SAN DIEGO — California’s hospitability to the life sciences and other tech sectors received a less-than-stellar review at the life sciences industry’s premiere conference from one national think tank, and a better critique with several signs of trouble on the job-creation side from a second.
The Milken Institute lowered California’s ranking from second to fourth in its updated ranking of states released June 19. Despite its number-one ranking among states in criteria related to risk capital and entrepreneurial infrastructure, the Golden State finished fourth overall behind top-ranked Massachusetts followed by Maryland, then Colorado.
Massachusetts retained the top spot it held the last time the rankings were compiled four years ago, with Maryland climbing to second from fourth, and Colorado finishing third, same as four years ago.
During a press conference on the Milken study held during the Biotechnology Industry Organization’s BIO 2008 International Convention, Maryland Gov. Martin O’Malley linked his state’s rise in the rankings with increases during his term of office in state education funding, as well as the state’s concentration of government agencies, research universities, and biotech businesses.
“Our aspiration is to continue to be a leading state. It shows that our best days are ahead of us, if only we have the courage to invest today in the talents of our people, and the next generation,” O’Malley said.
O’Malley spoke four days after announcing the $1.1 billion, 10-year Bio 2020 initiative designed to boost his state’s life sciences industry [See report on Bio 2020 in this issue of BRN].
Asked by BioRegion News why Maryland needs Bio 2020 given the state’s ranking in the Milken study, O’Malley cited growing competition for life sciences jobs within, and beyond, the US: “I explain it by pointing to China, by pointing to India, by pointing to Europe, and by pointing to so many countries in the world that are outpacing the United States in terms of their production of educators, scientists, technicians, engineers, [and] mathematicians.
“It’s our hope that the other 49 states will strive to catch up to [Maryland’s] level of investment in human capital. And it’s also our hope that one day the United States, at the federal level, will make these investments, so states don’t have to go it alone,” O’Malley added. “We have so much potential as a country if only we’d start to invest in our people, and their ability to innovate, and to heal, and to discover, and to advance the cause of science.”
Milken invited O’Malley and Susan Windham-Bannister, the new president and CEO of the Massachusetts Life Sciences Center, to discuss the report findings and the relative high rankings of their states. Windham-Bannister’s agency will oversee the state’s $1 billion, 10-year Life Sciences Initiative signed into law June 16 by Gov. Deval Patrick.
“We in Massachusetts recognize the vital importance to the state’s current and future economy of our life sciences sector and our world-class life sciences supercluster,” Windham-Bannister said at the press conference. “It’s really the achievements of this supercluster that the results of the Milken study recognize.”
Answering a BRN question, she said the benefits of the billion-dollar biobills of her state and Maryland will ripple beyond their borders: “These investments that we’re making right now benefit us collectively. They contribute to not just our achievement within the US, but the mission of this entire industry.”
“Ultimately we want to come together collectively to maintain the leadership position globally of the United States,” Windham-Bannister added.
Rounding out Milken’s top 10 were Washington state, Virginia, Connecticut, Utah, New Hampshire, and Rhode Island. The last two states missed the top 10 in 2004, with Rhode Island placing 11th and New Hampshire ranked 12th.
Milken’s State Technology and Science Index, which is available here, ranks the nation’s 50 states for their hospitability to the life sciences and other technology industries. The previous edition was published in 2004, and the first one two years earlier.
“It’s a combination of snapshots of 2007 [and] measures that look at growth over a two- to three-year time period, assessing whether you’re making further investments and improving,” said Ross DeVol, the Milken Institute’s director of regional economics.
The report offered a gloomy assessment of California’s life sciences effort:
“While it remains a national leader, the state is faltering,” Milken’s report concluded.
“Although acquiring R&D is important to the state’s economy, developing human capital is equally important. This is a critical area where California needs to improve, as historical trends indicate that the state is on a downward slide.”
Milken expanded on its California findings with a separate 132-page report released along with its 50-state survey. California’s Position in Technology and Science: A Comparative Benchmarking Assessment found that while the state still leads the nation in venture capital investment, California’s competitiveness has eroded between 2004 and this year in several categories, notably workforce development, per-capita academic R&D, and academic achievement.
“Although acquiring R&D is important to the state’s economy, developing human capital is equally important. This is a critical area where California needs to improve, as historical trends indicate that the state is on a downward slide,” Milken’s California report concluded.
