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Q&A: Can LA Become California’s Third Biocluster? KGI Professor Weighs In

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Los Angeles anchors the nation's second-largest metropolitan region, yet the city’s life-sciences cluster is nowhere near the top.

LA lags behind California's two next-largest cities, San Francisco and San Diego, in drawing scientists, commercializing their discoveries, and developing them into successful companies.

The City of Angels and surrounding communities have many of the ingredients for a top-tier biocluster. They include campuses of California's two state-funded university systems; research operations at medical facilities like City of Hope; the presence of numerous medical device makers in Orange County; and one biotech giant, Amgen, which is headquartered in Thousand Oaks.

Finding out why the proverbial sum of these and other parts is less than the whole has been an ongoing topic of research for Steven Casper, Henry E. Riggs professor of management and director of the master of bioscience degree program at the Keck Graduate Institute of Applied Life Sciences in Claremont, Calif.

Earlier this month, KGI released The Marketplace for Ideas: Can Los Angeles Build a Successful Biotechnology Cluster? a 49-page report calling for stronger connections among the region's life-sci professionals, entrepreneurs, academic institutions, and research centers. The report laid out three scenarios through which a powerhouse life sciences community could emerge in and around LA:

• Los Angeles area biotechnology firms could build ties to the biomedical device industry of nearby Orange County, as biotech businesses in San Francisco did with the semiconductor concerns that once dominated Silicon Valley.

• The California Institute of Technology, located in Pasadena, could grow large enough to anchor the biotech industry in the manner of the Massachusetts Institute of Technology in Cambridge, Mass. Caltech would have to overcome several obstacles, such as its lack of a business school, the absence of a medical school in the surrounding area, and the fact that its mission has traditionally been less entrepreneurial, according to the report.

• Los Angeles could nurture life-sci start-ups emerging north of the city along the Hwy 101 corridor. But startups have a harder time finding talent there compared with other regions of the US, the report found, given the low turnover of Amgen and the attraction of California's two other bioscience clusters.

The Marketplace for Ideas was funded by an $84,000 grant from the John Randolph Haynes and Dora Haynes Foundation.

BioRegion News recently spoke with Casper about the report, and the broader challenge of transforming the Los Angeles region into California's third life-sciences cluster, comparable to those of the Bay Area and San Diego. Following is an edited transcript of the interview.

Is this a new study, or a revision of an older one?

It's an ongoing study I've been working on for the last couple of years, but this data is being published for the first time. It's part of a big project I'm working on, where I'm doing a fairly data-intensive project to look at the history of the California biotechnology industry from the point of view of cluster creation. I'm really interested in why San Francisco and San Diego have turned out so well in terms of clusters, and why LA hasn't turned out that well. I'm doing a lot of San Diego-LA comparisons. I've also got the same data for San Francisco. Then I got a grant from the Haynes Foundation to basically fund most of the LA part of this research, especially the historical research. And then I was able to do some of the other study through this as well. It's a project that's going to be hopefully coming out in a book. It looks like Stanford University Press is going to publish it in a year or two.

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Will there be other interim releases of data or other chapters coming out in the next year or so before the book?

Yes. A couple of years ago, I published a pretty good article on San Diego. It was a bit more academic than this report is, focused on this issue of looking at how networks between managers developed in that area. I'm looking at Hybritech as a catalyst. That's a story that everybody knows around here, that Hybritech kind of exploded into [a unit of Eli] Lilly [& Co.], and that's what seeded the network. But I've got pretty good, systematic data showing how it happened.

What sparked your research into this topic?

I started as an international business researcher. I used to live in Germany, and I used to be a professor at the University of Cambridge at the UK. And I'm from California, so I've kind of come home. I originally got really interested in how public policy can or cannot affect cluster creation. My main research area is looking at these clusters and how they developed.

Just recently I was a Fulbright Scholar in Canada, so I've done work in Canada, up in the Atlantic Canada area. I've also done a lot of work in the UK and Germany. In the UK, I was working in Cambridge and they call their cluster there the Cambridge Phenomenon. It's a phenomenon in the sense that they did really nothing to create it except have a great university. It was more or less spillover [startups] from the university that created that, and very little government policy, whereas across the Channel in Germany, they had spent from the mid-1990s onward $3 billion or $4 billion trying to create very high powered biotech clusters around the Munich area, also Heidelberg and some other regions. And they weren't really having a lot of success. So I started trying to understand why is it that government can be helpful, but it’s not the magic elixir in the cluster area? In what context are government supports useful?

