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Silicon Valley Pharma Employment Grew 32 Percent Between '01 and '08, New US Gov't Report Shows

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By Alex Philippidis

San Francisco and five nearby counties saw a nearly 32-percent increase in the number of private-sector pharmaceutical jobs, and a 26-percent jump in private "scientific research" jobs largely in the life sciences, between 2001 and 2008, according to the inaugural annual series of employment reports released recently by the US Bureau of Labor Statistics.

Pharma and scientific research were two of three tech specialties that enjoyed job gains in the region, in addition to gains in average annual wages, during the period, even as the overall number of tech jobs in 11 specialties slid by 16.5 percent as measured by the BLS in After the Dot-Com Bubble: Silicon Valley High-Tech Employment and Wages in 2001 and 2008.

The report defined "Silicon Valley" as the city and county of San Francisco, as well as the counties of Alameda, Contra Costa, San Mateo, Santa Cruz, and Santa Clara. Santa Clara — which includes the cities of San Jose, Mountain View, and Palo Alto — accounts for more than half of the region's number of high-tech jobs, according to BLS.

Not measured by the report were job and wage trends in the region's government laboratories that carry out life-sciences research — which in the Bay Area would include Lawrence Berkeley National Laboratory and the Joint BioEnergy Institute and Joint Genome Institute, which are led by the Berkeley lab.

A revision of the study that would also cover public-sector tech jobs is being researched, and is set to be published in the bureau's Monthly Labor Review "within probably the next month or two," Amar Mann, a regional economist based at BLS' San Francisco regional office and a co-author of the report, told BioRegion News.

The bureau plans to carry out similar studies of private- and public-sector tech workers annually after this year, said Mann, who co-authored the study with Tony Nunes, an economist also at BLS' San Francisco office. The study to be released in 2010 will not only "look at the '01 to '08 period, but then also look at the '08 and '09 period as well," allowing for more detailed review of what effect the weakened economy of the past year has had on tech employment within the Silicon Valley study area.

After the Dot-Com Bubble offers some preliminary observations about overall tech employment in the months since the economic slump began last fall: The number of jobs in the region rose 2.5 percent, or about 10,00 jobs, during the 12 months of 2008, though wages dipped by 1.5 percent.

"It could be that companies have been hiring more lower and middle wage workers, or more entry-level workers," while the wage decline likely reflects the plunge in the value of stock options paid to tech executives, especially after the financial market meltdown of last fall, Mann said.

He added that pharma and scientific research were among top categories for job growth last year — while the report cautioned that last year's overall tech employment rise may not be repeated this year given the weak economy.

"Recent data trends from less detailed sample-based data and anecdotal evidence suggest that high-tech employment in the Silicon Valley has declined thus far in 2009," the report stated.

Also unmeasured by the report were the number and wages of jobs by employees in academic institutions that pertain to the life sciences. Those jobs are counted under a separate category covering all education employment, though professors who headed spinout companies would have been counted in their business roles, Richard Holden, commissioner of BLS' San Francisco regional office, told BRN.

Even without measuring academic and government life-sci employment, Mann and Holden said, the study showed how the region has grown to rely on a growing life sciences industry to generate jobs during a period where Silicon Valley's traditional economic and innovation engines — the semiconductor, communication equipment, software, and information technology industries — declined in the years following the 2000 dot-com meltdown, which plunged the US economy a year later into a recession that was milder than the current downturn.

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"Perhaps the biggest winner since the dot-com bubble bust happened in the Silicon Valley has been biotech, and biotech research, and pharmaceutical research as well," Mann told BRN.

According to the BLS study, the number of pharma jobs grew by 31.6 percent, rising from 11,189 in 2001 to 14,728 in 2008. Scientific research positions grew by 26 percent, from 40,756 to 51,361.

Consolidation a 'Challenge'

But Silicon Valley, and the broader San Francisco Bay Area, will be challenged to sustain that level of job growth over the next few years by the ongoing wave of mergers and acquisitions that have consolidated several of the world's pharmaceutical giants and many biotechs that have begun in the region, Mann and Holden agreed.

Earlier this year, Roche completed its $47 billion acquisition of South San Francisco.-based Genentech. The combined company, which will retain the Genentech name in the US, has notified California officials under the Worker Adjustment and Retraining Notification Act that between July 1 and the end of this year it will lay off a combined 302 employees based at the Roche R&D campus in Palo Alto, which the company has said it will shut down next year.

The company has also notified the state it will lay off 109 employees based at the South San Francisco campus of Genentech — representing less than 1 percent of its 8,250 Bay Area employees, a proportion company spokespeople have cited in numerous local news reports.

"It's certainly possible that [consolidation] would be a challenge in our region when we have those kinds of activities," Holden told BRN.

