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San Diego ranks No. 1 in life sciences employment, with 4.8 percent of its local labor pool working in life sciences. That’s more than twice the density of biotech workers in the San Francisco Bay Area, which only has 2.3 percent of its workers engaged in life sciences, according to BLS data.
But that’s not the right way to look at a local labor market. That statistic serves to penalize the Bay Area for being a larger, more diversified regional economy with thousands of people working at Apple, Google, Intel and more.
The data only goes downhill from there. San Diego absolutely crushes San Francisco on the “number of life sciences establishments” ranking No. 3 overall, compared to the Bay Area’s seemingly pathetic ranking at No. 13. The victories in those categories—which are never thoroughly defined in the report—are part of what propelled San Diego ahead. Again, the authors chose to look at the percentage of local businesses that are involved in life sciences, not the total number of life sciences companies, where the Bay Area would score much higher.
Then, you might ask, what about venture capital? Surely the San Francisco Bay Area, home of Sand Hill Road, must trounce a VC desert like San Diego, right? Not really, by this analysis. San Francisco, indeed, was miles ahead of every other region in biotech venture financing, with $2.37 billion of support, according to 2011 data from PwC’s MoneyTree report. San Diego came in way behind at $602 million.
But even though the gap was enormous in real terms, San Diego ended up as the No. 3 overall region, so still secured a respectable 15.1 points compared with 25 points San Francisco got on the weighted average scoring system used by the authors.
The same story held true with NIH funding—San Francisco was far ahead of San Diego in real dollars ($1.37 billion to $872 million), but the weighted average system used in this report made the gap look narrow (17.9 weighted points for San Francisco’s third-place finish, compared with 14 weighted points for San Diego’s eighth-place position).
To be fair to the authors, this isn’t the worst report I’ve ever seen on regional biotech clusters. Back in 2004, the Milken Institute infamously ranked San Diego as the nation’s No. 1 biotech hub. Where did they go wrong? They gathered data that divided the San Francisco Bay Area (truly one sprawling, but united, region) into three different metropolitan statistical areas (San Francisco, San Jose, and Oakland).
That analysis made San Diego look bigger than San Francisco. But was it bigger than the entire Bay Area biotech cluster? No way.
Other reports suffer from regional bias, or political bias. California biotech boosters often like to pool all of their regions together to show how much bigger and more vibrant the Golden State is than Massachusetts or New York. It’s a fundamentally misleading way to look at the question of regional biotech clusters, partly because California is so much bigger, with 38 million people, compared with 6.6 million in Massachusetts.
Beyond that, the San Francisco Bay Area and San Diego may be in the same state, but they are different places with different cultures and regional economies, just like Boston and New York.
The problem is really with the measurements the authors used to measure overall activity in a life sciences cluster.
Now, I’m not an economist or statistician. But just on my own, I’ve thought of 15 criteria that I think could be used to provide a reasonable ranking system for regional biotech hubs. Naturally, every effort should be made to gather data that’s truly regional, and not just a crude statewide measurement that would, say, lump together different places like San Francisco, Los Angeles, and San Diego into one uber-region.
Here are the criteria I think are worth measuring:
1. Number of public life sciences companies
2. Number of private life sciences companies
3. National Institutes of Health funding
4. R&D spending at public life sciences companies
5. Number of patents issued per capita
6. Total life sciences employment
7. Public life sciences company revenues
8. Public life sciences company profits
9. Total venture capital dollars invested
10. Venture capital allocated for early stage/seed investments
11. Number of life science startups formed each year
12. Rate at which local scientific institutions are cited by other scientists
13. Number of qualified service providers, such as contract research organizations
14. A composite measure of the employer base. The highest marks would go to regions with a diverse mix of nonprofit research centers, startups, small public companies, large public companies, and Big Pharma operations, as well as jobs for people with scientific and business skills.
15. Number of FDA-approved drugs, devices, and diagnostics discovered in the region.
[UPDATED With additional criteria suggested by readers:]
16. The 5-year survival rate of biotech startups
17.The ratio of new companies started vs. the # of employees in the cluster. (A measure of a region’s entrepreneurial spirit.)
18. The total number of seasoned, VC-backed biotech entrepreneurs. (A measure of a region’s entrepreneurial depth).
The annual Ernst & Young “Beyond Borders” report, in my view, comes closest to an accurate portrayal of regional biotech clusters in one of its appendixes. But it doesn’t cover all of these criteria listed above.
At this point, you might say, “Ah, who cares about some flawed report by a real estate firm that’s just out trotted out some fancy charts and graphs in an effort to drum up more business?” But misinformation can cause people to jump to all kinds of misleading conclusions, and make bad decisions.
Just for a quick reality check with someone in the trenches, I spoke Friday with Kleanthis Xanthopoulos, the CEO of San Diego-based Regulus Therapeutics (NASDAQ: RGLS). He’s a proud San Diegan, and a member of the board of BIOCOM, the local life sciences trade association.
He had heard about the Jones Lang LaSalle report, and dismissed it out of hand when he heard it put San Diego No. 2. But Xanthopoulos didn’t quite want to ignore it, either. He worries that such regional bioscience rankings can create a sense of complacency. “That’s my great fear,” he says.
San Diego certainly has some great research centers, terrific entrepreneurs, and some Big Pharma outposts that do important early stage R&D. It has the top two makers of DNA sequencers, in Illumina (NASDAQ: ILMN) and Life Technologies (NASDAQ: LIFE).
But its most successful biopharmaceutical companies have gotten acquired, so it hasn’t been able to build a home-grown biopharmaceutical company that plays the role of regional “anchor tenant” like Biogen Idec (NASDAQ: BIIB) and Genzyme have historically in Boston. Genentech and Gilead Sciences (NASDAQ: GILD) have played a similar role for a long time in the Bay Area.
San Diego does clearly have a talented biotech workforce, at least for R&D functions. Regulus, which now has 75 employees, has been able to grow almost entirely by tapping talented people from the local area, Xanthopoulos says. Talented CEOs and sales and marketing people can be recruited to San Diego because of its high quality of life and tight-knit biotech community, Xanthopoulos says.
Still, there are some weaknesses. San Diego, even though it’s the sixth-largest city in the U.S., has an airport that reminds me of where I grew up near Madison, WI. You can only hop one daily non-stop flight from there to Boston on Jetblue. If that flight won’t do, you have to connect through LAX if you’re a serious business traveler with places to go and people to see in the big leagues of biopharma.
“It’s ridiculous,” Xanthopoulos says.
Things like that might seem small, but if a region is really committed to raising its game as a biotech center, it needs to take a realistic look at how it stacks up. Just because someone cheers “We’re No.2!” loudly on social media doesn’t make it so. It might actually make some regions sit on their laurels, and fail to do basic things to stay competitive. Think about that the next time someone passes along a flawed ranking of U.S. biotech clusters.
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