Dean Barber

If You Ain’t Got the Do Re Mi

In Site Selection on December 7, 2014 at 10:05 am

So I missed the party, but from what my wife told me, it was one wang dang doodle, minus any drunken revelry as this was a corporate affair.

Just two blocks from my home in Legacy Town Center, a fufu neighborhood in Plano, Texas, Toyota held a big “Howdy Texas” celebration, as its future North American headquarters will be about a mile away.

Before I left for a business trip to Colorado, I saw a large stage being erected in Bishop Park indicating this was not going to be your typical block party. Held for eight hours on Oct. 27, there was music, food and celebrities. Heck, Dallas Cowboy’s legend Roger Staubach was there.

What was a big win for Texas was a big loss for California, no doubt. Now, I have written a number of blogs critical of California’s business climate. I have to call it like I see it, which is what you want.

And believe or not, I got kudos from a number of economic developers in California. Wrote one exasperated professional: “We all know what the problem is, so how do we fix it?”

A coup d’état of state government is not the answer. That would be quite illegal. Therefore, the ballot box and lobbying will be your only recourse. Good luck.

Now I don’t take anything back about what I’ve said about the Golden State having a dismal tax and regulatory environment. That’s just a fact, Jack. Year after year, polled CEO’s put California in the cellar for business climate, which should tell you something.

The Promised Land

But despite all that, California is the Promised Land for biotech. South San Francisco is the birthplace of biotechnology with most industry observers agreeing that Genentech, founded in 1976, to be the pioneer in the field. San Diego’s biotech legacy began two years later with Hybritech, which would subsequently lead to more than 50 spinoffs.

Today, California is a diverse hub for life science research, development and educational activities, as well as the manufacturing of biopharmaceuticals and medical devices used by patients around the world.

The industry accounts for $258 billion in economic activity in California, supporting more than 1 million jobs that pay $76 billion in annual salaries, wages, and benefits, according to a joint report from BioCom, representing Southern California’s life science community, and BayBio, its counterpart in Northern California.

In its 2014 annual report, the California Healthcare Institute pegs the number of people directly employed in the biomedical industry at 270,000, with an average wage of more than $100,000. There are about 2,600 biotech firms in the state and that number continues to grow.

CHI says nearly 500,000 people are indirectly employed by the industry. They are computer programmers, construction workers, consultants, delivery people, attorneys, and accountants.

So why California? Why has biotech prospered and grown despite the onerous tax and regulatory climate? Well, I think it comes down to brainpower, money and, yes, even the weather. Let’s tackle each briefly.

Brains Galore

California’s biotech industry exists largely because of its universities. According to the 2014 Academic Ranking of World Universities (ARWU), three California schools – Stanford, UC Berkeley, and California Institute of Technology – rank among the top 10 in the world.

UCLA, UC San Diego, UC San Francisco, UC Santa Barbara, UC Irvine, UC Davis and USC rank in the top 100 universities in the world. Together, California universities received more than $3 billion in grant money from the National Institute of Health, with UC San Francisco, UC San Diego, Stanford and UCLA each topping $300 million.

Those research dollars provide a seed for basic research which in turn finds its way to either established biomedical companies or inspires the creation of new startup companies. In short, the schools are providing a future supply chain of scientific talent, scientists who will transform their work into new drugs, devices and diagnostics.

“A lot of people move to California for their schooling and will never leave,” said Mark A. Winham, chief operating officer of San Diego-based Millennium Laboratories. ”A biotech industry grew up in the Bay area and San Diego because the universities and research institutes were there providing a talent pool.”

There has developed in California a biotech industry ecosystem that accepts and even expects change, said Gerry Proehl, former president and CEO of Santarus Inc., and whose company was acquired in January by Salix Pharmaceuticals.

“Folks start with one company and it gets sold and those people go on and they start other biotech companies. It just continues to perpetuate itself,” said Proehl.

“I know that when we announced that we were selling the company, we talked to our employees and a lot of them said they had been through this two or three times before. They said it was no big deal and that they would find another opportunity in San Diego.”

Follow the Money

So you got big brains coming up with big ideas emanating from world-class universities that are subsequently spun off into startup companies.

A good indicator of California‘s preeminence in biotech is the money that investors are willing to sink into new startups with the hopes of hitting pay dirt. Welcome to the world of venture capital.

California received about 45 percent all biopharmaceutical and medical device venture capital invested in the United States in 2013, according to CHI. And San Francisco, ranked No. 1 with the largest annual influx of VC dollars last year at $1.15 billion, according to the National Venture Capital Association.

Not surprisingly, many of the VC firms, are based or have offices in San Francisco and San Diego. There they find it most convenient to be represented on a number of California biotech companies’ board of directors, where travel time is thereby minimized.

“Many of these VC firms are in California and are looking in our backyard for investments in biotech companies of the future,” said Todd Gillenwater, president and CEO of CHI. “Many of the partners in the VC firms came from the biotech community in they continue to be a part of it. They understand what it takes.”

To give credit where credit is due, Gov. Jerry Brown’s administration has provided sales and use tax exemptions for research and manufacturing for the life sciences will provide incentives to grow and stay in California.

Gov. Brown signed a bill into law that removes duplicative inspections of biotech facilities in the state, providing relief for companies that are managing some of the highest infrastructure, real estate, and labor costs in the country.

Weathering the Sunshine Tax

But despite the higher costs of doing of doing business and living in California, it is the preferred choice of many in the biotch industry, partly because of the weather and quality of life there. And that cluster of talent and money.

“Some people call it, tongue in cheek, the ‘sunshine tax,’ “ said Jennifer Landress, senior vice president and chief operating officer of BioCom. “There definitely are some higher costs associated with doing business in California, but on the flip side there are a lot of benefits that you cannot replicate in other regions.”

Said Winham with San-Diego based Millennium, “It’s both a lifestyle choice and a business choice.”

An Okie’s Lament

When I think of California, I think of a physically beautiful place, and where some companies have done very, very well, many of which got their starts in humble garages. You may have heard of one. Apple, the largest company in the world, is now valued at more than $700 billion.

But I also think of Woody Guthrie’s folk song, “Do Re Mi,” lamenting the Okie’s Dust Bowl migration to California in the 1930s.

“California is a garden of Eden, a paradise to live in or see;
But believe it or not, you won’t find it so hot,
If you ain’t got the do re mi.”

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help.

If you liked what you saw here, invite me to speak at your next meeting.

© Unauthorized use is prohibited. Excerpts and links may be used with permission.

  1. I’ll take advantage of this (excellent) post to cynically observe, “There is no natural or manmade advantage that cannot be crushed through diligent ill-management.” While California still retains some excellent advantages, the, apparent, strategic thrust of the California government to force all business and industry out of the state seems to be moving forward apace. If you couple that with the increasing population (disproportionately on government assistance) and the ongoing multi-year drought, California may, within this decade, prove my cynicism.

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