Job losses from Roche may grow if the company decides to consolidate its research activity outside the Bay Area, whether in the Boston/Cambridge, Mass., region, or elsewhere, Ross DeVol, director of regional economics and of the Center for Health Economics at the Milken Institute in Santa Monica, Calif., said in an interview this week.

"They're talking about where they might consolidate operations, or whether they might want to keep Genentech somewhat isolated from the larger parent company. Those are strategic decisions that Roche is going through right now. We know that they're looking around," DeVol told BRN.

WARN notices on file with California's Employment Development Department also show layoffs by a handful of life-sci companies, ranging from 89 let go by Nanogen as of July 14, to 19 planned by Elan's South San Francisco offices for Oct. 30.

Despite the layoff notices, Mann said, "certainly thus far, the biotech sector, even in this recurrent economic climate, is still thriving in the Silicon Valley."

"While there are some potential concerns as a result of consolidation and mergers and acquisitions, thus far we really have not seen a slowdown in terms of the strength of [the life sciences] industries, and the demand for their products, and the demand for highly skilled workers to work in those industries," Mann said. "It's still a very hot area, and a key source, of not only many jobs, but also many high-paying jobs."

According to the BLS report, average annual wages for pharma jobs in Silicon Valley rose 47 percent between 2001 and 2008, or from $94,100 to $138,348. However, wages in the scientific research category in the region jumped by 72.1 percent, from $90,347 in 2001 to $155,511 last year, the BLS data showed

Those jumps exceed the overall 36-percent increase in wages — from $97,344
in 2001 to $132,351 in '08 — recorded for all 11 tech specialties measured in the BLS report. The largest increase was that of scientific research; the lowest increase, at 21.5 percent, was recorded for semiconductor manufacturing, where average annual wages rose from $72,202 to $92,895.

Across all establishments in the area, the BLS noted, average annual
Wages in Silicon Valley rose only 21.7 percent.

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Mann and Holden said one key factor behind these gains is the presence of Stanford University, the University of California, Berkeley, and several other research-focused academic institutions engaged in commercializing faculty-driven research. However, the report did not study how many jobs came from startups and how many from established corporate giants.

A VC Shift

Pharma research employment, Mann said, grew along with the life-sci industry because of the anticipation that demand for drugs will grow as the US population ages. Another factor in the pharma and scientific research job gains, he and Holden said, was the shift by tech-oriented venture capitalists to investments in biotechnology, pharmaceutical, and medical device startups.

According to the quarterly MoneyTree Report, issued by PricewaterhouseCoopers and the National Venture Capital Association using data from Thomson Reuters, investment in biotech companies in the Silicon Valley region nearly doubled between 2001 and 2008, from $747 million in 54 deals to $1.4 billion in 101 deals.

Semiconductor investment, on the other hand, dipped almost 22 percent during the period, from almost $1.2 billion in 2001 to $915 million last year, even as the number of deals actually increased from 93 to 95. Another longtime Silicon Valley industry, computer manufacturing, saw VC investment plunge to $227 million in 2008 from $272 million in 2001, though the number of deals rose from 25 to 32.

According to Milken's DeVol, Silicon Valley this year has been hard hit by sharp drops in VC investment in information technology and communications equipment, defined as the manufacturing of telephone apparatus, radio and television broadcasting equipment, and wireless communications equipment.

Those observations are borne out by MoneyTree data. The first six months of this year saw a total $65 million invested in18 telecom deals, just a fraction of the $503 million in 59 deals generated between January and June of 2008, and $893 million in 75 deals in 1H '01. The value of IT deals has slid in recent years, to $150 million in 30 deals during the first half of 2009, compared with $450 million in 44 deals in 1H '08, and $658 million in 53 deals in the first six months of 2001.

"After the financial crisis hit, and we went into the really severe part of the recession in the fourth quarter last year, businesses were deferring all IT investment that they could. That hits everything from routers and switches, to software that gets put up to operate the network, as well as chips and computers," leading to a quiet wave of layoffs, DeVol said.

The biotech sector has not been immune to the VC drop-off. MoneyTree recorded $396 million in 33 life-sci deals during the first half of this year, compared with $503 million in 48 deals in the year-ago period, but better than the $388 million in 28 deals recorded during the first six months of 2001.

"A lot of young companies out there are struggling to keep afloat in biotech, because access to early-stage risk capital has really dried up. The institutional investors are not placing any investments in funds, and many of them have had a lot of difficulty getting additional rounds of funding," DeVol said. "So far, it hasn't really resulted in a dramatic decline in employment for biotechs, although my sense is it's about to happen because most of them have been trying to bootstrap their way through [the economic slump]. Trying friends and family only lasts so long."

That, according to DeVol, has prompted early-stage life-sci companies to scramble to make deals with biotech and pharma giants.

