California Biomedical Industry Report 2015

Peter J. Claude

Partner, Pharmaceutical & Life Sciences Advisory

PwC

Todd E. Gillenwater

President & CEO

California Healthcare Institute

Jerry Brown

Governor of California

Letter from the GovernorCalifornia leads the nation in the biomedical industry, supporting highly skilled and well-paying jobs in communities across the state. The sector drives improvements in healthcare through the development of new medicines and technologies.

Last year, California enacted several laws to strengthen our life sciences community and maintain our competitive position, including AB 93 and SB 90, which made targeted investments in the sector. This year’s state budget included 20 research grants to support the federal BRAIN Initiative to map the human brain. The budget also set aside $3 million to advance the potential of precision medicine.

The state of California is committed to supporting innovation and fostering the biomedical industry. I look forward to continuing to work with leaders from companies and research institutions throughout the state to find solutions that advance new medical technologies, strengthen our economy and contribute to a healthier society.

Sincerely,

EDMUND G. BROWN JR.

Letter to StakeholdersCalifornia is an innovation machine. From groundbreaking studies at world-class universities, to entrepreneurial startups to global leading corporations, the state has shown the world how to build a thriving life sciences community. Favorable policies have helped make California the world’s leader in biomedical research and development. That success has, in turn, rippled through the state’s economy. In 2013, life sciences companies employed more than 270,000 Californians, with average wages that topped $100,000.

Equally important, this innovation ecosystem permeates the state. In 2014, academic researchers in California are projected to receive 7,400 NIH grants totaling $3.3 billion, by far the most in the nation. Many of the studies funded by these grants will lead to new insights into human biology and possibly new therapies and diagnostics. With 11 of the world’s top 100 universities (according to the Shanghai Index), California is well-positioned to continue this dominance. Ultimately, intellectual discovery attracts venture capital. California companies are projected to receive more than $3.8 billion in VC funding in 2014. These investments, as well as those from the NIH and other groups, have spurred even more innovation and helped the state recover from a devastating recession.

As you read through this report, you will see other statistics that validate the breadth and quality of our life sciences community. However, a word of caution is always in order. Open up any company’s financial report and you will find these words: Past performance does not guarantee future results. The same is true on the state level. While California’s biomedical sector has done well, we face increasing competition from other states and nations. We cannot forget the sound ideas that got us here. But also, we must find new ways to grow the innovation economy and remain world leaders in the life sciences. That future will not get built on its own. The heavy lifting belongs to us.

Sincerely,

Todd E. GillenwaterPresident & CEO California Healthcare Institute

Peter J. ClaudePartner, Pharmaceutical & Life Sciences AdvisoryPwC

CaliforniaNew JerseyNew YorkIndianaPennsylvaniaIllinoisMinnesotaMassachusettsNorth CarolinaFloridaTexasMichiganOhioUtahWisconsin

Biopharmaceutical and Medical Device Employmentby state, 2009-2013

-11%

-4%

-6%

-1%

-4%

0%

4%

-6%

5%

-17%

2013 ranking by employment

Employment growth, 2009-2013

2%

19%6%

7%10%

Employees, change from 2009

119,79541,08938,88335,96735,95632,30931,68031,44930,91127,09025,70121,45717,23516,60515,951

(5,015)(-8,371)(-1,827)(-2,247)(-4,605)

(-72)(-1,385)(-235)(1,371)(-1,799)

(393)(1,864)(1,198)(2,594)(905)

2

8

1

11

14

3

45

6

7

10

9

1213

15

Biomedical Industryin California, 2013 (estimated)

*2014 California Biomedical Industry Report based on 2012 employment data

Public169

Private939

BiopharmaceuticalCompanies

1,108 total

Public84

Private1,444

Device and Diagnostics Companies

1,528 total

Total revenueDirect employmentTotal wages and salariesAverage annual biomedical industry wageTotal NIH grants awardedTotal venture capital investmentsTotal biomedical exportsDirect federal taxesDirect state and local taxes

