices could signal when it is time for the player to get out of harm’s way. Seattle based X2 Impact is testing a high-tech mouthguard with a few college teams and plans to begin marketing it in the fall of 2012 specifically for football and hockey players. Another version is a headband for players in sports like soccer and lacrosse, in which injuries often result from violent head rotations at impact.

Dementia patients, too, could benefit from new technologies. Improved diagnostic tools may one day enable clinicians to differentiate among the types of dementia and to diagnose the condition earlier in its progression. Better monitoring devices are in development to help people live safely in their own homes for a longer time – and to assist their caregivers in the enormous task of comforting and caring for them.

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Entrepreneurs Can Survive, Thrive During Economic Downturn

These are hard times to launch a biomedical company. By necessity, the state’s universities and colleges have had to slash their budgets by hundreds of millions of dollars per year – and raise fees and tuition each term – since the recession began in late 2007. Foundations and patient advocacy associations are feeling the crunch of diminished donations and returns. Venture capitalists are rewarding the programs that are closest to commercialization, and government agencies are being bombarded with more and more applications even as Congress has eyed grant program budgets as “low-hanging fruit” for deficit cutting.

It would appear that these factors would be taking the biggest bite out of bench-scale, seed-stage innovation – the basic science and initial engineering discoveries that will yield the next big technology or breakthrough. And, indeed, there is significant concern within the industry about a dearth of early and mid-stage development programs in the next five or 10 years if the seed stage projects are not nurtured now.

Yet seed stage, back-of-the-napkin, groundbreaking new ideas are finding fertile ground in which to germinate, thanks to new biomedical incubators in communities the length of the state. And if there is a bright spot within the biomedical industry now, it burns in a tier beneath the radar of most investors, corporations, and legislators.

“We work with the two-persons-and-a-dog companies,” said Douglas Crawford, Ph.D., Associate Director of the California Institute for Quantitative Biosciences (QB3). Started in 2006, QB3’s Garage incubator at UCSF in Mission Bay was designed to “help companies advance as far as they can with the least amount of money and as soon as possible,” Crawford said. By providing ready-to-go space and equipment, incubators can cut months and hundreds of thousands of dollars out of the companies’ set-up stage; having space to discuss in their grant applications also qualifies small teams of investigators for government funding.

Unlike previous incubator models, QB3’s Garages, including the second one in Berkeley, rent out as little as 100 square feet of bench space in open, shared labs. Crawford said that in addition to enabling resident startups to get straight to work, the facilities encourage a great deal of face-to-face networking among scientists and developers. “Their ability to help each other and the peer-to-peer have been hugely beneficial,” he said.

Crawford said he has been surprised by two aspects of QB3’s incubator experience. The first is how successful the startups have been. “Of the first six companies [in the program], four closed IPOs,” he said. Another was acquired for $25 million. Combined, the QB3 startups have raised more than $230 million since 2006, and only four of the nearly 60 total companies “went completely belly up.”

The other surprise, Crawford noted, is in the volume and caliber of innovation among the smallest startups. The entrepreneurs “continue to create companies with very ambitious goals,” he said, and they approach QB3 with an unexpected depth of leadership and sophistication. The QB3 garages are mandated with stimulating innovation through nurturing the discoveries and inventions with University of California connections, so they work with a number of university spinouts and serial entrepreneurs from UC’s faculty, students and staff.

The ongoing cutbacks within industry, however, also has increased participation by “diaspora from pharma” as Crawford terms them. “Two days after Amgen downsized, I had two [of the company’s laid off] scientists call me.”

To aid them and others outside the UC fold, QB3 founded more traditional Innovation Centers that are open to life sciences entrepreneurs with or without UC connections. Such participants bring industry experience and knowhow into the incubators, further informing the business plans and moxie of the other participants.

California’s incubators do not offer free space, but to be competitive for Small Business Innovation Research (SBIR) grants, or to make angel or private investor monies stretch the furthest, researchers need to have access to a lab and equipment with which to work. A wide variety of California incubators are helping innovators of every stripe pursue the development of their ideas.