What did you find out?

There clearly are areas where government is indispensable — funding science, for example, and setting the proper regulations for finance and tech transfer. But what these studies show over and over again is that there is a very important societal, social network or component to these clusters. And it comes from a lot of research on Silicon Valley. It started this train of research where people have noticed that in Silicon Valley, everybody seems to know each other. There are very strong technical communities of scientists and engineers spanning companies. And then academics studying this have asked: how do these networks create value for somebody, for both the companies and the employees involved?

Form the company point of view, there have been numerous studies showing that companies that are in these clusters, especially in the networks in the clusters, they tend to patent more frequently. And emerging research has shown that those patents seem to be worth more; the idea there is that you're in these regional networks, you get access to better information, you're turned on to technical discoveries, scientific inventions, and so forth more quickly, and can react to them. From the point of scientists and managers and financiers and so forth, the interesting thing there is that most of these startup companies in the bioscience area end up failing. Social networks are a really good source of job contacts. So there's been a lot of research looking at what happens when you lose your job in biotech in these clusters. If you have these social networks, people tend to find other jobs. And if [they] don't, they leave.

How does Los Angeles fare in developing these social networks?

In LA, there is a real strong lack of these social networks linking senior managers across companies. When companies go belly up, what I found is that the managers tend to leave the industry or move down to San Diego, where they tend to get another job in the bioscience industry. So I'm looking at how nongovernmental elements of technology clusters, especially social networks linking individuals within these clusters, impact the performance of the cluster. That's where my research has primarily been. The California study, from my point of view, is a great way to look at this, as you have very similar starting conditions — government policy is more or less the same across the three areas. Regulations are the same. There's a pretty good supply of capital across the country, and across the state. Non-compete clauses [are not as strong as in Europe] — in Europe, it's often not possible to leave your job to get the same job someplace else, because you've signed a non-compete clause, and you just can't go. In California, that’s not the case. You have these really different outcomes in terms of how the regional clusters have performed.

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Why are the social networks particularly weaker in Los Angeles than they would be in San Diego and San Francisco?

I tried to do two things in this study: I tried to show that they are weaker, and then second, start asking why, and what could you do about it. The important thing to realize is that they're weak in almost all clusters. There are very, very few really well-performing clusters in the bioscience space. That world today is pretty much Boston, San Diego, and San Francisco. The LA outcome is not all that different than any place else. So the question is, how do they get created? In San Diego, the social networks [got created] mainly through Hybritech. In San Francisco, it was mainly through Genentech, and also a very high labor market mobility culture created through the existing PC computer industry, and the role of venture capitalists.

In LA, there just hasn't been a catalyst to get that kind of social network formation going. And the catalysts I've looked at, for example, are the role of large companies. And in LA, that would certainly be Amgen in Thousand Oaks. Amgen has had historically, by far and away, the lowest labor market mobility in the bioscience space. It's less than 5 percent, compared to 10 to 15 percent in the Bay Area. And until the last couple of years, they've had a very strong norm that if you were going to be a successful employee at Amgen, you were going to be a lifer there. They supported that with a lot of very strong career inducements. If you just look at the area, there are not a lot of jobs to go to in that area of LA until recently. So they are fairly isolated. They employ about 8,000 people today, so it's a very large pool of superstar experts that could work in bioscience. But they haven’t left.

If you compare Genentech, something like a hundred people have left there in my database, and most of them ended up going to other jobs in San Francisco biotech. This was before the Roche acquisition, over its 1976 to 2006 history. If you look at Amgen over that same period, just a handful of people have left; it's like 20 people. And a couple of people have gone from there to Kyocera and a couple of these other regional companies. But historically when they leave Amgen, it's to retire, or to go to San Francisco or San Diego. Nobody has left Amgen to start another company in LA until very recently. So as a result, the main way these networks form is through people moving around. If they don’t move around, they're not going to form [networks].

Your report also focuses on the role of universities in commercializing science. What did you find?

There has been only one real case where a university has been the star of the cluster, and that's probably MIT in Cambridge. Universities are incredibly important in pushing out ideas and people into local and regional clusters. LA universities, I actually think, are getting better at this.