$101 billion270,300

$27.4 billion$101,540

$3.3 billion$3.8 billion

$22.2 billion$7.2 billion$3.7 billion

Number of life sciences companies 2,636

Direct Employment

Indirect and Induced Employment

Total Direct, Indirect and Induced Jobs: 767,300

497,000*497,000*270,300270,300

The Innovation PipelineCalifornia holds a unique position in the worldwide life sciences community. Golden State companies are leaders, producing some of the world’s most innovative therapies and diagnostics. In turn, these corporations have made the state’s life sciences industry an economic juggernaut. Just a few statistics from 2013 bear that out, as the industry produced:

• $101 billion in total revenues• $27.4 billion in total wages• $101,540 in average wages• $3.8 billion in venture capital investment

California’s successful biomedical industry is the end result of an extensive innovation pipeline. This ecosystem begins in the state’s outstanding academic centers and research institutes, continues with an entrepreneurial, start-up culture that rewards risk-takers and culminates with successful companies that produce hundreds of new drugs, diagnostics and devices.

The sector serves as an increasingly important element of the state’s economy, with the biomedical industry employing 270,300 people in 2013. More importantly, California’s life sciences community helps patients around the world, as innovators from San Francisco to San Diego tackle many of healthcare’s unmet needs.

*Data excludes R&D contracts and projects funded through the American Recovery and Reinvestment Act

Note: 2014 data reflect awards through September 29, 2014

UC Berkeley

$100M

California Institute of Technology$63M

UC Irvine

$113M

UC Davis

$171MUSC

$185MScripps Research Institute

$187M

UCLA$350M

Stanford University$376M

UC San Diego$378M

UC San Francisco$525M

Top 10 California Organizations Receiving NIH Funding2014*

Top 10 States Receiving NIH Funding2013 vs. 2014*

20132014*

California

Massachusetts

New York

Pennsylvania

Texas

Maryland

North Carolina

Washington

Illinois

Ohio

7,554 7,420

4,948 4,780

4,7684,672

3,3193,268

2,1572,063

2,4542,456

2,0591,950

1,5381,529

1,8401,813

1,5791,484

$628M

$614M

$697M

$683M

$776M

$858M

$889M

$877M

$937M

$953M

$922M

$965M

$1.35B

$1.47B

$1.9B

$2.0B

$2.29B$2.29B

$3.21B

$3.29B

*Data excludes R&D contracts and projects funded through the American Recovery and Reinvestment Act

Note: 2014 data reflect awards through September 29, 2014

FundingAwards

Academic ExcellenceCalifornia’s life sciences industry is built on, and fueled by, world-class universities and ground-breaking biomedical research. According to the Shanghai Index, California has 11 of the world’s top 100 schools. New York is the next closest with five.

One of the pillars of the life sciences infrastructure is a well-educated workforce. In 2012, California universities produced more than 6,000 doctorates in the science and engineering fields, including more than 1,200 in the life sciences. These newly minted scientists will be among the next generation of trailblazing entrepreneurs.

In labs throughout the state, California’s academic researchers attract billions of dollars in grants from the

National Institutes of Health (NIH) and other entities. For federal fiscal year 2014, California institutions received more than 7,400 grants, totaling $3.3 billion, a 15.4 percent share of all NIH grants distributed. Massachusetts is the second most active state, with a 10.8 percent share. Among California institutions UC San Francisco, UC San Diego and Stanford lead the pack, bringing in a combined $1.28 billion of NIH funding.

Looking at the top ten Congressional districts for NIH funding, aggregated by region, the San Francisco Bay Area tops the list with more than $1.23 billion. After that, Los Angeles and Orange County come in at $733 million, followed by San Diego at $540 million and Sacramento/Davis at $187 million.

The True Measure of SuccessWhile economic growth is important for any industry, life sciences brings an added dimension to the table — new technologies and treatments that help people worldwide.