QB3 Garages and Innovation Centers – Biomedical Startups – one of each in Mission Bay and Berkeley

QB3 created two incubators that allow very small companies access to modern laboratory space in close proximity to QB3 investigators. These incubators, the QB3 Garage@UCSF and the QB3 Garage@Berkeley, are the biological laboratory equivalent of garages: small spaces for entrepreneurs to lay the foundations for companies that may spearhead new industries. Space, which is open only to spin-outs from University of California laboratories, is limited and available at market rates for pre-commercial development for periods of up to two years.

QB3 also has teamed with private partners to offer microspace in a growing network throughout the Bay Area. Interested life science entrepreneurs may currently rent space in the QB3/Mission Bay Innovation Center, operated by FibroGen, and the QB3 East Bay Innovation Center, operated by Wareham Development.

Network tenants enjoy working in close proximity to other innovators in related areas as well as introductions to UC researchers for collaborations. The centers also host seminars and symposia as well as access to an ecosystem of investors, service providers, and entrepreneurs to teach participants the critical steps necessary to successfully start and operate a business.

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Momentum BioSciences – UCLA and CalTech Related Startups – Culver City

Frustrated with seeing LA-based inventions move to the more established biotech hubs of San Francisco and San Diego, UCLA and Caltech faculty created Momentum BioSciences as a local home for entrepreneurial academics and their new ideas. To date, the 6,500-square-foot facility has housed over 10 companies in a variety of life and physical science disciplines.

Located in Culver City, the incubator rents laboratory space and support to start-up ventures interested in moving their technology from academia to industry. Features of the space include a comprehensive wet lab facility with shared office and meeting space, allowing scientists to focus time and resources on proof-of-concept and product development. The incubator also can assist with such back office services as intellectual property management, technology transfer negotiation, website and other marketing consultation and business development advice.

Rock Health – Interactive Health Developers – San Francisco

More than an incubator, Rock Health calls itself a “seed-accelerator” for digital health startups. The non-profit organization provides capital, mentorship, operational support and office space in San Francisco to applicants selected for an intensive five-month program. (The first began in June 2011 with a second group of teams scheduled to start in January 2012.)

To qualify, applicants must have two or more founders, one of whom is a developer. They also should be early stage companies that have not yet received venture capital funding, and the team members must be able to work onsite at Rock Health’s San Francisco facility.

Selected teams receive a $20,000 startup grant, office space amid other like-minded interactive health entrepreneurs, and expert advice from Rock Health partners. These outside experts include the Mayo Clinic Center for Innovation, Harvard Medical School, UCSF, Cincinnati Childrens Hospital, the law firm of Fenwick & West, and Cooper Design. In addition, Rock Health sets each team up with a mentor and hosts weekly workshops from experts in design, health policy, lean startup methodology, financing, and more. (The incubator also offers a Members Program that offers all of the benefits except for the grant money and full-time office space.)

Pasadena Bioscience Collaborative – Biotechnology and Biopharmaceutical Startups – San Gabriel Valley

To support the growing biotechnology industry in the San Gabriel Valley, the Pasadena Bioscience Collaborative (PBC) is a non-profit organization that provides a 6,000-square-foot, shared-use wetlab facility. In addition to scientific equipment, tenants have access to discounted supplies and services; training resources; and scientific, technical, legal, financial and business advisors. Through its collaborations with CSU, Pasadena City College and CalTech, the incubator can match tenants with lab technicians and interns from the nearby biotechnology workforce training programs.

Tenants have the opportunity to collaborate with and learn from the other tenants. In addition, they gain automatic membership in the Southern California Biomedical Council and are introduced to local associations and investors that might further the development of their products.

Janssen Labs – Biomedical Startups – San Diego

California also has a growing number of innovation centers funded by pharmaceutical companies. Much of the corporations’ R&D pipelines are fed by new experimental drugs and prototype devices from smaller biomedical firms, so encouraging innovation benefits the full breadth of the industry.

Johnson & Johnson announced one of the newest pharma-sponsored incubators in October 2011. The company has converted 30,000 square feet of research and office space at its La Jolla-based West Coast Research Center to house start-up firms. Called Janssen Labs at San Diego, the flexible lab environment, critical equipment and site services and facilities will provide start-up companies with a cost-efficient way to advance their scientific work.

Diego Miralles, M.D., site head for the West Coast Research Center, said that the center includes suites for startups ranging from two people to 15 and can accommodate a maximum of 18 to 20 companies. Companies will pay a monthly fee, on a month-to-month basis, and will have rapid access to flexible, turnkey modular wet lab units, as well as core research equipment and administrative business equipment.