This is the part of the report that probably is most damning because I've got really strong evidence on this. If you compare the outputs of patents and outputs of companies coming out of the universities in Los Angeles, in terms of scientific funding, it's very high here, because we have great universities. But until recently, they haven't been very active in pushing their ideas out in the commercial marketplace. So there have been fewer spinouts, fewer patents. Anther kind of network I look at are what are known as co-inventor networks. Those are networks of people that patent. And universities aren't linked to these networks the way they are in San Diego and especially San Francisco.

So another big thing universities can do is be a lot more active in the local community in commercializing science, especially starting companies and getting people from universities working in those companies. I think it's clear that if you benchmark most LA universities with other universities in this state, they're a lot more active today than they used to be. But until 1995, Caltech didn’t even have a licensing office. So they had a couple of companies … kind of private star professors starting companies. But outside of that, they didn’t have a systemized process, and most faculty weren't involved. Now they are, and that's a big plus.

Why has commercialization stepped up over these past 14 years? What has changed? Don't the LA universities compete for professionals with universities in San Diego and San Francisco?

There are pretty attractive jobs. Being a tech transfer officer at Caltech is nothing that you're going to turn down. Also, the people in the position at Caltech, especially Rich Wolf [then director of technology transfer], he became a local venture capitalist about three years ago. There's a tradition that the really strong tech transfer officers can go into venture capital, or business development, or whatever. I actually think we've been able to attract good people. We have the [Alfred E.] Mann Institute [for Biomedical Engineering at University of Southern California]; it's a big thing. And the guy that runs that, John Lasch, used to be in charge of tech transfer at the Scripps Research Institute, and he also was previously another local venture capitalist. So you have strong capabilities there. There's a pretty big operation at City of Hope. I really didn’t get good access to [University of California, Los Angeles], so I can't really comment on them, but they have been more active on patenting for sure.

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The Los Angeles area, despite its bad traffic and its smog, is still a pretty nice place to live, so I think people want to move out here. So there is competition in that field. But if you're looking at the hierarchy of tech transfer jobs nationwide, I'm sure these major LA universities would be in the top 20 percent. The people I've met are pretty competent here. For example, Jessica Rousset is in charge of the office [as director of technology transfer] at Children's Hospital Los Angeles. And that's another premiere researcher; they have really good research labs there. They have the Saban Research Institute, which is a privately funded massive research lab that does a lot of stem cell research, and a lot of gene therapy research, really commerciazable stuff. Jessica came from Scripps, and before that she was a business development officer at Glaxo[SmithKline]. So they've been able to attract pretty good people. I think that's really made a big difference in terms of the commercialization processes getting going here.

You identified three elements of a marketplace of ideas. To what extent is Los Angeles' problem one of the three elements you cited, a lack of critical mass of life-sci companies, and to what extent is the city's problem the quality of these companies?

Those are good questions. They're difficult to answer, too. On the quality issue, I think from the university science point of view, in terms of just funding, and pursuits of universities, [the quality is] very high. There are a number of so-called star professors in the area. If you look at the bioscience industry, probably one of the three pivotal inventions that really made Genentech Genentech was created here in LA at the City of Hope through Art Riggs and [Keichi] Itakura [collaborating with Genentech scientists in the late 1970s to develop] synthetic DNA technologies. Then Caltech, through Leroy Hood when he was here, with the gene sequencer being developed here.

If you go way back and go forth, there's a series of major inventions in the biosciences being created here. If you look at — I didn’t cover this in my study but if you look at medical devices, a lot of the heart valves were invented down in Orange County at Fisher Scientific, things like that. I think quality of inventions, I think that's there. But if you look at some of these critical mass issues and the ability of people to want to take the risk and work here, I think you do have problems. I can't really say anything objectively about the quality of the workforce, but I know it's a whole lot thinner. It's just clearly thinner in terms of just the size of when people are available to take jobs, so that bioscience companies [are fewer] here compared to San Diego. There are certainly critical mass issues.

My kind of thinking is, when you get to critical mass, that makes it easier — especially in a highly competitive industry like biotech. It makes it easier for high quality people to come and want to work, because they'll have more options, better companies to work for, better funded companies, and so on, and so forth. I don't spend a lot of time on it in the report, but one of the things I focus on is a catalyst to improve the outcomes here. If you look at the Orange County area, where you have medical devices, there you probably have one of the top two or three clusters in medical devices in the world. You have lots of venture capital. You have tons of people working there. You have dozens, maybe hundreds of companies now focused around UC Irvine, and the medical schools of the area. [The recent] push into the bioscience space, in terms of drug development, that might help in terms of improving the pool of people here.