The state’s ranking in “human capital investment,” which includes workforce education and development, skidded to 13th position from seventh in 2004 and fourth in Milken’s first survey in 2002. The state’s ranking was hurt by a low percentage of 25- to 34-year-old students enrolled in science and engineering graduate programs — 1 percent compared with the nation’s 1.3 percent average, and 36th place compared with 26th in 2004, which the report termed “a sore spot that needs to be addressed.”
“Concentrations of talent really attract companies today, as opposed to where companies are located attracting talent. Talent is really what’s critical,” DeVol said. “The engineers, the programmers, the biologists, they are very mobile and they migrate. As you can attract them from other regions [and] retain the ones that you’ve created locally, you’re at a distinct advantage in the knowledge-based economy.”
DeVol offered one explanation for California’s tumble in Milken’s human capital index: A decline in the number of graduate students from overseas studying the life sciences and other tech specialties in the state’s universities, due to visa restrictions aggravated by post-9/11 security concerns.
“This has really hurt the state of California and the University of California system,” said DeVol, who added that enrollment of grad students from overseas declined 30 percent in the UC system after 2002-2003.
“It has since leveled off, but it has not come back yet. And we’re losing some of the best and brightest, especially Asian graduate students that are going to the UK, that are going to Germany. There are even Chinese graduate students going to Japan as opposed to coming to the United States,” DeVol said. “[States] need to benchmark against each other, but we also need to be aware that we’re competing in a global, knowledge-based economy now. Those are critical elements we have to look at.”
Also reducing California’s ranking here was its low average SAT verbal score of 499, good only for 37th place, a result the report blamed in part on “its large university system and pool of immigrant test-takers.”
“However, fundamental issues in the way California students are prepared for the test should not be ignored,” Milken’s California report concluded.
Neither should California’s research and development effort, the report added. The state slipped in R&D from second in 2004 to third this year, as Maryland took second position behind leader Massachusetts. The state’s academic R&D dollars per capita declined from 18th to 19th highest, as Maryland improved its score during that time. California also slipped five spots, to 42nd of 50 states, in agricultural R&D expenditures, buoyed nationally in recent years by biodiesel fuel and cellulosic technology development.
Even in its stronghold of risk capital and entrepreneurial infrastructure, California showed weakness in its number of business incubators per 10,000 establishments, ranking 33rd of 50 states.
California’s struggle to nurture growing tech businesses is also reflected in the state’s slide from third place in 2002, to fourth place in 2004, to seventh place this year in the criteria that comprise Milken’s index of high-technology concentration and dynamism. The state was hurt by poorer showings relative to other states in net formation of high-tech establishments.
California’s biotech and pharmaceutical sectors helped its concentration of Fast 500 companies per 10,000 business establishments place fourth in the nation at 1.5, compared with leader Massachusetts (2.4 per 10,000), number-two New Jersey (2 per 10,000), and number-three Connecticut (1.6 per 10,000). Yet California’s number dipped from 1.7 per 10,000 in 2004.
California fared better in a second study pinpointing its life sciences industry, and a customized seven-page report focused on the state’s life sciences effort. Both were prepared for BIO by the Battelle Technology Partnership Practice with help from the nonprofit group SSTI.
Yet even the Battelle-led Technology, Talent and Capital: State Bioscience Initiatives 2008, available here, and Battelle’s California report, which can be read here, noted several challenges faced by the industry in the Golden State between 2001 and 2006.
Chief among those is relatively slow job creation. While Battelle pegged California as the nation’s top life science state in total jobs, with 69,600 as of 2006, its 3.7 percent increase in private-sector jobs between 2001 and 2006 lagged behind the nation’s 5.7 percent total bioscience job gain, though the state did exceed the 3.1 percent private bioscience job increase.
More worrisome, California’s life sciences employment in 2006 lagged when measured against other states per 1 million of population. The state didn’t even place in the top 10, while two states with large bioclusters did — Massachussetts finished second, with 4,784 per million; and Maryland third with 3,258 per million, behind the population-tiny District of Columbia, which skewed the findings by finishing with a 5,295 per million.
Rounding out Battelle’s top 10 were North Dakota, Pennsylvania, Connecticut, Minnesota, Washington, Nebraska, and Utah.
“The bioscience base is getting much more than bicoastal. It’s spreading across the country,” Walter Plosila, a senior consultant to Battelle, told BRN.
That is especially true of the ethanol sub-segment, which saw a 71 percent employment increase nationwide between 2001 and 2006, as several states stepped up production of that biofuel. However, the broader agricultural feedstock and chemicals segment showed a dip in jobs during that five-year period, down 6.1 percent to 105,846 jobs.