Miralles said there are five criteria for companies interested in renting space from Janssen Labs. Their idea should be scientifically or technologically sound. They should have a good management team or approach. Their potential product should address an unmet medical need. They should have the solvency to pay their rent. And, lastly, they must be pursuing new technologies and research platforms “that might be remotely interesting to J&J,” Miralles said.

A strong selling point for launching a startup at Janssen Labs is the researchers’ continued full ownership of their intellectual property. Miralles emphasized that being housed at the center does not

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grant J&J any stake in the companies nor will the companies have a guaranteed future affiliation with J&J. Prescience International, an external firm that specializes in setting up and operating life sciences innovation centers, will manage the center. Still, its close proximity will enable J&J to hear about interesting projects in the pipeline, so licensing deals or collaborations are not out of the question.

Irvine Incubation Center – High-Tech Startups – Irvine

Opened in the University Research Park in Irvine in August 2010, the Irvine Incubation Center is a non-profit incubator supported by UCI, the Irvine Chamber of Commerce and the City of Irvine. The center is highly flexible and provides full-time (resident) or occasional (as-needed) space to researchers and developers who are testing an idea or launching a company. Some temporary tenants have been teams from established corporations needing a separate space to test run a new project. Ideas have included potential biomedical, medtech, IT, telecommunications and digital media products.

In addition to space priced on a sliding scale, the center gives its participants access to business development and product planning programs along with free clinics for legal and financial business issues. The center’s objectives are to “lower barriers and increase speed” to advance innovative companies to their next level of development.

Bayer HealthCare’s Innovation Center – Partnered Biomedical Programs – Mission Bay

Bayer HealthCare is combining the incubator concept with its business development efforts in a significant way in Mission Bay. Terry Hermiston, Ph.D., who heads the U.S. Innovation Center, said the site currently houses about 70 Bayer researchers. In addition to driving Bayer’s hematology research

program, which is focused on coagulation factors and the discovery of novel biologic drug candidates, the group is nurturing the center’s Science Hub.

The Science Hub is the incubator piece, and Christopher Haskell, Ph.D., who heads that program, said that the company is actively identifying and facilitating collaborations in the areas of Bayer HealthCare’s research focus: oncology, cardiology and hematology, women’s healthcare, diagnostic imaging, and beyond. He said that the center intends to work with early stage developers of therapeutics, technology platforms and animal models in collaborations that take both parties – and the potential products – further than either company could go alone.

Bayer’s U.S. Innovation Center is located in the heart of the growing biomedical community adjacent to UCSF’s Mission Bay campus and occupies approximately 49,000 square feet of leased state-of-the-art lab and administrative space. Haskell said that the Science Hub is flexible and can work with all kinds of companies and innovators. In fact, through it, Bayer forged a master agreement with UCSF, smoothing the way for collaborations with faculty and researchers there.

“In this economic climate,” Hermiston said, “everybody has to be more creative in how they leverage resources.” Often that starts with figuring out what your organization does best and where it needs help. Teaming startup companies with the Science Hub’s equipment and researchers, and leveraging Bayer’s global resources as needed, is the Innovation Center’s strategy for jumpstarting translational science in a very meaningful and successful way.

San Diego Entrepreneurs Exchange – Startup Cooperative – San Diego

“Money is always a challenge,” said serial entrepreneur Scott Struthers, Ph.D., noting that now financing is harder than ever. “Access to capital has changed. There’s been a shift to later and later stage investments. And the venture capitalist industry itself is shrinking.”

Hard times call for new approaches. The model that is thriving in San Diego, Struthers said, is “bootstrapping,” or figuring out how to make the resources one has go further and do more. Sharing resources and lessons learned is a key component of that.

Struthers is a founding organizing committee member of San Diego Entrepreneurs Exchange (SDEE), an “all-volunteer organization by and for entrepreneurs.” Formed in 2009, SDEE as a nonprofit 501c3 organization that brings early stage startups together to share ideas, space and equipment; sponsors networking and educational programs; and speaks up on behalf of the community.