In 2014, California companies filed 1,205 investigational new drug (IND) applications.* Many of these emerging therapies are designed to treat cancer, infectious diseases and central nervous system disorders. Overall, the California life sciences industry has an impressive record of developing new treatments that improve survival and quality of life for millions around the world.

*through Sept. 5, 2014

California Products by Therapeutic AreaInvestigational New Drug (IND) products through Phase III clinical trials

California continues to lead the world with the highest number of premier research institutions. The Golden State is home to 11 of the top 100 universities on the Shanghai Index. These institutions include: Stanford University, UC Berkeley, California Institute of Technology, UCLA, UC San Diego, UC San Francisco, UC Santa Barbara, UC Irvine, USC, UC Davis and UC Santa Cruz. New York came in second with five institutions, followed by Pennsylvania and Texas with four apiece.

World Class Research Institutions

Number of Universities in the World Top 100Shanghai Index, 2014 rankings

113

3

4

2

5

2

22

4

CaliforniaNew YorkPennsylvaniaTexasIllinois

115443

MassachusettsArizonaMarylandNew JerseyNorth Carolina

32222

1,228

Total life sciences doctoral degrees

California

874

799

699

572

432

423

438

483

442

New York

Texas

Mass.

Penn.

Maryland

Florida

Ohio

N. Carolina

Illinois

Doctoral Recipients in Life Sciences DisciplinesTop 10 states, 2012

California’s stellar academic prowess was on full display with over 1,228 life science doctorates awarded in 2012. By contrast, New York was awarded less than 900.

Eye/Ear

Miscellaneous

Genitourinary

Gastrointestinal

Cancer

Infectious Diseases (incl. HIV)

Central Nervous System

Hormonal Systems/Nephrology (incl. Diabetes)

Immune System

Cardiovascular

Pain

Musculoskeletal

Hematological

Respiratory

Dermatology

Diagnostic/Imaging Agent/ Delivery 11

6

16

38

141

319

117

78

96

66

57

64

60

45

48

43

Total Biomedical Employment by Clusteras a percent of the total, 2013

Biomedical Employment vs. Other Key Sectorsin California, 2013

Biomedical industry

167,946

71,655Aerospace

357,865Computer and

peripheral equipment mfg.

166,221

Internet, tele- communications,

data processing

138,493Motion pictures

270,289

Other electronic equipment mfg.

Employees

* Includes Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara and Sonoma counties

*** Includes Monterey, Kings, Tulare, Inyo, San Benito, Fresno, Mono, Santa Cruz, Merced, Madera, Stanislaus, Mariposa, Tuolumne, San Joaquin, Calaveras, Alpine, Amador, Mendocino, Lake, Colusa, Sierra, Glenn, Plumas,

Humboldt, Trinity, Tehama, Lassen, Shasta, Del Norte, Siskiyou and Modoc counties

**Includes Sacramento, Butte, El Dorado, Nevada, Placer, Solano, Sutter, Yolo and Yuba counties

Note: Clusters do not sum to total due to omitted counties and data suppresion at the county level.

Total Biomedical Employment by Clusterin California, 2013

Sacramento area**8,501

Ventura and Santa Barbara counties9,840

Riverside and San Bernardino counties11,193

Northern California***

13,729San Diego County 36,731Orange County 40,727Los Angeles County 53,093Bay Area* 60,636

270,289TOTAL

Cluster

22%

3%

4%

14%

20%

15%

4%5%

California Biomedical Wagesby sector, 2013*

Academic research

Biopharmaceuticals

Medical Devices, Instruments, Diagnostics

Research & Development, Testing Labs

Wholesale Trade

TOTAL

Avg. wage Total wages

$65,800

$153,801

$86,901

$110,661

$92,529

$101,538*

$2.69B

$6.94B

$6.49B

$7.20B

$4.13B

$27.4B

* Total average

Driving GrowthThe confluence of innovative thinking, hard work and ample funding has created a life sciences powerhouse, which continues to be a major economic driver throughout California. As noted earlier, in 2013 California’s biomedical industry employed more than 270,000 people, with an average salary of around $101,540.