Whose responsibility is it to bring these elements together?

That's a great question too. I think the government should try, but I don’t think we can expect that the government can do it, because I think the government needs to fund research. Government needs to create infrastructure whenever possible, especially things like technology parks. I don’t think in our context here, especially in cash-starved California, things like tax rebates aren’t going to work. But I think infrastructure and above all else, science can be funded by the government and should be. I think the thing we've learned about the bioscience industry, I think, there is not a whole lot of evidence that government can kind of orchestrate successful clusters. If you look at these networks, what we're really talking about is people quitting really good jobs at universities or big established companies, or successful companies, and risking a lot and working in these little companies. The kinds of networks you need to keep us going are pretty strong ties. Either people have worked together before, and they're successful, or they have an intermediary that they both really trust, and are really trying to have something to try to stake something on.

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In terms of creating the networks, those aren’t the kinds of networks that government events like networking and investor conferences produce. The types of people you meet at these things are acquaintances; you keep their card, you might look them up someday. They're contacts. They're not the type of ties that you see leading to starting companies the way you saw in San Diego at Hybritech, where people had worked together, had high status reputations of creating a successful company, and people either wanted to work with them or they'd worked together and trusted each other enough to start other companies, and they could get financing through them, or they had financing.

What role should governments play in bringing life-sci and other professionals together into a cluster?

Governments have a hard time creating those kinds of networks. They have to emerge through experience in the economy, through people doing things at companies, primarily successful things at companies, and then being willing to work at other companies. I don’t think that government can do that.

But I don’t want to minimize the role of government. Mostly funding research and training people, that's mostly the government that's going to be doing that. The support we get from things like the stimulus bill, which in part went to the NIH, obviously money like that flows into the universities, and some of that technology ends up being commercialized, so I think that's all good and well. I also think infrastructure projects like technology parks, things like that, could really be good facilitators.

What I guess bothers me is when the government, with the aim of creating science, is not primarily doing science to benefit citizens around the place. But to create economic spillover, I think that's asking a lot of the science investments. It happens frequently, and it can happen here too. And it’s a worthy goal, and we should create a regulatory framework just like the Bayh-Dole framework, it’s obviously very important. And any other tax and R&D credits, all that stuff is important to get science to be commercialized. Certainly public universities don’t have the endowments that Stanford [University] has, for example, and that influences the amount of money they can put into commercialization. So programs to create funds for universities to commercialize are good. But I just don’t think that the government can create the market side of what is an industry, after all.

I just spent the last four months up in Atlantic Canada, finishing this report. Up there too, they're spending hundreds of millions of dollars basically trying to create a bioscience cluster. The entirety of funding for their industry up there — I was up in Charlottestown — is they've spent about $150 million subsidizing companies. And they've got a lot of companies as a result of that, but there's not a lot of evidence that those companies could survive for a day outside of government funding. And there's not a lot of evidence that they're really going to be able to commercialize products, because they don’t have a lot of the resources they need to do that, especially on the regulatory side, on the corporate governance side, and so forth. The successful clusters mostly come from these networks of entrepreneurs, managers, and other industry specialists that they think they can connect the two companies coming out of universities, and eventually get funded primarily through venture capital or other private funding methods.

What role should the Los Angeles area's life sciences industry group, Southern California Biomedical Council, or SoCalBio, play in shaping the regional biocluster?

I just think those groups, they are often an artifact of success, rather than the cause of that success. If you look at UCSD Connect in San Diego, they really got going in the early '90s. And the key events that formed that cluster in the late '80s, '85 to '89, is when most of those big companies, the companies that came out of Hybritech, were formed primarily through that network. And then the people in that network came up with this idea, 'We don’t have a lot of trained people around here. Let's work with UCSD to have a good extension program. We don’t have a good investor's conference. We don't have a good networking thing.' So they created it, and that certainly helped speed up the further development of the cluster. But the critical mass they needed to get going was formed before that.