Members have teamed together to submit grant applications. A few collaborated to buy a screening library, and they have been able to purchase equipment or supplies from companies in the process of downsizing or liquidating. Struthers said that members who have launched companies previously are often called upon and happy to help with referrals, advice and reviews.

Originally formed by life sciences companies, SDEE is expanding to include high tech and interactive technology startups as well.

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Biomedical research funding in the government arena is feeling the same pressures as private and public capital. The government has less money and more applicants, so startups and mid-sized companies seeking federal funding have to have an edge, according to Danielle Peters of the Washington, D.C.-based Fabiani & Company.

Her organization works with life sciences and other companies to identify and secure appropriate grants. The first obstacle to overcome, she said, can be the firms’ perception of Washington.

“What companies outside of the Beltway see is the inability of those in government to reach consensus, particularly within the current funding climate,” she said. Yet Fabiani & Co. spends a lot of time talking with funding officers and knows that there are many opportunities available if you know where to look.

The NIH claims the deepest pockets for funding biomedical research, and the key to finding a niche among the 27 institutes and centers is to pay attention to new directions. For instance, translational research – moving therapeutics, devices and diagnostics more efficiently from idea to market – continues to gain momentum with NIH.

In fact, the organization announced the creation of the National Center for Advancing Translations Sciences (NCATS) in December 2011. The Center is intended to re-engineer the process of translating scientific discoveries into new drugs, diagnostics and devices. An early example of the type of projects the center will take on is an initiative between NIH, the Defense Advanced Research Projects Agency (DARPA), and the FDA. Together, the groups intend to develop cutting-edge chip technology that will enable researchers to screen for safe and effective drugs far more swiftly and efficiently than current methods. The hypothesis is that a great deal of time and money can be saved testing drug safety and effectiveness much earlier in the process. The project could also enhance the predictability of the regulatory approval process in the U.S.

Peters said that one feature of the new center will be its clinical trials and contract manufacturing capabilities. Not only will securing that work provide opportunities for California’s universities, contract research organizations (CROs) and manufacturers, access to those capabilities will enable the state’s biomedical companies to more quickly advance their programs.

Another type of direction change that can herald new opportunities, Peters said, is the closure or discontinuation of programs. “The institutes at NIH fund all kinds of consortia for five year terms,” she said. Although the NIH recently has not renewed funding for its nanotechnology centers for the next five years, “…that doesn’t mean there’s less commitment to nano medicine,” Peters said. “It only signals a reprioritizing or restructuring. Companies should stay engaged and see what’s opening up.”

She offered the same advice regarding the re-launch of NIH’s Rapid Access to Interventional Development (RAID) program. Details should be out soon about the National Center for Translational Therapeutics’ (NCTT’s) new rendition of the program – Bridging Interventional Development Gaps (BrIDGs). BrIDGs is intended to advance promising therapies into the clinic by providing in-kind services to overcome late stage preclinical therapy development obstacles. The difference is that BrIDGs promises to offer a faster application and approval process than did RAID.

Changes underway in the war effort also signal opportunities for companies, Peters said. As the troops come home, the Department of Defense (DoD) will be funding more programs to treat chronic rather than acute pain, for instance. Similarly, as the government builds infrastructure for public health preparedness – a system to respond to a flu pandemic or unknown biological threat, for instance – it will need the rapid response capabilities of diagnostics, devices and vaccine developers and service providers.

Other federal agencies beyond the NIH that offer funding for biomedical projects include:

• Congressionally Directed Medical Research Programs – Managed under the US Army Medical Research & Material Command, CDMRP has awarded $6.6 billion for nearly 11,000 research programs since its inception in 1992. Awards are made for disease-specific projects.

• Department of Advanced Research Projects Agency – The DoD’s “primary innovation engine,” DARPA was established in 1958 ensure national security and military superiority through technology. The department, which supports research in biology, medicine, chemistry, engineering, neurosciences and more, makes awards beyond its SBIR/STTR grants.

• Defense Threat Reduction Agency – Charged with countering the threat of weapons of mass destruction, this DoD department funds basic biological and medical research among its many programs.

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• Department of Veteran Affairs – Focuses on more advanced projects. Companies can partner with VA investigators to conduct pre-clinical and clinical programs. All VA centers are teamed with an academic research center, expanding the collaborative opportunities.