As a whole, the California life sciences industry produced $101 billion in revenue, paid $7.2 billion in direct federal taxes and $3.7 billion in direct California state and local taxes. California’s biomedical exports in 2013 increased to $22.2 billion from $20.9 billion in 2012.

But the economic impact of the life sciences goes far beyond the companies that develop our drugs, devices and diagnostics. Hundreds of thousands more Californians, in a wide variety of areas, support the industry. As a result, the biomedical sector is a key factor in sustaining growth throughout California.

*2014 data based on projection from first two quarters

2012

2013

2014*

2012

2013

2014*

2012

2013

2014*

2012

2013

2014*

$81M

$9M

$33M

$32M

$52M

$72M

$339M

$365M

$356M

$778M

$634M

$702M

$270M

$132M

$201M

$526M

$302M

$588M

$464M

$477M

$539M

$1.17B

$1.12B

$1.14B

California U.S.

$130M$277M

$122M

$114M

$314M

$245M

$817M

$1.0B

$1.46B

$1.87B

$2.40B

$3.14B

$189M

$191M

$181M

$417M

$328M

$399M

$438M

$612M

$880M

$1.65B

$1.61B

$2.08B

Venture Capital Investment, Biotech and Medical Devicesby stage, U.S. and California, 2012-2014*

Start-up/seed stage

Early stage

Expansion stage

Later stage

MEDICAL DEVICESBIOTECH

*2014 data based on projection from first two quarters

Mass. $1.52B$1.36B

$1.80B

Conn. $93M$113M

$423M

Penn. $238M$224M$310M

Texas $238M$140M

$284M

Wash. $161M$263M$267M

Ill. $183M$43M

$237M

Minn. $166M$161M$234M

Mich. $98M$48M

$195M

N.Y. $109M$134M$124M

Calif. $2.68B$2.91B$3.76B

Top 10 States for Life Sciences Venture Capital Investment2012-2014*

201220132014*

A Magnet for InvestmentCalifornia’s academic excellence generates thousands of life sciences innovations. The basic science discoveries funded by the NIH do not stay in the laboratory. They are often licensed to pharmaceutical companies, biotech firms and start-ups. In many cases, the scientists who make these discoveries start their own companies to carry the research forward.

This constant flow of innovation attracts investment from around the world. It’s estimated that California life sciences companies will have received $3.8 billion from venture capitalists in 2014, or 45 percent of the $8.4 billion VCs are projected to invest in the life sciences nationwide. Especially significant, $1.8 billion will support California’s early stage companies as they work to bring new therapies, devices and diagnostics to market.

These investments, at all stages, are felt throughout the state. Silicon Valley is projected to receive $2.8 billion in 2014. San Diego is projected at $647 million and Los Angeles/Orange County at $254 million.

Life sciences venture capital investment is second only to software in California and is a significant contributor to California’s projected 60.1 percent share of all venture capital investments in the United States in 2014.

Business GrantsThe NIH also invests in California’s life sciences industry through their small business grants. The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs provide significant support for

emerging companies, particularly those who are not yet positioned for venture capital. These grants provide critical seed funding to help small start-ups prove their technologies and grow.

Once again, California leads the nation in NIH small business grants. The state received 391 awards in 2014, which translates into $146 million. Massachusetts is second on the list, with 175 awards for $73 million. While these numbers seem small when compared to venture capital funding, they are critically important investments that help small companies gain a toe hold in the competitive life sciences industry.

Mergers and IPOsAs products come closer to market, smaller firms must often seek more resources through initial public offerings or mergers with larger companies. This process rewards investors for their faith in the company and allows them to recirculate capital, investing in other innovative start-ups.

