Start-ups form the bedrock of new biotech industry and jobs

With jobs being lost in traditional industries like automotive (Rover) and even telecoms (Marconi), policy-makers should take some important notes from a recent study regarding the biotech industry in California. Nearly all leading states and countries have developed some form of policies and incentive programmes to attract technology firms, but the solution may be found from the hidden assets at local universities and research labs. A study released by the Public Policy Institute of California (PPIC) states that the biotech industry’s very distinct and complex requirements are best met by existing and new state assets combined with a healthy venture capital market.

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The study found that it is start-up firms that create the largest share of biotech jobs. Since 1992, over half (52%) of the state of California’s total biotech job growth has come from start-up companies, while a negligible share (0.6%) has come from established firms moving into the state. But what about those moving out? Between 1990 and 2001, more firms left than moved in; yet the overall employment effects were not negative – California lost 815 biotech jobs from exiting firms but added 1,739 jobs from firms moving in.

To give even more perspective, the number of jobs added from start-ups during this period was 23,047. “As long as scientists continue to create new firms, and our rich academic environment persists, it’s difficult to see California losing its edge or suffering a flight of biotech companies,” says Junfu Zhang, who co authored the report with PPIC research associate Nikesh Patel.

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

“Academic research is the very source of biotech innovation and creation – and this transfer of knowledge from campuses to business tends to take place locally,” says PPIC research fellow “It is essential to consider academia when assessing where industry strongholds will develop.”

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

The Chilli perspective We have long advocated the view that it is start-ups and small firms that create the most jobs and improvement in productivity. Start-ups need the right environment, encouragement and competitive capital access before they can form a critical mass - and for that the correct public policy is very critical. As the Californian study has demonstrated, most of the new start-ups in biotech were created from university spinouts, and academics tend to start new firms at locations very near the universities, where they have access to skilled staff and facilities.

The passing of Proposition 71 sends a serious signal to entrepreneurs: that the state is serious about this industry and will support it through a massive injection of $3 billion new capital in the sector. Some of this will filter out to new and existing start-ups, as Federal rules require that a percentage of the budget must be allocated to small firms. The policy-makers also recognised that for an industry sector to have a critical mass, you must go all the way. You cannot do it in half measures by handing out small amounts here and there and changing policies mid-stream. Meanwhile, after four years of continuous discussions about market failures in the seed stage funding, we still have no concrete coherent plans.

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