• National Science Foundation (NSF) – Created by Congress in 1950 “to promote the progress of science; to advance the national health, prosperity, and welfare; to secure the national defense…,” the NSF is the funding source for about 20 percent of all federally supported basic research conducted by America’s colleges and universities

Patient Advocacy Foundation FundingThere is no question that the competition for NIH grant monies grows fiercer even as the funds themselves are pared down. In every grant cycle, many projects find themselves sidelined with solid scores but no money.

The National Health Council (NHC), a coalition of about 50 of the nation’s leading patient advocacy groups and as many other health-related organizations, recently launched a portal to match NIH-vetted projects and their investigators with patient advocacy group funding. The projects of most interest are those aimed at specific chronic diseases and disabilities.

Located at healthresearchfunding.org, the portal allows investigators to register at the site and submit their abstracts. Once registered, they can search the database for organizations that fund research. Similarly, NHC member patient advocacy organizations can review the investigators’ abstracts for projects that will further their missions. Eventually, the clearinghouse is to be opened to all NHC member organizations, which includes major pharmaceutical, medical device, health insurance and biotechnology companies, bringing corporate capital into the mix, too.

“We see it as still being very, very tough for companies,” Peters said of the financial realities of the biomedical industry. “The smart companies are looking at a wider range of funding sources. Those will be the companies that weather the storm and be in a very strong position” once the economy turns around. She said government funding is a critical and viable component amongst companies’ options and often can be the key to building value and getting positioned for venture capitalist or corporate assistance.

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UC, CSU campuses, and Research Institutions

UC, CSU campuses, and Research Institutions

AIDS Healthcare Foundation

AIDS Research Alliance (ARA)

American Institute of Biological Sciences (AIBS)

Beckman Laser Institute

Blood Centers of the Pacific

Blood Systems Research Institute

Brentwood Biomedical Research Institute

Buck Institute for Age Research

Cal Poly Pomona

California Institute for Medical Research

California Institute for Regenerative Medicine

California Institute of Technology (Caltech)

California Pacific Medical Center Research Inst.

California Polytechnic State Univ. San Luis Obispo

California State University

CASSS

Cedars-Sinai Health System

Faster Cures

Center for Bio/Pharm & Biodevice Development

Center for Neurologic Study

Chapman University-Schmid College of Sciences

Charles R. Drew University of Medicine & Science

Children’s Hospital Los Angeles

Children’s Hospital Oakland Research Institute

Children’s Hospital of Orange County

City of Hope

CSU, Fresno

CSU, Fullerton

CSU, Hayward

CSU, Long Beach

CSU, Los Angeles

CSU, Northridge

CSU, Sacramento

Dept. of Energy Joint Genome Institute

East Bay Economic Development Alliance

Ernest Gallo Clinic and Research Center

Friends Research Institute - West

Gordon and Betty Moore Foundation

House Ear Institute

Human BioMolecular Research Institute

Huntington Medical Research Institutes

Institute for One World Health

Ischemia Research and Education Foundation

Keck Graduate Institute of Applied Life Sciences

La Jolla Institute for Allergy and Immunology

Lawrence Berkeley National Laboratory

Lawrence Livermore National Laboratory

Loma Linda Univ. Adventist Health Sciences Center

Los Angeles Biomedical Research Institute

Mesothelioma Applied Research Foundation (MARF)

Molecular Sciences Institute

Northern California Cancer Center

Northern California Inst. For Research & Education

OCTANe

Osaka University

Parkinson’s Institute

Preventative Medicine Research Institute (PMRI)

Rees-Stealy Research Foundation

Regenerative Sciences Institute

San Diego State University

San Diego Supercomputer Center

San Jose State University

Sanford Consortium for Regenerative Medicine

Sanford-Burnham Medical Research Institute

Sansum Diabetes Research Institute

Santa Clara University

SFSU/Center for Biomedical Laboratory Science

Smith Kettlewell Eye Research Institute

Southern California Biotechnology Center

SRI International

Stanford University

Sutter Institute for Medical Research

The J. David Gladstone Institutes

The Jackson Laboratory

The Neurosciences Institute

The Parkinson’s Institute

The Public Health Institute

The Saban Research Institute of Childrens Hospital

The Salk Institute for Biological Studies

The Sam & Rose Stein Inst. for Research on Aging

The Scripps Research Institute

The Scripps-PARC Institute

The UC Davis MIND Institute

Torrey Pines Institute for Molecular Studies

UC Systemwide Biotechnology Research

UC, Berkeley

UC, Davis

UC, Irvine

UC, Los Angeles

UC, Riverside

UC, San Diego

UC, San Francisco

UC, Santa Barbara

UC, Santa Cruz

Union of Concerned Scientists (UCS)