In 2014, the M&A market is on pace to eclipse 2013. Through late September, there were 70 completed biomedical M&A deals where the target company was located in California, compared to 70 completed deals in all of 2013. Where terms were reported, these 2014 transactions have totaled more than $34 billion.

The IPO side has been equally busy. Through late September, there were 20 IPOs in 2014, bringing $1.5 billion into emerging companies. In 2013, there were 17 initial public offerings.

SOURCES• Bureau of Labor Statistics Quarterly Census of Employment and Wages; 2007 Economic Census; (pages 1, 4, back page)

• Bloomberg (page 1)

• PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report based on data from Thomson Reuters (pages 1, 5)

• National Institutes of Health (pages 1, 2)

• IMPLAN modeling system (page 1)

Report AuthorsTodd E. GillenwaterPresident & CEOCalifornia Healthcare Institute

Peter J. ClaudePartner, Pharmaceutical & Life Sciences AdvisoryPwC

Project TeamWill ZasadnyManager, CommunicationsCalifornia Healthcare Institute

Erin McInerney-PrichardManager, Pharmaceutical & Life Sciences AdvisoryPwC

WritingJosh BaxtBaxt Communications

Graphics and DesignPaul Horn

Economic AnalysisKristen Soderberg BernieManager, Health Policy EconomicsPwC

About California Healthcare InstituteCHI represents more than 275 leading biotechnology, medical device, diagnostics and pharmaceutical companies, and public and private

academic biomedical research organizations. CHI’s mission is to advance biomedical research, investment, and innovation through effective advocacy of policies to improve public health and ensure

the continued vitality of the life sciences sector.

CHI’s website is www.chi.org. Follow us on Twitter @calhealthcare, Facebook, LinkedIn and YouTube.

See methodology and more at www.chi.org/2015biomedreport

About PwCPwC’s Pharmaceutical and Life Sciences Industry group is dedicated to delivering effective solutions to the complex strategic, operational, and financial challenges facing pharmaceutical, biotechnology, and medical

device companies. We provide industry-focused assurance, tax, and advisory services to build public trust and enhance value for our clients and their stakeholders. More than 195,000 people in 157 countries across our global network of firms share their thinking, experience, and solutions

to develop fresh perspectives and practical advice.

For more information visit:www.pwc.com/us/pharma and www.pwc.com/us/medtech

Top Biomedical Employmentin California, 2012 vs. 2013

TOTAL 266,572

Growth rate

270,289 1.4%

44,065

44,605

1.2%Wholesale Trade

63,355

65,081

2.7%Research & Development,

Testing Labs

74,39474,654

0.1%Medical Devices, Instruments, Diagnostics

44,23545,140

2.0%Biopharmaceuticals

Academic research40,52340,809

0.1%

20122013

Moving ForwardCalifornia provides a case study in how to build a robust life sciences industry from scratch. It starts with a world-class academic system. In turn, the innate curiosity nurtured by outstanding education produces waves of innovators. Not satisfied with the status quo, these entrepreneurs often dedicate their lives to making things better. By attracting both public and private investment, their ideas are ultimately transformed into life-saving products.

But this formula didn’t just happen. The innovation pipeline was supported, in large part, by favorable public policies that have allowed creative minds to flourish. That approach has helped California’s life sciences industry become the leader it is today.

However, the world is changing rapidly, and the state cannot afford to rest. Global competition has increased dramatically in the past decade, and will continue to be a challenge. Both the state and nation must always remain one step ahead of these dynamic market forces to ensure continued leadership in biomedical education, research, investment and product development.

• NSF/NIH/USED/USDA/NEH/NASA; Survey of Earned Doctorates, 2012; Shanghai Ranking Consultancy; BioPharm Insight; IND filed through Phase III, Sept. 5, 2014 (page 3)

• Thomson Reuters Financial (page 5)

PHOTO CREDITSDavid Fulmer via Flickr Creative Commons (California capitol photo, cover)David Schexnaydre via Flickr Creative Commons (page 2)

© 2014 California Healthcare Institute

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