But the agricultural segment is also the least clustered of the four life sciences segments measured by Battelle, since it appears in 18 states. The leading state in the segment is Texas, which had 10,240 jobs in 2006 — more than half (5,559) in the Houston-Baytown-Sugar Land metropolitan statistical area.
“A lot of states are getting smart about it and trying to focus on whatever their core competencies are, in terms of what are their research strengths on their university and medical center side, and what are their niches on the industry side,” Plosila said in an interview.
Plosila, who retired this year as a vice president heading Battelle’s tech practice, noted that Battelle’s report keyed in on the life sciences sectors of the 50 states — compared with the broader sci-tech focus of Milken.
Battelle’s narrower focus, Plosila said, allowed it to highlight some key strengths in California’s life sciences industry. He cited the report’s figures showing double-digit growth in employment in two of the state’s life sciences categories — drug and pharmaceutical, up 13.6 percent between 2001 and 2006, when 44,475 jobs were recorded; and research testing and medical laboratories, up 13.4 percent to 75,616 jobs during the same five-year period.
And even when Milken came closest to isolating a key measure of life sciences activity, California’s performance was disappointing.
California placed number 15 in R&D expenditures on life sciences when measured in dollars per capita, the same ranking it held in 2004. The $104.90 recorded for California was less than half the $210.98 racked up by Maryland, the category leader. Maryland also led in R&D expenditures on biomedical science with $189.81, compared with $98.15 and 12th place for California.
On the number of life and physical scientists per 100,000 population, California’s 193 this year was higher than the 124 that Milken recorded for 2004, but its rank still plummeted during that time period from second to 11th because other states showed even larger increases. The measure appears weighted toward biopharma since it includes agricultural and food scientists, biochemists and biophysicists, microbiologists, medical scientists, and miscellaneous life scientists, in addition to the physicists and miscellaneous physical scientists also within the category.
California’s concentration of scientists, measured in its “technology and science workforce” index of criteria, was sixth-best in the nation — compared with third in 2004 and second in 2002. The key reason for the slide was not life science-related, but the loss of information technology jobs outsourced to India and other lower-wage nations earlier this decade.
Battelle took note of California’s first-place status in the nation when measured by total academic R&D dollars, funding from the National Institutes of Health, higher education degrees in bioscience fields, employment in bioscience-related fields, bioscience VC activity, and the number of bioscience and related patents.
Yet the Battelle report also noted a decline between 2001 and 2006 in the number of California “establishments” or employers in three life sciences specialties:
- Agricultural feedstock and chemicals, down 14.8 percent, to 183 establishments.
- Medical devices and equipment, down 6.8 percent, to 2,214 establishments.
- Drugs and pharmaceuticals, down 6.3 percent, to 405 establishments.
The number of California establishments rose for only one of Battelle’s four life-sci categories, research testing and medical laboratories. That segment had 3,294 establishments in 2006, up 34.7 percent from 2001.
Nationally, Battelle recorded a national gain of about 68,000 jobs, or 17.8 percent, in research testing and medical labs between 2001 and 2006, paced by a 34 percent job increase at diagnostic imaging centers. Despite its loss of research and medical lab jobs, California remained the nation’s leader in the segment with 75,616 jobs in 2006, followed by Pennsylvania, Massachusetts, and New Jersey.
Drugs and pharmaceuticals saw a 4 percent or 12,000-job national job gain from 2001 to 2006, when 317,149 jobs were recorded. While California was the leader among states with 44,475 such jobs, the nation’s largest employment cluster in the field is on the opposite coast, within the New York-Northern New Jersey-Long Island MSA, with 52,497 jobs.
California’s med device segment was also the only one of the state’s life sciences sectors to lose jobs during that timeframe, with the best performing segment being research, testing, and medical laboratories.
Battelle recorded a 6.8 percent dip in California medical device employment, to 72,073 jobs – though that segment declined through much of the nation due to outsourcing of manufacturing jobs to cheaper overseas sites, as well as the 2001 recession and the sluggish recovery that followed it.
California’s decrease in medical device jobs contrasted with the nation as a whole. After losing such jobs between 2001 and 2003, employment in the sub-segment rose nationally between 2004 to 2006 by 2.8 percent, accounting for an overall nationwide dip of about 4,000 jobs or 0.9 percent, to 422,993 jobs.