University of California

University of San Diego

University of Southern California

Vaccine Research Institute of San Diego

West Wireless Health Institute

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Methodology

Employment, Wages, and Industry Impacts DataThe data used to estimate employment and wages in California’s biomedical industry are made available by the Bureau of Labor Statistics (BLS) Quarterly Census of Employment and Wages

(QCEW), available at http://www.bls.gov/cew/. The 2010 data reflected in this report were collected in the fall of 2011. Data for prior years match the statistics reported in the California Biomedical Industry 2011 Report, with the exception of March employment totals, in order to ensure comparability between reports. March employment totals for prior years have been updated. The March employment totals in the current year rely on first quarter data released by the BLS. The March totals are then updated when full year data becomes available.

The QCEW is a near comprehensive census of employment and wage information at the national, state, and county levels for workers covered by state unemployment insurance laws and federal workers covered by the Unemployment Compensation for Federal Employees program. It does not include the self-employed, unpaid family workers, or private household employees. Jobs are counted regardless of full-time or part-time status. Individuals who hold more than one job may be counted more than once.

In order to protect the confidentiality of firms’ information, the Bureau of Labor Statistics does not disclose data that would be easily identifiable to individual participating companies. Given the smaller number of establishments that can occur at the county level, county-level totals may not represent the full number of employment positions and wages for each industry. These positions would be included by the BLS in aggregated state-level data.

For reports prior to 2009, a review of employment data from company-specific Securities and Exchange Commission (SEC) filings was also used to estimate employment in the biomedical industry, specifically for the medical device, instruments, and diagnostics sector. The results of the review were carried forward in this year’s report. Company filings with the SEC can be obtained from the EDGAR database available at http://www.sec.gov/edgar/ searchedgar/webusers.htm.

The sectors of the biomedical industry that are used in this analysis are comprised of several North American Industry Classification System (NAICS) codes that are assigned to sectors based off the description of the NAICS provided by the U.S. Census Bureau. For the QCEW, companies are assigned a single NAICS code by state workforce agencies, and therefore a company that manufactures both

pharmaceuticals and medical devices would only be classified in one of these sectors depending on which is the primary production of the company at each establishment.

The following table displays the NAICS codes used to define the biomedical industry in California, along with the portion of the code attributable to the industry.

NAICS Code 2007 NAICS Definition Sector % Used

611 Educational Services (Privately Owned) Academic Research 2%

611 Educational Services (State Owned) Academic Research 19%

54171 R&D in the Physical, Engineering, and Life Sciences

Biopharmaceuticals 31%

325411 Medicinal and Botanical Mfg Biopharmaceuticals 100%

325412 Pharmaceutical Preparation Mfg Biopharmaceuticals 100%

325413 In-Vitro Diagnostic Substance Mfg Biopharmaceuticals 100%

325414 Biological Product (except Diagnostic) Mfg Biopharmaceuticals 100%

541380 Testing Laboratories Biopharmaceuticals 20%

327213 Glass Container Mfg Laboratory Services 10%

621410 Family Planning Centers Laboratory Services 1.01%

621492 Kidney Dialysis Centers Laboratory Services 1%

621511 Medical Laboratories Laboratory Services 25%

621991 Blood and Organ Banks Laboratory Services 1%

621999 All Other Miscellaneous Ambulatory Health Care Services

Laboratory Services 1%

322291 Sanitary Paper Product Mfg Med Devices, Inst, & Diag* 7%

333314 Optical Instrument and Lens Mfg Med Devices, Inst, & Diag* 100%

334416 Electronic Coil, Transformer, and Oth Inductor Mfg

Med Devices, Inst, & Diag* 0.4%

334510 Electromedical and Electrotherapeutic Apparatus Mgf

Med Devices, Inst, & Diag* 99%

334512 Automatic Environmental Control Mfg for Residential, Commercial, and Appliance Use


334513 Inst and Related Products Mfg for Measuring, Displaying, and Controlling Industrial Process Variables


334514 Totalizing Fluid Meter and Counting Device Mfg


334515 Instrument Mfg for Measuring and Testing Electricity and Electrical Signals


334516 Analytical Laboratory Instrument Mfg Med Devices, Inst, & Diag* 100%

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NAICS Code 2007 NAICS Definition Sector % Used