"I've had several tell me that they were ready to hand over a compound to a large pharamceutical company without any upfront payment, no milestones, only some royalty rate if it got to market," DeVol said. "That's an indication that [these are] people who have been working on particular compounds for years, and they feel that they're fairly close [to succeeding], and they don't want to see it die because they can't get access to capital."

According to the BLS, aerospace jobs grew the fastest of any tech category, up nearly 50 percent from 8,349 to 12,503. The jump reflects the surge in activity wrought by the wars in Afghanistan, Iraq, and other areas where the US has committed troops to fight global terrorism. Mann noted, however, that aerospace was the smallest of the 11 high-tech sectors examined by the BLS report.

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By contrast:

• Communication equipment manufacturing employment fell by the largest percentage, 40.7 percent, from 19,524 to 11,583 jobs.
• Semiconductor manufacturing lost the greater number of jobs, 29,932 or 34.2 percent, sliding from 87,424 to 57,490 jobs.
• Control instrument manufacturing decreased 30.6 percent from 39,710 to 27,541 jobs.
• Jobs in the Internet, telecommunications and data processing sectors dropped by a combined 26 percent from 67,317 to 49,810 jobs.
• Computer equipment manufacturing, down 25.8 percent from 57,833 to 42,893 jobs.
• Software publishing, down 21.8 percent from 32,801 to 25,661 jobs.
• Architecture, down 13.8 percent from 49,897 to 43,032 jobs.
• Computer system design, which accounted for the greatest number of jobs in 2001 and 2008, fell 7.4 percent during the period, from 107,163, to 99,224 jobs.

The declines in numbers of manufacturing jobs, Mann said, reflect the continued migration of production jobs overseas to Asia and other regions with much lower wages than those paid in the Bay Area.

But many of the Silicon Valley companies that have sent jobs overseas appear to have kept higher-paid managers in the regions, judging by gains in the average annual wages recorded by four manufacturing categories. Control instrument manufacturing wages rose the most at 38.7 percent, to $120,952 in 2008, while semiconductor manufacturing rose the least at 21.5 percent, to $113,092 in 2008.

"A lot of the lower and middle-wage jobs that could be done through automation, or done much cheaply elsewhere, I think companies have made those moves. A lot of companies moved certain tasks, part of their production somewhere else entirely, either outside the state or outside the country," Mann said.

And while the number of Internet/telecom/data processing jobs rose, the increase was almost entirely due to Internet publishing job jumps, especially by Google, which is headquartered in Mountain View. The region saw declines in telecom and data processing jobs between 2001 and 2008, Mann added.

The overall number of high-tech jobs counted by BLS fell by 86,137, to 435,826 in 2008 from 521,963 in 2001.

"It's surprisingly positive on aerospace, which is good news for the Silicon Valley. As for the rest, it all leads to conclusions that would be as we'd expect for the leading region in innovation in the United States," said Matthew Gardner, president and CEO of BayBio, the life sciences industry group for the Bay Area and northern California.

The BLS study comes two months after the nonprofit Milken Institute released its own study concluding that part of the "Silicon Valley" area studied by BLS — the region anchored by the cities of San Jose, Sunnyvale, and Santa Clara — led all other metropolitan regions in North America in the breadth and scope of its tech-based economic activity in 2007, on the strength of a concentration of life-sci and other tech businesses that is 4.5 times the average for all North American metro areas.

The region topped a group of 393 regions studied by Milken in North America's High-Tech Economy: The Geography of Knowledge-Based Industries, and thus assigned the top score of 100, based on employment and wages within 19 high-tech industries, as well as the concentration of technology in the local economy and each metro's relative share of aggregate North American activity.

The 19 industries included three life-sci categories:

• Pharmaceutical and medicine manufacturing — San Francisco-San Mateo-Redwood City placed ninth, with regions housing traditional pharma companies ranking higher; Illinois' Lake County and Wisconsin's Kenosha County comprised the region with the highest ranking
• Medical equipment and supplies manufacturing — San Jose-Sunnyvale-Santa Clara ranked 10th, with Mexico's Baja California topping the list.
• Scientific research and development services — San Jose-Sunnyvale-Santa Clara ranked third, with another California region, San Diego-Carlsbad-San Marcos, on top.

San Jose-Sunnyvale-Santa Clara commands the highest share of wages paid to tech employees in North American, a nearly 5.7 percent share based on combined wages of about $36.6 billion to the region's tech work force of 244,040. Springfield, Ohio, finished last.

Milken ranked 10th the remainder of the area studied by BLS, namely the region anchored by the cities of San Francisco, San Mateo, and Redwood City, with a score of 16.1 for 2007. The last time Milken ranked the nation's regions for tech activity in 2003, the San Francisco cluster of cities finished eighth, with San Jose-Sunnyvale-Santa Clara topping the list of regions.

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