These events are important, and they create liquidity in the market, in the networking sense of, more people know each other and opportunities can be more realized. But in terms of the core events of forming companies and getting them funded, and convincing people to move here or leave jobs and work in those companies, I just don’t think they do that. I think it's not their role. The less government thinks that the role of associations is to be a stimulus of economic development, the better.

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What effect will California's ongoing budget problems have on the development of a biocluster in LA?

The most direct one is that there's less money for university research, and in the medium term, that's going to affect the amount of science that's being commercialized. I also think fewer people are being trained, because there is higher tuition and fewer spots in the university. These are all macroeffects. Will we see the market grow or shrink for new drugs? Traditionally, the bioscience and pharmaceutical industry is not as cyclical in terms of its success or failure as some other industries. But certainly the downturn of venture capital funding is tied to the economy.

You said in the report that Los Angeles did not need large-scale infrastructure projects on the scale of a Florida or Colorado. Even if it did, doesn't the state's budget squeeze preclude that from happening in California?

My perspective is, we've got a lot here already. Caltech is a huge campus, and they're doing mostly science and engineering. It's not as big as MIT, but it's still pretty big. UCLA is a massive university. UC Irvine — I went to undergrad there, and the place is twice as big as when I went there 15 to 20 years ago. We've got a pretty good complex of institutes, but I would never say that more isn’t better, because it is. There's not a lot of evidence that the Florida experiments have created the type of spillovers in biotech that I think people expect. I think they're going to create some great science there — the integrated genomics stuff that Scripps is doing, it's all well and fine. But there's no definite, real reason to expect that that's necessarily going to create spillovers into a biotech cluster, because it hasn't in a lot of other areas where they've created some other big, big science investments. I think you need to have other things happen. You need to have a community of entrepreneurs and managers that can take on technologies developed in these big projects, and incubate them, and moreover, get them funded. That ancillary community doesn't necessarily develop through high science developments.

Your report also said it was unlikely that LA's biotech and medical device industries will amalgamate into a common cluster. Can you explain why?

That is a lot of people's expectation today. I definitely think that that's one of the most promising spillover kinds of things. I think the VC community could plausibly get invested in both. One thing that's really good is that you have a number of pretty successful, broadly biomedical device VCs down in Orange County. And 15 years ago, you didn't. But I think if you look at the regulatory process surrounding devices, getting a [premarket approval] to get a medical device on the market is totally different than going to the FDA for a new drug. If you look at the commercialization strategies and medical devices, they are a whole lot faster. Most of these devices have predicate devices, so they don’t need regulatory approval at all. And many of these companies end up getting bought by device and instrument companies, and they do a lot of the commercialization. They're a bit less risky from that point of view.

Also, the historical trends on the device industry shows that the inventors and the university doctors, and surgeons, those who come up with the new techniques, their reliance on primarily university science projects as a source of ideas is different. So I think the dynamics around that industry are, in a sense, more favorable and more attractive to short-term successful startups than the high-risk, high-reward bioscience industry. And I think the labor markets, they tend to create around them, although the overlaps aren't necessarily the same.

Doesn't that lack of amalgamation hurt the region, or at least force biotech and med device to grow up more separately, as a result — drug development in LA, med devices in Orange County?

I would say the more, the better. Southern California Edison just hired me to write a much broader, shorter profile of the bioscience industry in LA. The [just-released] report focuses on pharmaceuticals. If you look at the industry as a whole here, there's a pretty big device industry. There are about 450 companies, and about 250 of them are device companies. The other big sector you get here is diagnostics. You've got Beckman Coulter here. Again, it's not the same industry as drug discovery, but there are strong linkages. The therapeutics industry here, except for Amgen, and Allergen, and then some generics companies, is just much weaker. I don’t think those other industries are going to necessarily provide the bootstraps that are going to be used to pull up traditional biotech. But I also think they're good in providing a broader marketplace for mundane things.

When I was doing some interviews for this project, the thing that surprised me is, when you asked entrepreneurs what they wanted, and what they get better down in San Diego, the key thing is the labor market. But after that, a lot of them talk about how this is an easier market to find lab space that could be leased on the short term, without a lot of investment and reoutfitting. There's a big market for that down in San Diego, and around here, there's not. There are just not a lot of companies moving in and out of facilities, who are crashing and burning and creating a market for [biotech]. I think the more activity you have, period, especially startup type activity, where you have more entrepreneurial companies, the better. I think it's going to help.

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