334517 Irradiation Apparatus Mfg Med Devices, Inst, & Diag* 100%

334519 Other Measuring and Controlling Device Mfg Med Devices, Inst, & Diag* 10%

339112 Surgical and Medical Instrument Mfg Med Devices, Inst, & Diag* 100%

339113 Surgical Appliance and Supplies Mfg Med Devices, Inst, & Diag* 96%

339114 Dental Equipment and Supplies Mfg Med Devices, Inst, & Diag* 100%

339115 Ophthalmic Goods Mfg Med Devices, Inst, & Diag* 75%

423450 Medical, Dental, and Hospital Equip and Supplies Merchant Wholesalers

Wholesale Trade 100%

423460 Ophthalmic Goods Merchant Wholesalers Wholesale Trade 50%

424210 Drugs and Druggists Sundries Merchant Wholesalers

Wholesale Trade 20%

446199 All Other Health and Personal Care Stores Wholesale Trade 31%

*Note: Approximately 36,000 jobs were additionally added to the medical devices, instruments, and diagnostics sector based on a review of SEC filings.

MethodologyThe most recent full year for which wage and employment data were available for the publication of this report was 2010. QCEW employment and wage data are identified for selected NAICS codes used to define the biomedical industry. The relevant NAICS code data are then multiplied by the percent of the biomedical industry that is represented in the NAICS code, as derived by PwC from Census Bureau data (see table above).

This methodology is identical to the process used in the California Biomedical Industry 2009, 2010, and 2011 reports, so the results in all reports are directly comparable. Prior to the Biomedical Industry 2009 report, PwC estimated narrow industry categories based on broader industry statistics, such as employment data from the California Employment Development Department at the three- and four-digit NAICS code level, that were available in the most recent year. The current QCEW-based methodology provides a more accurate portrait of California’s biomedical industry but makes this report and the 2009, 2010, and 2011 reports incomparable to earlier publications.

For the 2011 report, PwC adjusted wages for the biopharmaceutical sector at the state level due to an anomaly in the QCEW wage data reported for the first quarter of 2009. For the adjustment, PwC replaced the reported first quarter wage data with the average wage across the second, third, and fourth quarters weighted by average quarterly employment. This correction was continued for the 2012 report.

Investment DataData on venture capital investment nationally and by state were collected from The MoneyTree™ Report from PricewaterhouseCoopers and the National Venture Capital Association based on data provided by Thomson Reuters. The 2010 data reflected in this report were collected in the fall of 2010. Data for prior years are from the California BiomedicalIndustry 2010 Report in order to ensure comparability between reports.

NIH Grants DataData for this analysis come from the National Institutes of Health Office of Extramural Research, available at http://grants.nih.gov/grants/oer.htm. The 2010 data do not include research and development contracts due to the unavailability of that data at the time of publication of this report. Prior year’s data may also not include research and development contracts to ensure comparability across years. Also, NIH grants funded under the American Recovery and Reinvestment Act of 2009 (ARRA) are documented separately and are not included in funding totals unless otherwise noted.

The data include all awards to California from NIH, some of which do not necessarily fund basic biomedical research. For example, some grants were used for training programs and projects that are designed to support the research training of scientists for careers in the biomedical and behavioral sciences, as well as to help professional schools to establish, expand, or improve programs of continuing professional education. Other grants were used to fund health policy or behavioral science research. Despite these caveats, overall the NIH grant funding demonstrates the federal commitment to health science research in California. The 2009 data reflected in this report were collected in the fall of 2010. Data for prior years are from the California Biomedical Industry 2010 Report in order to ensure comparability between reports.

The data come in two forms:

1. State and Congressional District: http://report.nih.gov/award/organizations.cfm

2. NIH SBIR and STTR grants: http://grants.nih.gov/grants/ Funding/award_data.htm

Data on NIH grants funded under ARRA are available at: http://report.nih.gov/recovery/

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